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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MEDAR, INC
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(Name of Registrant as Specified in Its Charter)
MEDAR, INC
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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MEDAR, INC.
38700 GRAND RIVER AVENUE
FARMINGTON HILLS, MICHIGAN 48335
May 25, 1999
To Our Shareholders:
The accompanying Proxy Statement requests, among other items, your vote for
approval to sell the assets of the Welding Division of Medar, Inc. to a wholly
owned subsidiary of Weltronic/Technitron, Inc. of Carol Stream, Illinois.
Weltronic is a competitor of Medar in the welding business. This is a major
change for our Company that deserves your attention.
Medar has been involved in both the vision and welding markets for a number
of years. We believe that to effectively compete in these markets a company must
have global capabilities. Medar does not have the financial resources to
accomplish this task in both markets.
As a result of this concern, last fall we interviewed several investment
bankers and appointed NatCity Investments, Inc. to investigate the possibility
of selling the Welding Division. We felt that if sufficient cash could be raised
from this sale, we could pay off our debt and leave the Company with resources
to continue the development and to aid in the marketing of our key vision
products. The professionals from NatCity concluded that a sale of the Welding
Division could be accomplished.
In January, I met with the President of Weltronic to discuss certain
technology licensing matters. At that time, Weltronic asked if they could make
an offer to purchase the assets of Medar's Welding Division. Following a series
of meetings with our officers and advisors and representatives of Weltronic, we
received an offer that met our business objectives. This offer provides
sufficient cash to allow us to pay our current debt, with the exception of a
small mortgage on our headquarters building. It also contractually provides us
with a stream of cash payments from a note and other obligations of Weltronic
that will help us meet our needs for cash over the next four years. On April 28,
1999, our Board of Directors unanimously approved this transaction and
recommends that it be approved by the shareholders.
As over $10 million of the proceeds from the proposed sale will be in the
form of deferred payments from Weltronic, the ultimate success of the
transaction will not be known until the payments are collected. We have studied
Weltronic's business plan and forecasts and, while nothing can ever be
guaranteed, we believe that they have good chance for success. They are
combining two profitable operations that will give them a significant position
in the United States welding controls market.
With the sale of the Welding Division, the Company will concentrate
entirely on our vision inspection line of products. Our strategy will be to
concentrate on market segments where we can sell software enabled vision
technology that can be highly integrated with manufacturing equipment. Our goal
is to integrate our software with other manufacturers' successful products and
to participate in the growth of their technologies. We believe we can develop a
successful business from this strategy.
On a personal note, I started the welding business in a basement almost 30
years ago. Many of the people who will go on to contribute to Weltronic's
success have been associates of mine for 15 to 20 years. I support this sale
because I believe it is best for both of our businesses, our Shareholders and
our employees. I believe our resulting company, to be named Integral Vision,
Inc., will be a significant player in the machine vision market. I hope to get
your support for this asset sale.
Sincerely,
Charles J. Drake
Chairman and CEO
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Medar, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of Medar,
Inc., a Michigan corporation, (the "Company") will be held at the corporate
offices, 38700 Grand River Avenue, Farmington Hills, Michigan 48335, on June 28,
1999, at 4:00 p.m. local time for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To approve the sale of the assets of the Company's Welding Division (the
"Asset Sale") pursuant to an Asset Purchase Agreement dated April 28,
1999 (the "Asset Purchase Agreement") among the Company,
Weltronic/Technitron, Inc. ("Weltronic") and MIAC Acquisition, Inc., a
wholly-owned subsidiary of Weltronic ("MIAC"). A copy of the Asset
Purchase Agreement with certain exhibits is attached to this Proxy
Statement as Appendix A;
2. To approve an amendment to the Company's Articles of Incorporation to
change the Company's name to Integral Vision, Inc. immediately following
the consummation of the Asset Sale. A copy of the proposed amendment is
attached as Appendix B to this Proxy Statement;
3. To authorize adjournment or postponement of the Annual Meeting for up to
30 days to continue soliciting proxies, if necessary to obtain
Shareholder votes sufficient to approve the foregoing proposals;
4. To elect six directors;
5. To approve a new stock option plan authorizing the issuance of up to
500,000 shares of Common Stock on which qualified and nonqualified
options may be granted; and
6. To transact such other business as may properly come before the meeting,
or any postponement or adjournment thereof.
In accordance with the Bylaws of the Company and a resolution of the Board of
Directors, the record date for the meeting has been fixed at May 21, 1999 (the
"Record Date"). Only Shareholders of record at the close of business on that
date will be entitled to vote at the meeting.
By Order of the Board of Directors
Max A. Coon
Secretary
Farmington Hills, Michigan
May 25, 1999
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE AND SIGN THE ENCLOSED PROXY FORM, INDICATE YOUR CHOICE
WITH RESPECT TO THE MATTERS TO BE VOTED UPON, AND PROMPTLY RETURN YOUR PROXY SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT
THE PRESENCE OF A QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR SIGNED PROXY,
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, WILL AID THE COMPANY IN REDUCING
THE EXPENSE OF ADDITIONAL PROXY SOLICITATION. THE GIVING OF SUCH PROXY DOES NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
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PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Medar, Inc. (the "Company" or
"Medar") for use at the Annual Meeting of Shareholders of the Company to be held
at the corporate offices, 38700 Grand River Avenue, Farmington Hills, Michigan
48335, on June 28, 1999 at 4:00 p.m., local time, or any postponement or
adjournment thereof. This Proxy Statement is being mailed on or about May 25,
1999 to all holders of record of Common Stock of the Company as of the close of
business on May 21, 1999.
The purpose of this Annual Meeting of Shareholders is: to approve the sale
of the assets (the "Asset Sale") of the Company's resistance welding controls
division (the "Welding Division"); to approve an amendment to the Company's
Articles of Incorporation to change the Company's name to Integral Vision, Inc.
after the Asset Sale (the "Corporate Name Change"); to authorize an adjournment
or postponement of the meeting for up to 30 days to continue soliciting proxies
if there are not sufficient votes at the time of the Annual Meeting to approve
the Asset Sale or the Corporate Name Change (the "Adjournment Proposal"); to
elect directors; to approve a new stock option plan; and to transact such other
business as may properly come before the meeting.
Common Stock with no par value is the only voting stock of the Company.
Holders of record at the close of business on May 21, 1999 are entitled to one
vote for each share held. As of May 21, 1999, the Company had 9,024,901 shares
outstanding. Shareholders entitled to vote at the meeting do not have cumulative
voting rights with respect to the election of directors.
All shares represented by proxies will be voted "FOR" each of the matters
recommended by the Company's Board of Directors unless the Shareholder, or his
duly authorized representative, specifies otherwise or unless the proxy is
revoked. Any Shareholder who executes a proxy may revoke it before it is
exercised, provided written notice of such revocation is received at the office
of the Company in Farmington Hills, Michigan at least twenty-four (24) hours
before the commencement of the meeting, or provided the grantor of the proxy is
present at the meeting and, having been recognized by the presiding officer,
announces such revocation in open meeting. All Shareholders are encouraged to
date and sign the enclosed proxy form, indicate your choice with respect to the
matters to be voted upon and return it to the Company.
Directors are elected by plurality vote, meaning that the six persons
receiving the most votes at the meeting, assuming a quorum is present, are
elected as directors of the Company. The proposal to adopt a new stock option
plan and most corporate governance actions other than elections of directors,
including the Adjournment Proposal, are approved by a majority of the votes
cast. However, the proposals to approve the Asset Sale and the Corporate Name
Change must both be approved by the affirmative vote of holders of a majority of
the Company's issued and outstanding Common Stock. Although state law and the
Articles of Incorporation and Bylaws of the Company are silent on the issue, it
is the intent of the Company that proxies received which contain abstentions or
broker non-votes as to any matter will be included in the calculations as to the
presence of a quorum, but will not be counted as votes cast in such matter in
the calculation as to the needed majority vote. Such proxies will thus not
affect the vote on Proposed Adjournment, the election of directors or the
adoption of the new stock option plan. With respect to the proposals to approve
the Asset Sale and the Corporate Name Change, however, abstentions and broker
non-votes will have the same effect as a vote against such proposals.
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TABLE OF CONTENTS
ADDITIONAL INFORMATION...................................... 1
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS................ 1
SUMMARY..................................................... 2
The Annual Meeting........................................ 2
Time, Date and Place................................... 2
Purposes of the Meeting................................ 2
Record Date............................................ 2
Proposal 1: Approval of the Asset Sale.................... 2
The Asset Sale......................................... 2
The Company............................................ 3
Weltronic/Technitron, Inc.............................. 3
MIAC Acquisition, Inc.................................. 3
Consideration to be Received........................... 3
Use of Proceeds........................................ 4
Opinion of Financial Advisor........................... 4
Conditions to the Closing.............................. 4
The Closing............................................ 4
Accounting Treatment of the Asset Sale................. 4
Certain Tax Consequences of the Asset Sale............. 4
No Dissenter's Rights.................................. 4
Risk Factors........................................... 4
Proposal 2: Approval of Corporate Name Change............. 5
Proposal 3: Approval of Adjournment Proposal.............. 5
Proposal 4: Election of Directors......................... 5
Proposal 5: Approval of Stock Option Plan................. 5
Required Vote for the Five Proposals...................... 5
Recommendations of the Board of Directors................. 5
Selected Consolidated Financial Data of Medar, Inc........ 6
Pro Forma Financial Data.................................. 7
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS....................................... 9
RISK FACTORS................................................ 10
Risks if the Asset Sale is not Consummated................ 10
Lack of Adequate Capital............................... 10
Liquidity of the Market for the Company's Common
Stock................................................. 10
Risks if the Asset Sale is Consummated.................... 10
Weltronic's Potential Inability to Make Deferred
Payments.............................................. 10
Narrowed Focus of Company Business; Dependence Upon
Vision Technology..................................... 11
History of Losses of the Vision Division............... 11
Competition............................................ 12
PROPOSAL 1: APPROVAL OF THE ASSET SALE...................... 12
Background for the Asset Sale............................. 12
The Company's Transition to an Emphasis on Vision
Technology............................................ 12
The Company's Financial Difficulties................... 12
The Decision to Sell the Welding Division.............. 13
Reasons for the Asset Sale................................ 14
Recommendation of the Board of Directors.................. 15
Use of Proceeds........................................... 15
Plans for the Company Subsequent to the Asset Sale........ 15
Opinion of Financial Advisor.............................. 16
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Medar Trading Analysis................................. 17
Mergers and Acquisitions Market Multiple Analysis-Medar
Welding............................................... 17
Comparable Company Analysis-Medar Welding.............. 18
Comparable Transaction Analysis-Medar Welding.......... 18
Discounted Cash Flow Analysis-Medar Welding............ 19
Leveraged Transaction Analysis-Weltronic Combined...... 19
Discounted Cash Flow Analysis-Integral Vision.......... 19
Comparable Company Analysis-Integral Vision............ 20
The Parties............................................... 21
Weltronic/Technitron, Inc. and MIAC Acquisition,
Inc................................................... 21
Medar, Inc. ........................................... 22
Terms of The Asset Purchase Agreement..................... 22
Sale of Assets......................................... 22
Liabilities Assumed.................................... 22
The Purchase Price..................................... 22
Representations and Warranties......................... 23
Conduct Pending Closing................................ 23
No Solicitation........................................ 24
Employees.............................................. 24
Closing................................................ 24
Related Agreements..................................... 25
Weltronic's Financing and the Company's Related
Subordination Agreement............................... 25
Indemnification........................................ 26
Termination............................................ 27
Effect of Termination.................................. 27
Interests of Management or Directors in the Asset Sale.... 28
Accounting Treatment of the Asset Sale.................... 28
Tax Consequences.......................................... 28
Government and Regulatory Approvals....................... 28
Arm's Length Transaction.................................. 28
No Dissenters' Rights..................................... 29
Required Vote............................................. 29
Recommendation of the Board of Directors.................. 29
Business of the Company..................................... 29
General................................................... 29
Welding Control Products.................................. 29
Machine Vision Products................................... 30
Production................................................ 30
Marketing................................................. 30
Competition............................................... 31
Export Sales.............................................. 31
Other Information......................................... 31
Pro Forma Consolidated Balance Sheets of Medar, Inc......... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 35
Overview.................................................. 35
Results of Operations..................................... 35
Year Ended December 31, 1998, Compared to December 31,
1997 -- Vision Division................................ 37
Year Ended December 31, 1997, Compared to December 31,
1996 -- Vision Division................................ 38
Year Ended December 31, 1998, Compared to December 31,
1997 -- Welding Division............................... 39
Year Ended December 31, 1997, Compared to December 31,
1996 -- Welding Division............................... 39
Quarter Ended March 31, 1999, Compared to March 31,
1998................................................... 40
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Liquidity and Capital Resources........................... 40
Impact of Year 2000....................................... 41
Quantitative and Qualitative Disclosures about Market
Risks.................................................. 41
PROPOSAL 2: APPROVAL OF CORPORATE NAME CHANGE............... 42
Required Vote............................................. 42
Recommendation of the Board of Directors.................. 42
PROPOSAL 3: ADJOURNMENT OF THE ANNUAL MEETING............... 42
Required Vote............................................. 42
Recommendation of the Board of Directors.................. 42
PROPOSAL 4: ELECTION OF DIRECTORS........................... 43
Director Compensation..................................... 44
EXECUTIVE OFFICERS.......................................... 44
EXECUTIVE COMPENSATION...................................... 45
Compensation Committee Report on Executive Compensation... 45
Compensation Committee Interlocks and Insider
Participation......................................... 45
Overview and Philosophy................................ 45
Executive Officer Compensation Program................. 45
Base Salary.......................................... 45
Stock Option Program................................. 46
Deferred Compensation................................ 46
Benefits............................................. 46
Chief Executive Officer................................ 46
Summary Compensation Table................................ 47
Options................................................... 47
Transactions With Management.............................. 48
Section 16(a) Beneficial Ownership Reporting Compliance... 48
COMPARATIVE STOCK PERFORMANCE............................... 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 50
PROPOSAL 5: APPROVAL OF STOCK OPTION PLAN................... 51
Required Vote............................................. 51
Recommendation of the Board of Directors.................. 51
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS............ 51
SHAREHOLDER PROPOSALS....................................... 51
OTHER BUSINESS.............................................. 52
CONSOLIDATED FINANCIAL STATEMENTS OF MEDAR, INC. AND
SUBSIDIARIES..............................................
Annual Financial Information...........................
Report of Independent Auditors....................... F-1
Consolidated Balance Sheets -- December 31, 1998 and
1997................................................ F-2
Consolidated Statement of Operations -- Years ended
December 31, 1998, 1997 and 1996.................... F-3
Consolidated Statements of Stockholders'
Equity -- Years ended December 31, 1998, 1997 and
1996................................................ F-4
Consolidated Statements of Cash Flows -- Years ended
December 31, 1998, 1997 and 1996.................... F-5
Notes to Consolidated Financial
Statements -- December 31, 1998..................... F-6
Quarterly Financial Information (Unaudited)............
Consolidated Balance Sheets -- March 31, 1999 and
December 31, 1998................................... F-18
Consolidated Statements of Operations -- Three Months
Ended March 31, 1999 and 1998....................... F-19
Condensed Consolidated Statements of Cash
Flows -- Three Months Ended March 31, 1999 and
1998................................................ F-20
Notes to Consolidated Financial Statements
(Unaudited) -- March 31, 1999....................... F-21
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Appendix Index.............................................. A-i
Appendix A Asset Purchase Agreement......................... A-1
Exhibit A Subordinated Note............................... A-41
Exhibit E Non-Competition Agreement....................... A-43
Exhibit G Transition Services Agreement................... A-46
Exhibit I Subordination and Intercreditor Agreement...... A-50
Exhibit K Guaranty........................................ A-59
Appendix B Certificate of Amendment to Certificate of
Incorporation............................................. B-1
Appendix C Opinion of NatCity Investments, Inc.............. C-1
Appendix D Voting Agreement................................. D-1
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ADDITIONAL INFORMATION
The Company files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended. These reports and information may be read and copied at the
following SEC locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
Copies of the reports and information filed by the Company may also be
obtained by mail from the Public Reference Section of the SEC, 450 Fifth Street,
Room 1024, Washington, D.C. 20549, at prescribed rates. Further information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains a world wide web site that contains reports, proxy
statements and other information about registrants, such as the Company, that
file electronically with the SEC. The address of that web site is
http://www.sec.gov.
No one is authorized to give any information or make any representation
about the proposals contained in this Proxy Statement that is different from or
in addition to the information contained in this Proxy Statement or any of the
attached or incorporated documents. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain sections in this Proxy Statement, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Opinion of Financial Advisor," "Risk Factors," "Use of Proceeds," and "Plans
for the Company Subsequent to the Asset Sale," contain certain forward-looking
statements that are based on current beliefs, estimates and assumptions
concerning the operations, future results, and prospects of the Company and
Weltronic and the welding control and vision industries in general. All
statements that address operating performance, events or developments that are
anticipated to occur in the future, including statements related to future
sales, profits, expenses, income and earnings per share, or statements
expressing general optimism about future results, are forward-looking
statements. In addition, words such as "expects," "anticipates," "intends,"
"plans," "believes," "estimates," and variations of such words and similar
expressions are intended to identify forward-looking statements.
The statements described in the preceding paragraph constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Because these statements
are based on a number of beliefs, estimates and assumptions that could cause
actual results to materially differ from those in the forward-looking
statements, there is no assurance that forward-looking statements will prove to
be accurate.
Any number of factors could affect future operations and results, including
the following: the ability of the Company to absorb corporate overhead and other
fixed costs in order to successfully continue to develop its vision products;
the Company's success in negotiating any required new credit facilities; the
development of and fluctuations in the market for vision technology;
fluctuations in costs and expenses; the Company's ability to develop new
products to keep pace with the vision industry; the degree of the Company's
success in obtaining new contracts; dependence on key personnel; governmental
regulation; fluctuations in quarterly results; Weltronic's ability to pay its
deferred obligations to the Company; and general economic conditions, such as
the rate of employment, inflation, interest rates, and the condition of the
capital markets. This list of factors is not exclusive.
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Forward-looking statements are subject to the safe harbors created in the
Exchange Act. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be complete and is
qualified in all respects by reference to the detailed information appearing
elsewhere in this Proxy Statement and the appendices hereto.
THE ANNUAL MEETING
TIME, DATE AND PLACE The Annual Meeting will be held at 4:00 p.m.
local time on June 28, 1999, at the corporate
offices of the Company, 38700 Grand River
Avenue, Farmington Hills, Michigan 48335
PURPOSES OF THE MEETING 1. To approve the sale of the assets of the
Company's Welding Division (the "Asset Sale")
pursuant to an Asset Purchase Agreement dated
April 28, 1999 (the "Asset Purchase Agreement")
among the Company, Weltronic/Technitron, Inc.
("Weltronic") and MIAC Acquisition, Inc., a
wholly-owned subsidiary of Weltronic ("MIAC").
A copy of the Asset Purchase Agreement with
certain exhibits is attached to this Proxy
Statement as Appendix A;
2. To approve an amendment to the Company's
Articles of Incorporation to change the
Company's name to Integral Vision, Inc.
immediately following the consummation of the
Asset Sale (the "Corporate Name Change"). A
copy of the proposed amendment is attached as
Appendix B to this Proxy Statement;
3. To authorize adjournment or postponement of
the Annual Meeting for up to 30 days to
continue soliciting proxies, if necessary to
obtain Shareholder votes sufficient to approve
the foregoing proposals;
4. To elect six directors;
5. To approve a new stock option plan
authorizing the issuance of up to 500,000
shares of Common Stock on which qualified and
nonqualified options may be granted; and
6. To transact such other business as may
properly come before the meeting, or any
postponement or adjournment thereof.
RECORD DATE Shareholders of record on May 21, 1999 are
entitled to receive notice of and to vote at
the Annual Meeting (the "Record Date").
PROPOSAL 1: APPROVAL OF THE ASSET SALE
THE ASSET SALE MIAC, a wholly-owned subsidiary of Weltronic,
will purchase substantially all of the assets
of the Company's Welding Division (the "Asset
Sale"). After the sale, the Company will remain
a public company and will continue to operate
its vision products division (the "Vision
Division").
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THE COMPANY Medar, Inc. (the "Company" or "Medar") is a
Michigan corporation with principal offices
located at 38700 Grand River Avenue, Farmington
Hills, Michigan 48335. Its telephone number is
(248) 471-2660. The Company has two divisions:
the Welding Division is engaged in the business
of manufacturing and selling resistance welding
controls; and the Vision Division is engaged in
the business of manufacturing and selling
machine vision systems and development software
used to ensure product quality by monitoring
and controlling the manufacturing process.
WELTRONIC/TECHNITRON, INC. Weltronic/Technitron, Inc. is a privately owned
Delaware corporation with principal offices
located at 150 East St. Charles Street, Carol
Stream, Illinois 60188. Its telephone number is
(630) 462-8250. Weltronic is engaged in the
business of manufacturing and selling
resistance welding controls.
MIAC ACQUISITION, INC. MIAC Acquisition, Inc. is a Michigan
corporation which was formed as a wholly-owned
subsidiary of Weltronic to purchase the assets
of the Company's Welding Division. Its
principal offices and telephone number are the
same as those of Weltronic.
CONSIDERATION TO BE RECEIVED If the Asset Sale is consummated, the Company
will receive aggregate consideration of up to
$37.3 million, subject to positive or negative
adjustments to account for changes in the book
value of certain assets of the Welding Division
from December 31, 1998 to the Closing Date.
MIAC's payment and other obligations to the
Company under the Asset Purchase Agreement are
fully guaranteed by Weltronic. The total
consideration consists of the following:
-- $22 million (the "Cash Proceeds") to be
paid at Closing consisting of:
- $20,550,000 from the sale of assets,
- $1,450,000 for certain transition
services to be provided by the Company to
MIAC after the Closing Date;
-- $4.9 million of liabilities being assumed
(the "Assumed Liabilities") by MIAC,
consisting of:
- $3 million relating to payment at Closing
of certain Welding Division accounts
payable,
- $1.8 million liability to Square D
Company, payable in six annual
installments of $300,000, and
- $100,000 in warranty expense;
-- $7.4 million represented by a promissory
note payable quarterly through September
30, 2003 with interest at a floating rate
which today would be prime plus 1.25%
(the "Promissory Note"); and
-- Up to $3 million payable in installments
through March 15, 2001, contingent on
certain activity of the Welding Division
achieving agreed levels during the period
from January 1, 1999 through December 31,
2000 (the "Contingency Payments").
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USE OF PROCEEDS The Cash Proceeds will be utilized by the
Company to (i) pay its indebtedness to its bank
and subordinated debenture holders in order to
obtain the release of the liens on the assets
to be sold to MIAC, and (ii) to pay certain of
the Company's current operating liabilities. It
is anticipated that payments under the
Promissory Note and the Contingency Payments
will be used by the Company for working capital
to finance continued development of the
Company's vision products. The Company's
Shareholders will not receive any distribution
from the proceeds of the Asset Sale.
OPINION OF FINANCIAL ADVISOR NatCity Investments, Inc. ("NatCity") has
delivered its written opinion to the Board of
Directors of the Company that, as of the date
of its opinion, the consideration to be
received by the Company pursuant to the Asset
Purchase Agreement is fair, from a financial
point of view, to the Company. The opinion of
NatCity does not constitute a recommendation as
to how you should vote with respect to the
proposal to approve the Asset Sale.
CONDITIONS TO THE CLOSING The Closing of the Asset Sale is conditioned
upon approval of the Company's Shareholders
which, under Michigan law, requires the
affirmative vote of Shareholders owning a
majority of the Company's outstanding Common
Stock as of the Record Date. In addition, the
Closing of the Asset Sale is subject to the
satisfaction of certain customary conditions
including, among other things, the absence of
any material adverse change in the operations,
properties, assets, liabilities or financial
condition of the Company's Welding Division.
THE CLOSING If the Company's Shareholders approve the Asset
Sale, the closing of the Asset Sale (the
"Closing") will take place on or about June 30,
1999 or at such other time as the Company and
Weltronic may agree (the "Closing Date").
ACCOUNTING TREATMENT OF
THE ASSET SALE The transaction will be accounted for as a sale
of assets.
CERTAIN TAX CONSEQUENCES
OF THE ASSET SALE The Company will recognize a gain on the Asset
Sale, but anticipates that, for federal tax
purposes, it will have net operating losses
("NOL") available to offset such taxable gain.
However, the Company anticipates that it will
pay alternative minimum tax and state tax in
the approximate amount of $300,000. The Asset
Sale will not have a tax consequence for
Shareholders of the Company.
NO DISSENTERS' RIGHTS Under Michigan law, Shareholders do not have
dissenters' rights to receive payment for their
shares as a result of the Asset Sale.
RISK FACTORS The Asset Sale is subject to certain risks,
including risks related to MIAC's ability to
pay the Assumed Liabilities, the Promissory
Note and any Contingency Payments which become
due, and risks related to Integral Vision's
ability to succeed on a stand-alone basis. In
addition, failure to consummate the Asset Sale
is subject to certain risks, including the
Company's ability
4
13
to continue as a going concern and the risk
that the Company's Common Stock may be delisted
from the Nasdaq National Market.
PROPOSAL 2: APPROVAL OF
CORPORATE NAME CHANGE In connection with the Asset Sale, the Company
is seeking Shareholder approval to change its
corporate name to Integral Vision, Inc.
immediately following the Asset Sale. The
assets being sold to MIAC include the right to
use the name "Medar." As a consequence, the
Asset Purchase Agreement requires that the
Company change its corporate name in connection
with the Closing.
PROPOSAL 3: APPROVAL OF
ADJOURNMENT PROPOSAL To authorize adjournment or postponement of the
Annual Meeting for up to 30 days to continue
soliciting proxies, if necessary to obtain
Shareholder votes sufficient to approve the
foregoing proposals.
PROPOSAL 4: ELECTION OF
DIRECTORS Max A. Coon, Richard R. Current, Charles J.
Drake, Stephan Sharf, Vincent Shunsky and
William B. Wallace, all of whom are currently
directors of the Company, have been nominated
for election as directors until the next Annual
Meeting of Shareholders.
PROPOSAL 5: APPROVAL OF
STOCK OPTION PLAN The Company's previous stock option plans have
expired or have limited shares authorized on
which options may be granted. Therefore, the
Company is seeking Shareholder approval of a
new stock option plan authorizing the issuance
of up to 500,000 shares of Common Stock on
which qualified and nonqualified options may be
granted.
REQUIRED VOTE FOR THE FIVE
PROPOSALS The affirmative vote of the holders of a
majority of all outstanding shares of Common
Stock of the Company as of the Record Date is
required to approve the Asset Sale and the
Corporate Name Change. The affirmative vote of
a majority of the votes cast at the Annual
Meeting, if a quorum is present, is required to
approve the Adjournment Proposal and the
adoption of the stock option plan. Directors
are elected by plurality, meaning that the six
persons who receive the most votes at the
meeting, assuming a quorum is present, will be
elected as directors of the Company.
RECOMMENDATIONS OF THE BOARD
OF DIRECTORS The Board of Directors of the Company
unanimously recommends that the Shareholders
approve the Asset Sale, the Corporate Name
Change, the Adjournment Proposal, the election
of the nominees for the Board of Directors and
the stock option plan.
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SELECTED CONSOLIDATED FINANCIAL DATA OF MEDAR, INC.
The selected consolidated financial data of Medar set forth below for the
five years ended December 31, 1998 have been derived from the consolidated
financial statements of the Company. The consolidated financial statements for
the five years ended December 31, 1998 have been audited by Ernst & Young,
independent auditors. The selected consolidated financial data for the three
months ended March 31, 1998 and 1999 have been derived from unaudited
consolidated financial statements of the Company, which include all adjustments,
consisting of normal recurring accruals, which management considers necessary
for a fair presentation of the financial position and results of operations for
these periods. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements of the Company and notes thereto, and other
financial information included elsewhere herein. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of results
that may be expected for any annual or interim period or for the full year
ending December 31, 1999.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $40,218 $ 39,771 $41,471 $40,524 $ 34,813 $ 6,627 $ 8,826
Direct costs of sales............ 26,767 30,116 30,788 29,077 25,742 7,537 6,685
------- -------- ------- ------- -------- ------- -------
Gross margin..................... 13,451 9,655 10,683 11,447 9,071 (910) 2,141
Other costs and expenses:
Marketing, general and
administrative............ 6,552 8,432 7,713 6,861 7,084 1,783 1,654
Engineering and development,
net....................... 2,362 2,088 3,552 2,403 5,144 1,033 1,223
Non-recurring charges........ 665 10,333 -0- -0- 5,571 5,571
Interest..................... 52 515 1,473 2,289 2,456 632 657
Provision (credit) for income
taxes..................... 132 (130) (76) 38 0
------- -------- ------- ------- -------- ------- -------
Net earnings (loss).............. $ 3,688 $(11,583) $(1,979) $ (144) $(11,184) $(9,929) $(1,393)
Net basic earnings (loss) per
share.......................... $ 0.45 $ (1.33) $ (0.22) $ (0.02) $ (1.24) $ (1.10) $ (0.15)
Net diluted earnings (loss) per
share.......................... 0.43 (1.33) (0.22) (0.02) (1.24) (1.10) (0.15)
Shares used in the computation of
net earnings per share......... 8,524 8,692 8,820 8,897 9,025 9,025 9,025
Supplemental pro forma net loss
(a)............................ $(12,004) $(2,510)
Supplemental pro forma net loss
per share basic and diluted
(a)............................ $ (1.33) $ (0.28)
DECEMBER 31,
------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Working capital (deficit)................... $23,459 $ 18,676 $17,041 $ 3,478 $ 2,641 $(4,815)
Total assets................................ 45,523 44,392 49,793 52,606 39,813 39,894
Long-term liabilities, including current
maturities of debt........................ 2,444 16,437 21,647 24,307 21,677 21,821
Total stockholders' equity.................. 34,001 22,436 20,819 22,003 10,861 9,455
Book value per common share................. $ 3.94 $ 2.58 $ 2.35 $ 2.44 $ 1.20 $ 1.05
Pro forma book value per common share (b)... $ 1.93 $ 1.80
- -------------------------
(a) Gives effect to the Asset Sale as if it had occurred at the beginning of the
periods presented.
(b) Gives effect to the Asset Sale as if it had occurred on the balance sheet
date.
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PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Consolidated Balance Sheet data as of
December 31, 1998 and March 31, 1999 and Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1998 and the three months ended March
31, 1999 are based on the historical financial statements of the Company. The
Pro Forma Consolidated Financial data has been adjusted to reflect the Asset
Sale to MIAC resulting in consideration of $20.55 million in cash, $7.4 million
in notes, $4.9 million of Assumed Liabilities and $1.45 million in cash for
certain transition services and includes adjustments for estimated transaction
costs and the application of the net cash proceeds, as if the transaction had
taken place on December 31, 1998 or March 31, 1999, respectively. The Pro Forma
Consolidated Balance Sheet data does not reflect the Contingency Payments or
adjustments to the purchase price based on changes in accounts receivable,
inventory and costs and estimated earnings in excess of billings on incomplete
contracts between January 1, 1999 and the Closing Date. The Pro Forma
Consolidated Statements of Operations has been adjusted to reflect the Asset
Sale as if the transaction had occurred at the beginning of the periods
presented. The pro forma operating results are not necessarily indicative of the
operating results that would have been achieved had the Asset Sale actually
occurred as presented, nor do they purport to indicate the results of future
operations.
The Pro Forma Consolidated Financial data is based on the assumptions set
forth in the notes to such data and should be read in conjunction with the
Company's Financial Statements and related Notes thereto and other financial
information included elsewhere in this Proxy Statement.
PRO FORMA CONSOLIDATED BALANCE SHEET DATA
ADJUSTMENTS
FROM ASSET
HISTORICAL SALE (A) PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
DECEMBER 31, 1998:
Working capital............................................. $ 2,641 $ 421 $ 3,062
Total assets................................................ 39,813 (15,983) 23,830
Long-term liabilities, including current maturities of
debt...................................................... 21,677 (20,554) 1,123
Total stockholders' equity.................................. 10,861 6,570 17,431
MARCH 31, 1999:
Working capital (deficit)................................... $(4,815) $ 7,009 $ 2,194
Total assets................................................ 39,894 (15,696) 24,198
Long-term liabilities, including current maturities of
debt...................................................... 21,821 (20,504) 1,317
Total stockholders' equity.................................. 9,455 6,807 16,262
- -------------------------
(a) Represents effects of the Asset Sale, including the related gain as if the
Asset Sale had occurred on the balance sheet date. The adjustment to the
purchase price for accounts receivable, inventory and costs and estimated
earnings in excess of billings on incomplete contracts as of the Closing
Date of the transaction is not included in adjustments related to December
31, 1998 as the amount of the adjustment will not be known for up to 90 days
following the Closing.
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PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS OF MEDAR, INC.
ADJUSTMENTS
FROM ASSET
HISTORICAL SALE(A) PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1998:
Net revenues................................................ $ 34,813 $(25,380) $ 9,433
Direct costs of sales....................................... 25,742 (17,572) 8,170
-------- --------
Gross margin................................................ 9,071 1,263
Other costs and expenses
Marketing, general and administration..................... 7,084 (2,451) 4,633
Engineering and development, net.......................... 5,144 (1,650) 3,494
Product restructuring and other charges................... 5,571 1,346 4,225
-------- --------
Loss from operations........................................ (8,728) (11,089)
Interest.................................................... 2,456 (1,541) 915
-------- --------
Net earnings (loss)......................................... $(11,184) $(12,004)
======== ========
Net earnings (loss) per share............................... $ (1.24) $ (1.33)
THREE MONTHS ENDED MARCH 31, 1999:
Net revenues................................................ $ 8,826 $ (7,128) $ 1,698
Direct costs of sales....................................... 6,685 (4,682) 2,003
-------- --------
Gross margin................................................ 2,141 (305)
Other costs and expenses
Marketing, general and administration..................... 1,654 (535) 1,119
Engineering and development, net.......................... 1,223 (382) 841
-------- --------
Loss from operations........................................ (736) (2,265)
Interest.................................................... 657 (412) 245
-------- --------
Net earnings (loss)......................................... $ (1,393) $ (2,510)
======== ========
Net earnings (loss) per share............................... $ (0.15) $ (0.28)
- -------------------------
(a) Represents the elimination of revenues and expenses related to the Welding
Division, as if the Welding Division was sold at the beginning of the
periods presented. Excludes the gain on the Asset Sale, the collection of
the Contingency Payments, any post closing adjustments, and interest on debt
to be paid with the Cash Proceeds.
8
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MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MDXR." The following table sets forth, for the periods indicated,
the high and low sale prices per share for the Common Stock, as reported by
Nasdaq.
1997 HIGH LOW
---- ---- ---
First Quarter............................................... $7.125 $3.500
Second Quarter.............................................. $6.125 $4.625
Third Quarter............................................... $9.250 $4.875
Fourth Quarter.............................................. $8.500 $4.750
1998 HIGH LOW
---- ---- ---
First Quarter............................................... $5.500 $1.938
Second Quarter.............................................. $3.500 $1.875
Third Quarter............................................... $2.500 $1.563
Fourth Quarter.............................................. $1.813 $0.875
1999 HIGH LOW
---- ---- ---
First Quarter............................................... $2.688 $1.125
On April 28, 1999, the trading date preceding the public announcement of
the proposed Asset Sale, the high and low sale prices per share for the
Company's Common Stock, as reported by Nasdaq, were $3.00 and $2.8125,
respectively. As of the date of this Proxy Statement, there were 348 holders of
record and approximately 4,500 beneficial holders of the Common Stock. The
Company has never declared or paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for use in its business and
therefore does not anticipate paying any dividends out of earnings in the
foreseeable future. The terms of the Company's agreement with its bank also
prohibit the payment of dividends.
9
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RISK FACTORS
RISKS IF THE ASSET SALE IS NOT CONSUMMATED
Lack of Adequate Capital
The Company's present agreement with its senior lender requires that all of
the Company's senior indebtedness be repaid by June 7, 1999. This due date was
extended on one previous occasion. The Company is continually discussing its
situation with its senior lender, including the fact of the proposed Asset Sale,
and is attempting to negotiate another extension of its current credit
agreements. However, there is no assurance that the lender will provide such an
extension. At the time of the first extension, a new agreement was reached with
the Company's subordinated debenture holders to cure previously existing
defaults. The new agreement permits repayment of the subordinated debentures by
December 31, 1999 and imposes terms which are disadvantageous to the Company's
Shareholders in the event the subordinated debentures remain outstanding after
that date. In addition, the Company has experienced significant losses in the
past and incurred a loss for the quarter ended March 31, 1999. If the Company's
present lender fails to extend its financing or the cash flow requirements of
continuing to operate its business exceed its cash reserves, the Company would
require alternative financing. The Company continues to meet with potential
lenders and will continue to seek an alternative lender in the event the Asset
Sale is not consummated. There can be no assurance that such financing would be
available to the Company or, if available, could be obtained on terms acceptable
to the Company.
Liquidity of the Market for the Company's Common Stock
The Company is presently listed on the Nasdaq National Market. There are a
number of minimum requirements to maintain a listing on the Nasdaq National
Market, including a minimum per share price level of $1, a minimum market value
of the "public float" shares held by nonaffiliates of $5 million, a minimum
number of shareholders and a requirement that the Company's net tangible assets
be maintained at a minimum level of $4 million. If the Company is not able to
meet these or other requirements, its Common Stock may be removed from listing
on the Nasdaq National Market. This could result in decreased ability of the
Company's Shareholders to sell or buy the Company's Common Stock.
RISKS IF THE ASSET SALE IS CONSUMMATED
Weltronic's Potential Inability to Make Deferred Payments
Weltronic acquired substantially all of the assets of the resistance
welding division (the "Robotron Division") of Robotron Corporation on March 5,
1999 in a transaction similar to the Asset Sale, and is acquiring the Welding
Division in this transaction. As a result, there is a risk that Weltronic will
not be able to effectively integrate the operations of Robotron and the Welding
Division with its existing operations. Also, as a result of these acquisitions,
Weltronic will be substantially dependent upon the cyclical automobile industry
and upon its largest customers, Ford Motor Company, General Motors Corporation
and DaimlerChrysler AG. Substantially all of Weltronic's assets will be pledged
to its institutional lender to secure its obligations under its Credit
Facilities, which assets will also be subject to the Company's second security
interest. Over $12.2 million of the aggregate consideration to be received by
the Company pursuant to the terms of the Asset Purchase Agreement is in the form
of deferred payments. Of that amount, $7.4 million is represented by the
Promissory Note, $3.0 million is represented by the Contingency Payments and
$1.8 million is represented by the Square D License payments included in the
Assumed Liabilities (collectively, the "Deferred Payments"). Weltronic's ability
to make the Deferred Payments will depend upon the success of MIAC's and
Weltronic's business operations and their ability to satisfy any other
obligations to which they are subject.
Net sales for Weltronic were approximately $14 million for the fiscal year
ended March 31, 1999. Robotron reported net sales for the Robotron Division for
the fiscal year ended February 28, 1999, of approximately $8 million. Net sales
for the Company's Welding Division for the year ended December 31, 1998, were
approximately $25 million. Based on the foregoing, the combined net sales for
Weltronic, the
10
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Robotron Division and the Welding Division for these 12 month periods were
approximately $47 million. There can be no assurance that this sales level will
be indicative of actual future sales. To finance the Asset Sale, Weltronic will
incur long-term debt to its senior lender in an amount of up to $27 million,
subordinated long-term debt with one of its shareholders of $1.75 million, and
liability for the Deferred Payments. Accordingly, Weltronic's combined
operations after the Asset Sale will be highly leveraged. As a result, there can
be no assurance that Weltronic's operations will generate sufficient cash flow
to service its obligations. If Weltronic requires additional capital in order to
timely make all Deferred Payments; there can be no assurance that such
additional capital would be available on terms acceptable to Weltronic.
The Subordination Agreement to be entered into at Closing between the
Company and Weltronic's institutional lender prohibits any portion of any
Deferred Payment from being made if the payment would cause a default under
Weltronic's credit facilities or could, in the lender's opinion, result in a
material adverse effect on Weltronic's ability to pay or perform its obligations
to the lender. The Subordination Agreement also contains "standstill" provisions
which prohibit the Company from taking any action against MIAC or Weltronic to
pursue collection of any of MIAC's unpaid obligations to the Company at any time
during which Weltronic's obligations to the lender exceed the lender's credit
advance formula. When Weltronic's obligations to the lender no longer exceed the
lender's credit advance formula, the maximum "standstill period" is six months,
after which time the Company could commence an action to enforce any past due
obligations. If MIAC fails to make any of the Deferred Payments and Weltronic
fails to make the payments pursuant to its guaranty to the Company, the Company
may not be able to enforce its rights against Weltronic under the terms of the
Subordination Agreement. In addition, in the event of the bankruptcy or
insolvency of MIAC and Weltronic, there is no assurance that any or all of the
Deferred Payments will be paid.
The Company's receipt of the Contingency Payments is subject to the
additional risk that the required levels of orders and activity may not actually
materialize within the agreed time period. Finally, although MIAC has agreed to
pay the Company's obligation to Square D Company under the Square D License, the
Company will not receive a release from Square D Company, and will therefore
remain contingently liable to Square D Company for such payments. As a result,
the Company will be required to make payments to Square D Company if MIAC and
Weltronic (pursuant to its guaranty) default on their obligations.
Narrowed Focus of Company Business; Dependence Upon Vision Technology
The sale of the Welding Division, if approved, will significantly narrow
the focus of the Company to its vision technology. Following completion of the
Asset Sale, the profitability of the Company will depend on the Company's
ability to significantly increase its revenues from vision products at
acceptable margins. There can be no assurance that the Company will be
successful in increasing such revenue at acceptable margins or if it does, that
it will become profitable. While the Company believes that its vision technology
is suited to present market conditions, there are several factors which may
offset the eventual success of these technologies. These include the risk that
demand for the Company's current products may fail to materialize and the
Company may not be able to develop new products to keep pace with changes in the
market. The Company's optical inspection equipment was developed in large part
for precise inspection of optical memory storage devices such as DVD and CD-R.
Failure of these storage technologies to gain widespread acceptance could
adversely affect the markets for the Company's products.
History of Losses of the Vision Division
Following the Asset Sale, the Company will consist solely of the operations
of the Vision Division. The Division has a history of losses. On a pro forma
basis, the Vision Division would have lost $6.4 million in 1998, excluding
restructuring and other changes. There can be no assurance that the Vision
Division will become profitable.
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20
Competition
The Vision Division competes with a number of other companies in the vision
inspection industry, several of which are larger and better capitalized. In
addition, as the market for vision products expands, it is likely that other
companies may enter the market. There is no assurance that the Company will be
able to maintain or increase its market share against these competitors.
PROPOSAL 1: APPROVAL OF THE ASSET SALE
The Shareholders are being asked to approve the Asset Sale. Approval of the
Asset Sale requires the affirmative vote of holders of a majority of the
Company's outstanding Common Stock as of the Record Date. The following
information describes the reasons the Asset Sale is being recommended and the
terms of the Asset Sale. The Board of Directors of the Company has unanimously
approved the Asset Sale and recommends that the Shareholders vote FOR the Asset
Sale.
BACKGROUND FOR THE ASSET SALE
The Company's Transition to an Emphasis on Vision Technology
For nearly 30 years, the Company has been a leader in resistance welding
controls. However, in the early 1980s the Company began to diversify its
operations into noncontact gauging and inspection in order to decrease its
dependance on the automotive industry. In 1987, the Company purchased 80% of the
stock of Automatic Inspection Devices, Inc., ("AID") a developer of machine
vision inspection systems primarily used in the packaging industry. This
acquisition gave the Company access to some of the country's most experienced
vision experts, and by 1989 the Company was selling systems for inspection of
audio and optical data storage discs in the United States and Europe. Over the
following ten years, the Company continued to expand both its welding control
and vision product lines, becoming a leader in both fields. However, as the
1990s progressed, management became convinced that the future of the Company was
primarily in the vision industry.
With the purchase of the remaining 20% of AID in 1991 and the acquisition
of Integral Vision, Ltd., a United Kingdom machine vision company in 1995, the
Company became increasingly committed to vision and much of the Company's
research and development efforts and capital were devoted to the development of
vision products. The Company has invested heavily in the technology necessary
for the inspection of DVD compact discs, but industry difficulty in adopting a
uniform format and slow consumer acceptance have delayed the Company's ability
to realize a return on its investment in DVD technology. The Company continues
to believe, however, that it could experience substantial growth if consumer
acceptance of DVD progresses as has been expected for several years. The Company
has also experienced disappointments in the slow acceptance of its VisionBlox
general purpose vision software. The Company increasingly sees itself as a
software company, and believes that the future of its vision development will be
dedicated primarily to the VisionBlox tools and its ability to perform color
recognition. However, the slower than expected growth in sales of VisionBlox and
DVD has severely hurt the Company's cash flow and liquidity.
The Company's Financial Difficulties
The Company had net losses for the years ended December 31, 1997, 1996 and
1995. 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, Company management
terminated 15% of the Company's employees. As these terminations severely
constrained resources available for product support, it was followed by an
extensive review of product offerings. As a result of this review, the Company
decided to concentrate its efforts towards products for the inspection of CD-R
and DVD discs, products based on VisionBlox technology, and certain higher
margin and better selling welding products. Despite these steps, the Company
experienced a net loss of $11,184,000
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21
(including certain adjustments and reserves related to product discontinuations)
for its year ended December 31, 1998.
The Company has a revolving credit facility with its bank which permits
borrowings of up to $10 million, which was fully utilized as of March 31, 1999,
and subordinated debentures outstanding in the principal amount of $7 million.
The agreements governing the revolving credit facility and debentures each
contain covenants requiring the Company to maintain certain levels of net worth
and debt to equity ratios. For various periods during the year, the Company was
not in compliance with these covenants. Although the Company recently negotiated
agreements with its bank and the debenture holders which amended the covenants,
as of March 31, 1999 the Company was in violation of these amended covenants. In
addition, the agreement with the bank requires that all of the Company's
indebtedness to it be paid by June 7, 1999. The Company is exploring
alternatives for financing its operations, however there is no assurance that it
will be able to secure alternative financing on terms that it can accept.
The Decision to Sell the Welding Division
As a result of the factors discussed above, in late 1998 the Company's
Board of Directors and management began to investigate the advisability of a
sale of the Welding Division. After interviewing several investment banking
firms, the Company selected NatCity Investments, Inc. ("NatCity"), to assist it
in determining the feasibility and advisability and, if pursued, the process of
selling the Welding Division. On January 7, 1999, representatives of NatCity met
with Charles J. Drake, the Company's Chief Executive Officer, Mark R. Doede, its
Chief Operating Officer, and Richard R. Current, its Chief Financial Officer, to
discuss all aspects of the Company's business and the Welding Division. Over the
course of the next ten weeks, management of the Company and NatCity conducted
due diligence and worked to prepare an offering memorandum to determine whether
there would be interest in a potential sale of the Welding Division. NatCity had
identified a number of potential buyers of the Welding Division, including
Robotron Corporation (certain assets of which were acquired by a subsidiary of
Weltronic on March 5, 1999) and Weltronic itself.
At approximately the same time, Mr. Drake contacted the President of
Weltronic, Durrell G. Miller, to discuss the possibility of Weltronic licensing
certain of the Company's technology. During the meeting, Mr. Miller indicated
that Weltronic would like to consider purchasing the Company's Welding Division.
On January 15, 1999, Mr. Miller, by letter to Mr. Drake, indicated that
Weltronic had corporate authorization to pursue an acquisition. Weltronic
executed a letter on January 28, 1999 agreeing to hold confidential any
information regarding the Company.
As the offering memorandum progressed, so did discussions with Weltronic.
On February 3, 1999, representatives of the Company, Weltronic and NatCity met
in Milwaukee to discuss the Company's financial statements and possible
transaction structures. Despite these discussions, work on the offering
memorandum continued. Beginning with a letter from Mr. Miller to Mr. Drake dated
February 22, 1999, Weltronic began to express increasing concern that the
Company was proceeding with the selling process for which the offering
memorandum was intended.
On March 9, representatives of the parties and NatCity met in Chicago to
discuss the Welding Division's products and sales in greater detail. The Company
determined to pursue discussions with Weltronic regarding the sale of the
Welding Division while continuing to prepare the offering memorandum should
negotiations with Weltronic prove disappointing. On March 16, 1999, in
Milwaukee, and by conference call on March 22, the parties, their counsel, and
representatives of Weltronic's accounting firm and NatCity began accounting due
diligence and further discussed the consideration and other terms of the
potential transaction.
On April 1, 1999, the Company presented management of Weltronic with a
proposed term sheet which formed the basis for further due diligence and
negotiations involving the parties and their advisors. The price and terms
discussed were superior to any of the prospective price ranges included in the
proposals which the Company had received from the various investment bankers it
had initially interviewed. On April 4, 1999, NatCity discussed Weltronic's
banking relationship and the potential
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22
structure and timing of its financing arrangements for the potential transaction
with Weltronic's counsel and representatives from its existing lender. On April
12, Weltronic proposed that the transaction be structured as a sale of assets to
a newly formed, wholly-owned subsidiary of Weltronic, to which the Company
responded by requesting a full guarantee of Weltronic. Weltronic negotiated the
terms of potential acquisition financing throughout the month of April, first
with several financial institutions and then with its existing lender.
Meanwhile, additional accounting and legal due diligence continued.
Over the next several weeks, there were numerous conference calls as the
parties and their counsel negotiated the provisions of the Asset Purchase
Agreement and related documents. On April 19 and 20, 1999, respectively, NatCity
representatives met first with the Company to further understand the Vision
Division's prospects, and then with Weltronic management to tour Weltronic's
Carol Stream, Illinois facility and conduct further due diligence with regard to
Weltronic's prospects after the potential acquisition. On April 23, 1999, the
Company's Board of Directors met informally to obtain information and answers to
their questions from representatives of NatCity and its counsel regarding the
potential transaction and NatCity's preliminary fairness analysis. The Board
reviewed the underlying information that supported NatCity's opinion and was
able to question representatives of NatCity regarding the negotiation, the terms
of the proposed Asset Purchase Agreement including the deferred payments and
Weltronic's expected ability to pay, and the general expectations of NatCity
regarding the sale of the Welding Division. The Board also reviewed the proposed
terms of the Asset Purchase Agreement and related documents with management and
counsel to the Company, and considered the Company's financial circumstances and
the prospects for the Vision Division going forward on a stand-alone basis.
The parties and their advisors negotiated the terms of the Asset Purchase
Agreement, the Subordination Agreement and the other related agreements for two
full days on April 26 and 27, 1999. On April 27, the Company and its advisors
also reviewed the proposed final form of Weltronic's Commitment Letter and the
Subordination Agreement proposed to be entered into at the Closing between the
Company and Weltronic's lender. NatCity, with its counsel present, again
interviewed Weltronic's banker, with Weltronic's counsel present, in order to
fully understand the terms of the Commitment Letter and form of Subordination
Agreement, as well as the anticipated final bank documents and the bank's
anticipated relationship with Weltronic after the potential acquisition.
On Wednesday, April 28, 1999, the Company's Board of Directors met,
together with their advisors, and again considered all the terms of the
potential transaction, and received the written opinion of NatCity that, as of
April 28, 1999, the consideration to be received by the Company pursuant to the
terms of the Asset Purchase Agreement is fair, from a financial point of view,
to the Company. At this meeting, the Board of Directors decided to sell the
Welding Division and unanimously approved the Asset Sale.
REASONS FOR THE ASSET SALE
In reaching its decision to approve the Asset Sale, the Board of Directors
of the Company considered the following factors:
- The Board's conviction that the Company's future lies in the vision
inspection industry;
- The fact that, despite management's best efforts, the Company continues
to face significant short and long-term liquidity needs which have
impeded achieving the Company's strategic objectives and which make
negotiating a favorable alternative transaction with another party within
a reasonable time frame unlikely;
- The structure of the financial terms of the transaction, which permit the
Company to discharge substantially all its senior and junior debt while
providing the reasonable prospect of the receipt of meaningful working
capital for its on-going operations;
- The absence of a financing contingency, and the terms of Weltronic's
anticipated bank facilities, including the Subordination Agreement, which
generally allow the future consideration to be timely paid to the Company
as long as a default under Weltronic's bank facilities is not triggered;
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- Weltronic's plans to maintain the Welding Division as an independent
entity functioning as a wholly-owned subsidiary in its current Farmington
Hills, Michigan location, with the opportunity for the current Welding
Division employees to be employed by MIAC;
- The opinion of NatCity that the consideration to be received by the
Company in the Asset Sale is fair to the Company from a financial point
of view; and
- The ability of the Company, upon the payment of a termination fee, to
terminate the Asset Purchase Agreement to accept a superior offer.
After fully considering the matter and weighing the factors described
above, as well as certain additional considerations including those reflected in
"Risk Factors," the Board of Directors concluded that on balance, the proposed
Asset Sale is fair and in the best interests of the Company and its
Shareholders.
This discussion of the information and factors considered and given weight
by the Board of Directors is not intended to be exhaustive, but is believed to
include all material factors considered by the Board of Directors. In reaching
the determination to approve and recommend that Shareholders approve the Asset
Sale, the Board of Directors did not undertake a separate analysis of each of
the factors considered, nor did it find it practical to, and it did not, assign
any relative or specific weight to any of the factors which were considered, and
individual directors may have given differing weights to different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously determined that the Asset Purchase
Agreement is advisable and fair and in the best interests of the Company and the
Shareholders of the Company. Accordingly, the Board of Directors of the Company
unanimously recommends that the Shareholders vote FOR the Asset Sale.
USE OF PROCEEDS
The Company expects to receive total consideration in connection with the
Asset Sale of up to $37.3 million. The consideration consists of $20.55 million
as partial payment for the assets at Closing, $1.45 million paid at Closing for
certain transition services to be provided by the Company, $7.4 million by
Promissory Note, up to $3 million if the Welding Division reaches certain agreed
levels of orders from and deliveries to DaimlerChrysler AG during the period
January 1, 1999 through December 31, 2000 and MIAC's assumption of $4.9 million
of the Company's liabilities related to the Welding Division. The Company will
use the $22 million of cash it receives at Closing as follows: (a) approximately
$10 million to pay the Company's revolving credit facility with its bank, (b)
$2.4 million to pay off the mortgage on the Company's Crestview facility being
sold to Weltronic, (c) $7 million to pay the subordinated debenture holders and
(d) the balance for working capital including payment of trade payables of
approximately $2 million dollars. The Promissory Note is payable quarterly, plus
interest, over the four years following the Closing Date. The Contingency
Payments, if earned, are payable in installments through March 15, 2001. The
final amount of the purchase price is subject to adjustment depending on the net
value of certain assets of the Welding Division on the Closing Date. It is
anticipated that payments on the Promissory Note and any Contingency Payments
will be used by the Company for working capital to finance continued development
of the Company's vision inspection products. The Company's Shareholders will not
receive any distribution from the proceeds of the Asset Sale.
PLANS FOR THE COMPANY SUBSEQUENT TO THE ASSET SALE
Following the Asset Sale, the Company expects to continue to pursue sales
of its vision inspection products. The nearly debt free status of the Company
after the Asset Sale, combined with the expected stream of cash payments from
MIAC, will help the Company achieve this objective.
The strategy of the Company is to seek out select market segments where
software enabled vision technology can be highly integrated with manufacturing
equipment. Target markets include optical disc inspection (DVD and CD-R), print
quality assurance ("PQA"), display inspection, and VisionBlox
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software. The Company's disc inspection products have recently been redesigned
and simplified to reduce manufacturing cost and size. DVD and CD-R markets are
currently growing and are expected to continue to grow over the next several
years. PQA was introduced in Europe by the Company in 1998 as an enhanced
version of systems used to monitor print quality on compact discs. This product
line is now offered in the U.S. as well and has been expanded to include the
plastic container industry. Sales of PQA products continue to increase as more
applications are developed in the container and packaging industries. The
Company's display inspection products are used in a growing number of
applications. The Company entered the display inspection market in 1997 with
systems to inspect the LCD displays on cellular telephones.
VisionBlox is the Company's software for providing solutions for vision
inspection needs in a wide variety of applications and industries. This software
allows tasks traditionally performed with dedicated vision hardware to be done
with software running on off-the-shelf PC's using off-the-shelf frame grabber
boards. VisionBlox software is further enhanced by the Company's recently
announced Industrial Vision Controller (IVC) software which allows entire
applications to be developed by dragging icons representing predefined steps in
the vision inspection task from a menu to a file folder. Relationships are being
formed with organizations to provide distribution for this product on a
worldwide basis.
In addition to the areas listed above, the Company expects to continue
development work on its patented color tools for use with VisionBlox. The
ability to accurately measure color regardless of intensity is expected to open
numerous applications in the vision industry. The Company also expects to
continue development of a variation of its Moire technology. This variation will
allow 3-D information to be gathered from an object without the need to move the
object or have moving parts in the imaging apparatus. This variation is expected
to greatly increase the speed of 3-D imaging, making many applications practical
that previously could not be done quickly enough.
OPINION OF FINANCIAL ADVISOR
On April 28, 1999, NatCity Investments, Inc. ("NatCity") delivered its
written opinion that, as of such date, the consideration to be received by the
Company pursuant to the terms of the Asset Purchase Agreement is fair, from a
financial point of view, to the Company.
THE FULL TEXT OF THE WRITTEN OPINION OF NATCITY SETS FORTH THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY NATCITY IN CONNECTION WITH THE OPINION, WHICH IS ATTACHED AS
APPENDIX C TO THIS PROXY STATEMENT. THE SUMMARY OF THE OPINION SET FORTH IN THIS
PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SUCH OPINION,
WHICH IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF THE COMPANY ARE URGED
TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, NatCity reviewed, among other things:
the Asset Purchase Agreement;
the form of Transition Services Agreement;
the form of Promissory Note;
the form of Guaranty of Weltronic;
the form of Non-Competition Agreement;
Weltronic's Bank Commitment Letter;
the form of Subordination and Intercreditor Agreement;
the form of Assignment and Assumption Agreement;
the Company's Annual Reports to Shareholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1998, 1997 and 1996 and
Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, June 30 and September 30, 1998 and 1997, and proxy statement
dated April 22, 1998;
historical and projected financial and other information furnished to it
by Weltronic; and certain internal financial analyses and other
information furnished to it by the Company and Weltronic.
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NatCity also:
discussed the business and prospects of the Company and Weltronic and of
the combined entity with members of the senior management of each
company;
visited the domestic manufacturing facilities of the Company and the
principal manufacturing facilities of Weltronic;
reviewed the reported price and trading activity for the Company's
Common Stock;
compared certain financial and stock market information for the Company
with similar information for comparable publicly-traded companies
identified by NatCity;
reviewed the financial terms of certain comparable recent business
combinations identified by NatCity;
discussed the Commitment Letter and form of Subordination and
Intercreditor Agreement with Weltronic and its banker; and
reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as it
deemed appropriate, including its assessment of general economic,
market, monetary and other conditions existing on the date its
opinion was delivered to the Company's Board of Directors.
NatCity relied upon and assumed the accuracy and completeness of all the
financial and other information reviewed by it for purposes of its opinion.
NatCity also relied upon the managements of the Company and Weltronic as to the
reasonableness and achievability of the financial and operating projections (and
the assumptions and bases therefor) provided to it and, with their consent,
assumed that such projections reflect the best currently available estimates and
judgments of their managements and that such projections and forecasts will be
realized in the amounts and in the time periods currently estimated by
management. NatCity has not made an independent evaluation or appraisal of the
assets and liabilities of the Company and Weltronic or any of their respective
subsidiaries and NatCity has not been furnished with any such evaluation or
appraisal. No limitations were imposed by the Company's Board of Directors or
management on the scope of NatCity's investigation or analysis. NatCity did not
determine the consideration payable to the Company. NatCity's opinion is based
upon the economic and market conditions existing on the date of its opinion.
NatCity's opinion is provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the Asset Sale.
The following is a summary of certain of the financial analyses relating to
the Welding Division and Weltronic after the Asset Sale ("Weltronic Combined")
conducted by NatCity in preparing its opinion. NatCity reviewed the assumptions
upon which such analyses were based and other factors, including the current
financial results of and future prospects for the Company and Weltronic, with
the managements of the Company and Weltronic. NatCity did not assign any
particular weight to any factor or analysis it considered in preparing its
opinion. NatCity applied certain discount rates to the components of future
consideration and the Assumed Liabilities. The present value of the
consideration to be received by the Company pursuant to the terms of the Asset
Purchase Agreement was determined to be approximately $33 million.
Medar Trading Analysis. NatCity compared the price performance of the
Company's Common Stock for the twelve months ended April 21, 1999 with the
implied share price paid by MIAC for the Welding Division. The market price of
the Company's Common Stock has ranged from a high of $3.1875 per share on May
21, 1998 to a low of $0.875 per share on December 30, 1998. The average price
per share for the twelve month period was $1.84, and the Company's Common Stock
closed at $2.50 per share on April 21, 1999. The implied share price was
calculated by dividing the consideration to be received by the Company pursuant
to the terms of the Asset Purchase Agreement by the number of shares of Common
Stock of the Company outstanding on that date. The implied share price to be
paid by MIAC for the Welding Division was calculated to be $4.06 per share.
Mergers and Acquisitions Market Multiple Analysis-Medar Welding. NatCity
also considered the total dollar volume for middle market merger and acquisition
("M&A") activity from 1995 through 1998 and for the latest twelve months
("LTM"). The middle market includes transactions ranging in volume from
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$50-250 million, and so consists of transactions which are larger than the Asset
Sale. Middle market M&A volume has steadily increased over the past four years
and, despite the volatile equity markets seen in 1998, for the LTM. NatCity
attributed this steady increase to such factors as strong corporate earnings,
low inflation and interest rates, a strong economy and increased availability of
capital. Median middle market multiples of earnings before interest, taxes and
certain nonrecurring or special items ("EBIT"), increased from 6.9 in 1995 to
9.2 in 1997, then dropped to 8.8 in 1998 as a result of the volatile public
equity and debt markets. On a LTM basis, EBIT multiples have rebounded to 11.1.
Multiplying Medar Welding's 1998 EBIT of $2.9 million by 11.1 produces an
implied valuation of $32.2 million.
Comparable Company Analysis-Medar Welding. NatCity also compared certain
historical and projected operating and financial information, ratios and public
market multiples for Medar Welding to the corresponding publicly-available
operating and financial information, ratios and public market multiples for six
publicly-traded North American manufacturers of factory automation equipment and
controls (the "Welding Comparable Companies"). The Welding Comparable Companies
were Esterline Technologies Corporation; Scientific Technologies, Inc; TB Wood's
Corporation; Hickok, Inc.; Hurco Companies, Inc.; and Moore Products Company.
The Welding Comparable Companies were chosen because they were publicly-traded
companies with operations that, for the purposes of analysis, NatCity considered
similar to Medar Welding. NatCity analyzed, among other things, enterprise value
(market capitalization plus funded debt) as a multiple of net revenue,
enterprise value as a multiple of EBIT, enterprise value as a multiple of EBIT
before depreciation and amortization ("EBITDA"), and enterprise value as a
multiple of operating cash flow. The information with respect to the financial
results and financial condition of the Welding Comparable Companies was for the
latest year end, and stock prices and market capitalization were as of the close
of business on April 15, 1999. NatCity derived comparable company multiples by
comparing values to revenues, EBITDA and EBIT for each of the respective
comparable companies. The estimated financial results and the financial
condition of the Welding Division, as so estimated and adjusted, were for the
year ended and as of December 31, 1998.
Such analyses indicated that: the ratios of enterprise value to net revenue
for the Welding Comparable Companies had an average of 0.6 times and ranged from
0.3 times to 1.1. times. NatCity multiplied Medar Welding's 1998 revenue of
$25.4 million by the Comparable Companies' Average Revenue multiple, producing
an implied valuation of $16.0 million. The ratios of enterprise value to EBIT
for the Welding Comparable Companies had an average of 5.9 times and ranged from
5.2 times to 7.4 times. Medar Welding's 1998 EBIT of $2.9 million, multiplied by
the Comparable Companies' Average EBIT multiple, yielded an implied valuation of
$17.0 million. The ratios of enterprise value to EBITDA for the Welding
Comparable Companies had an average of 4.5 times and ranged from 4.1 times to
4.8 times. Multiplying Medar Welding's 1998 EBITDA of $4.4 million by the
Comparable Companies' Average EBITDA multiple of 4.5 produced an implied
valuation of $20.0 million. Lastly, the ratios of enterprise value to operating
cash flow for the Welding Comparable Companies had an average of 7.4 times and
ranged from 5.3 times to 10.3 times. NatCity multiplied Medar Welding's 1998
operating cash flow of $2.1 million by the Comparable Companies' Average
Operating Cash Flow multiple, producing an implied valuation of $16 million.
Comparable Transaction Analysis-Medar Welding. In addition to comparing
this transaction to such multiples as NatCity sees in the marketplace for middle
market companies, NatCity also reviewed six recent transactions for
manufacturers of factory automation equipment and controls which NatCity
considered reasonably comparable to the Asset Sale for purposes of its analysis
(the "Comparable Transactions"). The Comparable Transactions included:
Honeywell, Inc.'s acquisition of Measurex Corporation in 1997;
Emerson Electric's acquisition of Computational Systems, Inc. in 1998;
GE Fanuc NA's acquisition of Total Control Products in 1998;
MascoTech, Inc.'s acquisition of Trimas Corporation in 1998;
Hickok, Inc.'s acquisition of Waekon Industries in 1998; and
Unova, Inc.'s acquisition of the machine tool business of Cincinnati
Milacron in 1998.
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NatCity derived transaction multiples by comparing values to revenues,
EBITDA and EBIT for each of these respective transactions, discounting the
Emerson Electric/Computational Systems transaction due to its anomalous nature.
NatCity multiplied Medar Welding's 1998 revenue of $25.4 million by the
Comparable Transaction Average Revenue multiple of 1.21, producing an implied
valuation of $30.7 million. Multiplying Medar Welding's 1998 EBITDA of $4.4
million by the Comparable Transaction Average EBITDA multiple of 8.47 produced
an implied valuation of $37.3 million. Medar Welding's 1998 EBIT of $2.9
million, multiplied by the Comparable Transaction Average EBIT multiple of
11.06, yielded an implied valuation of $32.1 million.
Because the reasons for and the circumstances surrounding each of the
Comparable Transactions were so diverse and because of the inherent differences
in the businesses, operations, financial conditions and prospects of the Welding
Division and the businesses, operations and financial conditions of the
companies included in the Comparable Transactions, NatCity believed that a
purely quantitative comparable transaction analysis would not be particularly
meaningful, and that the appropriate use of a comparable transaction analysis in
this instance would involve qualitative judgments concerning the differences
between the characteristics of these transactions and the Asset Sale which would
affect the acquisition values of the acquired companies and the Welding
Division.
Discounted Cash Flow Analysis-Medar Welding. NatCity performed a discounted
cash flow analysis using management's projections of the Company's financial
performance. NatCity calculated a net present value of free cash flows for the
fiscal years 1999 through 2003 using discount rates ranging from 18% to 26%.
These discount rates were chosen as NatCity believes they represent a viable
range of internal rates of return required by institutional equity investors.
NatCity calculated Medar Welding's terminal values in fiscal year 2003 based on
multiples of 4.0 times EBIT to 6.0 times EBIT. These terminal values were then
discounted to present value using discount rates from 18.0% to 26.0%. Using
Medar Welding's terminal values in the year 2003 as so calculated and
discounting these terminal values to present value using discount rates ranging
from 18.0% to 26.0%, the implied equity values of Medar Welding ranged from
$20.3 million to $26.2 million.
Leveraged Transaction Analysis-Weltronic Combined. Using historical and
projected financial information provided by Weltronic, NatCity calculated
projected free cash flow and various projected debt related coverage ratios of
Weltronic Combined for the fiscal years 1999 through 2003, in order to assess
the reasonableness of management's belief that Weltronic Combined will be able
to service its resulting debt until the components of future consideration are
paid in full. In doing so, NatCity performed due diligence on Weltronic
Combined. This due diligence consisted of: (a) visiting Weltronic's primary
manufacturing facilities, (b) discussing and testing Weltronic's and Weltronic
Combined's business strategy, (c) discussing future research and development
expectations, and (d) analyzing the financial models for Weltronic, the Company
and Weltronic Combined. NatCity also considered all aspects and terms of the
transaction consideration. Based on this analysis, NatCity concluded that
management's belief was reasonable.
In connection with this analysis, NatCity relied upon the managements of
the Company and Weltronic as to the reasonableness and achievability of the
financial and operating projections (and the assumptions and bases therefor)
provided to it and, with their consent, assumed that such projections reflect
the best currently available estimates and judgments of their managements and
that such projections and forecasts will be realized in the amounts and in the
time periods currently estimated by management.
The following is a summary of certain of the financial analyses conducted
by NatCity with respect to Integral Vision. NatCity reviewed the assumptions
upon which such analyses were based and other factors, including the current
financial results of and future prospects for the Company and Integral Vision,
with the management of the Company. NatCity did not assign any particular weight
to any factor of the analyses it considered in preparing its opinion.
Discounted Cash Flow Analysis-Integral Vision. NatCity performed a
discounted cash flow analysis using management's projections of the Company's
financial performance. NatCity calculated a net present
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value of free cash flows for the fiscal years 1999 through 2003 using discount
rates ranging from 18% to 26%. These discount rates were chosen as NatCity
believes they represent a viable range of internal rates of return required by
institutional equity investors. NatCity calculated Integral Vision's terminal
values in fiscal year 2003 based on multiples of 5.5 times EBIT to 7.5 times
EBIT. These terminal values were then discounted to present value using discount
rates from 18.0% to 26.0%. Using the Integral Vision's terminal values in the
year 2003 as so calculated and discounting these terminal values to present
value using discount rates ranging from 18.0% to 26.0%, the implied equity
values of Integral Vision ranged from $6.5 million to $9.1 million.
Comparable Company Analysis-Integral Vision. NatCity also compared certain
historical and projected operating and financial information, ratios and public
market multiples for Integral Vision to the corresponding publicly-available
operating and financial information, ratios and public market multiples for five
publicly-traded North American manufacturers of vision inspection products (the
"Vision Comparable Companies"). The Vision Comparable Companies were Cognex
Corporation; Advanced Machine Vision CP-A; PPT Vision, Inc.; Elbit Vision
Systems Ltd; and Stocker & Yale, Inc. NatCity analyzed, among other things, the
enterprise value as a multiple of net revenue, and enterprise value as a
multiple of book value. The information with respect to the financial results
and financial condition of the Vision Comparable Companies was for the latest
year end, and stock prices and market capitalization were as of the close of
business on April 16, 1999. The estimated financial results and the financial
condition of Integral Vision, as so estimated and adjusted, were for the year
ended and as of December 31, 1998.
Such analyses indicated that: (a) the ratios of enterprise value to net
revenue for the Vision Comparable Companies had an average of 2.8 times and
ranged from 0.8 times to 9.1 times. NatCity multiplied Integral Vision's 1998
revenue of $9.4 million by the Vision Comparable Companies' Average Revenue
multiple, producing an implied valuation of $25 million; (b) the ratios of
enterprise value to Book Value for the Vision Comparable Companies had an
average of 1.8 times and ranged from 0.4 times to 5.0 times. Integral Vision's
1998 Book Value of $17.4 million, multiplied by the Vision Comparable Companies'
Average Book Value multiple, yielded an implied valuation of $31.0 million.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or the summary set forth above, without considering all
of the analyses, could produce an incomplete view of the processes underlying
NatCity's opinion. In arriving at its fairness determination, NatCity considered
the results of all such analyses.
No company or transaction used in the above analyses as a comparison is
directly comparable to the Company, the Welding Division, Integral Vision,
Weltronic Combined or the Asset Sale. Accordingly, an analysis of the results of
the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of companies
and other factors. NatCity prepared its analyses solely for purposes of
providing its opinion to the Company's Board of Directors as to the fairness,
from a financial point of view, of the consideration to be received by the
Company pursuant to the terms of the Asset Purchase Agreement, and such analyses
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. NatCity has expressed no opinion
as to the prices at which the Company's shares may trade following the date of
its opinion or the consummation of the Asset Sale.
Analyses based upon forecasts of future results do not necessarily indicate
actual future results, which may be significantly more or less favorable than
the analyses may suggest. Such analyses are based upon numerous factors or
events beyond the control of the parties or their advisors and are inherently
subject to uncertainty, and in rendering its opinion, NatCity may have deemed
various underlying assumptions as more or less probable than other assumptions.
None of the Company, Weltronic, MIAC, NatCity or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, NatCity's opinion to the Board of Directors of the Company
was one of many factors taken into consideration by the Company's Board of
Directors in making its determination to approve the Asset Purchase Agreement.
NatCity's opinion to the Company's Board of Directors addresses only the
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fairness, from a financial point of view, of the consideration to be received by
the Company pursuant to the terms of the Asset Purchase Agreement and does not
constitute a recommendation to any Shareholder of the Company as to how to vote
on the Asset Sale.
This description of NatCity's opinion is a summary of the analysis
performed by NatCity and is qualified by reference to the written opinion of
NatCity attached as Appendix C to this Proxy Statement.
Pursuant to the terms of the engagement of NatCity to render the opinion,
the Company has paid NatCity a nonrefundable fee of $100,000 for the preparation
and delivery of its opinion, without regard to the conclusions set forth in the
opinion. Pursuant to the terms of its engagement as the Company's exclusive
financial advisor, NatCity will receive a fee of $25,000 plus 1.0% of the total
consideration plus 5.0% of the total consideration in excess of $30 million at
Closing. The Company has agreed to reimburse NatCity for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify NatCity
against certain liabilities, including certain liabilities under the federal
securities law. The terms of NatCity's engagement, which are customary for
transactions of this nature, were negotiated at arm's length between the Company
and NatCity, and the Company's Board of Directors was aware of such terms at the
time of its approval of the Asset Purchase Agreement.
NatCity, as a customary part of its investment banking business, is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements and valuations
for estate, corporate and other purposes. In the ordinary course of business,
NatCity Investments, Inc. may actively trade the equity securities of the
Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Within the past three years, NatCity Investments, Inc. has written research
reports for publication on, and has been a market maker in the securities of the
Company. The Company selected NatCity to render a fairness opinion to the
Company's Board of Directors because NatCity has substantial experience in
transactions similar to the Asset Sale.
THE PARTIES
WELTRONIC/TECHNITRON, INC. AND MIAC ACQUISITION, INC.
Weltronic is a privately owned Delaware corporation with principal offices
located at 150 East St. Charles Street, Carol Stream, Illinois 60188. Its
telephone number is (630) 462-8250. Weltronic is engaged in the business of
manufacturing and selling resistance welding controls. In order to accommodate
its goals in this transaction, Weltronic has incorporated a wholly-owned
subsidiary, MIAC Acquisition, Inc. ("MIAC") in Michigan. Although MIAC will be
the purchasing company, Weltronic will remain fully liable to Medar for
fulfilment of MIAC's obligations under the terms of the Asset Purchase
Agreement. In the discussion of the proposed Asset Sale contained in this Proxy
Statement, references to Weltronic also include MIAC, unless the context
otherwise requires.
Weltronic was established in 1985 by the consolidation of two entities,
Weltronic Corp., established in 1936, and Technitron, Inc., established in 1964.
Both companies manufactured and sold resistance welding controls either in the
automotive or industrial markets. Weltronic is a privately-owned company, owned
by members of its United States management team and Nadex Co. Nadex Co. is a
publicly-held Japanese company which, in part, manufactures resistance welding
controls for sale to Japanese automotive companies. Nadex Co. was established in
1948 and has been one of the leaders in developing resistance welding control
technology for the automotive marketplace. In 1999, Weltronic acquired certain
assets of Robotron Corporation, a U.S. manufacturer of automotive and industrial
welding controls.
Weltronic has enjoyed a significant market share in the North American
automotive welding control industry. Because of the needs of core automotive
customers, Weltronic and Nadex have undertaken a plan to service automotive
plants worldwide and to consolidate industry leaders domestically. The
acquisition of the Welding Division of the Company should provide significant
synergies and cost savings for the combined organization.
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MEDAR, INC.
The Company is a Michigan corporation with its principal office at 38700
Grand River Avenue, Farmington Hills, Michigan 48335, telephone (248) 471-2660.
The Company is a market leader in the fields of resistant welding controls and
vision inspection technology.
Prior to negotiations in connection with the Asset Sale, there have been no
material contracts, arrangements, understandings, relationships, negotiations or
transactions between the Company and any of its affiliates and Weltronic and any
of its affiliates.
TERMS OF THE ASSET PURCHASE AGREEMENT
The terms and conditions of the Asset Sale are contained in the Asset
Purchase Agreement, a copy of which is attached to this Proxy Statement as
Appendix A and is incorporated herein by reference. The description in this
Proxy Statement of the terms and conditions of the Asset Sale is qualified in
its entirety by, and made subject to, the more complete information set forth in
the Asset Purchase Agreement. SHAREHOLDERS OF THE COMPANY ARE URGED TO CAREFULLY
READ THE ASSET PURCHASE AGREEMENT IN ITS ENTIRETY.
Sale of Assets
Under the terms of the Asset Purchase Agreement, the Company will sell to
MIAC essentially all of the assets associated with the Company's Welding
Division. This includes the welding control manufacturing facility and the
equipment, furniture and fixtures located at 24755 Crestview Court, Farmington
Hills, Michigan; the various patents, technology, and know-how of the Company
with respect to the design, manufacturing and marketing of welding controls; and
all inventory, sales orders, accounts receivable and operating records
associated with the Welding Division. The assets will also include the right to
the name "Medar" which has traditionally been associated with the Company's
welding control line; the Company's wholly-owned subsidiary, Medar Canada Ltd.;
and the Company's interest in the Chinese joint venture, Shanghai Medar Welding
Equipment Co., Ltd. Specifically excluded from the Asset Sale are cash or cash
equivalents; certain of the Company's books and records; tax refunds or credits;
and any assets associated with the Company's vision inspection business.
Liabilities Assumed
MIAC will assume the executory obligations of the Company for continued
performance under certain contracts related to the Welding Division that become
performable or payable on or after the Closing Date and that were incurred in
the ordinary course of the business of the Welding Division. In addition,
Weltronic will assume the Company's obligations to Square D Company under the
Square D License.
The Purchase Price
The purchase price for the acquired assets consists of a cash payment to be
made on the Closing Date of $20.55 million; accounts payable to be paid at
Closing of $3 million; the secured Promissory Note in the principal amount of
$7.4 million; the assumption of the Company's $1.8 million of obligations under
the Square D License, assumption of $100,000 of warranty obligations and the
Contingency Payments of up to $3 million. The Contingency Payments are dependent
upon deliveries and unfilled purchase orders or releases calling for deliveries
to DaimlerChrysler AG for the period between January 1, 1999 to December 31,
2000, as follows: a) the later of 30 days after orders total at least $5.5
million or February 15, 2000, $1.5 million will be paid by MIAC to the Company;
b) if the DaimlerChrysler orders total $8 million within the period, an
additional $.75 million will be paid by MIAC to the Company in equal monthly
installments commencing April 15, 2000 and ending March 15, 2001; and c) if such
orders total $11 million within the period, an additional $.75 million will be
paid by MIAC to the Company by increasing the amount of the monthly installments
payable from April 15, 2000 to March 15, 2001. Notwithstanding the foregoing, if
requested by Weltronic's senior Lender, the Contingency Payments will be paid
quarterly or as otherwise required by the senior Lender. In addition, at
Closing, MIAC will pay
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the Company $1.45 million for certain transition services to be provided by the
Company after the Closing Date.
The Promissory Note will bear interest at 1% over the lowest rate of
interest paid by Weltronic to its senior Lender on its revolving line of credit
or term loan for borrowings related to the transactions contemplated by the
Asset Purchase Agreement, as adjusted from time to time, and will require
principal payments of $462,500 per calendar quarter. To secure payment of the
Promissory Note and other obligations, Weltronic and MIAC will grant a security
interest in all of their assets to the Company pursuant to a general business
security agreement to be entered at Closing. The purchase price is subject to
adjustment based on changes in the book value of the Company's accounts
receivable transferred to MIAC, inventory and costs and estimated earnings in
excess of billings on incomplete contracts from those reflected on the December
31, 1998 balance sheet for the Welding Division to the amounts on the Closing
Date. Weltronic will perform a physical inventory as of the Closing Date and,
within 45 days after the Closing Date, will prepare a closing balance sheet,
(the "Proposed Closing Balance Sheet") setting forth the book value of the
assets of the Welding Division as of the Closing Date. If the Proposed Closing
Balance Sheet is acceptable to the Company, the amount of the purchase price
will be adjusted by the amount of the increase or decrease in the book value of
those assets from the value established by the December 31, 1998 balance sheet
and a cash payment in the amount of such difference will be made by MIAC or the
Company, as the case may be, to the other party within five (5) days of the
final determination of the Closing Balance Sheet. If the Company objects to the
Proposed Closing Balance Sheet, the parties will attempt in good faith to
resolve the dispute and if they are unable to resolve the dispute, the matter
will be submitted to binding arbitration.
Representations and Warranties
The Asset Purchase Agreement contains various representations and
warranties related to, among other things, (a) the due organization, authority,
and power of the parties and similar corporate matters; (b) the authorization,
execution, delivery, and enforceability of the Asset Purchase Agreement; (c) the
lack of conflicts under charters or bylaws or violations of agreements or laws
applicable to the Welding Division or Weltronic; (d) that the Company does not
have any undisclosed subsidiaries or investments in any entity in connection
with the Welding Division; (e) that no insolvency proceedings affecting either
party or its assets are pending or threatened; (f) that the Company has all
necessary permits and licenses to operate the Welding Division; (g) the accuracy
and completeness of each party's financial information; (h) the conduct of the
Welding Division's and Weltronic's respective businesses since the most recent
financial statements provided by each party and the absence of adverse changes;
(i) labor matters and employee benefit plans related to the Welding Division;
(j) the Company's title to the assets being purchased by MIAC, the lack of
encumbrances upon and the condition and sufficiency of such assets; (k) the
completeness and accuracy of previous tax filings; (l) the extent of liabilities
associated with the Welding Division; (m) the Company's compliance with all
applicable laws, including environmental laws, in its operation of the Welding
Division; (n) the lack of litigation; (o) insurance matters; (p) the accuracy
and completeness of this Proxy Statement prepared by the Company; (q) the
Company's receivables ; (r) the Company's Year 2000 compliance; (s) customers
and suppliers of the Welding Division; (t) the lack of brokers or agents, other
than NatCity, involved with the Asset Sale; and (u) the intellectual property
being transferred.
Conduct Pending Closing
The Company has agreed that prior to the Closing of the Asset Sale, unless
otherwise consented in writing by Weltronic, it will operate the Welding
Division in the ordinary course of business consistent with its past practices
and maintain the assets and business of the Welding Division intact and in good
condition.
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No Solicitation
Under the Asset Purchase Agreement, the Company is prohibited from
soliciting, and has agreed not to permit its officers or advisors to solicit,
any offers, engage in negotiations, or provide information to any other
potential purchaser of the Welding Division, except that the Company may furnish
information in response to requests that were not solicited by it and may
negotiate with another potential purchaser if such other potential purchaser has
submitted a written proposal to the Company's Board of Directors and the Board
determines, in good faith, after receiving a written opinion of independent
legal counsel, that failure to provide such information or engage in
negotiations would be inconsistent with the Board's fiduciary duty to
Shareholders under applicable law. The Asset Purchase Agreement also requires
that the Company's Board of Directors recommend that its Shareholders approve
the Asset Sale, unless independent outside legal counsel to the Company advises
the Company's Board of Directors in writing that, in light of a competing offer,
the directors' fiduciary duties under applicable law make such recommendation
inappropriate.
Employees
In connection with the Closing of the Asset Sale, the Company will
terminate all of the approximately 150 employees exclusively associated with the
Welding Division. The Asset Purchase Agreement provides that Weltronic will be
free to negotiate with and hire, but will have no obligation to hire, any
employee of the Company previously employed exclusively in the Welding Division.
The Company will be responsible and liable for any salary, bonuses, accrued
vacation, sick-leave time or other compensation or benefit, as well as any claim
or causes of action related to the employees of the Welding Division accruing or
relating to events occurring prior to the Closing Date. The Company further
agrees that for a period of two years after the Closing Date it will not solicit
or employ any person employed exclusively in the Welding Division at the Closing
Date who becomes an employee of MIAC pursuant to the Asset Sale within 30 days
after the Closing Date.
Closing
The Asset Sale will be consummated only if approved by the requisite vote
of the holders of a majority of the Company's outstanding Common Stock. If the
Asset Sale is approved by the Shareholders at the annual meeting of the Company
on June 28, 1999, the Company anticipates consummating the transaction on June
30, 1999.
The Closing of the transactions contemplated by the Asset Purchase
Agreement also is subject to the satisfaction of certain other conditions
specified in the Asset Purchase Agreement, unless such conditions are waived by
the party in whose favor the condition runs (to the extent such waiver is
permitted by law). The failure of any such condition to be satisfied, if not
waived, would prevent consummation of the transaction.
In addition to the approval of the Company's Shareholders, the obligations
of both parties to consummate the Asset Sale is subject to (i) there being no
governmental orders or pending proceedings preventing the Asset Sale or
generally imposing restrictions on Weltronic's use of the purchased assets or
operation of its business after the Closing Date and (ii) the parties having
received all required governmental approvals to consummate the Asset Sale. In
addition, the obligations of Weltronic to consummate the transactions to be
performed by it in connection with the Closing are subject to satisfaction of,
the following conditions: (i) the representations and warranties of the Company
contained in the Asset Purchase Agreement must be true and correct in all
respects as of the Closing Date; (ii) the Company must have performed and
complied with all of its covenants under the Asset Purchase Agreement in all
material respects; (iii) the Company must have obtained all third party consents
required to transfer the Welding Division assets and contracts to MIAC, except
those the failure of which to obtain would not cause a material adverse effect;
(iv) the Company must deliver at Closing all of the documents and agreements
required to be delivered by it as of such date; (v) the Company must not have
taken any material action outside of the ordinary course of business of the
Welding Division without Weltronic's
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consent; (vi) there must not have been any material adverse change in the
condition (financial or otherwise), results of operations, business, properties,
assets, liabilities or prospects of the Welding Division; and (vii) Weltronic
shall have received, at its cost, a written report of a site assessment
environmental audit regarding the real estate being purchased that is
satisfactory to it.
The obligations of the Company to consummate the transactions to be
performed by it in connection with the Closing are subject to satisfaction of
the following conditions, (i) the representations and warranties of MIAC and
Weltronic contained in the Asset Purchase Agreement must be true and correct in
all respects as of the Closing Date; (ii) MIAC must have performed and complied
with all of its covenants under the Asset Purchase Agreement in all material
respects through the Closing; and (iii) Weltronic and MIAC must deliver at
Closing all of the documents and agreements required to be delivered by them as
of such date.
Related Agreements
In connection with the Asset Purchase Agreement, the parties also agreed to
enter into a Noncompetition Agreement, a Transition Services Agreement and a
Waiver and Release of Patent Infringement Liability. In addition, Maxco, Inc.,
Charles J. Drake, Richard R. Current and Max A. Coon, in their capacities as
Shareholders of the Company, have signed a Voting Agreement agreeing to vote all
of their shares held as of the Record Date, which represents approximately 25.8%
of the Company's outstanding Common Stock, in favor of the Asset Sale. The
Company will also enter into a Subordination and Intercreditor Agreement with
Weltronic's lender agreeing to subordinate payment of the Promissory Note, the
Contingency Payments and other amounts which may become payable by MIAC or
Weltronic to the Company to the prior payment in full of Weltronic's obligations
to its lender. Weltronic will also sign a Guaranty guaranteeing the obligations
of MIAC under the Asset Purchase Agreement. Forms of the Promissory Note, the
Noncompetition Agreement, the Transition Services Agreement, the Subordination
and Intercreditor Agreement and the Guaranty are attached as exhibits to the
Asset Purchase Agreement included with this Proxy Statement as Appendix A and
are incorporated herein by reference. A copy of the Voting Agreement is attached
to this Proxy Statement as Appendix D and incorporated herein by reference.
In summary, the Noncompetition Agreement provides that the Company will not
engage in the business of resistance welding control manufacture and sale
anywhere in the world for a period of 5 years. The Transition Services Agreement
provides that MIAC will pay the Company $1.45 million at the Closing as
consideration for certain transition consulting services to be provided by the
Company for a period of up to twelve months following the Closing Date. In
addition, the Company will provide MIAC with access to space in the Company's
Grand River facility for computer and inventory carousels for up to twenty
months. No Company employee is required to spend more than 50% of his total
business time in the first month or 25% thereafter in providing the transition
services. The Waiver and Release of Patent Infringement Liability relates to the
release by the Company of Weltronic from any liability relating to the claimed
infringement by Weltronic of certain of the Company's patents relating to the
Welding Division.
Weltronic's Financing and the Company's Related Subordination Agreement
Weltronic has received a financing commitment from its institutional lender
(the "Lender") to assist with the acquisition of the Welding Division, refinance
Weltronic's existing debt, and provide for ongoing working capital needs. The
credit facilities consist of a maximum $18 million revolving loan, and a maximum
of $9 million in two term loans (collectively, the "Credit Facilities"). The
Credit Facilities mature three years from the date of funding, and accrue
interest according to specified criteria.
The Commitment Letter sets forth two financial covenants to be included in
the Credit Facilities: a Debt Service Coverage Ratio of not less than 1.10 to 1,
to be tested on a quarterly year-to-date basis for the first year and on a
trailing twelve month basis thereafter; and a Tangible Net Worth covenant of $1
million less than Weltronic's tangible net worth as of the closing of the Credit
Facilities, stepping up by 80% of planned net income on a quarterly basis going
forward.
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In addition to regularly scheduled principal payments, Weltronic will be
required to make mandatory prepayments for specified events, including (i) 100%
of the net proceeds of specified sales or dispositions of any of its assets,
(ii) 100% of the net proceeds of sales of debt securities, and (iii) beginning
in the second loan year, 60% of its excess cash flow (as defined in the
Commitment Letter).
To secure payment of the Credit Facilities, the Lender will be granted a
first security interest in all of Weltronic's and MIAC's assets. The Lender will
also receive a collateral pledge of all of the outstanding stock of Weltronic
and its subsidiaries. In addition, Weltronic's subsidiaries must guaranty
Weltronic's obligations to the Lender under the Credit Facilities. There will
also be a limited guaranty of Durrell G. Miller, Weltronic's President, to the
Lender in the amount of $3 million, and a key man life insurance policy insuring
Mr. Miller, with the Lender named as beneficiary.
The Commitment Letter contains various conditions to the closing of the
Credit Facilities which are normal for loans of this nature, and includes a
requirement that Nadex invest at least $1.75 million in Weltronic and enter into
a subordination agreement subordinating its interests to those of the Lender and
the Company.
Pursuant to the Subordination Agreement to be entered into at the Closing
between the Company and the Lender, payments under the Promissory Note, the
Contingency Payments and any other obligations of Weltronic to the Company will
be subordinate to the prior payment in full of Weltronic's obligations to the
Lender, up to a maximum principal amount of $45 million.
The Subordination Agreement permits regular payments to the Company,
conditioned on Weltronic meeting its obligations to the Lender. However, the
Subordination Agreement prohibits any portion of a payment from being made if
the payment would cause a default under Weltronic's Credit Facilities or could,
in the Lender's opinion, result in a material adverse effect on Weltronic's
ability to pay or perform its obligations to the Lender. The Subordination
Agreement allows Weltronic to make partial payments to the Company to the extent
such partial payments do not cause the foregoing results. Any amount of the
Promissory Note or other obligation of Weltronic to the Company which is not
paid when due because of the Subordination Agreement, will be added to the final
installment due, and any portion of an unpaid installment of any Contingency
Payment will be added to the next due installment until it can be paid without
violating the terms of the Subordination Agreement.
The Subordination Agreement also contains "standstill" provisions which
prohibit the Company from taking any action against Weltronic to pursue
collection of any unpaid obligations to the Company at any time while
Weltronic's obligations to the Lender exceed the Lender's credit advance
formula. However, when Weltronic's obligations to the Lender no longer exceed
the Lender's credit advance formula, the maximum "standstill" period is six
months, after which time, the Company could commence an action to enforce any
past-due obligations.
Pursuant to the Asset Purchase Agreement, MIAC has represented that the
Credit Facilities will contain usual and customary events of default, cure and
remedy provisions and other usual and customary terms and conditions not
inconsistent with the Commitment Letter and Subordination Agreement, and will
not be subject to amendment so as to conflict with those documents without the
prior written consent of the Company, which will not be unreasonably withheld,
conditioned or delayed.
Indemnification
Subject to certain limitations, pursuant to the terms of the Asset Purchase
Agreement, each of the parties has agreed to indemnify the other party and its
officers, directors, successors and assigns, from and against any and all
damages, claims, liabilities, losses, costs and expenses (including reasonable
legal fees) in connection with or resulting from (a) with respect to the
Company, any of the Company's debts, liabilities, and obligations, whether
accrued, absolute, contingent, known, unknown, or otherwise, except only those
liabilities expressly assumed by Weltronic; (b) any inaccuracy in any
representation or breach of any warranty of the party contained in the Asset
Purchase Agreement or any related agreement; or
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(c) any failure by the party to perform or observe in full any covenant or
agreement required to be performed by the Asset Purchase Agreement or any
related agreement.
Termination
The Asset Purchase Agreement provides that it may be terminated at any time
before the Closing Date (a) by the mutual written agreement of the Company and
Weltronic; (b) by either party if the conditions to such party's obligations
under the Asset Purchase Agreement have not been met or waived by the nonfailing
party on or prior to July 31, 1999, but only if the party terminating has not
caused the condition giving rise to termination to be not satisfied through its
own action or inaction; (c) by either party if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
governmental authority preventing or prohibiting the Asset Sale shall have
become final and non-appealable; (d) by Weltronic if this Proxy Statement does
not include the recommendation of the Company's Board of Directors in favor of
the Asset Sale, or the Board of Directors withdraws, modifies or changes in a
manner materially adverse to Weltronic its recommendation of the Asset Sale, or
the Board recommends to the Shareholders any proposed, direct or indirect,
acquisition of the Welding Division by any person or group other than Weltronic
and MIAC, or a tender offer or exchange offer for 50% or more of the Company's
outstanding Common Stock is commenced and the Board, within 10 business days
after such offer is commenced, either fails to recommend against acceptance of
such offer or takes no position with respect to the same; (e) by the Company if
its Board of Directors, in the exercise of its judgment as to its fiduciary
duties to its Shareholders as imposed by applicable law and after consultation
with and receipt of a written opinion from outside legal counsel, determines
that such termination is required by reasons of any competing transaction being
made or proposed; (f) by either Weltronic or the Company, if any updated
representation or warranty made by the other party after the date of the Asset
Purchase Agreement discloses any fact or condition that makes untrue or shows to
have been untrue, any representation or warranty by the other party in the Asset
Purchase Agreement unless concurrently with the delivery of the updated
representation the other party represents and warrants that the disclosed fact
or condition can and will be corrected at its expense prior to the Closing Date,
provided this right to terminate only exists if the fact or condition
constitutes a material adverse effect; or (g) by the Company or Weltronic at any
time after the Annual Meeting if the Asset Purchase Agreement and the Asset Sale
is not approved by the Shareholders.
Effect of Termination
Except as otherwise described in this paragraph, upon any termination of
the Asset Purchase Agreement, the Asset Purchase Agreement will become void and
neither party will be liable to the other thereunder. Notwithstanding the
foregoing, if the Asset Purchase Agreement is terminated as the direct result of
a material intentional breach by a party of any of its covenants or agreements
contained therein, all remedies available to the other party either in law or in
equity on account of such failure to close, including, without limitation, the
right to seek specific performance of the Asset Purchase Agreement as well as
the right to pursue a claim for damages will be preserved and survive such
termination. In addition, if the Asset Purchase Agreement is terminated (a)
pursuant to the conditions specified in sections (d) or (e) in the section
entitled " -- Termination" above or (b) the conditions specified in (b) in such
section (provided the termination was not due to MIAC's or Weltronic's failure
to satisfy a material closing condition) or (g) in such section, and after a
bona fide competing transaction proposal has been received by the Company and,
within four months after the date of such termination, the Company enters into
an agreement for a competing transaction and subsequently closes that competing
transaction, the Company must pay MIAC, as liquidated damages and not as a
penalty, $2.5 million. Except as otherwise indicated; each of the parties has
agreed to bear its own expenses incurred in connection with the negotiations,
execution and performance of the Asset Purchase Agreement and the transactions
contemplated thereby.
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INTERESTS OF MANAGEMENT OR DIRECTORS IN THE ASSET SALE
Except as stated below, none of the executive officers or directors of the
Company has been offered an employment contract with Weltronic, is eligible for
any compensation or benefit from the Company as a result of the proposed
transaction, has any interest or ownership in Weltronic, or in any other way
stands to personally benefit as a result of the consummation of the Asset Sale.
Although Messrs. Drake, Doede and Current will provide services to Weltronic for
twelve months after the Closing Date on a part time basis, the Company will be
compensated by MIAC for such services and Messrs. Drake, Doede and Current will
receive no additional benefit.
Maxco, Inc. the Company's 24% Shareholder, is a holder of $750,000 of the
Company's $7 million subordinated debentures. If the Asset Sale is consummated,
these debentures will be fully paid. Max A. Coon and Vincent Shunsky, although
officers and directors of the Company, are also officers and directors of Maxco,
Inc., are paid by Maxco, Inc. and receive no compensation from the Company. Mr.
Charles J. Drake, the Company's Chief Executive Officer, is a director of Maxco,
Inc.
ACCOUNTING TREATMENT OF THE ASSET SALE
The Asset Sale will be reflected on the Company's financial statements as a
sale of the assets with a gain recognized for the difference between the total
proceeds under the Asset Purchase Agreement and the book value of the net assets
sold.
TAX CONSEQUENCES
The following summary of certain tax consequences of the Asset Sale by the
Company is not intended to be tax advice to any person, nor is it binding upon
the Internal Revenue Service. In addition, no information is provided herein
with respect to the tax consequences of the Asset Sale under applicable foreign
or local laws.
The Company will recognize a gain on the Asset Sale equal to the amount
realized by the Company from the sale less the Company's adjusted basis in the
net assets sold. The amount realized will equal the sum of money received by the
Company in consideration for the assets plus the amount of the liabilities
assumed by Weltronic. The Company will also have ordinary income for the $1.45
million of consideration it will receive under the Transition Services
Agreement. The Company anticipates that its available NOL will offset the
taxable gain and transition services income attributable to the transaction. The
Company will also be subject to an alternative minimum tax. The gain on the
Asset Sale will be included with the Company's alternative minimum taxable
income or loss for the tax year ending December 31, 1999. The Company
anticipates that it will have alternative minimum tax payable with respect to
the Asset Sale in the approximate amount of $275,000. In addition, the Company
will pay state tax under the Michigan Single Business Tax on its gain from the
Asset Sale in the approximate anticipated amount of $20,000.
Consummation of the transaction will not result in any federal income tax
consequences to Shareholders of the Company.
GOVERNMENT AND REGULATORY APPROVALS
Both the Company and Weltronic made representations in the Asset Purchase
Agreement that the proposed transaction would not trigger any requirements of
consent or approval by any governmental agency. Consequently, the Company does
not believe any regulatory approvals are required in connection with the sale of
the Welding Division to Weltronic.
ARM'S LENGTH TRANSACTION
The terms of the Asset Purchase Agreement were the result of arm's length
negotiations. Neither Weltronic nor the Company nor any of their respective
officers and directors holds an interest in the other. No officer or director of
the Company will become an officer, director or employee of Weltronic in
connection with the sale of the Welding Division to Weltronic.
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NO DISSENTERS' RIGHTS
Under the Michigan corporate law, Shareholders are not entitled to
dissenters' rights of appraisal with respect to the sale of the Welding Division
to Weltronic.
REQUIRED VOTE
The sale of the Welding Division to Weltronic is required to be approved by
the holders of a majority of the outstanding Common Stock of the Company as of
the Record Date. Since the Company had 9,024,901 shares of Common Stock
outstanding on the Record Date, the proposal must receive 4,512,451 affirmative
votes in order to be approved. Maxco, Inc., Charles J. Drake, Richard R. Current
and Max A. Coon, in their capacities as Shareholders of the Company, have signed
a Voting Agreement agreeing to vote all of their shares held as of the Record
Date, which represents approximately 25.8% of the Company's outstanding Common
Stock, in favor of the Asset Sale. Broker non-votes and other abstentions will
have the same effect as a vote against the Asset Sale.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously recommends that the
Shareholders vote FOR the Asset Sale.
BUSINESS OF THE COMPANY
GENERAL
The Company is a Michigan corporation incorporated in 1978. Medar currently
operates in two business segments where it develops, manufactures and markets
microprocessor-based process monitoring and control systems for use in
industrial manufacturing environments. The principal applications for the
Company's products include resistance welding controls ("welding control
products") and optical inspection systems and general purpose vision software
and applications thereof (collectively "machine vision products"). The Company's
products are generally sold as capital goods. Depending on the application,
welding control products have a five to ten year life and machine vision systems
have an indefinite life. Machine vision applications are more likely to require
replacement because of technological obsolescence than because of physical wear.
Sales of welding control products are effected through Medar, Inc. and its
wholly-owned subsidiary, Medar Canada Ltd., located in Oshawa, Ontario, Canada.
Sales of machine vision products are effected through Integral Vision, a
division of the Company, and through Integral Vision LTD., a wholly-owned
subsidiary of the Company, located in Bedford, England. The Company also has
21.3% of the stock of a joint venture for the manufacture of welding control
products in China, Shanghai Medar Welding Equipment Corp. Ltd.
WELDING CONTROL PRODUCTS
Welding controls monitor and automatically regulate electrical current
passing through material being welded. The regulation of electrical current
compensates for variation in materials, coatings and other welding systems
characteristics. The Company's major customers include General Motors
Corporation and DaimlerChrysler AG. Although most sales are made in North
America, in recent years significant sales have been made to United States
domestic automakers in South America (principally Brazil) and Asia (principally
China). Sales to General Motors Corporation and DaimlerChrysler AG were 44.5%,
30.1% and 49.3% of total welding revenues in the years ended December 31, 1998,
1997 and 1996. With sales to these customers representing such a large share of
revenues, the loss of sales to either of these customers or a downturn in the
automotive industry could have a significantly negative effect on the Company.
In addition to sales of new controls, the Company has a significant repair,
parts and services business associated with an installed base of up to 50,000
controls.
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MACHINE VISION PRODUCTS
Machine vision is the application of technology to acquire, process and
analyze image data so that conclusions can be drawn and actions taken based on
those results. Machine vision technology is used to insure manufactured product
quality by monitoring and controlling the manufacturing process.
Medar's optical inspection systems are used to detect manufacturing defects
in optical storage media, principally CD-R (write once disc) or DVD (digital
versatile disc). The Company's Integral Vision division markets these systems
all over the world with the principal markets currently being in Asia. In the
past, the Company sold a version of this equipment which also inspected CD's
(Compact Disc's). In early 1998, management determined that since CD was being
replaced by DVD's, and other factors related to the market, it would no longer
pursue this market following the liquidation of on hand inventory. A charge of
$7.0 million of software costs and inventory (of which $6.0 million was related
to machine vision products) was recorded to recognize this decision.
Medar's general purpose software product, VisionBlox, and certain
applications developed by Company personnel using the VisionBlox software as a
base, are marketed principally in the United States and Europe by the Company's
Integral Vision division. Although sales to date in Asia have not been
significant, the Company is involved in efforts to strengthen its presence in
the region. By its nature as a general-purpose product, the software can be used
by OEM's and end users to answer a variety of needs. Current applications
include application for inspections of cellular telephones and applications in
medical, printing and electronics.
PRODUCTION
The Company's production process consists principally of assembling
standard electrical and electronic components and hardware subassemblies
purchased from suppliers into finished products. When proprietary circuit boards
are needed, the Company generally contracts for outside vendors to build the
boards based on internal company designs.
The Company generally does not rely on a single source for parts and
subassemblies, although certain of the components and subassemblies included in
the Company's products may only be obtained from a limited number of suppliers.
Management believes it will be able to develop alternative sources or employee
alternative designs for any of the components used in its products thereby
mitigating any exposure to product interruption from shortages of parts or
limited suppliers.
Management believes that technology incorporated in its products give it
advantages over its competitors and prospective competitors. Protection of
technology is attempted through a combination of patents, applied for patents,
confidentiality agreements and trade secrets. The Company presently has 26
patents (12 related to welding controls and 14 related to machine vision
products) and has applied for 10 more. There can be no assurance that patents
applied for will be granted, the Company has the resources to defend its patents
or that patents that the Company holds will be considered valid if challenged.
In addition, it is possible that some patents will be rendered worthless as the
result of technological obsolescence.
MARKETING
The Company markets its welding control products to both end users and
original equipment manufacturers (OEMs). Although primary sales are to North
American assembly plants of US and foreign automotive companies and their
suppliers, the Company has significant other customers in farm implement,
appliance and other industries. In recent years the Company has made inroads
into South America with sales to assembly plants of both US and European
automakers and with General Motors and Volkswagen assembly plants in China. The
Company's US and Canadian sales are generally made using Company employees with
certain remote sales in the US and sales outside of the US and Canada made
through representatives. Machine vision products are generally marketed to end
users, but the Company has had success in integrating its products with end
users in certain circumstances. Sales are made worldwide, however, the Company's
strongest presence is maintained in the US (through Company employees), Europe
(through employees of Integral Vision, LTD.), and Asia (through a combination of
30
39
representatives and of Company employees). Company sales employees in both
segments are compensated by salary and commission.
COMPETITION
The Company experiences strong competition in both segments. For welding
controls, competitors include Weltronic, Robotron Corporation (acquired by
Weltronic early in 1999) and Robert Bosch GmbH. In particular, competition is
strongest for major welding control orders from automakers. Generally, sales of
welding controls to first and second tier manufacturers and sales of parts and
services have less competition. For machine vision, the Company experiences
competition in all areas in which it operates. Competition is strongest in
optical inspection systems from Dr. Schenk GmbH and Basler GmbH. Competition for
the general-purpose vision software and applications comes principally from
Cognex Corp.; however, many other niche producers also provide competition in
specific markets.
EXPORT SALES
Sales outside of the United States and Canada accounted for 25%, 19% and
21% of the Company's net sales in 1998, 1997 and 1996. Management expects that
such sales will continue to represent a significant percentage of its net sales.
Most of the Company's export billings are denominated in US dollars. Welding
segment billings in Canada are in Canadian dollars and vision segment billings
in the UK and Japan are generally in pound sterling and yen, respectively. On
occasion other export billings are denominated in the currency of the customer's
country.
OTHER INFORMATION
Segment information for the past 3 years is as follows:
OPERATING IDENTIFIABLE
REVENUE INCOME (LOSS) ASSETS
------- ------------- ------------
(IN THOUSANDS)
WELDING CONTROLS
1996........................................................ $27,853 $ 5,121 $27,370
1997........................................................ 24,569 3,261 24,248
1998........................................................ 25,380 2,906(a) 21,770
MACHINE VISION SYSTEMS
1996........................................................ $13,618 $(5,703) $22,423
1997........................................................ 15,955 (1,078) 28,358
1998........................................................ 9,433 (6,063)(a) 18,043
- -------------------------
(a) Excludes charge-offs of capitalized software development costs, inventory
and other which totaled $1.4 million for the welding controls segment and
$5.6 million for the machine vision systems segment. This charge, which was
reported in the first quarter of 1998, resulted from a general review of the
recoverability of software development costs for welding and the specific
decision to no longer pursue the sale of products for the CD market for
machine vision.
As of December 31, 1998, the Company had an order backlog of approximately
$3.9 million for welding control products and $600,000 for machine vision
products compared to $3.3 million for welding and $800,000 for vision at
December 31, 1997. The nature of the Company's business is that, although it has
many individual customers, it has two major customers and those major customers
tend to place large orders. As such, backlog at any point in time can vary
dramatically. At December 31, 1998 and 1997, approximately 8% and 42% of the
Company's backlog was attributable to welding control products for General
Motors Corporation and approximately 2% and 19%, was attributable to welding
control products for DaimlerChrysler AG. Management expects that the Company
will ship products representing this entire backlog in 1999.
The costs to the Company of complying with federal, state and local
provisions regulating protection of the environment are not material.
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40
There are no material legal proceedings currently in existence or pending,
of which the Company is aware, to which the Company or any subsidiary is a party
or of which any of their property is subject.
As of February 28, 1999, the Company had approximately 227 permanent
employees, as compared to 275 at February 28, 1998 and 330 at February 28, 1997.
The Company also engages contract workers, primarily for assembly operations,
the number of which varies depending upon production requirements. None of the
Company's employees are represented by a labor union.
PRO FORMA CONSOLIDATED BALANCE SHEETS OF MEDAR, INC.
The following unaudited Pro Forma Consolidated Balance Sheets of Medar,
Inc. as of December 31, 1998 and March 31, 1999 are based upon the historical
financial statements of the Company. The Pro Forma Consolidated Balance Sheets
have been adjusted to reflect the Asset Sale to MIAC for $20.55 million in cash,
$7.4 million in notes, $4.9 million of Assumed Liabilities and $1.45 million for
certain transition services and includes adjustments for estimated transaction
costs and the application of the net cash proceeds, as if the transaction had
taken place on December 31, 1998 or March 31, 1999, respectively. The Pro Forma
Consolidated Balance Sheet does not reflect the Contingency Payments or
adjustments to the purchase price based on changes in accounts receivable,
inventory and costs and estimated earnings in excess of billings on incomplete
contracts subsequent to the balance sheet date and prior to the Closing Date.
The Pro Forma Consolidated Balance Sheets are based upon the assumptions
set forth in the notes thereto, and should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto and other
financial information included elsewhere in this Proxy Statement.
ADJUSTMENTS FROM
HISTORICAL ASSET SALE PRO FORMA
---------- ---------------- ---------
(IN THOUSANDS)
DECEMBER 31, 1998:
Assets:
Current assets:
Cash...................................... $ 566 (A) $22,000 (B) $19,200 $ 217
(D) 2,049
(F) 1,100
Accounts receivable, net.................. 10,901 (C) 8,063 2,838
Inventories............................... 9,749 (C) 5,418 4,331
Costs and estimated earnings in excess of
billings on incomplete contracts........ 1,495 (C) 1,296 199
Current maturities of notes receivable.... (A) 1,350 1,350
Other current assets...................... 683 (C) 157 526
-------- -------
Total current assets...................... 23,394 9,461
Notes receivable.......................... (A) 4,737 4,737
Property and equipment, net............... 8,488 (C) 3,587 4,901
Capitalized software development costs,
net..................................... 5,349 (C) 996 4,353
Patents, net.............................. 1,890 (C) 1,539 351
Other..................................... 692 (C) 265 27
(E) 400
-------- -------
Total assets.............................. $ 39,813 $23,830
======== =======
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41
ADJUSTMENTS FROM
HISTORICAL ASSET SALE PRO FORMA
---------- ---------------- ---------
(IN THOUSANDS)
DECEMBER 31, 1998 (CONTINUED)
Liabilities and Stockholders' equity:
Current liabilities:
Accounts payable.......................... $ 5,559 (A) $ 3,000 $ 1,559
(D) 1,000
Employee compensation..................... 889 (D) 499 390
Accrued and other liabilities............. 827 (D) 550 (A) $ 3,050 3,327
Current maturities of long-term debt...... 13,478 (B) 12,355 1,123
-------- -------
Total current liabilities................. 20,753 6,399
Long term debt, less current maturities... 8,199 (A) 1,354 0
(B) 6,845
Stockholders' equity:
Common stock, without par value........... 1,805 1,805
Additional paid-in capital................ 31,187 31,187
Retained-earnings deficit................. (21,628) (C) 21,321 (A) 29,391 (15,058)
(E) 400
(F) 1,100
Notes receivable from officers............ (580) (580)
Accumulated translation adjustment........ 77 77
-------- -------
Total Stockholders' equity................ 10,861 17,431
-------- -------
Total liabilities and Stockholders'
equity.................................. $ 39,813 $23,830
======== =======
MARCH 31, 1999:
Assets:
Current assets:
Cash...................................... $ 347 (A) $22,000 (B) $19,150 $ 48
(D) 2,049
(F) 1,100
Accounts receivable, net.................. 10,280 (C) 8,625 1,655
Inventories............................... 10,951 (C) 6,592 4,359
Costs and estimated earnings in excess of
billings on incomplete contracts........ 1,602 (C) 1,302 300
Current maturities of notes receivable.... (A) 1,350 1,350
Other current assets...................... 828 (A) 1,742 (C) 152 2,418
-------- -------
Total current assets...................... 24,008 10,130
Notes receivable.......................... (A) 4,737 4,737
Property and equipment, net............... 8,059 (C) 3,436 4,623
Capitalized software development costs,
net..................................... 5,433 (C) 1,096 4,337
Patents, net.............................. 1,796 (C) 1,445 351
Other..................................... 598 (C) 228 20
(E) 350
-------- -------
Total assets.............................. $ 39,894 $24,198
======== =======
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42
ADJUSTMENTS FROM
HISTORICAL ASSET SALE PRO FORMA
---------- ---------------- ---------
(IN THOUSANDS)
MARCH 31, 1999 (CONTINUED)
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable.......................... $ 6,642 (A) $ 3,000 $ 2,642
(D) 1,000
Employee compensation..................... 775 (D) 499 278
Accrued and other liabilities............. 1,201 (D) 550 (A) $ 3,050 3,701
Current maturities of long-term debt...... 20,205 (B) 18,888 1,317
-------- -------
Total current liabilities................. 28,823 7,936
Long term debt, less current maturities... 1,616 (A) 1,354
(B) 262
Stockholders' equity:
Common stock, without par value........... 1,805 1,805
Additional paid-in capital................ 31,187 31,187
Retained-earnings deficit................. (23,022) (C) 22,876 (A) 31,133 (16,215)
(E) 350
(F) 1,100
Notes receivable from officers............ (580) (580)
Accumulated translation adjustment........ 65 65
-------- -------
Total Stockholders' equity................ 9,455 16,262
-------- -------
Total liabilities and Stockholders'
equity.................................. $ 39,894 $24,198
======== =======
- -------------------------
A Adjustment to reflect cash proceeds ($22,000,000) and a note receivable, net
of discount ($6,087,000) to be received at Closing, liabilities to be
assumed, net of discount, by MIAC at the Closing ($4,354,000), deferred
revenue related to the Transition Services Agreement ($1,450,000) and
accruals for warranty expense, uncollectible accounts and transition costs
($1,600,000) and for March 31, 1999, a purchase price adjustment of
$1,742,000.
B Adjustments to reflect payments of a revolving note to bank, a term note to
bank, the subordinated debentures (including unaccreted value assigned to
related warrants) and other indebtedness.
C Adjustment to record the transfer of assets to Purchaser.
D Adjustment to record the payment of accounts payable and other current
liabilities at Closing.
E Adjustment to charge off deferred bond issuance cost.
F Adjustment to record estimated transaction related costs (professional fees
-- $800,000 and taxes -- $300,000).
34
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Medar develops, manufactures and markets microprocessor-based process
monitoring and control products for use in industrial manufacturing
environments. The Company's revenues are primarily derived from the sale of
resistance welding controls, optical inspection equipment and general purpose
vision software. Resistance welding control products are marketed primarily to
automobile manufacturers and suppliers of industrial automation equipment.
Optical inspection equipment is principally sold to end users and suppliers of
CD-R and DVD disc manufacturing equipment. General purpose vision software is
sold into numerous applications in a wide variety of industries.
In order to present more meaningful information in light of the proposed
Asset Sale, the discussion which follows focuses on the operations of the
individual divisions of the Company. The Management's Discussion and Analysis of
Financial Condition and Results of Operations section included in the Company's
Annual Report to Shareholders for the year ended December 31, 1998 focuses on
the Company as a whole. The Liquidity and Capital Resources section included
below also reflects more current information than that presented in the Annual
Report.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain items
from the Company's historical Consolidated Statements of Operations, expressed
by line of business:
YEAR ENDED DECEMBER 31, 1998
------------------------------------
WELDING VISION
DIVISION DIVISION TOTAL
-------- -------- -----
(IN THOUSANDS)
Net revenues................................................ $25,380 $ 9,433 $ 34,813
Direct costs of sales....................................... 17,572 8,170 25,742
------- -------- --------
Gross margin................................................ 7,808 1,263 9,071
Other costs and expenses:
Marketing................................................. 1,675 2,421 4,096
General and administration................................ 1,577 1,411 2,988
Engineering and development:
Expenditures........................................... 2,530 4,870 7,400
Allocated to capitalized software and direct cost of
sales................................................ (880) (1,376) (2,256)
------- -------- --------
Net expense............................................... 1,650 3,494 5,144
Product restructuring and other charges..................... 1,346 4,225 5,571
------- -------- --------
6,248 11,551 17,799
------- -------- --------
Earnings (loss) from operations............................. 1,560 (10,288) (8,728)
Interest.................................................... 1,541 915 2,456
------- -------- --------
Net earnings (loss)......................................... $ 19 $(11,203) $(11,184)
======= ======== ========
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44
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
WELDING VISION
DIVISION DIVISION TOTAL
-------- -------- -----
(IN THOUSANDS)
Net revenues................................................ $24,569 $15,955 $40,524
Direct costs of sales....................................... 17,435 11,642 29,077
------- ------- -------
Gross margin................................................ 7,134 4,313 11,447
Other costs and expenses:
Marketing................................................. 1,373 2,788 4,161
General and administration................................ 1,381 1,319 2,700
Engineering and development:
Expenditures........................................... 2,930 6,341 9,271
Allocated to capitalized software and direct cost of
sales................................................ (1,811) (5,057) (6,868)
------- ------- -------
Net expense............................................... 1,119 1,284 2,403
------- ------- -------
3,873 5,391 9,264
------- ------- -------
Earnings (loss) from operations............................. 3,261 (1,078) 2,183
Interest.................................................... 1,235 1,054 2,289
------- ------- -------
Net earnings (loss)......................................... $ 2,026 $(2,132) $ (106)
======= ======= =======
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
WELDING VISION
DIVISION DIVISION TOTAL
-------- -------- -----
(IN THOUSANDS)
Net revenues................................................ $27,853 $ 13,618 $41,471
Direct costs of sales....................................... 17,968 12,820 30,788
------- -------- -------
9,885 798 10,683
Other costs and expenses:
Marketing................................................. 1,543 2,967 4,510
General and administration................................ 1,807 1,396 3,203
Engineering and development:
Expenditures........................................... 3,835 5,914 9,749
Allocated to capitalized software and direct cost of
sales................................................ (2,421) (3,776) (6,197)
------- -------- -------
Net expense............................................... 1,414 2,138 3,552
------- -------- -------
4,764 6,501 11,265
------- -------- -------
Earnings (loss) from operations............................. 5,121 (5,703) (582)
Interest.................................................... 794 679 1,473
------- -------- -------
Net earnings (loss)......................................... $ 4,327 $ (6,382) $(2,055)
======= ======== =======
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The following table sets forth for the periods indicated certain items from
the Company's Statement of Operations on a Division basis as a percentage of net
revenue. The impact of inflation for the periods presented was not significant.
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
---- ---- ----
VISION DIVISION
Net revenues................................................ 100% 100% 100%
Direct cost of sales........................................ 86.6 73.0 94.1
------ ------ -----
Gross margin................................................ 13.4 27.0 5.9
Other costs and expenses:
Marketing................................................. 25.7 17.5 21.8
General and administrative................................ 14.9 8.3 10.2
Engineering and development:
Expenditures........................................... 51.6 52.2 63.3
Allocated to capitalized software and direct cost of
sales................................................. (14.6) (44.1) (47.6)
------ ------ -----
Net engineering and development expenses............... 37.0 8.1 15.7
Product restructuring and other charges..................... 44.8
------ ------ -----
Total other costs and expenses.............................. 122.5 33.9 47.7
------ ------ -----
Loss from operations........................................ (109.1) (6.9) (41.8)
Interest.................................................... 9.7 6.6 5.0
------ ------ -----
Net loss.................................................... (118.8) (13.5) (46.8)
WELDING DIVISION
Net revenues................................................ 100% 100% 100%
Direct cost of sales........................................ 69.2 71.0 64.5
------ ------ -----
Gross margin.............................................. 30.8 29.0 35.5
Other costs and expenses:
Marketing................................................. 6.6 5.6 5.5
General and administrative................................ 6.2 5.6 6.5
Engineering and development:
Expenditures........................................... 10.0 15.0 13.8
Allocated to capitalized software and direct cost of
sales................................................. (3.5) (10.5) (8.7)
------ ------ -----
Net engineering and development expenses............... 6.5 4.5 5.1
Product restructuring and other charges..................... 5.3
------ ------ -----
Total other costs and expenses.............................. 24.6 15.7 17.1
------ ------ -----
Earnings from operations.................................... 6.2 13.3 18.4
Interest.................................................... 6.1 5.0 2.9
------ ------ -----
Net earnings................................................ .1 8.3 15.5
YEAR ENDED DECEMBER 31, 1998, COMPARED TO DECEMBER 31, 1997 -- VISION DIVISION
Net revenues decreased $6.5 million (40.9%) from $15.9 million to $9.4
million. Fifty percent of this decrease resulted from decreased sales of optical
inspection products as the Division phased out it's iNSPECt product line which
is marketed primarily to compact disc manufacturers. The remainder of the
decrease resulted from decreased orders for the Company's turnkey systems,
principally those used in the cellular telephone industry.
Direct cost of sales decreased to $8.2 million from $11.7 million but as a
percentage of net revenues increased to 86.6% from 73.0%. The decrease in the
dollar amounts resulted principally from the decrease in sales and changes in
product revenue mix. The percentage increase resulted from the inventory charge
37
46
taken in the first quarter of 1998 related to the iNSPECt product line. Without
this charge, cost of sales as a percentage of net revenues would have been very
close to that of the prior year. The resulting margins from these sales are less
than desired principally because of strong competition in the disc market. The
introduction of the Omni scanner product is expected to help overcome the
competitive disadvantages of the cost structure of the iNSPECt scanner product.
Additionally, margin assistance should come from higher levels of sales of
VisionBlox and VisionBlox applications products that normally have higher margin
potential.
Marketing expense decreased to $2.4 million from $2.8 million but increased
as a percentage of net revenues to 25.7% from 17.5%. The reduction of costs came
principally from variable and deferrable expenses that were not incurred. The
increase in the percentage came from product introduction costs because of the
necessity to introduce the new Omni product line and to continue to market
VisionBlox and VisionBlox applications.
General and Administrative expense remained relatively constant in dollar
terms, but increased as a percentage of net revenues to 14.9% from 8.3%. This
resulted principally from the fixed nature of these expenses.
Net engineering and development expense increased to $3.5 million from $1.3
million and as a percentage of net revenues to 37.0% from 8.1%. Total
expenditures for engineering and development decreased from $8.3 million to $4.9
million because of personnel and other cost reductions early in the year. The
net increase resulted from fewer projects that were eligible for capitalization
during the year. The percentage increase resulted from the reduced levels of net
revenues and from the higher levels of net expenditures.
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 sales, management terminated 25% of the
Division's employees. As these terminations severely constrained resources
available for product support, it was followed by an extensive review of product
offerings. This review determined that the Division would concentrate its future
efforts toward products for the inspection of DVD and CD-R discs and products
based on VisionBlox technology. Other products, in particular those related to
the inspection of compact discs, were identified for phase out or abandonment.
These products had unamortized software development costs totaling $4.5 million
which were expensed. In addition, reserves totaling $1.4 million to reduce the
cost of inventory related to these products to estimated realizable value were
established.
The inventory charge was included with direct cost of sales and the charge
related to software development costs was reflected as product restructuring and
other charges with other costs and expenses in the Statement of Operations.
Interest expense decreased in dollar terms as the Division's net assets
were a smaller proportion of total assets than in the prior year.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO DECEMBER 31, 1996 -- VISION DIVISION
Net revenues increased $2.3 million (17.2%) to $15.9 million from $13.6
million. The increase in revenues was principally in VisionBlox application
(turnkey) systems used in the cellular telephone industry. Revenues from other
optical inspection products were down compared to the prior year. In particular
confusion in the CD/DVD market resulted in decreases in sales of CD products.
Direct cost of sales decreased to $11.6 million from $12.8 million and as a
percentage of net revenues decreased to 73.0% from 94.1%. The decrease in cost
of sales results principally from sales of VisionBlox applications and other
higher margin technology products at greater levels than experienced in 1996.
Marketing expense decreased to $2.8 million from $3.0 million and as a
percentage of net revenues to 17.5% from 21.8%. The reduction of costs came from
stronger control of expenditures.
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47
General and Administrative expense remained relatively constant in dollar
terms, but decreased as a percentage of net revenues to 8.3% from 10.2%. This
resulted principally from the fixed nature of these expenses.
Net engineering and development expense decreased to $1.3 million from $2.1
million and as a percentage of net revenues to 8.1% from 15.7%. Total
expenditures for engineering and development was relatively constant during the
year with amounts capitalized increasing for software related to VisionBlox
color enhancements and other features and development of DVD-9.
Interest expense increased in dollar terms as a result of the higher levels
of borrowings during the year.
YEAR ENDED DECEMBER 31, 1998, COMPARED TO DECEMBER 31, 1997 -- WELDING DIVISION
Net revenues increased $800,000 (3.3%) to $25.4 million from $24.6 million.
From a net revenue standpoint, 1998 was very comparable to 1997.
Direct cost of sales was very comparable between the years but as a
percentage of net revenues decreased to 69.2% from 71.0%. This decrease resulted
from a more favorable product mix, particularly from greater relative levels of
revenues from DaimlerChrysler, as opposed to General Motors.
Marketing expense increased to $1.7 million from $1.4 million and increased
as a percentage of net revenues to 6.6% from 5.6%. The increases were related to
expansions of personnel to support expected growth in the Division's service
business and costs related to the Company's entry into Brazil.
General and Administrative expense increased to $1.6 million from $1.4
million and increased as a percentage of net revenues to 6.2% from 5.6%. This
resulted from a higher level of legal expenses and an increase in the level of
provision for uncollectible accounts receivable during the year.
Net engineering and development expense increased to $1.6 million from $1.1
million and as a percentage of net revenues to 6.5% from 4.5%. Total
expenditures for engineering and development decreased from $3.7 million to $2.5
million because of personnel and other cost reductions early in the year. The
net decrease resulted from fewer projects that were eligible for capitalization
during the year. The percentage decrease came from the higher levels of net
expenditures.
As part of the first quarter of 1998 review of vision product offerings,
welding product offerings were also reviewed. This review identified software
and other charges totaling $1.4 million.
Interest expense increased as a result of greater levels of borrowings in
1998 and the effect of the divisions net assets being a greater percentage of
total net assets.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO DECEMBER 31, 1996 -- WELDING DIVISION
Net revenues decreased $3.3 million (11.8%) to $24.6 million from $27.9
million. This decrease in revenues arose from normal fluctuations in orders from
the Division's major customers.
Direct cost of sales decreased to $17.4 million from $18.0 million and as a
percentage of net revenues increased to 71.0% from 64.5%. The increase in
percent resulted from a less favorable product mix with particularly greater
relative levels of revenues from General Motors as opposed to DaimlerChrysler
and the effect of the Division's high proportion of fixed costs.
Marketing expense decreased to $1.4 million from $1.8 million and was
unchanged as a percentage of net revenues. The decrease resulted from cost
control measures instituted during the year.
General and Administrative expense decreased to $1.4 million from $1.8
million and decreased as a percentage of net revenues to 5.6% from 6.5%. This
resulted from personnel reductions and other economies related to consolidations
in several administrative functions.
Net engineering and development expense decreased to $1.1 million from $1.4
million and as a percentage of net revenues to 4.6% from 5.1%. Total
expenditures for engineering and development
39
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decreased to $3.7 million from $3.8 million because of personnel and other cost
reductions early in the year. The net decrease resulted from a greater number of
projects that were eligible for capitalization during the year. The percentage
decrease came from the higher levels of net expenditures.
Interest expense increased in dollar terms as a result of the higher levels
of borrowings during the year.
QUARTER ENDED MARCH 31, 1999, COMPARED TO MARCH 31, 1998
QUARTER ENDED MARCH 31
--------------------------------------------------------
WELDING DIVISION VISION DIVISION TOTAL
---------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Net revenues........................... $7,128 $ 5,032 $ 1,698 $ 1,595 $ 8,826 $ 6,627
Direct costs of sales.................. 4,682 4,203 2,003 3,334 6,685 7,537
------ ------- ------- ------- ------- -------
Gross margin........................... 2,446 829 (305) (1,739) 2,141 (910)
Other costs and expenses............... 1,552 1,381 1,982 2,067 3,534 3,448
Product restructuring and other
charges.............................. -- 1,346 -- 4,225 -- 5,571
------ ------- ------- ------- ------- -------
Net earnings (loss).................... $ 894 $(1,898) $(2,287) $(8,031) $(1,393) $(9,929)
====== ======= ======= ======= ======= =======
Net revenues increased by $2.2 million to $8.8 million in the first quarter
of 1999 from $6.6 million in the first quarter of 1998. The increase, which came
in the Welding Division was a result of a stronger order and delivery schedule
in the first quarter of 1999 as compared to 1998.
Direct cost of sales in the Welding Division decreased from 84% of revenue
in 1998 to 66% of revenue in 1999. This decrease arose in part from product mix,
but primarily from better fixed overhead absorption in 1999. Direct costs of
sales in the Vision Division in 1998 include a charge for $1.4 million of
inventory. This inventory was related to specific product discontinuances
announced in the spring of 1998. Exclusive of this charge direct costs of sales
as a percentage of sales was similar year to year.
Other costs and expenses by division and in total were similar year to
year. These costs are mostly fixed in nature and tend not to vary with revenue
dollars.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had a revolving note payable to the bank,
subordinated debentures due 2000 through 2005 and various term notes. Levels of
advances under the revolving note are based on levels of acceptable accounts
receivable and inventory. At March 31, 1998, the Company had fully drawn the
$10,000,000 limit of the revolving note.
The Company reported an operating loss of $1.4 million for the first
quarter of 1999.
The revolving note is governed by an agreement that provides for the
continuation of the agreement through June 7, 1999. There is no assurance that
the bank will extend the note beyond that date. Despite the first quarter 1999
operating loss, management believes that the bank will continue to provide
credit facilities to June 7, 1999 and further through the date of the Closing of
the Asset Sale, at which time the credit facility is expected to be paid or
refinanced. The Company is prohibited from paying dividends under the terms of
the agreement.
The Company has been in violation of tangible net worth and net worth ratio
covenants in an agreement related to the $7.0 million of subordinated debentures
since December 31, 1997. Early in 1999, an agreement was reached with the agent
for the bondholders that provides for waiver of past violations and adjustment
of the covenants. In exchange for these concessions by the bondholders the
Company agreed to adjust the strike price of warrants held by the bondholders
based on the occurrence of certain future events. The first quarter 1999
operating loss has resulted in violations of the adjusted covenants related to
the debentures. The Company does not currently intend to request waivers or
amendments to the agreements. Management believes that the bondholders will
refrain from exercising their rights as a
40
49
result of these violations through the Closing of the Asset Sale at which time
the debentures are expected to be paid.
If the Asset Sale is consummated, it is expected that the Cash Proceeds of
the transaction will be sufficient to pay all existing funded indebtedness with
the exception of the Company's mortgage on its Grand River Building.
Additionally, it is expected that all trade payables and other liabilities
related to the Welding Division will be paid. Following the Asset Sale, Company
expects to refinance the current mortgage on its headquarters building and to
obtain a modest line of credit in support of working capital. Cash to be
generated from operations and the Deferred Payments are expected to further
support cash flow needs though 1999.
IMPACT OF YEAR 2000
Management has determined that the Company will be required to modify or
replace certain portions of its internal software and hardware so that those
systems will properly utilize dates beyond December 31, 1999. Management
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
For its own information technology, management expects to fully complete
software replacement, including testing and implementation, no later than
September 30, 1999. Once testing is complete, the operating equipment will be
ready for immediate use. The testing and implementation of all software is
expected to be fully completed by September 30, 1999.
The Company will utilize both internal and external resources to reprogram,
or replace, test, and implement the software and operating equipment for Year
2000 modifications. The total cost of the Year 2000 project is estimated at
$400,000, and is being funded through operating cash flows and capital leases.
To date, the Company has incurred approximately $350,000 ($50,000 expensed and
$300,000 capitalized for new systems and equipment) related to both its Year
2000 project and ordinary business expenditures that also addressed the Year
2000 issue.
Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any additional phases, the Company could be unable to
effectively manufacture and ship certain products. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The amount of potential liability and lost revenue
cannot be reasonably estimated at this time.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk stemming from changes in foreign
exchange rates, interest rates and prices of inventory purchased for assembly
into finished products. Changes in these factors could cause fluctuations in
earnings and cash flows. In the normal course of business, exposure to interest
rates is managed by fixing the interest rates on the Company's long-term debt
whenever possible. The Company does not generally enter into long-term purchase
contracts but instead purchases inventory to fill specific sales contracts
thereby minimizing risks with respect to inventory price fluctuations.
Foreign Exchange Rates -- The Company's locations outside the US are in
Canada and the United Kingdom. In both cases these are sales offices with net
non-current assets that are not significant. On a consolidated basis the Company
denominates sales in the following currencies:
- Canadian Dollar
- Japanese Yen
- Pound Sterling
- French Francs
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50
In management's opinion, as the currencies of Canada, Western Europe and
the UK are generally stable; there is no significant exposure to losses due to
currency fluctuations. However, because the Yen has not been stable over the
past several years, the Company does enter into forward sales contracts equal to
the future amount of Yen to be received at the time the order is accepted. These
hedging transactions are on an order by order basis and at no time are they
speculative in nature. At December 31, 1998, the fair market value of market
risk sensitive instruments or potential for near-term losses of earnings or cash
flows for such instruments was not material.
PROPOSAL 2: APPROVAL OF CORPORATE NAME CHANGE
The Shareholders are also being asked to authorize an amendment to the
Company's Articles of Incorporation to effect the Corporate Name Change. The
proposed amendment is attached as Appendix B to this Proxy Statement. This
proposal, if approved by the Shareholders, will be implemented only if the Asset
Sale is approved and consummated and will be effected by the filing of the
proposed amendment with the State of Michigan.
The terms of the Purchase Agreement require the Company to change its
corporate name as the right to use the name "Medar" is to be sold to MIAC as
part of the Asset Sale. In addition, the Company's Board of Directors believes
that approval of the Corporate Name Change would be in the best interest of the
Company's Shareholders because the name "Integral Vision, Inc." will more
accurately communicate the nature of Company's business after the consummation
of the Asset Sale.
REQUIRED VOTE
Amendment of the Company's Articles of Incorporation to effect the
Corporate Name Change must be approved by Shareholders owning a majority of the
Common Stock of the Company as of the Record Date. Since the Company had
9,024,901 shares of Common Stock outstanding on the Record Date, the proposal
must receive 4,512,451 affirmative votes in order to be approved. Broker
non-votes and other abstentions will have the some effect as a vote against the
approval of the Corporate Name Change.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously recommends that the
Shareholders vote FOR approval of the Corporate Name Change.
PROPOSAL 3: ADJOURNMENT OF THE ANNUAL MEETING
The Shareholders are also being asked to consider and vote upon a proposal
to authorize adjournment or postponement of the Annual Meeting for up to 30 days
to continue soliciting additional proxies in the event the Company fails to
receive a sufficient number of votes to approve the Asset Sale or the Corporate
Name Change. Proxies initially cast in favor of the Asset Sale and the other
proposals contained in the Proxy Statement (unless revoked) will be voted in
favor of the approval of such proposals at the subsequent meeting.
REQUIRED VOTE
Approval of the Adjournment Proposal requires the affirmative vote of a
majority of the votes cast, in person or by proxy, at the Annual Meeting, if a
quorum is present.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously recommends that the
Shareholders vote FOR approval of the Adjournment Proposal.
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PROPOSAL 4: ELECTION OF DIRECTORS
It is the intention of the persons named in the proxy to vote for election
of the following nominees to the Board of Directors to hold office until the
next Annual Meeting or until their successors are elected. In the event any
nominee should be unavailable, which is not anticipated, the shares may, in the
discretion of the proxy holders, be voted for the election of such persons as
the Board of Directors may submit. Directors are elected for a term of one (1)
year and until their successors are elected and qualified. Proxies will be voted
only to the extent of the number of nominees named. Although the Company's Board
of Directors is currently composed of six members, the bylaws of the Company
allow for up to nine directors. Nominees are elected by plurality vote, meaning
that the six individuals receiving the most votes will be elected as directors
of the Company. In the event qualified individuals are identified, up to three
additional directors could be appointed at a later date by the Board.
The following information is furnished concerning the nominees, all of whom
have been nominated by the Board of Directors and are presently directors of the
Company.
PRESENT POSITION WITH THE COMPANY SERVED AS
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
---- --------------------------------- --- --------------
Max A. Coon.......................... Secretary and Vice Chairman of the Board of 64 1978
Medar, Inc.; President and Chairman of the
Board of Maxco, Inc.
Richard R. Current................... Executive Vice President and Chief 54 1996
Financial Officer of Medar, Inc.
Charles J. Drake..................... Chairman of the Board and Chief Executive 58 1978
Officer of Medar, Inc.
Stephan Sharf........................ President of SICA Corp, a Michigan based 78 1986
automotive industry consulting firm
Vincent Shunsky...................... Treasurer of Medar, Inc.; Director, 50 1978
Treasurer and Vice President of Finance of
Maxco, Inc.
William B. Wallace................... Senior Managing Director of Equity 54 1990
Partners, Ltd., a Troy, Michigan based
private investment banking firm
All of the foregoing directors and nominees have been engaged in the
principal occupation specified for the previous five years with the exception of
the following:
Richard R. Current joined the Company in May 1995 as its Vice President of
Finance. In March 1996, Mr. Current was named a Director of the Company. Prior
to joining Medar, Mr. Current was managing partner of Ernst & Young's Lansing,
Michigan practice from 1985 to 1992 and was the Chief Financial Officer of The
Shane Group, Inc., a Hillsdale, Michigan holding company with ownership of a
number of manufacturing and distribution subsidiaries, from 1992 to 1995. In
September 1997, a corporation of which Mr. Current had previously served as an
officer and director filed a petition for liquidation under Chapter 7 of the
Bankruptcy Code. Although he was nominally an officer and director, Mr.
Current's involvement was primarily as an investor, he did not receive any
compensation from the company and was not involved in day-to-day operations. Due
to these, among other factors, the Company does not believe this action is
material to an evaluation of Mr. Current's abilities as a director and officer
of the Company.
Charles J. Drake resigned his position as President of the Company in
February 1998. He continues to serve as the Chairman and Chief Executive Officer
of the Company as he has since 1978.
Messrs. Coon, Drake and Shunsky are also directors of Maxco, Inc., the
stock of which is traded on the Nasdaq National Market.
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52
The Board of Directors has established a Compensation Committee whose
members are Max A. Coon and Vincent Shunsky. The Compensation Committee is
responsible for establishing compensation for the Company's Chief Executive
Officer, approving executive compensation levels of all other executives and
authorizing the levels and timing of bonus payments. In addition, this committee
is responsible for administering the Company's Stock Option Plans, including
designating the recipients and terms of specific option grants. The Compensation
Committee met one time during the period ended December 31, 1998 to establish
compensation criteria and levels. The Audit Committee, whose members are William
B. Wallace, Charles J. Drake and Stephan Sharf, met two times in 1998. The Audit
Committee is responsible for discussing the scope and timing of independent
audit work, selecting independent auditors, discussing problems and experience
in completing audit work, reviewing audited financial statements, discussing
findings and recommendations of independent auditors, monitoring the system of
internal control and overseeing conflict of interest and related party
transaction policies. The Company does not have a standing nominating committee.
During the period ended December 31, 1998, there were a total of nine
meetings of the Board of Directors. None of the above nominees attended fewer
than 75% of the aggregate number of meetings of the Board of Directors and each
committee on which he served which were held in 1998.
DIRECTOR COMPENSATION
Directors who are not officers of the Company receive $200 for each meeting
attended. In addition, Messrs. Sharf and Wallace each have consulting agreements
with the Company pursuant to which they have agreed to provide consulting
services to the Company for so long as they hold office as directors. The
Company paid both Mr. Sharf and Mr. Wallace $9,600 for such consulting services
during the fiscal year.
EXECUTIVE OFFICERS
The following table sets forth information concerning the Executive
Officers of the Company.
PRESENT POSITION WITH THE SERVED AS
NAME COMPANY AND PRINCIPAL OCCUPATION AGE OFFICER SINCE
---- -------------------------------- --- -------------
Charles J. Drake..................... Chairman of the Board and Chief Executive 58 1978
Officer of Medar, Inc.
Mark R. Doede........................ President and Chief Operating Officer of 41 1989
Medar, Inc.
Richard R. Current................... Executive Vice President of Finance and 54 1995
Director of Medar, Inc.
Michael J. Charchol.................. Former Vice President, Vision Products of 57 1996
Medar, Inc.
Lyle D. Harbin....................... Vice President of Marketing, Welding 65 1985
Products of Medar, Inc.
Arthur D. Harmala.................... Vice President of Marketing, Vision 55 1995
Products of Medar, Inc.
Max A. Coon.......................... Secretary and Vice Chairman of the Board 64 1978
of Medar, Inc.; President and Chairman of
the Board of Maxco, Inc.
Vincent Shunsky...................... Treasurer and Director of Medar, Inc.; 50 1978
Treasurer, Vice President of Finance and
Director of Maxco, Inc.
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53
All of the foregoing officers of the Company have been engaged in the
principal occupations specified above for the previous five years except as
stated above and as follows:
Michael J. Charchol was appointed as Vice President, Vision Products of
Medar, Inc. in March 1998. Prior to that time he had served for seven years as
Vice President of the Company's Integral Vision -- AID subsidiary. Mr. Charchol
retired from his position with the Company effective November 13, 1998.
Mark R. Doede was appointed as President and Chief Operating Officer of the
Company in February 1998. Prior to that time, Mr. Doede served as Vice President
and Chief Operating Officer of the Welding Products Division of the Company
since 1996 and served the Company in various other capacities since 1980.
Arthur D. Harmala was appointed as Vice President of Marketing, Vision
Products in March 1995. He has been Vice President, Sales and Marketing for the
Company's wholly-owned subsidiary, Integral Vision -- AID, Inc., since 1989 and
was previously employed by the Company since 1985 as director of marketing for
Medar's line of vision products. Mr. Harmala previously worked in sales
management positions at Allen-Bradley Company, Inc., a manufacturer of
programmable controllers, and at Perceptron, Inc., a manufacturer of non-contact
gauging products.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors (the "Committee")
consists of Max A. Coon and Vincent Shunsky. Messrs. Coon and Shunsky, although
officers of the Company, are also officers and directors of Maxco, Inc., are
paid by Maxco, Inc. and receive no compensation from the Company. Mr. Charles J.
Drake, the Company's Chief Executive Officer, is a director of Maxco, Inc.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Committee is responsible for developing and making recommendations to
the Board with respect to the Company's executive compensation policies. In
addition, the Compensation Committee, pursuant to authority delegated by the
Board, determines on an annual basis the compensation to be paid to the Chief
Executive Officer and each of the other executive officers of the Company.
The objectives of the Company's executive compensation program are to:
- Support the achievement of desired Company performance.
- Provide compensation that will attract and retain superior talent and
reward performance.
- Align the executive officers' interests with the success of the Company
through the granting of stock options.
The executive compensation program provides an overall level of
compensation opportunity that is competitive with companies of comparable size
and complexity. The Compensation Committee will use its discretion to set
executive compensation where in its judgment external, internal or an
individual's circumstances warrant it.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of base
salary, long-term incentive compensation in the form of stock options, and
various benefits, including medical and deferred compensation plans, generally
available to employees of the Company.
BASE SALARY
Base salary levels for the Company's executive officers are competitively
set relative to other comparable companies. In determining salaries the
Committee also takes into account individual experience and performance.
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STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
executive officers and key employees. The objectives of the program are to align
executive and Shareholder long-term interests by creating a strong and direct
link between executive pay and Shareholder return, and to enable executives to
develop and maintain a significant, long-term stock ownership position in the
Company's Common Stock.
In May 1995 a stock option plan allowing the issuance of options on up to
500,000 shares of the Company's Common Stock was approved by the Shareholders.
This stock option plan provides for the grant of both options intended to
qualify as "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code, as amended, and nonstatutory stock options which do not
qualify for such treatment. The stock option plan authorized a committee of
directors to award executive and key employee stock options, as well as options
to directors and nonemployees who are in a position to materially benefit the
Company. Stock options were granted at an option price equal to the fair market
value of the Company's Common Stock on the date of grant, have ten year terms
and may contain exercise restrictions established by the committee. Awards are
made at a level calculated to be competitive with companies of comparable size
and complexity. Shares authorized for issuance under this plan are exhausted,
although in the event options granted under this plan lapse, those shares would
again become available.
A new stock option plan authorizing options on 500,000 shares of Common
Stock of the Company on substantially the same terms is proposed to be approved.
See "Proposal 5: Approval of Stock Option Plan."
DEFERRED COMPENSATION
Effective July 1, 1986, the Company adopted a 401(k) Employee Savings Plan.
The 401(k) is a "cash or deferred" plan under which employees may elect to
contribute a certain portion of their compensation which they would otherwise be
eligible to receive in cash. The Company has agreed to make a matching
contribution of 20% of the employees' contributions of up to 6% of their
compensation. In addition, the Company may make a profit sharing contribution at
the discretion of the Board. All full time employees of the Company or its U.S.
subsidiaries who have completed six months of service are eligible to
participate in the plan. Participants are immediately 100% vested in all
contributions. The plan does not contain an established termination date and it
is not anticipated that it will be terminated at any time in the foreseeable
future.
BENEFITS
The Company provides medical benefits to the executive officers that are
generally available to Company employees. In addition, executive officers may be
provided with other benefits, such as life insurance and automobiles. The amount
of perquisites, as determined in accordance with the rules of the Securities and
Exchange Commission relating to executive compensation, did not exceed 10% of
salary for any executive officer for fiscal 1998.
CHIEF EXECUTIVE OFFICER
Charles J. Drake has served as the Company's Chief Executive Officer since
1978. His base salary for the 1998 year was $160,000.
Significant factors in establishing Mr. Drake's compensation were his
strategic and overall management direction of the Company and his position and
long service to the Company.
The Committee believes Mr. Drake's compensation is comparable to that of
chief executive officers of similar companies.
THE COMPENSATION COMMITTEE
Max A. Coon
Vincent Shunsky
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SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and to the other executive officers whose compensation
for the 1998 year exceeded $100,000:
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------- --------------------
ALL OTHER
NAME AND SALARY BONUS OPTIONS COMP(1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- ------ ----- ------- ---------
Charles J. Drake................................ 1998 160,000 0 0 7,308(2)
Chairman of the Board 1997 160,000 0 100,000 7,911(2)
and Chief Executive Officer 1996 295,000 0 0 5,255(2)
Mark R. Doede................................... 1998 115,962 0 0 520
President and 1997 105,000 0 15,000 519
Chief Operating Officer 1996 105,000 0 3,000 520
Richard R. Current.............................. 1998 115,000 0 0 1,380
Executive Vice President 1997 115,000 0 10,000 769
and Chief Financial Officer 1996 115,000 0 20,000 1,096
Arthur D. Harmala............................... 1998 93,077 0 0 1,117
Vice President of Marketing, 1997 90,000 0 15,000 887
Vision Products 1996 92,380 20,000 8,000 890
Lyle D. Harbin.................................. 1998 100,000 64,127(3) 0 1,701
Vice President of Sales, 1997 101,021 0 10,000 1,212
Welding Products 1996 80,962 0 3,000 972
- -------------------------
(1) Unless otherwise indicated, compensation in this category represents the
Company's 20% match of employee deferrals of currently earned income into
the 401(k) Employee Savings Plan.
(2) Includes premiums of $6,520, $5,893 and $5,255 paid by the Company on
executive term life insurance in 1998, 1997 and 1996, respectively.
(3) Represents sales commissions earned by Mr. Harbin.
OPTIONS
The following table summarizes the value of the options held by the
executive officers named in the Summary Compensation Table above as of December
31, 1998. No options were granted to or exercised by the named individuals
during the year ended December 31, 1998. All of the options held by the named
individuals are presently exercisable.
YEAR END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NAME FY-END FY-END
---- ----------- ------------
Charles J. Drake............................................ 250,000 $0
Mark R. Doede............................................... 26,000 $0
Richard R. Current.......................................... 45,000 $0
Arthur D. Harmala........................................... 34,000 $0
Lyle D. Harbin.............................................. 13,000 $0
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TRANSACTIONS WITH MANAGEMENT
Charles J. Drake, the Chairman and CEO of the Company, was indebted to the
Company during 1998, with the largest aggregate amount of such indebtedness
being $345,715. This debt was incurred by Mr. Drake in order to exercise options
to purchase 150,000 shares of the Company's Common Stock and to satisfy certain
personal obligations and is evidenced by promissory notes bearing interest at
9%. At March 31, 1999, the amount of this indebtedness was $347,715.
Mark R. Doede, the President and COO of the Company, was indebted to the
Company during 1998 with the largest aggregate amount of such indebtedness being
$244,470. This debt was incurred by Mr. Doede in order to satisfy certain
personal obligations and is evidenced by a promissory note bearing interest at
9%. At March 31, 1999, the amount of this indebtedness was $222,293.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers or beneficial owners of over 10% of any class
of the Company's equity securities to file certain reports regarding their
ownership of the Company's securities or any changes in such ownership. During
the year ended December 31, 1998, all of such reports were filed as required.
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COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total Shareholder return on the
Common Stock of the Company for the last five years with the cumulative total
return on the CRSP Total Return Index for the Nasdaq Stock Market (US Companies)
(1) and the Dow Jones Industrial Technology Index (2) over the same period,
assuming the investment of $100 in the Company's Common Stock, the Nasdaq Index
and the Industrial Technology Index on December 31, 1993, and reinvestment of
all dividends.
[CHART]
DOW JONES INDUSTRIAL
MEDAR, INC. CRSP TOTAL RETURN INDEX TECHNOLOGY INDEX
----------- ----------------------- --------------------
12/31/94 122 98 106
12/31/95 70 138 147
12/31/96 50 170 142
12/31/97 48 209 150
12/31/98 10 293 138
- -------------------------
(1) The CRSP Total Return Index for the Nasdaq Stock Market (US Companies) is
composed of all domestic common shares traded on the Nasdaq National Market
and the Nasdaq Small-Cap Market.
(2) The Dow Jones Industrial Technology Index is composed of companies whose
technology and high-tech products are primarily directed toward industrial
production and/or quality control.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1999 regarding
the beneficial ownership of the Company's Common Stock by (i) the Principal
Shareholder (Maxco, Inc.), (ii) the only other beneficial owners of more than 5%
of the Company's outstanding stock that are known to the Company, (iii) each of
the Company's Directors, (iv) each of the Company's Executive Officers listed in
the Summary Compensation Table, above, and (v) all Officers and Directors of the
Company as a group.
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
-----------------
SOLE VOTING AND SHARED VOTING AND
INVESTMENT POWER INVESTMENT POWER PERCENT
---------------- ----------------- -------
Maxco, Inc........................................... 2,280,605(1) 24.86%
1118 Centennial Way
Lansing, MI 48917
State Street Bank and Trust Company, as Trustee of
the Textron Master Trust............................. 1,000,000(2) 9.97%
One Enterprise Drive
North Quincy, MA 02171
Charles J. Drake..................................... 341,500(3) 3.68%
Max A. Coon.......................................... 88,000(4) 19,150 1.19%
Richard R. Current................................... 46,000(5) 5,000 *
Mark R. Doede........................................ 50,136(6) *
Lyle D. Harbin....................................... 19,180(7) *
Arthur D. Harmala.................................... 34,000(8) 100 *
Stephan Sharf........................................ 6,000 *
Vincent Shunsky...................................... 21,183(4) 2,000 *
William B. Wallace................................... 26,000(9) 3,000 *
All Directors and Officers as a Group (10 persons)... 625,999(10) 35,250 7.01%
- -------------------------
* Beneficial ownership does not exceed 1%.
(1) Includes Warrants for the purchase of 150,000 shares of Medar Stock.
(2) Represents Warrants for the purchase of Common Stock. Information obtained
from Schedule 13G dated February 12, 1998, filed with the Securities and
Exchange Commission by State Street Bank and Trust Company and sent to the
Company pursuant to Section 13(d) of the Securities Exchange Act of 1934.
(3) Includes options to purchase 250,000 shares.
(4) Does not include shares held by Maxco, Inc., of which Mr. Coon is the
President, Chairman of the Board and the owner of 23.6% of its Common
Stock, or 4,500 shares held by the Maxco, Inc. Employee Profit Sharing
Plan, of which Messrs. Coon and Shunsky are trustees.
(5) Includes options to purchase 45,000 shares.
(6) Includes options to purchase 26,000 shares.
(7) Includes options to purchase 13,000 shares.
(8) Includes options to purchase 34,000 shares.
(9) Includes options to purchase 7,000 shares.
(10) Includes options to purchase 375,000 shares.
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PROPOSAL 5: APPROVAL OF STOCK OPTION PLAN
The Company proposes to adopt a new 1999 Stock Option Plan under which
options to purchase five hundred thousand (500,000) shares of the Company's
Common Stock may be granted to officers and other employees of the Company, and
to non-employee directors, advisors and consultants who may be in a position to
contribute materially to the welfare of the Company. Option recipients and the
level of the award will be determined by the Compensation Committee of the Board
of Directors on the basis of the recipient's services and value to the Company.
The 1999 Stock Option Plan provides for the grant of both incentive stock
options intended to qualify for preferential tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended, and nonqualified stock options
which do not qualify for such treatment. Stock options are granted at an option
price equal to the fair market value of the Company's Common Stock on the date
of grant, have ten year terms and can have exercise restrictions established by
the Compensation Committee. On April 28, 1999, the fair market value of the
Company's Common Stock was $2.96875 per share.
In the case of incentive stock options, there is no tax liability to the
recipient upon either grant or exercise of the options. Upon sale of the
security, the recipient is taxed at capital gains rates on the difference
between the sales price and the amount paid for the option. There is no tax
consequence to the Company with regard to issuance, exercise or sale of the
options.
At the time a nonqualified option is exercised, the option holder must
recognize compensation income in the amount of the spread between the option
price and the fair market value at date of exercise. The Company is entitled to
a corresponding tax deduction.
REQUIRED VOTE
Approval of the Stock Option Plan requires the affirmative vote of a
majority of the votes cast, in person or by proxy, at the Annual Meeting,
assuming a quorum is present.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously recommends that the
Shareholders vote FOR approval of the Stock Option Plan.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP served as auditors for the Company for the
year ended December 31, 1998.
The Company periodically evaluates its external audit requirements. The
Audit Committee of the Board of Directors will make a decision as to the
selection of external auditors for the year ending December 31, 1999 based on
cost, response time and quality of services available.
A representative of Ernst & Young is expected to be present at the Annual
Meeting of Shareholders, will be available to respond to appropriate questions,
and will have the opportunity to make a statement if he desires to do so.
SHAREHOLDER PROPOSALS
Any proposals which Shareholders of the Company intend to present at the
next Annual Meeting of the Shareholders must be received by the Company by
December 27, 1999, for inclusion in the Company's Proxy Statement and proxy for
that meeting. In cases where a proposal is proposed to be submitted, but the
Shareholder does not choose to seek to have such proposal included in the
Company's proxy materials, no proposal will be considered timely for submission
at the next Annual Meeting unless it is received by the Company by March 12,
2000 and, in such case, the Company's Proxy will provide the management proxies
with discretionary authority to vote on such proposal without any discussion of
the matter in the
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Proxy Statement. Proposals should be directed to the attention of Investor
Relations at the offices of the Company, 38700 Grand River Avenue, Farmington
Hills, Michigan 48335.
OTHER BUSINESS
The Company knows of no other matters that will come before the meeting.
However, if other matters do come before the meeting, the proxy holders will
vote in accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitations by use of the mails, officers and regular employees of
the Company may solicit proxies by telephone or in person. The Company may also
hire professional proxy solicitors, and in such event would pay those solicitors
standard fees.
By Order of the Board of Directors
Max A. Coon
Secretary
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REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS MEDAR, INC.
We have audited the consolidated balance sheets of Medar, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. Our audits included the
financial statement schedule on page F-17. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medar, Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information contained
therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note D, as
a result of recurring operating losses the Company has violated the provisions
of certain of its loan agreements with regard to levels of tangible net worth.
Consequently the revolver and term notes with the Bank, all mature in June 1999.
The Company is currently exploring alternatives for financing its operations
should the Bank elect not to extend the agreement. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are more fully described in Note
D. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ Ernst & Young LLP
Detroit, Michigan
February 23, 1999, except for Note D
as to which the date is March 31, 1999
F-1
62
CONSOLIDATED BALANCE SHEETS
MEDAR, INC. AND SUBSIDIARIES
DECEMBER 31
--------------------
1998 1997
---- ----
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash...................................................... $ 566 $ 831
Accounts receivable, less allowance of $400,000........... 10,901 10,682
Inventories............................................... 9,749 14,227
Costs and estimated earnings in excess of billings on
incomplete contracts................................... 1,495 2,568
Other current assets...................................... 683 881
-------- --------
Total Current Assets........................................ 23,394 29,189
PROPERTY AND EQUIPMENT
Land and improvements..................................... 377 377
Building and building improvements........................ 6,317 6,317
Production and engineering equipment...................... 4,217 3,791
Furniture and fixtures.................................... 1,022 1,022
Vehicles.................................................. 365 875
Computer equipment........................................ 5,675 5,241
-------- --------
17,973 17,623
Less accumulated depreciation............................. 9,485 8,021
-------- --------
8,488 9,602
OTHER ASSETS
Capitalized computer software development costs, less
accumulated amortization............................... 5,349 10,796
Patents, less accumulated amortization.................... 1,890 2,127
Other..................................................... 692 892
-------- --------
7,931 13,815
-------- --------
$ 39,813 $ 52,606
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 5,559 $ 4,472
Employee compensation..................................... 889 1,110
Accrued and other liabilities............................. 827 714
Current maturities of long-term debt...................... 13,478 19,415
-------- --------
Total Current Liabilities................................... 20,753 25,711
LONG-TERM DEBT, less current maturities
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................................ 31,387 31,187
Retained-earnings deficit................................. (21,628) (10,444)
Notes receivable from officers............................ (580) (552)
Accumulated translation adjustment........................ 77 7
-------- --------
Total Stockholders' Equity.................................. 10,861 22,003
-------- --------
$ 39,813 $ 52,606
======== ========
See accompanying notes
F-2
63
CONSOLIDATED STATEMENTS OF OPERATIONS
MEDAR, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net Revenues................................................ $ 34,813 $40,524 $41,471
Direct costs of sales....................................... 25,742 29,077 30,788
-------- ------- -------
9,071 11,447 10,683
Other costs and expenses:
Marketing................................................. 4,096 4,161 4,510
General and administrative................................ 2,988 2,700 3,203
Engineering and development:
Expenditures........................................... 7,400 9,271 9,749
Allocated to capitalized software and direct cost of
sales................................................ (2,256) (6,868) (6,197)
-------- ------- -------
Net Expense............................................ 5,144 2,403 3,552
Product restructuring and other charges 5,571
-------- ------- -------
17,799 9,264 11,265
-------- ------- -------
Earnings (loss) from operations............................. (8,728) 2,183 (582)
Interest.................................................... 2,456 2,289 1,473
-------- ------- -------
Loss before income taxes.................................... (11,184) (106) (2,055)
Provision (credit) for income taxes......................... -- 38 (76)
-------- ------- -------
Net Loss.................................................... $(11,184) $ (144) $(1,979)
======== ======= =======
Basic and diluted loss per share............................ $ (1.24) $ (.02) $ (.22)
======== ======= =======
See accompanying notes
F-3
64
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MEDAR, INC. AND SUBSIDIARIES
ADDITIONAL RETAINED ACCUMULATED
PAID-IN EARNINGS OFFICER TRANSLATION
COMMON STOCK CAPITAL (DEFICIT) NOTES ADJUSTMENT TOTAL
------------ ---------- --------- ------- ----------- -----
(IN THOUSANDS)
BALANCES AT JANUARY 1, 1996.... $1,742 $29,438 $ (8,321) $(331) $(92) $ 22,436
Net loss for the year........ (1,979) (1,979)
Translation adjustments...... 156 156
------ ------- -------- ----- ---- --------
Comprehensive loss........ (1,823)
------ ------- -------- ----- ---- --------
Exercise of options to
purchase 140,812 shares... 29 329 358
Loans to Officers............ (152) (152)
------ ------- -------- ----- ---- --------
BALANCES AT DECEMBER 31,
1996......................... 1,771 29,767 (10,300) (483) 64 20,819
Net loss for the year........ (144) (144)
Translation adjustments...... (57) (57)
------ ------- -------- ----- ---- --------
Comprehensive loss........ (201)
------ ------- -------- ----- ---- --------
Issuance of 150,000 shares... 30 720 750
Exercise of options to
purchase.................. 4 98 102
22,500 shares Issuance of
stock warrants.......... 602 602
Loans to Officers............ (69) (69)
------ ------- -------- ----- ---- --------
BALANCES AT DECEMBER 31,
1997......................... 1,805 31,187 (10,444) (552) 7 22,003
Net loss for the year........ (11,184) (11,184)
Translation adjustments...... 70 70
------ ------- -------- ----- ---- --------
Comprehensive loss........ (11,114)
------ ------- -------- ----- ---- --------
Loans to Officers............ (28) (28)
====== ======= ======== ===== ==== ========
BALANCES AT DECEMBER 31,
1998......................... $1,805 $31,187 $(21,628) $(580) $ 77 $ 10,861
====== ======= ======== ===== ==== ========
See accompanying notes.
F-4
65
CONSOLIDATED STATEMENTS OF CASH FLOWS
MEDAR, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss.................................................... $(11,184) $ (144) $ (1,979)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 4,051 5,279 4,529
Restructuring Charges..................................... 5,571 -- --
Credit for deferred income taxes.......................... -- -- (76)
(Increase) decrease in net accounts receivable............ (219) (1,267) (797)
(Increase) decrease in inventories........................ 4,478 1,764 (2,824)
(Increase) decrease in costs and estimated earnings in
excess of billings on incomplete contracts............. 1,073 (727) (1,160)
(Increase) decrease in other assets....................... (112) (1,053) 310
Increase (decrease) in accounts payable and accrued
expenses............................................... 979 (1,031) 1,884
-------- -------- --------
Net cash provided by operating activities................... 4,637 2,821 (113)
INVESTING ACTIVITIES
Increase in property and equipment........................ (691) (879) (2,283)
Investment in capitalized software........................ (1,651) (5,383) (4,669)
-------- -------- --------
Net cash used in investing activities....................... (2,342) (6,262) (6,952)
FINANCING ACTIVITIES
Repayments of revolving line of credit and other
obligations............................................ (24,696) (34,740) (20,154)
Proceeds from draws on revolving line of credit........... 22,066 37,400 25,364
Proceeds from exercise of stock options................... -- 102 358
Proceeds from sale of common stock........................ -- 750
Proceeds from issuance of stock warrants.................. -- 602
-------- -------- --------
Net cash provided by financing activities................... (2,630) 4,114 5,568
-------- -------- --------
Effect of exchange rate changes............................. 70 (57) 156
-------- -------- --------
Increase (decrease) in cash................................. (265) 616 (1,341)
Cash at beginning of year................................... 831 215 1,556
-------- -------- --------
Cash at end of year......................................... $ 566 $ 831 $ 215
======== ======== ========
See accompanying notes.
F-5
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its two 100% owned subsidiaries: Integral Vision LTD., United Kingdom; and
Medar Canada Ltd., Canada. Upon consolidation, all significant intercompany
accounts and transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of Integral Vision LTD. and Medar Canada Ltd. are
translated into United States dollar equivalents at exchange rates as follows:
balance sheet accounts at year-end rates; income statement accounts at average
exchange rates for the year. Transaction gains and losses are reflected in net
earnings and are not significant.
ACCOUNTS RECEIVABLE
Trade accounts receivable primarily represent amounts due from equipment
and automobile manufacturers located in North America for welding control
products and from equipment manufacturers and end users in North America, Asia
and Europe for Machine vision products.
Customers which accounted for 10% or more of the Company's resistance
welding controls revenues in any of the three years ended December 31, 1998 and
the respective sales in each year are:
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
DaimlerChrysler AG.......................................... $6,132 $4,607 $6,009
General Motors Corporation.................................. $5,180 $5,778 $7,730
====== ====== ======
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market,
and at December 31 consisted of the following (net of obsolescence reserve of
$300,000 in 1998 and $210,000 in 1997):
1998 1997
---- ----
(IN THOUSANDS)
Raw materials............................................... $5,244 $ 6,076
Work in process............................................. 1,818 1,654
Finished goods.............................................. 2,687 6,497
------ -------
$9,749 $14,227
====== =======
F-6
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Equipment
capitalized under lease agreements and the related accumulated amortization is
included in property and equipment. Expenditures for normal repairs and
maintenance are charged to operations as incurred.
Depreciation, including amortization of assets recorded under capital lease
obligations, is computed by the straight-line method based on the estimated
useful lives of the assets (buildings -- 40 years, other property and equipment
- -- 3 to 10 years).
CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
Computer software development costs are capitalized after the establishment
of technological feasibility of the related technology. These costs are
amortized following general release of products based on current and estimated
future revenue for each product with an annual minimum equal to the straight-
line amortization over the remaining estimated economic life of the product (not
to exceed 5 years). Management continually reviews the net realizable value of
capitalized software costs. At the time that a determination is made that
capitalized software amounts exceed the estimated net realizable value of
amounts capitalized, any amounts in excess of the estimated realizable amounts
are written off. (See Note B.)
Amortization of the capitalized costs amounted to $1,827,000, $3,590,000,
and $2,522,000 in 1998, 1997 and 1996, respectively. Total accumulated
amortization at December 31, 1998 and 1997, was $4,249,000 and $13,483,000,
respectively.
PATENTS
Patents are stated at cost less accumulated amortization of $1,467,000 and
$1,048,000 at December 31, 1998 and 1997, respectively. Amortization of the
patents amounted to $419,000, $388,000 and $317,000 in 1998, 1997, and 1996,
respectively. These costs are amortized on a straight-line basis over the
estimated useful lives of the assets.
REVENUE RECOGNITION
Revenues are recorded at the time services are performed or when products
are shipped, except for long-term contracts. Revenues on long-term contracts are
recognized using the percentage of completion method. The effects of changes to
estimated total contract costs are recognized in the year determined and losses,
if any, are fully recognized when identified. Costs and estimated earnings
recognized in excess of amounts billed are classified under current assets as
costs and estimated earnings in excess of billings on incomplete contracts.
Long-term contracts include a relatively high percentage of engineering costs
and are generally less than one year in duration.
INCOME TAXES
Deferred income taxes are provided when necessary to recognize the effect
of temporary differences between financial and income tax accounting related
principally to contract revenues, depreciation and capitalized computer software
development costs.
RECLASSIFICATIONS
Certain amounts have been reclassified in prior years' presentations to
conform to the current year's presentation.
F-7
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
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 -- COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON INCOMPLETE
CONTRACTS
Costs and estimated earnings in excess of billings on incomplete contracts
at December 31 are summarized as follows:
1998 1997
---- ----
(IN THOUSANDS)
Contract costs to date...................................... $4,766 $3,499
Estimated contract earnings................................. 3,363 3,377
------ ------
8,129 6,876
Less billings to date....................................... 6,634 4,308
------ ------
Costs and estimated earnings in excess of billings on
incomplete contracts...................................... $1,495 $2,568
====== ======
The Company anticipates that substantially all of the costs incurred on
long-term contracts at December 31, 1998, will be billed and collected in 1999.
NOTE D -- LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt at December 31 consists of the following:
1998 1997
---- ----
(IN THOUSANDS)
Revolving note payable to bank.............................. $10,000 $12,258
Term notes payable to bank.................................. 3,214 3,660
Subordinated debentures, 12.95%
(Net of $417,000 ($510,000 in 1997) unaccreted value
assigned to related warrants).......................... 6,583 6,490
Patent license payable...................................... 1,554 1,715
Other....................................................... 326 184
------- -------
21,677 24,307
Less current maturities..................................... 13,478 19,415
------- -------
$ 8,199 $ 4,892
======= =======
The revolving note payable to bank had an original due date of August 31,
1999, and currently provides for advances up to $10,000,000 based upon levels of
eligible accounts receivable and inventory. At December 31, 1998, the line was
fully drawn and interest was at the Bank's prime rate plus 1%. For various
periods during the year, the Company was not in compliance with certain of the
covenants of the agreement associated with the note payable. Under a new
agreement entered into late in the year, the Bank and Company agreed to continue
the loan on a basis similar to the operating basis followed under the original
agreement. The principal change from the former agreement is that the new
agreement expires on March 5, 1999. As of March 4, 1999, the Bank and the
Company agreed to extend the expiring new agreement to June 7, 1999, under
substantially similar terms as the expiring agreement. Substantially all
F-8
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE D -- LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS -- CONTINUED
Company assets not previously pledged under term notes (see below), have been
pledged as collateral for this indebtedness.
The term notes to bank are covered under the new agreement with the Bank as
to expiration date, and therefore are all due June 7, 1999. The term notes are
described as follows:
- $62,500 quarterly plus interest at the Bank's prime rate, plus 1%,
collateralized by a first mortgage on the Company's Grand River facility;
- $14,111 monthly, plus interest at 8.7%, collateralized by a first
mortgage on the Company's Crestview facility;
- $2,189 monthly, plus interest at the Bank's prime rate, plus 1%
The subordinated debentures mature $700,000 on each June 30 in the years
2000 to 2004, with the balance due June 30, 2005. Interest on the debentures is
payable quarterly at 12.95% per annum. At the time the debentures were issued,
the debenture holders were granted warrants for the purchase 1,400,000 shares of
the Company's common stock at $6.86. At December 31, 1997 and throughout 1998,
the Company was not in compliance with certain of the covenants of the debenture
agreement and the Company was unsuccessful in 1998 in obtaining waivers of the
covenant violations. As a result, at December 31, 1997 and throughout 1998 the
debentures were classified as a current liability. Under an agreement reached in
March of 1999, the debenture holders agreed to adjust the loan covenants and
make other changes in the agreement in exchange for an agreement by the Company
to allow for repricing of the related warrants based on the occurance of certain
future events. In light of the agreement reached with the debenture holders,
management now believes that it can comply with the requirements of the new
agreement going forward and on this basis has classified the debentures as a
noncurrent liability at December 31, 1998.
During the first quarter of 1998, management reduced the Company's
breakeven point though cost reductions and continues to challenge operating
costs and other expenditures. Additionally, management is currently exploring
alternatives for financing its operations. These options include locating and
appointing a new senior lending institution. Management believes that these
efforts will allow the Company to meet its obligations as they come due over the
next year.
The patent license payable relates to future payments to a corporation for
use of certain patents. The payments are due in seven remaining installments and
have been discounted at 8%.
The fair values of these financial instruments approximates their carrying
amounts at December 31, 1998. The Company paid interest on its debt instruments
of $2,274,000, $2,039,000, and $1,646,000 in 1998, 1997 and 1996, respectively.
Maturities of long-term debt are $946,000 in 2000; $970,000 in 2001;
$998,000 in 2002; $968,000 in 2003; $4,317,000 thereafter.
NOTE E -- INCOME TAXES
The Company establishes valuation allowances in accordance with the
provisions of FASB Statement No. 109, "Accounting for Income Taxes." The Company
continually reviews realizability of deferred tax assets and recognizes these
benefits only as reassessment indicates that it is more likely than not that the
benefits will be realized.
As of December 31, 1998, the Company has cumulative net operating loss
carryforwards approximating $28,100,000 (expiring: $4,502,000 in 2007,
$7,955,000 in 2010, $3,889,000 in 2011,
F-9
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE E -- INCOME TAXES -- CONTINUED
$6,404,000 in 2012, and $5,350,000 in 2018) for tax purposes available to reduce
taxable income of future periods and unused investment and research and
development tax credits approximating $983,000 which expire through 2013. For
financial reporting purposes, the net operating losses have been offset against
net deferred tax liabilities based upon their expected amortization during the
loss carryforward period. The remaining valuation allowance is necessary due to
the uncertainty of future income estimates. The valuation allowance increased
$3,883,000 in 1998 and decreased $55,000 in 1997 and increased $448,000 in 1996.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
1998 1997
---- ----
(IN THOUSANDS)
Deferred tax liabilities:
Deductible software development costs, net of
amortization........................................... $ 1,808 $3,609
Tax over book depreciation................................ 498 275
Percentage of completion.................................. 508 873
------- ------
Total deferred tax liabilities.............................. 2,814 4,757
Deferred tax assets:
Net operating loss carryforwards.......................... 9,489 7,592
Credit carryforwards...................................... 1,097 1,061
Reserve for warranty...................................... 61 68
Other..................................................... 339 325
------- ------
Total deferred tax assets................................... 10,986 9,046
Valuation allowance for deferred tax assets................. 8,172 4,289
------- ------
Net deferred tax assets..................................... 2,814 4,757
------- ------
Net deferred tax............................................ $ 0 $ 0
======= ======
Income tax expense of $38,000 for 1997 and income tax credits of $(76,000)
for 1996 represent income taxes paid (refunded) on foreign income.
The reconciliation of income taxes computed at the U.S. federal statutory
tax rates to income tax expense is as follows:
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Tax credit at U.S. statutory rates.......................... $(3,802) $(36) $(699)
Change in valuation allowance............................... 3,883 (55) 488
Nondeductible expenses...................................... 38 43 73
Other....................................................... (119) 86 62
======= ==== =====
$ 0 $ 38 $ (76)
======= ==== =====
There were no income tax payments in 1998, 1997 or 1996.
F-10
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE F -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
1998 1997 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NUMERATOR:
Net loss for basic and diluted earnings per share:
*there was no effect of dilutive securities see below..... $(11,184) $ (144) $(1,979)
DENOMINATOR:
Weighted-average shares outstanding for basic and
diluted................................................. 9,025 8,897 8,820
======== ====== =======
*there was no effect of dilutive securities see below
Basic and diluted loss per share.......................... $ (1.24) $(0.02) $ (0.22)
======== ====== =======
Warrants and options outstanding were not included in the computation of
diluted earnings per share because the inclusion of these options would have an
antidilutive effect. For additional disclosures regarding stock options and
warrants see Note H.
NOTE G -- EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan covering substantially all United
States' employees. The Company contributes $.20 to the Plan for every dollar
contributed by the employees up to 6% of their compensation. The Plan also
provides for discretionary contributions by the Company as determined annually
by the Board of Directors. Company contributions charged to operations under the
Plan were $80,000, $66,000, and $89,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
NOTE H -- STOCK OPTIONS AND WARRANTS
A summary of the status of the Option Plan is as follows:
NON-QUALIFIED
QUALIFIED ISO STOCK OPTION
PLAN PLAN 1995 PLAN
------------- ------------- ---------
(IN THOUSANDS)
Options outstanding....................................... 195 16 386
Options exercisable....................................... 195 16 386
Options granted during:
1998............................................... 0 0 0
1997............................................... 0 0 267
1996............................................... 0 0 132
1995............................................... 211
Options available
For Grant.......................................... 0 0 112
=== == ===
Option grants are approved by the Compensation Committee of the Board of
Directors. The option price is the market price on the date of the grant, and
vesting generally occurs after one year and the expiration occurs after ten
years from the date of the grant.
F-11
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE H -- STOCK OPTIONS AND WARRANTS -- CONTINUED
A summary of option activity under all plans follows:
1998 1997 1996
------------------------ ------------------------ ------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
------ -------------- ------ -------------- ------
(NUMBER OF SHARES IN THOUSANDS)
Outstanding at beginning of year.............. 662 $5.64 589 $5.87 788
Granted....................................... 0 0 267 5.20 132
Exercised..................................... 0 0 (23) 4.57 (141)
Canceled...................................... (65) 5.74 (171) 5.88 (190)
--- ----- ---- ----- ----
Outstanding at end of year.................... 597 5.48 662 5.64 589
=== ===== ==== ===== ====
($1.75 to $9.25 per share)
Exercisable ($1.75 to $9.25 per share)........ 597 $5.48 396 $5.93 464
=== ===== ==== ===== ====
Additional information regarding the range of exercise prices and weighted
average remaining life of options outstanding at December 31, 1998 follows:
WEIGHTED
RANGE OF AVERAGE
EXERCISE NUMBER REMAINING NUMBER
PRICES OUTSTANDING LIFE EXERCISABLE
-------- ----------- --------- -----------
(IN THOUSANDS)
$1.75 to 2.50 11 1.0 11
4.00 to 4.88 345 6.0 345
5.38 to 5.75 15 8.75 15
6.00 to 6.25 154 6.0 154
8.50 to 9.25 72 6.25 72
=== ==== ===
$1.75 to 9.25 597 6.5 597
=== ==== ===
The Company has elected to follow APB No. 25 "Accounting for Stock Issued
to Employees" and related interpretations in accounting for its employee stock
options because, in management's opinion, the models required to be used by FASB
Statement No. 123, "Accounting for Stock-Based Compensation," were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. After
adjusting for the proforma effect of stock compensation, the net loss is
estimated to be $11,532,000 ($1.28 per share), $470,000 ($.05 per share), and
$2,393,000 ($.27 per share) for 1998, 1997 and 1996 respectively. Assumptions
used in determining these proforma disclosures were risk free interest rates of
6.00% in 1998 and 1997, and 6.12 % in 1996, no dividend yields, .51 market price
volatility, and 6.5-year weighted average life of options. These proforma
results reflect only stock options granted in 1995 through 1997 (no options were
issued during 1998) and may not be comparable with the results of applying the
fair market value methodology to all stock options granted prior to the initial
adoption of this statement.
In connection with the private placement of $7.0 million of debentures in
1997, the company issued warrants for the purchase of 1,400,000 Medar common
shares at $6.86 per share. The estimated value of
F-12
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE H -- STOCK OPTIONS AND WARRANTS -- CONTINUED
these warrants was recognized as a discount on the debentures and will be
accreted and reported as additional interest expense over the life of the
debentures.
NOTE I -- LEASE COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries use equipment and office space under
long-term operating lease agreements requiring rental payments approximating
$104,000 in 1999, $83,000 in 2000 and $57,000 per year in 2001 and 2002. Rent
expense charged to operations approximated $107,000, $156,000, and $276,000 in
1998, 1997 and 1996, respectively.
NOTE J -- OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT
The Company adopted Statement of Financial Accounting Standards ("SAFS")
No. 131, Disclosures about Segments of an Enterprise and Related Information,
for the year ended December 31, 1998. SFAS No. 131 established standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for related
disclosures about products and services, and geographic areas. Operating
segments are defined as components of the enterprise about which separate
financial information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance.
F-13
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE J -- OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT -- CONTINUED
Net revenues from unaffiliated customers, earnings (loss) before income
taxes, identifiable assets and liabilities, classified by geographic areas in
which the Company operates, and net export sales by domestic operations, were as
follows:
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Net revenues:
Unaffiliated customers:
United States.......................................... $ 31,290 $38,865 $34,366
United Kingdom......................................... 2,661 960 2,440
Canada................................................. 862 699 4,665
-------- ------- -------
$ 34,813 $40,524 $41,471
======== ======= =======
Earnings (loss) before income taxes:
United States............................................. $ (9,982) $ 2,004 $(1,616)
United Kingdom............................................ (1,232) (2,232) (495)
Canada.................................................... 30 122 56
-------- ------- -------
$(11,184) $ (106) $(2,055)
======== ======= =======
Identifiable assets:
United States............................................. $ 42,688 $50,058 $44,538
United Kingdom............................................ 1,608 4,471 4,993
Canada.................................................... 169 163 1,712
Eliminations.............................................. (4,652) (2,086) (1,450)
-------- ------- -------
$ 39,813 $52,606 $49,793
======== ======= =======
Liabilities:
United States............................................. $ 28,647 $30,696 $26,380
United Kingdom............................................ 979 7,045 5,170
Canada.................................................... 65 70 1,656
Eliminations.............................................. (739) (7,208) (4,232)
-------- ------- -------
$ 28,952 $30,603 $28,974
======== ======= =======
Net revenues by geographic area:
United States*............................................ $ 21,157 $26,386 $27,208
Canada*................................................... 5,114 6,588 5,568
Europe.................................................... 3,650 4,237 5,986
Asia...................................................... 4,768 3,011 2,434
Other..................................................... 124 302 275
-------- ------- -------
$ 34,813 $40,524 $41,471
======== ======= =======
- -------------------------
* Countries that are considered individually material (more that 10% of net
revenues) all others less than 10% are grouped by region.
The Company operates principally in two industries, machine vision-based
inspection systems and resistance welding controls. Operations in machine
vision-based inspection systems involve development, production and sale of
equipment used to monitor or control the manufacturing process. These systems
are used to supplement human inspection or provide quality assurance when
production rates exceed human
F-14
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE J -- OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT -- CONTINUED
capability. Operations in resistance welding controls involve development,
production, and sale of controls that assure weld quality and provide data about
the welding process.
Operating data by business segment is summarized as follows:
DECEMBER 31, 1998 AND THE YEAR THEN ENDED
VISION-BASED RESISTANCE WELDING
INSPECTION SYSTEMS CONTROLS CONSOLIDATED
------------------ ------------------ ------------
(IN THOUSANDS)
Net revenues..................................... $ 9,433 $25,380 $ 34,813
Engineering and development...................... 3,495 1,649 5,144
Earnings (loss) from operations.................. (10,288) 1,560 (8,728)
Net interest expense............................. 2,456
--------
Loss before income taxes......................... (11,184)
Increase in property and equipment............... 251 440 691
Depreciation..................................... 834 1,390 2,224
Capitalized software development costs........... 1,283 368 1,651
Amortization of software development costs....... 1,420 407 1,827
Write-off of software development costs.......... 4,231 1,037 5,268
Write-off of inventory........................... 1,402 0 1,402
Identifiable assets at December 31, 1998......... 18,043 21,770 39,813
========
DECEMBER 31, 1997 AND THE YEAR THEN ENDED
VISION-BASED RESISTANCE WELDING
INSPECTION SYSTEMS CONTROLS CONSOLIDATED
------------------ ------------------ ------------
(IN THOUSANDS)
Net revenues..................................... $15,955 $24,569 $40,524
Engineering and development...................... 1,285 1,118 2,403
Earnings (loss) from operations.................. (1,078) 3,261 2,183
Net interest expense............................. 2,289
-------
Loss before income taxes......................... 106
Increase in property and equipment............... 128 751 879
Depreciation..................................... 498 1,191 1,689
Capitalized software development costs........... 4,644 739 5,383
Amortization of software development costs....... 2,678 912 3,590
Identifiable assets at December 31, 1997......... 28,358 24,248 52,606
=======
F-15
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
NOTE J -- OPERATIONS BY GEOGRAPHIC AREA AND INDUSTRY SEGMENT -- CONTINUED
DECEMBER 31, 1996 AND THE YEAR THEN ENDED
VISION-BASED RESISTANCE WELDING
INSPECTION SYSTEMS CONTROLS CONSOLIDATED
------------------ ------------------ ------------
(IN THOUSANDS)
Net revenues..................................... $13,618 $27,853 $41,471
Engineering and development...................... 2,138 1,414 3,552
Loss from operations............................. (5,703) 5,121 (582)
Net interest expense............................. 1,473
-------
Loss before income taxes......................... 2,055
Increase in property and equipment............... 2,065 218 2,283
Depreciation..................................... 1,558 449 2,007
Capitalized software development costs........... 3,826 843 4,669
Amortization of software development costs....... 1,608 914 2,522
Identifiable assets at December 31, 1996......... 22,423 27,370 49,793
=======
Interest expense and income taxes have been excluded from the calculation
of earnings (loss) from operations.
Identifiable assets allocated to each industry are those assets that are
used in the Company's operations in each industry.
F-16
77
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
MEDAR, INC. AND SUBSIDIARIES
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------ -------------------------------- ---------- --------------
ADDITIONS
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS OTHER DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS-DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ------------ ----------------- ---------- --------------
Year ended December 31, 1998:
Accounts receivable allowance... $ 400 $ 162 $ 162(3) $ 400
Inventory obsolescence
reserve...................... 210 1,530 1,440(1) 300
Deferred tax valuation
allowance.................... 4,289 3,883 (2) 8,172
------ ------ -------- ------ ------
$4,899 $5,575 $1,602
====== ====== ======== ====== ======
Year ended December 31, 1997:
Accounts receivable allowance... $ 400 $ 120 $ 120(3) $ 400
Inventory obsolescence
reserve...................... 156 622 568(1) 210
Deferred tax valuation
allowance.................... 4,344 55(2) 4,289
------ ------ -------- ------ ------
$4,900 $ 742 $ 743
====== ====== ======== ====== ======
Year ended December 31, 1996:
Accounts receivable allowance... $ 355 120 75(3) $ 400
Inventory obsolescence
reserve...................... 154 458 456(1) 156
Deferred tax valuation
allowance.................... 3,896 448
------ ------ -------- ------ ------
$4,405 $1,026 $ 531
====== ====== ======== ====== ======
- -------------------------
(1) Write-off obsolete inventory
(2) Net change in deferred tax valuation allowance
(3) Net accounts receivable write-offs
F-17
78
CONSOLIDATED BALANCE SHEETS
MEDAR, INC. AND SUBSIDIARIES
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash...................................................... $ 347 $ 566
Accounts receivable, less allowance of $400,000........... 10,280 10.901
Inventories............................................... 10,951 9,749
Costs and estimated earnings in excess of billings on
incomplete contracts................................... 1,602 1,495
Other current assets...................................... 828 683
------- -------
Total Current Assets........................................ 24,008 23,394
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements................................ 377 377
Building and building improvements........................ 6,319 6,317
Production and engineering equipment...................... 4,227 4,217
Furniture and fixtures.................................... 1,024 1,022
Vehicles.................................................. 313 365
Computer equipment........................................ 5,684 5,675
------- -------
17,944 17,973
Less accumulated depreciation............................. 9,885 9,485
------- -------
8,059 8,488
OTHER ASSETS
Capitalized computer software development costs, net of
amortization........................................... 5,433 5,349
Patents, net of amortization.............................. 1,796 1,890
Other..................................................... 598 692
------- -------
7,827 7,931
------- -------
$39,894 $39,813
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 6,642 $ 5,559
Employee compensation..................................... 775 889
Accrued and other liabilities............................. 1,201 827
Current maturities of long term debt...................... 20,205 13,478
------- -------
Total Current Liabilities................................... 28,823 20,753
LONG-TERM DEBT, LESS CURRENT MATURITIES..................... 1,616 8,199
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................................. (23,022) (21,628)
Notes receivable from officers............................ (580) (580)
Accumulated translation adjustment........................ 65 77
------- -------
Total Stockholders' Equity.................................. 9,455 10,861
------- -------
$39,894 $39,813
======= =======
See accompanying notes
F-18
79
CONSOLIDATED STATEMENTS OF OPERATIONS
MEDAR, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
----------------------
1999 1998
---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues................................................ $ 8,826 $ 6,627
Direct cost of sales........................................ 6,685 7,537
------- -------
2,141 (910)
Other costs and expenses:
Marketing................................................. 992 977
General and administrative................................ 662 806
Engineering and development:
Expenditures........................................... 1,771 2,224
Allocated to cost of sales and capitalized software.... (548) (1,191)
------- -------
1,223 1,033
Product restructuring and other charges -- Note C......... 5,571
------- -------
2,877 8,387
------- -------
Loss from operations........................................ (736) (9,297)
Interest.................................................. 657 632
------- -------
Net loss.................................................... $(1,393) $(9,929)
======= =======
Basic and diluted loss per share............................ $ (0.15) $ (1.10)
======= =======
Weighted average number of shares of common stock and common
stock equivalents, where applicable....................... 9,025 9,025
======= =======
See accompanying notes.
F-19
80
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MEDAR, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
---- ----
(UNAUDITED)
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss.................................................... $(1,393) $(9,929)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 915 1,578
Changes in operating assets and liabilities............ 603 4,856
Restructuring charges.................................. 5,571
------- -------
Net cash provided by operating activities.............. 125 2,076
INVESTING ACTIVITIES
(Purchase) disposal of property and equipment.......... 29 (189)
Investment in capitalized software and patents......... (505) (909)
------- -------
Net cash used in investing activities.................. (476) (1,098)
FINANCING ACTIVITIES
Decrease in long term debt and current maturities...... 144 (1,080)
Effect of exchange rate changes on cash................ (12) 49
------- -------
Decrease in cash............................................ (219) (53)
Cash at beginning of period................................. 566 831
------- -------
Cash at end of period....................................... $ 347 $ 778
======= =======
See accompanying notes.
F-20
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES
MARCH 31, 1999
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 three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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,
1998.
NOTE B -- SALE OF WELDING DIVISION
On April 28, 1999 the Company reached an agreement subject to shareholder
approval, to sell substantially all operating assets of the Welding Division for
estimated total consideration of up to $37,300,000 which includes cash, the
assumption of certain liabilities, a note, certain payments for transition
related services and payments dependent on post closing revenues. Gain on the
sale of these assets is estimated to be $6,500,000 which is anticipated to be
recognized in the second quarter of 1999.
The results of operations for the Welding Division have been reported in
the consolidated statements of operations for the current and prior periods. A
summary of these results of operations are as follows.
MARCH 31
-----------------
1999 1998
---- ----
(IN THOUSANDS)
Net sales................................................... $7,128 $ 5,032
Costs and expenses........................................ 5,823 6,379
------ -------
Earnings (loss) from operations........................... $1,305 $(1,347)
====== =======
F-21
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
MARCH 31, 1999
NOTE B -- SALE OF WELDING DIVISION -- CONTINUED
A summary of the assets to be sold and liabilities to be assumed by the
purchaser related to the Welding Division is as follows:
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
Assets:
Accounts receivable......................................... $ 8,625 $ 8,063
Inventories................................................. 6,592 5,418
Costs and estimated earnings in excess of billings.......... 1,302 1,296
Other current assets........................................ 152 157
Warranty obligation payable................................. (100) (100)
Accounts payable............................................ (3,000) (3,000)
------- -------
Net current assets.......................................... 13,571 11,834
Net fixed Assets............................................ 3,436 3,587
Net capitalized software costs.............................. 1,096 996
Net patents................................................. 1,445 1,539
Other non-current assets.................................... 228 265
Patent license payable...................................... (1,354) (1,354)
------- -------
Net non-current assets...................................... 4,851 5,033
NOTE C -- 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 D -- COMPREHENSIVE INCOME
Total comprehensive loss was $1,405,000 and ($9,880,000) for the three
months ended March 31, 1999 and 1998, respectively.
NOTE E -- 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:
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
Raw materials........................................... $ 5,694 $5,244
Work-in-process......................................... 2,796 1,818
Finished goods.......................................... 2,461 2,687
------- ------
$10,951 $9,749
======= ======
F-22
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
MARCH 31, 1999
NOTE F -- 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:
MARCH 31 DECEMBER 31
1999 1998
-------- -----------
(IN THOUSANDS)
Contract costs to date...................................... $4,661 $4,766
Estimated contract earnings................................. 3,432 3,363
------ ------
8,093 8,129
Less billings to date....................................... 6,491 6,634
------ ------
Costs and estimated earnings in excess of billings on
incomplete contracts...................................... $1,602 $1,495
====== ======
NOTE G -- LONG TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
MARCH 31 DECEMBER 31
1999 1998
-------- -----------
(IN THOUSANDS)
Revolving note payable to bank.............................. $10,000 $10,000
Subordinated debentures, interest at 12.95%, principal due
June 2000 through 2004.................................... 6,606 6,583
Term notes payable to bank.................................. 3,117 3,214
Patent license to corporation, payable $300,000 yearly
including interest........................................ 1,554 1,554
Other....................................................... 544 326
------- -------
21,821 21,677
Less current maturities..................................... 20,205 13,478
------- -------
$ 1,616 $ 8,199
======= =======
The revolving note payable to bank had an original due date of August 31,
1999, and currently provides for advances up to $10,000,000 based upon levels of
eligible accounts receivable and inventory. At March 31, 1999, the line was
fully drawn and interest was at the Bank's prime rate plus 1%. For various
periods during the year, the Company was not in compliance with certain of the
covenants of the agreement associated with the note payable. Under a new
agreement entered into late in the year, the Bank and Company agreed to continue
the loan on a basis similar to the operating basis followed under the original
agreement. The principal change from the former agreement is that the new
agreement expired on March 5, 1999. As of March 4, 1999, the Bank and the
Company agreed to extend the expiring new agreement to June 7, 1999, under
substantially similar terms as the expiring agreement. Substantially all Company
assets not previously pledged under term notes (see below), have been pledged as
collateral for this indebtedness. Management believes that the bank will extend
the agreement through the date of
F-23
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
MARCH 31, 1999
NOTE G -- LONG TERM DEBT AND OTHER FINANCING ARRANGEMENTS -- CONTINUED
the sale of the Welding Division (See Note B) at which time the indebtedness and
the term notes are expected to be paid or refinanced.
The term notes to bank are covered under the new agreement with the Bank as
to expiration date, and therefore are all due June 7, 1999. The term notes are
described as follows:
- $62,500 quarterly plus interest at the Bank's prime rate, plus 1%,
collateralized by a first mortgage on the Company's Grand River facility;
- $14,111 monthly, plus interest at 8.7%, collateralized by a first
mortgage on the Company's Crestview facility;
- $2,189 monthly, plus interest at the Bank's prime rate, plus 1%
The subordinated debentures mature $700,000 on each June 30 in the years
2000 to 2004, with the balance due June 30, 2005. Interest on the debentures is
payable quarterly at 12.95% per annum. At the time the debentures were issued,
the debenture holders were granted warrants for the purchase of 1,400,000 shares
of the Company's common stock at $6.86. At December 31, 1997 and throughout
1998, the Company was not in compliance with certain of the covenants of the
debenture agreement and the Company was unsuccessful in 1998 in obtaining
waivers of the covenant violations. As a result, at December 31, 1997 and
throughout 1998 the debentures were classified as a current liability. Under an
agreement reached in March of 1999, the debenture holders agreed to adjust the
loan covenants and make other changes in the agreement in exchange for an
agreement by the Company to allow for repricing of the related warrants based on
the occurrence of certain future events allowing for long term classification of
the debt at December 31, 1998. The first quarter of 1999 operating loss has
resulted in violations of the adjusted covenants related to the debentures. The
company has not requested waivers or amendments to the agreements. Management
believes that the bond holders will refrain from exercising their rights as a
result of these violations through the closing of the sale of the Welding
Division (See Note B) at which time the indebtedness is expected to be paid.
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%.
Maturities of long-term debt are $246,000 in 2000; $270,000 in 2001;
$298,000 in 2002; $268,000 in 2003; $534,000 thereafter.
F-24
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
MARCH 31, 1999
NOTE H -- 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:
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
Deferred tax liabilities:
Deductible software development costs, net of
amortization........................................... $ 1,790 $ 1,808
Tax over book depreciation................................ 513 498
Percentage of completion.................................. 544 508
------- -------
Total deferred tax liabilities....................... 2,847 2,814
Deferred tax assets:
Net operating loss carry forwards......................... 9,962 9,489
Credit carry forwards..................................... 1,061 1,097
Reserve for warranty...................................... 61 61
Other..................................................... 357 339
------- -------
Total deferred tax assets............................ 11,441 10,986
Valuation allowance for deferred tax assets................. 8,594 8,172
------- -------
Net deferred tax assets.............................. 2,847 2,814
------- -------
Net deferred tax liabilities......................... $ -0- $ -0-
======= =======
The reconciliation of income taxes computed at the U.S. federal statutory
rates to income tax expense for the nine months ended March 31 is as follows:
1999 1998
---- ----
(IN THOUSANDS)
Tax at U.S. statutory rates................................. $(473) $(3,376)
Change in valuation allowance............................... 422 3,326
Other....................................................... 51 50
----- -------
$ -- $ --
===== =======
NOTE I -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share.
QUARTER ENDED MARCH 31
--------------------------
1999 1998
---- ----
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE AMOUNTS)
Numerator:
Net earnings (loss) for basic and diluted earnings per
share:................................................. $ (1,393) $ (9,929)
Denominator:
Denominator for basic earnings per share --
weighted-average share................................. 9,024,901 9,024,901
---------- ----------
Basic and diluted earnings (loss) per share............... $ (.15) $ (1.10)
========== ==========
*there was no effect of dilutive securities
F-25
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MEDAR, INC. AND SUBSIDIARIES -- CONTINUED
MARCH 31, 1999
NOTE I -- EARNINGS PER SHARE -- CONTINUED
For additional disclosures regarding stock options and warrants see Note J.
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 J -- STOCK OPTIONS AND WARRANTS
At March 31, 1999, 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.
NOTE K -- SEGMENT DATA
QUARTER ENDED MARCH 31, 1999
OPTICAL INSPECTION RESISTANCE WELDING
SYSTEMS CONTROLS CONSOLIDATED
------------------ ------------------ ------------
(IN THOUSANDS)
Net revenues...................................... $ 1,698 $7,128 $ 8,826
Amortization of software development cost......... 307 99 406
Research, development, and engineering expense.... 841 382 1,223
Earnings (loss) from operations................... (2,041) 1,305 (736)
Net interest expense.............................. 657
-------
Loss before income taxes.......................... $(1,393)
=======
QUARTER ENDED MARCH 31, 1998
OPTICAL INSPECTION RESISTANCE WELDING
SYSTEMS CONTROLS CONSOLIDATED
------------------ ------------------ ------------
(IN THOUSANDS)
Net revenues...................................... $ 1,594 $ 5,033 $ 6,627
Amortization of software development cost......... 820 212 1,032
Research, development, and engineering expense.... 828 205 1,033
Loss from operations.............................. (7,950) (1,347) (9,297)
Net interest expense.............................. 632
-------
Loss before income taxes.......................... $(9,929)
=======
- -------------------------
(a) Loss from operations for the quarter ended March 31, 1998 includes
restructuring charges of $5,627 for Vision-based Inspection Systems and
$1,346 for Resistance Welding Controls (see note C).
F-26
87
APPENDICES INDEX
PAGE
----
Appendix A Asset Purchase Agreement.................................... A-1
Exhibit A Subordinated Note........................................... A-41
Exhibit E Non-Competition Agreement................................... A-43
Exhibit G Transition Services Agreement............................... A-46
Exhibit I Subordination and Intercreditor Agreement................... A-50
Exhibit K Guaranty.................................................... A-59
Appendix B Certificate of Amendment to Certificate of Incorporation.... B-1
Appendix C Opinion of NatCity Investments, Inc......................... C-1
Appendix D Voting Agreement............................................ D-1
88
APPENDIX A
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MIAC ACQUISITION, INC.,
WELTRONIC/TECHNITRON, INC.
AND
MEDAR, INC.
APRIL 28, 1999
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TABLE OF CONTENTS
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ARTICLE I
TRANSFER OF ASSETS
1.01 Purchase and Sale of Assets................................. A-1
1.02 Excluded Assets............................................. A-3
ARTICLE II
LIABILITIES
2.01 Assumed Liabilities......................................... A-3
2.02 Excluded Liabilities........................................ A-4
2.03 Right to Contest............................................ A-4
ARTICLE III
PURCHASE PRICE
3.01 Consideration............................................... A-4
3.02 Amount and Payment of Purchase Price........................ A-4
3.03 Purchase Price Adjustment................................... A-4
3.04 Contingent Earnout Payment.................................. A-5
3.05 Payments of Transfer Taxes.................................. A-5
3.06 Allocation of Purchase Price................................ A-5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
4.01 Organization and Qualification; Subsidiaries................ A-6
4.02 Authority; Vote Required.................................... A-6
4.03 Financial Statements; Undisclosed Liabilities............... A-7
4.04 No Conflict; Required Filings and Consents.................. A-7
4.05 Permits; Compliance......................................... A-8
4.06 Absence of Certain Changes or Events........................ A-8
4.07 Absence of Litigation....................................... A-9
4.08 Contracts; No Default....................................... A-10
4.09 Intellectual Property Rights................................ A-10
4.10 Insurance................................................... A-11
4.11 Brokers..................................................... A-11
4.12 Title to Properties......................................... A-11
4.13 Proxy Statement............................................. A-12
4.14 Inventory; Costs and Estimated Earnings in Excess of
Billings.................................................... A-12
4.15 Real Property............................................... A-12
4.16 Condition of Purchased Assets............................... A-13
4.17 Accounts Receivable......................................... A-13
4.18 Major Customers and Suppliers............................... A-13
4.19 Product Warranty............................................ A-13
4.20 Legal Compliance............................................ A-14
4.21 Assigned Contracts.......................................... A-14
4.22 Product Liability........................................... A-14
4.23 Employee Benefit Plans...................................... A-14
4.24 Labor Matters............................................... A-15
4.25 Taxes....................................................... A-16
4.26 Environmental, Health and Safety............................ A-16
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4.27 Records..................................................... A-18
4.28 Year 2000 Compliance........................................ A-18
4.29 Disclosure.................................................. A-18
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND GUARANTOR
5.01 Organization and Qualification.............................. A-18
5.02 Authority................................................... A-19
5.03 No Conflict; Required Filings and Consents.................. A-19
5.04 Brokers..................................................... A-20
5.05 Financial Statements; Undisclosed Liabilities............... A-20
5.06 Absence of Certain Changes or Events........................ A-20
5.07 Purchaser's Credit Facility................................. A-21
5.08 Disclosure.................................................. A-21
ARTICLE VI
COVENANTS
6.01 Affirmative Covenants of Seller............................. A-22
6.02 Negative Covenants of Seller................................ A-22
6.03 Acquisition Proposals....................................... A-23
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 Proxy Statement............................................. A-23
7.02 Meeting of Stockholders..................................... A-24
7.03 Appropriate Action; Consents; Filings....................... A-24
7.04 Update Disclosure........................................... A-25
7.05 Employees................................................... A-25
7.06 Risk of Loss................................................ A-26
7.07 Seller's Name............................................... A-26
7.08 Records and Documents....................................... A-26
7.09 Accounts Receivable......................................... A-26
ARTICLE VIII
CLOSING
8.01 Closing..................................................... A-26
ARTICLE IX
CLOSING CONDITIONS
9.01 Conditions to Obligations of Each Party Under This
Agreement................................................... A-27
9.02 Additional Conditions to Obligations of Purchaser........... A-27
9.03 Additional Conditions to Obligations to Seller.............. A-30
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.01 Termination................................................. A-31
10.02 Effect of Termination....................................... A-32
10.03 Expenses.................................................... A-32
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ARTICLE XI
INDEMNIFICATION BY PURCHASER
11.01 Indemnification............................................. A-33
11.02 Procedures.................................................. A-33
11.03 Payment..................................................... A-34
11.04 Survival of Indemnification................................. A-34
11.05 Basket Payment.............................................. A-34
11.06 Remedies Cumulative......................................... A-34
ARTICLE XII
INDEMNIFICATION BY SELLER
12.01 Indemnification............................................. A-34
12.02 Procedures.................................................. A-35
12.03 Payment..................................................... A-35
12.04 Survival of Indemnification................................. A-36
12.05 Basket Payment.............................................. A-36
12.06 Remedies Cumulative......................................... A-36
ARTICLE XIII
GENERAL PROVISIONS
13.01 Notices..................................................... A-36
13.02 Amendment................................................... A-37
13.03 Waiver...................................................... A-37
13.04 Headings.................................................... A-37
13.05 Severability................................................ A-37
13.06 Entire Agreement............................................ A-37
13.07 Assignment.................................................. A-37
13.08 Parties in Interest......................................... A-38
13.09 Governing Law............................................... A-38
13.10 Counterparts................................................ A-38
13.11 Press Releases and Public Announcements..................... A-38
13.12 Construction................................................ A-38
13.13 Employees................................................... A-38
13.14 WARN........................................................ A-38
13.15 Access...................................................... A-38
13.16 Bulk Sales.................................................. A-38
13.17 Litigation Support.......................................... A-39
13.18 Use of Marketing Materials.................................. A-39
13.19 Subordination............................................... A-39
13.20 Arbitration................................................. A-39
13.21 Further Assurances.......................................... A-40
EXHIBITS
Exhibit A Subordinated Note........................................... A-41
Exhibit B General Bill of Sale........................................
Exhibit C Assignment and Assumption Agreement.........................
Exhibit D Opinion of Seller's Counsel.................................
Exhibit E Non-Competition Agreement................................... A-43
Exhibit F Mutual Release..............................................
Exhibit G Transition Services Agreement............................... A-46
Exhibit H Opinion of Purchaser's Counsel..............................
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Exhibit I Subordination and Intercreditor Agreement................... A-50
Exhibit J Commitment Letter...........................................
Exhibit K Guaranty of Weltronic/Technitron, Inc....................... A-59
INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
1.01(a) Personal Property...........................................
1.01(b) Real Property...............................................
1.01(c) Assigned Contracts..........................................
1.01(d) Vehicles....................................................
1.01(e) Intangible Assets...........................................
1.01(f) Licenses and Permits........................................
1.01(g) Inventory...................................................
1.01(h) Accounts and Notes Receivable...............................
1.01(i) Prepaid Items and Deferred Costs............................
1.01(j) Costs and Estimated Earnings in Excess of Billings..........
1.02(a) Excluded Real Property......................................
1.02(f) Other Excluded Assets.......................................
2.01(c) $3 Million of Trade Accounts Payable Assumed by Purchaser...
3.03 Proposed Closing Date Balance Sheet.........................
3.06 Allocation of Purchase Price................................
4.01(a) Organization and Qualification..............................
4.01(b) Subsidiaries................................................
4.03(b) Unrecorded Liabilities......................................
4.04(a) Consents, Approvals, Authorizations or Permits..............
4.05 Permits; Compliance.........................................
4.06 Absence of Certain Changes or Events........................
4.07(a) Litigation..................................................
4.07(b) Orders, Decrees, etc. ......................................
4.08 Contracts...................................................
4.09(b) Infringement of Intellectual Property Rights................
4.09(c) Intellectual Property Rights Owned..........................
4.09(d) Intellectual Property Rights Licensed.......................
4.10 Insurance...................................................
4.12 Permitted Encumbrances......................................
4.14 Consigned Inventory.........................................
4.15 Real Property...............................................
4.16 Condition of the Purchased Assets...........................
4.17 Accounts Receivable.........................................
4.18 Customers and Suppliers.....................................
4.19 Product Warranty............................................
4.20 Legal Compliance............................................
4.21 Assigned Contracts..........................................
4.22 Product Liability...........................................
4.23(a) Employee Benefit Plans......................................
4.23(e) Employment Agreements.......................................
4.24(a) Labor Matters...............................................
4.25 Taxes.......................................................
4.26(c) Environmental Permits.......................................
4.26(d) Compliance with Environmental Permits.......................
4.26(e) Environmental Reports.......................................
4.26(f) Compliance with Environmental Laws..........................
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4.26(g) Environmental Claims........................................
4.26(h) Hazardous Substances Disposal...............................
4.28 Year 2000 Compliance........................................
5.03(a) Purchaser Consents, Approvals, Authorizations or Permits....
5.03(b) Purchaser Conflicts or Defaults.............................
5.05(b) Unrecorded Liabilities......................................
5.06 Absence of Certain Changes or Events........................
7.05 Seller's Retained Employees.................................
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of April 28, 1999 (the "Agreement"),
is made and entered into between MIAC ACQUISITION, INC., a Michigan corporation
("Purchaser"), WELTRONIC/TECHNITRON, INC., a Delaware corporation ("Guarantor"),
and MEDAR, INC., a Michigan corporation ("Seller").
RECITALS
A. Seller operates, among other things, a division which is engaged in the
business of designing, manufacturing, selling and distributing resistance weld
controls and related equipment (the "Division").
B. Seller desires to sell to Purchaser and Purchaser desires to purchase
from Seller substantially all assets and rights of Seller relating to the
Division, on the terms and conditions set forth in this Agreement (the "Asset
Sale").
AGREEMENTS
In consideration of the premises and the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I
TRANSFER OF ASSETS
1.01 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Seller agrees to sell and transfer to Purchaser, and Purchaser
agrees to purchase from Seller as of the Closing Date, all of Seller's right and
title to and interest in all of the assets, properties and rights (collectively,
the "Purchased Assets") exclusively relating to or exclusively used in the
operation of the Division (but expressly excluding therefrom the Excluded
Assets), including, but not limited to the following:
(a) PERSONAL PROPERTY. All machinery, equipment, leasehold
improvements, supplies, tools, fixtures, spare parts, furniture,
furnishings and other personal property, including, without limitation, the
property listed on Schedule 1.01(a) ("Personal Property").
(b) REAL PROPERTY. All fee or any other interest, in and to the real
estate, buildings, fixtures and improvements described on Schedule 1.01(b)
(the "Owned Parcel"). The Owned Parcel and leased property identified on
Schedule 1.01(c) are hereinafter collectively referred to as the "Real
Property."
(c) CONTRACTS AND LEASES. All rights of Seller and its Subsidiaries
(defined in Article IV) under (including, without limitation, the right to
receive goods and services and to assert claims and to take other action
with respect to breaches, defaults and other violations pursuant to)
contracts and leases listed on Schedule 1.01(c) (the "Assigned Contracts").
Notwithstanding the foregoing, if Seller fails to include on Schedule
1.01(c) a contract related to the Division, Purchaser shall be entitled to
assume such contract upon becoming aware of its existence.
(d) VEHICLES. All automobiles, trucks, trailers, automotive equipment
and other vehicles owned or leased by Seller and its Subsidiaries,
including, without limitation, vehicles listed on Schedule 1.01(d) (the
"Vehicles").
(e) INTANGIBLE ASSETS. All intangible assets (collectively, the
"Intangible Assets") including, without limitation, all of the following
Intangible Assets to the extent that they relate to the Division or are
used in the operation of the Division: (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof,
(ii) all trademarks, service marks, trade dress, logos, trade names and
corporate names, including, without limitation, the name "Medar, Inc." (the
"Name") together with all
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translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations and renewals in connection therewith, (iii) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (iv) all mask works and all applications,
registrations and renewals in connection therewith, (v) all trade secrets
and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information
and business and marketing plans and proposals), (vi) all assignable
computer software (including data and related documentation), (vii) all
data bases, compilations and directories (in whatever form or medium),
(viii) all copies and intangible embodiments thereof (in whatever form or
medium), and (ix) all other Intangible Assets listed on Schedule 1.01(e).
(f) LICENSES AND PERMITS. All government licenses, approvals, permits
and authorizations (and all applications, registrations and renewals for
the foregoing) necessary for the operation of the Division, including,
without limitation, those listed on Schedule 1.01(f) ("Licenses and
Permits"), to the extent such Licenses and Permits are assignable.
(g) INVENTORY. All inventories, spare parts and supplies, wherever
located, and all such items that Seller has ordered but not physically
received by the Closing Date, including, without limitation, those listed
on Schedule 1.01(g) ("Inventory").
(h) ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes receivable,
trade accounts receivable, employee accounts receivable and notes
receivable from customers, including, without limitation, those listed on
Schedule 1.01(h) ("Accounts Receivable").
(i) PREPAID ITEMS AND DEFERRED COSTS. All prepaid rents, customer
deposits, security deposits, trade show deposits and other prepaid items
(but excluding prepaid insurance) and all deferred sales costs, including,
without limitation, those listed on Schedule 1.01(i).
(j) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS. All costs and
estimated earnings in excess of billings on incomplete contracts,
including, without limitation, those listed on Schedule 1.01(j) ("Costs and
Estimated Earnings in Excess of Billings").
(k) SECURITIES. All securities, capital stock and other interests in
Shanghai Medar Welding Equipment, Co., Ltd. and Medar Canada, Ltd.
(l) CERTAIN CLAIMS. All rights to causes of action, suits,
proceedings, judgments, claims and demands of any nature, whenever maturing
or asserted, relating to or arising directly out of (a) the Purchased
Assets, (b) the Assumed Liabilities, or (c) the operations of the Division,
including, without limitation, all rights under express or implied
warranties from suppliers or vendors to the Division.
(m) RECORDS AND DOCUMENTS. All records, computer software and
documents, books, customer lists, sales leads and all other sales and
marketing information, credit information and correspondence, plans and
specifications, drawings and all other records and documents used by Seller
in connection with the operation of the Division, except for Seller's
corporate records to the extent not necessary for the operation of the
Division in the ordinary course ("Documents").
To the extent that any Purchased Asset is not assignable without the consent of
another Person (as defined below), and to the extent such consent is not
obtained prior to Closing, this Agreement shall, subject to the rights of any
such person or entity, constitute an assignment of Seller's interest in such
Purchased Asset. Seller agrees to use its best efforts to obtain the consent of
all third parties necessary for the assignment of all Purchased Assets to
Purchaser. If any such consent shall not be obtained, Seller shall provide, or
make arrangement to provide, Purchaser, in a manner reasonably approved by
Purchaser, the benefits of the relevant Purchased Asset, including enforcement
at the cost of Seller and for the account of Purchaser of any and all rights of
Seller against the other Person.
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Seller shall transfer the Purchased Assets free and clear of all Liens (as
defined below), except Liens which constitute Permitted Encumbrances (as defined
below) or which relate to any of the Assumed Liabilities (as defined below).
1.02 EXCLUDED ASSETS. There shall be excluded from sale by Seller under
this Agreement all assets, properties and rights of Seller not exclusively
relating to or exclusively used in the operation of the Division and the
following assets (the "Excluded Assets"):
(a) REAL PROPERTY. Seller's interest in the real property listed on
Schedule 1.02(a).
(b) CASH. All cash (currency and coin), negotiable instruments,
securities, bank deposits and similar cash equivalents on hand at the
Closing Date ("Cash").
(c) CERTAIN CONTRACTS. All rights of Seller under any contracts,
agreements or commitments other than the Assigned Contracts.
(d) CERTAIN CLAIMS. All rights to causes of action, suits,
proceedings, judgments, claims and demands of any nature, whenever maturing
or asserted, relating to or arising directly out of the Excluded Assets or
the Excluded Liabilities, including claims for refunds of federal and state
income taxes and tax credits of any kind.
(e) CORPORATE RECORDS. All corporate records, including but not
limited to, stockholder records, stock records, stock transfer journals,
board of directors and stockholder minutes, payroll and financial
information necessary for the preparation of Seller's tax returns and
satisfaction of other reporting requirements, other than the Documents.
(f) SCHEDULED ASSETS. All assets listed on Schedule 1.02(f).
ARTICLE II
LIABILITIES
2.01 ASSUMED LIABILITIES. On the terms and subject to the conditions of
this Agreement, Purchaser shall, by written instrument, assume as of the Closing
Date and thereafter shall be obligated to pay and fully satisfy the liabilities
and obligations specifically identified below, and only such specifically
identified liabilities and obligations (collectively, the "Assumed
Liabilities"):
(a) ASSIGNED CONTRACTS. The liabilities and obligations of Seller
arising under the Assigned Contracts, but not including any liability or
obligation arising out of or resulting from Seller's or its Subsidiaries'
breach, violation or nonperformance under the Assigned Contracts or out of
any event or circumstance occurring on or prior to the Closing Date (except
for the Seller's obligation to perform such Assigned Contracts where the
obligation to perform is not due until after the Closing Date);
(b) SQUARE D COMPANY. Seller's obligation to pay six equal annual
installments of $300,000 to Square D Company (and no other liability or
obligation of Seller) pursuant to that certain Patent License Agreement
between Seller and Square D Company dated October 4, 1995 (the "License"),
which payment obligation shall be payable directly to Square D Company in
accordance with the terms of the License; and
(c) CERTAIN PAYABLES. Purchaser shall assume and be obligated to pay,
perform and discharge the $3 Million of Seller's payables relating to the
Division which are listed on Schedule 2.01(c) to this Agreement.
(d) WARRANTY OBLIGATIONS. Warranty work, including parts and labor on
any products designed, manufactured or sold by Seller or its Subsidiaries
related to the Division prior to the Closing Date, up to the amount of
$100,000, according to the standards specified in section 4.19.
Purchaser shall not be liable for any other matter, event or circumstance
occurring prior to the close of business on the Closing Date, including, without
limitation, items which would not constitute a breach of a
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representation and warranty in this Agreement, items disclosed in Article IV or
the Schedules to Article IV of this Agreement or items otherwise known to
Purchaser unless such items are otherwise Assumed Liabilities under this section
2.01.
2.02 EXCLUDED LIABILITIES. Notwithstanding anything to the contrary
contained in this Agreement, Purchaser will have no responsibility and will not
assume or be liable for any debts, liabilities or obligations of Seller or any
of its Affiliates or any debts, liabilities or obligations of any kind or nature
relating to the respective businesses of Seller and its Subsidiaries, whenever
arising, and whether known or unknown, primary or secondary, direct or indirect,
absolute or contingent, contractual, tortuous or otherwise, other than the
Assumed Liabilities identified in section 2.01 above (all such liabilities other
than the Assumed Liabilities are collectively referred to as the "Excluded
Liabilities"). Seller shall indemnify and hold Purchaser's Indemnified Persons
(as defined below) harmless (which indemnity and hold harmless shall be
indefinite and not subject to the durational or other limitations in Article
XII) from and against any Excluded Liabilities.
2.03 RIGHT TO CONTEST. The assumption and agreement of Purchaser to pay the
Assumed Liabilities when due will not prohibit Purchaser from contesting with
the obligee, at Purchaser's expense, the amount, validity or enforceability of
any of the Assumed Liabilities; provided, however, that Purchaser shall
indemnify Seller for any Assumed Liability.
ARTICLE III
PURCHASE PRICE
3.01 CONSIDERATION. In consideration of the sale, assignment, transfer and
conveyance of the Purchased Assets and the other undertakings of Seller in this
Agreement, and subject to the terms and conditions of this Agreement, Purchaser
shall (a) pay the Purchase Price as provided in this Article III, and (b) assume
the Assumed Liabilities as of the Closing Date as provided in section 2.01
above.
3.02 AMOUNT AND PAYMENT OF PURCHASE PRICE. The purchase price for the
Purchased Assets (the "Purchase Price") shall equal the sum of (a) $20,550,000
in cash (the "Cash Purchase Price"), (b) a subordinated promissory note in the
principal amount of $7,400,000, dated as of the Closing Date, with final payment
due September 30, 2003, in the form of Exhibit A (the "Subordinated Note"), (c)
the Assumed Liabilities and (d) the Contingent Earnout. At Closing, Purchaser
shall (a) pay the Cash Purchase Price to Seller by wire transfer of immediately
available funds, (b) deliver the Subordinated Note to Seller, (c) assume the
Assumed Liabilities and (d) be subject to the Contingent Earnout provisions.
Within five business days after the Closing Date Balance Sheet (as defined
in section 3.03) is finalized in accordance with the provisions of section 3.03,
Purchaser or Seller, as the case may be, shall pay the other by wire transfer of
immediately available funds, a sum equal to the Seller Adjustment Amount, if any
(as defined in section 3.03), or the Purchaser Adjustment Amount, if any (as
defined in section 3.03).
3.03 PURCHASE PRICE ADJUSTMENT.
(a) As soon as practicable, but no later than 45 days after the
Closing, Purchaser shall deliver to Seller a balance sheet of the Division
dated as of the Closing Date (the "Proposed Closing Date Balance Sheet").
The Proposed Closing Date Balance Sheet shall be prepared in substantially
the form of the balance sheet attached hereto as Schedule 3.03. In
connection with the preparation of the Proposed Closing Date Balance Sheet,
Purchaser shall conduct a complete physical inventory as of the Closing
Date or such other agreed upon date. Seller shall be permitted to observe
the taking of such inventory. A copy of such inventory shall be delivered
to Seller with the Proposed Closing Date Balance Sheet. The Purchaser shall
permit Seller and its accounting firm to review all accounting records and
all work papers and computations used by it in the preparation of the
Proposed Closing Date Balance Sheet. If Seller does not give notice of
dispute to Purchaser within 30 days of receipt of the Proposed Closing Date
Balance Sheet, the Proposed Closing Date Balance Sheet shall become the
"Closing Date Balance Sheet." If Seller gives notice of dispute to
Purchaser within such 30-day period, Seller and Purchaser shall negotiate
in good faith to resolve the dispute. Any such notice shall be in writing
and state, in
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reasonable detail, the basis for each objection and the amount of
adjustment that Seller requests. If, after 15 days from the date notice of
a dispute is given hereunder, Seller and Purchaser cannot agree on the
resolution of the dispute, the parties shall designate a certified public
accounting firm acceptable to both Purchaser and Seller to resolve the
dispute, whose decision as to the Closing Date Balance Sheet shall be
conclusive and binding upon Seller and Purchaser. If the parties are unable
to agree on the selection of a certified public accounting firm, Purchaser
and Seller shall each name one firm, and the two firms so named shall name
a third firm who shall make the determination. If Seller has not given
timely notice of a dispute to Purchaser the "Closing Date Balance Sheet"
shall be the balance sheet finally determined in accordance with the prior
three sentences. The expenses pertaining to the resolution of any dispute
hereunder shall be shared equally by Seller and Purchaser; provided,
however, that the certified public accounting firm shall have the power to
award recovery of costs and fees (including reasonable attorney and
administrative fees) among the parties as the certified public accounting
firm determines to be equitable under the circumstances.
(b) If the "Agreed Asset Value" (as defined below) as determined based
on the Closing Date Balance Sheet is less than $14,777,000, the Purchase
Price shall be reduced by the difference (such reduction being referred to
herein as the "Purchaser Adjustment Amount").
(c) If the Agreed Asset Value as determined based on the Closing Date
Balance Sheet exceeds $14,777,000, the Purchase Price shall be increased by
the difference (such increase being referred to herein as the "Seller
Adjustment Amount").
(d) For purposes of this section, "Agreed Asset Value" means the
aggregate book value of the Accounts Receivable (without any allowance for
doubtful accounts or reserve for bad debts), Inventory and Costs and
Estimated Earnings in Excess of Billings on the Closing Date. Seller
represents thereof the Inventory included in this calculation is owned
solely by Seller and the Subsidiaries, and does not represent inventory
owned by others. This representation is not subject to the Basket or other
limitations provided in Article XII below.
3.04 CONTINGENT EARNOUT PAYMENT. In addition to payment of the Purchase
Price, Purchaser shall pay to Seller the aggregate sum of $3,000,000 (the
"Contingent Earnout"), provided Daimler Chrysler Activity (as defined below)
reaches agreed levels. If between the period commencing January 1, 1999 and
ending December 31, 2000 the DaimlerChrysler Activity reaches the total of
$5,500,000 ("Level I"), $1,500,000 will be due. If the total of DaimlerChrysler
Activity during the period reaches $8,000,000 ("Level II"), an additional
$750,000 will be due. If the total of Daimler Chrysler activity during the
period reaches $11,000,000 ("Level III"), an additional $750,000 will be due.
"DaimlerChrysler Activity" shall mean the Division's deliveries to
DaimlerChrysler or suppliers designated by DaimlerChrysler at the net selling
price during the period, plus the amount of any unfilled purchase orders or
releases calling for delivery during the period less returns and allowances.
Assuming Level I is met, the first Contingent Earnout payment of $1,500,000
shall be due on a date which is the later of (i) 30 days from the date Level I
is met or (ii) February 15, 2000. Assuming Levels II and III are met, the next
$1,500,000 shall be payable in equal monthly installments of $125,000 commencing
April 15, 2000 and ending March 15, 2001; provided however that (i) such monthly
installments shall be adjusted on an ongoing basis if Levels II and III are not
met such that Purchaser pays Contingent Earnout payments to Seller only for the
Levels which have been met and (ii) any and all required payments shall be paid
on or before March 15, 2001. Notwithstanding the foregoing, if required by the
Bank, the Contingent Earnout Payments will be paid quarterly or as otherwise
required by the Bank.
3.05 PAYMENTS OF TRANSFER TAXES. All transfer taxes imposed in connection
with the sale and transfer of the Purchased Assets to Purchaser shall be borne
by Purchaser.
3.06 ALLOCATION OF PURCHASE PRICE. For income tax purposes, the Purchase
Price shall be assigned and allocated to the Purchased Assets as set forth on
Schedule 3.06. Purchaser and Seller agree to reflect such allocations in all
reports with respect to all taxes.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The term "Seller Material Adverse Effect" as used in this Agreement shall
mean any change or effect that, individually or when taken together with all
other changes or effects, is or may be materially adverse to the condition
(financial or otherwise), results of operations, businesses, properties, assets,
liabilities or prospects of the Division.
The term "Person" as used in this Agreement shall mean an individual,
corporation, partnership, association, trust, limited liability company,
unincorporated organization, other entity or group (as defined in section 13(d)
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act")).
The term "Affiliate" as used in this Agreement shall mean, with respect to
any Person, a Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
first mentioned Person. The term "control" (including the terms "controlled by"
and "under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise.
The term "Subsidiary" (or its plural) as used in this Agreement with
respect to Seller, Purchaser or any other Person shall mean any corporation,
partnership, joint venture or other legal entity of which Seller, Purchaser or
such other Person, as the case may be (either alone or through or together with
any other Subsidiary), owns, directly or indirectly, greater than 50% of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
Seller represents and warrants to Purchaser that the statements contained
in this Article IV are true and correct as of the date of this Agreement and as
of the Closing Date.
4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Michigan, has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted and is duly licensed
and qualified and in active status in each jurisdiction in which the nature
of the business conducted by it or the ownership or leasing of its
properties makes such licensure and qualification necessary, except as
otherwise provided on Schedule 4.01(a). Seller has not used or assumed any
other name in connection with the operations of the Division during the
last five years except as provided on Schedule 4.01(a).
(b) A true and complete list of all Seller's directly or indirectly
owned Subsidiaries used in the Division together with the jurisdiction of
incorporation or organization of each such Subsidiary and the percentage of
each Subsidiary's outstanding capital stock or other equity interest owned
by Seller or another Subsidiary of Seller, is set forth on Schedule
4.01(b). Each Subsidiary is duly incorporated or organized, validly
existing and in good standing under the laws of the state of its
incorporation or organization, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly licensed and qualified in
an active status in each jurisdiction which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
licensure and qualification necessary, except as otherwise provided on
Schedule 4.01(b).
4.02 AUTHORITY; VOTE REQUIRED.
(a) Seller has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement
and to consummate the transactions contemplated by this Agreement, subject
to required approval of the holders of the common stock, stated value $.20
per share, of Seller ("Seller Common Stock"). The execution and delivery of
this Agreement and the other
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agreements to be executed and delivered pursuant to this Agreement
(collectively, the "Related Agreements") by Seller and the consummation by
Seller of the transactions contemplated by this Agreement and the Related
Agreements have been duly authorized by all necessary corporate action,
including such corporate action as may be required by the Michigan General
Corporation Law (the "Michigan Law"), and no other corporate proceedings on
the part of Seller are necessary to authorize this Agreement and the
Related Agreements or to consummate the transactions contemplated by this
Agreement and the Related Agreements (other than with respect to the
approval of this Agreement and the Related Agreements by the holders of
Seller Common Stock in accordance with the Michigan Law, Seller's Articles
of Incorporation and By-Laws). This Agreement is, and the Related
Agreements will be when so executed, valid and binding obligations of
Seller, enforceable against Seller in accordance with their terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
relating to or affecting the rights and remedies of creditors generally and
by general principles of equity regardless of whether enforceability is
considered in a proceeding in equity or at law.
(b) The affirmative vote of the holders of at least a majority of the
outstanding shares of Seller Common Stock is the only vote of the holders
of any class or series of capital stock of Seller necessary to approve the
Asset Sale.
4.03 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Seller has delivered to Purchaser copies of the following
financial statements prepared by Seller, including in each case all notes
thereto, all of which have been prepared from the books and records of
Seller in accordance with generally accepted accounting principles
consistently applied and maintained throughout the periods indicated
("GAAP") and fairly present the financial condition of Seller as of their
respective dates and the results of its operations for the periods covered
thereby:
(i) An unaudited listing of assets of the Division as of December
31, 1998 (the "Balance Sheet" and December 31, 1998 being referred to
herein as the "Balance Sheet Date") and an unaudited statements of
income of the Division for the year then ended; and
(ii) An unaudited listing of assets of the Division as of March 31,
1999 (the "Interim Balance Sheet") and an unaudited statement of income
for the three -month period ending March 31, 1999 (the "Interim Balance
Sheet Date"); and
(iii) Audited balance sheets of the Seller as of December 31, 1996,
1997, and 1998 and audited statements of income and cash flows of the
Seller for each of the years then ended together with auditor's reports
for each year ("Audited Balance Sheet").
Such statements of income do not contain any items of special or
nonrecurring income or any other income not earned in the ordinary course
of business except as expressly specified therein, and such interim
financial statements include all adjustments necessary for such fair
representation. Sales are stated in such statements of income net of
discounts, returns and allowances. All taxes due or paid are and will be
timely reflected in the financial statements, and all taxes not yet due and
payable are and will be fully accrued or otherwise provided for in the
financial statements.
(b) Except as set forth on Schedule 4.03(b), there are to Seller's
knowledge no liabilities or obligations, direct or indirect, absolute or
contingent, known or unknown, or any outstanding evidence of indebtedness
arising out of or relating to, the Division or the Purchased Assets, except
(i) as fully reflected or as specifically reserved against on the Audited
Balance Sheet; and (ii) liabilities incurred in the ordinary course of
business after the Audited Balance Sheet Date, consistent with Seller's
prior practice, which, in the aggregate, do not result in any Seller
Material Adverse Effect.
4.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and the Related
Agreements by Seller does not and will not, and the performance of this
Agreement and the Related Agreements by Seller will not: (i) violate the
Articles of Incorporation or By-Laws of Seller or any of its Subsidiaries;
(ii) subject to
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(x) obtaining the requisite approval of this Agreement by the holders of
the outstanding shares of Seller Common Stock in accordance with the
Michigan Law, Seller's Articles of Incorporation and its By-Laws, (y)
obtaining the consents, approvals, authorizations and permits of, and
making filings with or notifications to, any governmental or regulatory
authority, whether local, domestic or foreign ("Governmental Entities"),
pursuant to the applicable requirements, if any, of the Exchange Act, the
applicable provisions of the Michigan Law, and the requirements of the
National Association of Securities Dealers, Inc. ("NASD") or the Nasdaq
National Market, and (z) giving the notices and obtaining the consents,
approvals, authorizations or permits described on Schedule 4.04(a), violate
any law, constitution, statute, regulation, rule, injunction, decree,
ruling, judgment, order or other restriction of any Governmental Entity or
court to which Seller or any of its Subsidiaries is subject or by which any
of their respective properties is bound; or (iii), except as set forth on
Schedule 4.04(a), result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or give to any Person any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any
of the properties or assets of Seller or any of its Subsidiaries, or
require any notice pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument,
arrangement or obligation to which Seller or any of its Subsidiaries is a
party or by which Seller or any of its Subsidiaries or any of their
respective properties is bound.
(b) The execution, delivery and performance of this Agreement by
Seller does not require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Entity, except for (i)
the filing of a proxy statement with the Securities and Exchange Commission
("SEC") and the Nasdaq Stock Market in connection with the required
approval of the Seller's shareholders, and (ii) the consents, approvals,
authorizations or permits described on Schedule 4.04(a).
4.05 PERMITS; COMPLIANCE. Seller is in possession of all franchises,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary for Seller or any of its
Subsidiaries to own, lease and operate its properties or to carry on the
business of the Division as it is now being conducted (the "Seller Permits").
Except as set forth on Schedule 4.05, such Seller Permits are in full force and
effect, will remain in full force and effect for the benefit of Purchaser
immediately after Closing and are transferable to Purchaser without the consent
of any third party. No suspension, revocation or cancellation of any of the
Seller Permits is pending or, to the knowledge of Seller, is threatened. Neither
Seller nor any of its Subsidiaries is operating in default under or violation of
(i) any law, constitution, statute, regulation, rule, injunction, decree,
ruling, judgment, order or other restriction of any Governmental Entity or court
to which Seller or any of its Subsidiaries is subject or by which any of their
respective properties is bound or (ii) any of the Seller Permits.
4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
4.06 or as contemplated by this Agreement, since the Balance Sheet Date:
(a) There has not been any change in the accounting methods or
practices followed by Seller or any Subsidiary, except as required by GAAP;
(b) There has not been any sale, lease, transfer, assignment,
abandonment or other disposition of (including, without limitation, any
grant of an option or similar right to purchase) any asset or assets in
excess of $10,000 in the aggregate, which asset or assets would be a
Purchased Asset, other than sales of inventory for fair consideration in
the ordinary course of business;
(c) Seller has not entered into any material transaction with any of
its officers, directors or employees of the Division, other than in the
ordinary course of business;
(d) No party (including any of Seller and its Subsidiaries) has
accelerated, terminated, modified or canceled (prior to the expiration of
its term) any material agreement, contract, lease or license (or series of
related agreements, contracts, leases and licenses) relating to the
business of the Division and to which any of Seller and its Subsidiaries is
a party or by which any of its assets is bound;
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(e) None of Seller and its Subsidiaries has delayed or postponed the
payment of accounts payable or other liabilities of any kind or nature
relating to the Division or the Purchased Assets outside the ordinary
course of business;
(f) None of Seller and its Subsidiaries has canceled, compromised,
waived, or released any right or claim (or series of related rights and
claims) relating to the Division or the Purchased Assets outside the
ordinary course of business;
(g) None of Seller and its Subsidiaries has sold or otherwise
transferred any Intangible Asset or granted any license or sublicense of
any rights under or with respect to any Intangible Assets;
(h) None of Seller and its Subsidiaries has granted any increase in
the base compensation of, or made any other change in the employment terms
for, any employees of the Division outside the ordinary course of business;
(i) None of Seller and its Subsidiaries has adopted, amended, modified
or terminated any bonus, profit-sharing, incentive, severance or other
plan, contract or commitment for the benefit of any of the employees of the
Division (or taken any such action with respect to any other employee
benefit plan);
(j) There has not been any (i) failure by Seller and its Subsidiaries
to replenish the Division's inventories and supplies in a normal and
customary manner consistent with their prior practice; or (ii) other change
in the selling, pricing, advertising or personnel practices relating to the
Division inconsistent with Seller's and its Subsidiaries' prior practice;
(k) There has not been any payment of any liability other than those
then required to be discharged or satisfied or current liabilities shown on
the Interim Balance Sheet and current liabilities incurred since the
Interim Balance Sheet Date in the ordinary course of business and
consistent with past practices;
(l) There have not been any intercompany loans or payments, dividends
or transfers of cash or other assets by Seller out of the ordinary course
of business;
(m) There has not been any material deviation from the ordinary and
usual course of operation of the Division, including without limitation,
Inventory buying practices, in contemplation of the transactions described
in this Agreement;
(n) None of Seller and its Subsidiaries has permitted or caused to be
permitted any Lien (as defined below) upon any of the Purchased Assets,
except for Permitted Encumbrances (as defined below);
(o) Neither Seller nor any Subsidiary has entered into any commitment
or other agreement to do any of the foregoing;
(p) Seller conducted the business of the Division in the ordinary
course and consistent with Seller's past practice;
(q) There has not been any Seller Material Adverse Effect;
(r) None of Seller and its Subsidiaries has experienced any damage,
destruction or loss (whether or not covered by insurance) to any material
assets of the Division, ordinary wear and tear excepted; or
(s) None of Seller and its Subsidiaries is aware of any labor union
organizing activity, any actual or threatened employee strikes, work
stoppages, slow-downs or lockouts with respect to relations with its
employees, agents, customers or suppliers.
4.07 ABSENCE OF LITIGATION.
(a) Schedule 4.07(a) lists all claims, actions, suits, litigation, or
arbitrations or, to the knowledge of Seller, investigations or proceedings
relating to the Division or any of the Purchased Assets, at law or in
equity, which are pending or, to the knowledge of Seller, threatened, and
which involve, individually or in the aggregate, an amount in excess of
$25,000. There is no action pending or, to the knowledge of Seller,
threatened, to enjoin or restrain any of the transactions contemplated by
this Agreement.
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(b) Except as set forth on Schedule 4.07(b), neither Seller nor any of
its Subsidiaries is subject to any continuing order of, consent decree,
settlement agreement or other similar agreement (oral or written) with or,
to the knowledge of Seller, continuing investigation by, any Governmental
Entity with respect to the business of the Division.
4.08 CONTRACTS; NO DEFAULT. Schedule 4.08 lists (or describes in the case
of material oral agreements):
(a) Each contract or agreement to which Seller or any of its
Subsidiaries is a party concerning a partnership, joint venture or similar
arrangement with another Person or materially limiting the right of Seller
or any of its Subsidiaries prior to the Closing Date, or Purchaser or any
of its Subsidiaries at or after the Closing Date, to engage in, or to
compete with any Person in, any business of the Division including each
contract or agreement containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by Seller or any of its Subsidiaries prior to the Closing Date,
or by the Purchaser or any of its Subsidiaries after the Closing Date;
(b) Each material agreement which Seller or any of its Subsidiaries is
a party relating to the Division or any of the products designed,
manufactured, distributed or sold by the Division;
4.09 INTELLECTUAL PROPERTY RIGHTS.
(a) Seller owns or has the right to use pursuant to license,
sublicense or other agreement all Intangible Assets, without any conflict
or alleged conflict with the rights of any other Person, and Seller has
taken all necessary action to maintain and protect each Intangible Asset.
Each Intangible Asset owned or used by Seller immediately prior to the
Closing hereunder will be owned or available for use by Purchaser on
substantially similar terms and conditions immediately subsequent to the
Closing hereunder (assuming Purchaser executes and delivers to Square D
Company an assumption of Seller's obligations under the License) except
that with respect to the License, (a) it is understood to apply only to the
activity of those portions of the Purchaser's business originally acquired
from Seller not to any prior activity of Purchaser or activity engaged in
by Purchaser's other business; and (b) the grant shall be limited only to
products of Seller in existence at the time of assignment to Purchaser.
(b) Except as disclosed on Schedule 4.09(b), with respect to the
operation of the Division, to Seller's knowledge none of Seller and its
Subsidiaries has infringed upon or misappropriated any intellectual
property rights of third parties, and none of Seller and the directors and
officers (and employees with responsibility for intellectual property
matters) of Seller and its Subsidiaries has received any charge, complaint,
claim, demand or notice alleging any such infringement or misappropriation
(including any claim that any of Seller and its Subsidiaries must license
or refrain from using any intellectual property rights of any third party).
Except as disclosed on Schedule 4.09(b) and to Seller's knowledge, no third
party has infringed upon or misappropriated in any material respect any
intellectual property rights included in the Intangible Assets.
(c) Schedule 4.09(c) identifies each patent or registration which has
been issued to Seller with respect to any of the Intangible Assets,
identifies each pending patent application or application for registration
which Seller has made with respect to any of the Intangible Assets,
identifies each copyright, trade name, service name, unregistered trademark
and unregistered service mark used by Seller in connection with the
operation of the Division and the manufacture, marketing and distribution
of the products manufactured by the Division and identifies each license,
agreement or other permission which Seller has granted to any third party
with respect to any of its Intangible Assets (together with any
exceptions). Seller has made available to Purchaser correct and complete
copies of all such patents, registrations, applications, licenses,
agreements and permissions (as amended to date) and all other written
documentation evidencing ownership and prosecution (if applicable) of each
such item. With respect to each Intangible Asset required to be identified
in Schedule 4.09(c), except as set forth on Schedule 4.09(c):
(i) Seller possesses all right, title and interest in and to the
Intangible Asset, free and clear of any security interest, lien,
license, or other encumbrance;
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(ii) The Intangible Asset is not subject to any outstanding
injunction, judgment, order, decree or ruling;
(iii) No action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the knowledge of Seller, is
threatened which challenges the legality, validity, enforceability, use
or ownership of the Intangible Asset; and
(iv) None of Seller and its Subsidiaries has ever agreed to
indemnify any Person for or against any infringement or misappropriation
with respect to the Intangible Asset.
(d) Schedule 4.09(d) identifies each Intangible Asset that any third
party owns and that Seller or its Subsidiaries use in the operation of the
Division pursuant to license, sublicense, agreement or permission. Seller
has made available to Purchaser correct and complete copies of all such
licenses, sublicenses, agreements and permissions (as amended to date).
With respect to each Intangible Asset required to be identified in Schedule
4.09(d), except as set forth on Schedule 4.09(d):
(i) The license, sublicense, agreement or permission covering the
Intangible Asset is legally valid, binding, enforceable and in full
force and effect;
(ii) The license, sublicense, agreement or permission will continue
on substantially similar terms following the consummation of the
transaction contemplated hereby;
(iii) Seller is not in breach or default of the license,
sublicense, agreement or permission and has not repudiated any
provisions thereof;
(iv) To Seller's knowledge, no other party to the license,
sublicense, agreement or permission is in breach or default or has
repudiated any provision thereof and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(v) With respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true and
correct with respect to the underlying license;
(vi) The underlying Intangible Asset is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge;
(vii) No action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the knowledge of Seller, is
threatened which challenges the legality, validity or enforceability of
the underlying Intangible Asset; and
(viii) None of Seller and its Subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement or permission.
4.10 INSURANCE. All policies and binders of insurance for professional
liability, directors and officers, property and casualty, fire, liability,
worker's compensation and other customary matters held by or on behalf of Seller
or its Subsidiaries ("Insurance Policies") are identified on Schedule 4.10 and
have been made available to Purchaser. The Insurance Policies are in full force
and effect. Neither Seller nor any of its Subsidiaries has failed to give any
notice of any claim under any Insurance Policy in due and timely fashion, nor to
the knowledge of Seller, has any coverage for claims been denied.
4.11 BROKERS. No broker, finder or investment banker other than NatCity
Investments, Inc. ("NatCity") is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon any arrangements made by or on behalf of Seller. Seller is
fully responsible for the payment of all amounts which may become due or owing
to NatCity.
4.12 TITLE TO PROPERTIES. Seller has or will have at Closing good and
marketable title to, or a valid leasehold or contractual interest in, all
Purchased Assets, free and clear of all mortgages, liens, security interests,
rights of first refusal, easements or other similar encumbrances ("Liens"),
except Liens (a) which constitute Permitted Encumbrances (as defined below), or
(b) which relate to any of the Assumed Liabilities. Upon completion of the Asset
Sale, Purchaser shall acquire good and marketable title to all of the Purchased
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Assets, free and clear of all Liens except (a) Permitted Encumbrances, or (b)
which relate to any of the Assumed Liabilities. For purposes of this Agreement,
"Permitted Encumbrances" shall mean those Liens listed on Schedule 4.12. Except
for the Excluded Assets, the Purchased Assets constitute all of the property
exclusively used or exclusively held for use in the operation of the Division.
4.13 PROXY STATEMENT. The definitive Proxy Statement and related materials
will comply with the Exchange Act in all material respects. The definitive proxy
materials will not contain an untrue statement of material fact or omit a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they will be made, not misleading.
4.14 INVENTORY; COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS.
(a) The Inventory consists of raw materials and supplies, manufactured
and purchased parts, goods in process and finished goods, all of which are
merchantable and fit for the purpose for which they were procured or
manufactured and none of which is obsolete, damaged or defective, subject
only to the reserve for inventory writedown set forth on the Interim
Balance Sheet. The value at which Seller carries the Inventory on the
Interim Balance Sheet reflects its customary inventory valuation policy of
stating inventory on the standard cost method which approximates the
first-in, first-out method, all in accordance with GAAP. Except as
described on Schedule 4.14, no Inventory has been consigned to others. The
quantity of Inventory is sufficient and adequate for, but is not materially
in excess of the level appropriate to, the conduct of the business of the
Division as it previously has been conducted. Seller has not made any
purchase commitments in excess of normal, ordinary and usual requirements.
(b) The value at which Seller carries the Costs and Estimated Earnings
in Excess of Billings on the Interim Balance Sheet represents Seller's best
estimate of the components therein, all in accordance with GAAP.
4.15 REAL PROPERTY. Schedule 4.15 sets forth a true and complete list and
description of all real property owned, used or occupied by Seller and its
Subsidiaries exclusively in the operation of the Division including a
description of all such land, and all encumbrances, easements, or rights of way
of record (or, if not of record, of which Seller has notice or knowledge)
granted on or otherwise affecting such real property. Except as set forth on
Schedule 4.15, there are no leases, contracts, options, agreements or
enforceable rights or obligations relating to or affecting the Real Property to
which Seller or any of its Subsidiaries is a party or by which the Real Property
is otherwise bound or affected. To Seller's knowledge, there are no material
structural or nonstructural defects (including, without limitation, inadequacy
for normal use of mechanical systems and fixtures) in any of the buildings or
its systems or fixtures (including, without limitation, the HVAC system,
plumbing system, electrical system, sprinkler system and sewer and water
systems) or other improvements situated on the Real Property and all building
systems, fixtures, structures, fixtures and improvements, owned, leased or used
by Seller and any of its Subsidiaries, are in all material respects in good
condition and working order (reasonable wear and tear excepted) and are adequate
in quality and quantity for the normal operation of the Division and the Real
Property. None of the Real Property is located in a recognized wetland, flood
prone area, flood risk area, flood plain or similarly restricted area or is
subject to any shoreland regulations. Seller has no notice or knowledge of
capital expenditures on the Real Property (excluding only normal repair made
consistently with past practice and which are required to be expensed for
federal income tax purposes) that would be necessary to conduct the business of
the Division as presently conducted nor are any such expenditures planned by
Seller. Seller and its Subsidiaries have all easements and rights, including
without limitation, easements for all utilities, services, roadways, and other
ways on ingress and egress, adequate and sufficient to conduct the business of
the Division (including, without limitation, accesses for ingress and egress of
vehicles across the driveways and roadways presently existing at the Real
Property used to access the public roadways). Neither the whole or any portion
of the Real Property has been condemned, requisitioned or otherwise taken by any
public authority, no notice of such condemnation, requisition or taking has been
served upon Seller and to Seller's knowledge, no such condemnation, requisition
or taking is threatened or contemplated. No public improvements have been
commenced and to Seller's knowledge there are no public improvements planned
which may reasonably be expected to result in special assessments against or
otherwise adversely affect any of the Real Property. Except for increases
consistent with past experience, Seller has no
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notice or knowledge of any proposed increases in any real estate taxes or
assessed valuations applicable to the Real Property, and there are no challenges
or appeals pending regarding the amount and/or payments of such real estate
taxes or assessed valuations. No Governmental Entity has issued any work order,
and there have been no court orders requiring repairs, alterations or
corrections of any condition on the Real Property. As of the date of Closing,
all work performed or materials furnished for the Real Property shall have been
fully paid for, Seller shall deliver an affidavit to that effect to the title
insurance company at Closing, and Seller shall provide Purchaser with
appropriate lien waivers from any and all contractors, subcontractors, laborers
or material men furnishing labor or material for the improvement of the Real
Property during the six months preceding the date of Closing.
4.16 CONDITION OF PURCHASED ASSETS. No maintenance outside the ordinary
course of business is needed with respect to the Purchased Assets to Seller's
knowledge. None of the Purchased Assets or other assets owned, leased, occupied
or operated by Seller in connection with the business of the Division, or the
ownership, leasing or operation thereof, is in violation of any law, ordinance,
code, rule or regulation to Seller's knowledge. Except as set forth on Schedule
4.16, the Purchased Assets are in all respects in good condition and working
order (reasonable wear and tear excepted) and are adequate, in quality and
quantity, for the operation of the business of the Division.
4.17 ACCOUNTS RECEIVABLE. All Accounts Receivable of the Seller and those
existing as of the Closing Date represent valid claims for bona fide,
arms-length sales of goods and services actually made by Seller in the ordinary
course of its business. All of the Accounts Receivable are valid receivables
subject to no setoffs or counterclaims, and are current (within 150 days) and
collectible in the ordinary course of business using normal collection practices
at the aggregate recorded amounts thereof (without any allowance for doubtful
accounts). Schedule 4.17 sets forth an aging schedule of the Accounts Receivable
as of the date set forth on such Schedule, and such schedule is correct and
complete in all material respects. To the extent any Account Receivable is not
collected within 150 days of the Closing Date, Purchaser shall have the right to
set off against amounts due Seller under the Subordinated Note or any Related
Agreement the amount of any liability of Seller to Purchaser under this section
or under any other provision of this Agreement, in which case Purchaser shall
assign and transfer such Account Receivable to Seller in accordance with section
7.09.
4.18 MAJOR CUSTOMERS AND SUPPLIERS. Schedule 4.18 sets forth (a) a list of
the ten largest customers of the Division for each of the fiscal years ended
December 31, 1997 and December 31, 1998 (determined on the basis of the total
dollar amount of net revenues) showing the dollar amount of net revenues from
each such customer during each such year, (b) a list of the ten largest
suppliers of the Division in terms of dollar volume of purchases during such
fiscal years, and (c) a list as of a recent date of all purchase orders for
finished goods accepted by the Company with respect to products manufactured by
the Division. Seller and its Subsidiaries have no information that might
reasonably indicate that any customer, supplier or vendor of Seller or its
Subsidiaries intends to cease purchasing from, selling to or dealing with Seller
or its Subsidiaries. Except as set forth on Schedule 4.18, no information has
been brought to the attention of Seller or its Subsidiaries that might
reasonably lead any of them to believe that any customer or supplier intends to
alter, in any material respect, the amount of its purchases, sales or the extent
of its dealings with Seller or its Subsidiaries, or would alter, in any material
respect, its purchases from, sales to or dealings with Purchaser in the event
that the Asset Sale contemplated by this Agreement is consummated.
4.19 PRODUCT WARRANTY. Schedule 4.19 sets forth a general description of
all warranty, guaranty and indemnity provisions provided by Seller with respect
to the business of the Division. There are no claims pending or, to Seller's
knowledge, threatened against Seller or any of its Subsidiaries for warranty
obligations relating to the business of the Division, except claims which in the
aggregate involve an amount that is consistent with Seller's past practice.
Warranty claims by Purchaser against Seller are to provide only for employee
wages plus fringe benefits, overhead (calculated at 25% of wages) and travel and
the cost of the part, only if the part cannot be repaired or replaced by any
outside manufacturer who may have manufactured that part. Purchaser will not
incur more than $100,000 of liability, cost or expense related to warranty
claims which Purchaser has assumed pursuant to section 2.01(c) using the
standard set forth in the immediately preceding sentence. Purchaser agrees to
provide Seller with monthly written reports documenting the amount of warranty
claims and the work performed.
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4.20 LEGAL COMPLIANCE. The Division has complied in all material respects
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder of
federal, state, local and foreign governments (and all agencies thereof)) to
Seller's knowledge, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or commenced against
Seller or, to the knowledge of Seller, threatened against Seller alleging any
failure so to comply. To Seller's knowledge, the Seller and the operations of
the Division and the use of the Purchased Assets are in compliance in all
material respects with all applicable federal, state, local and international
laws or ordinances and any other rule or regulation of any Governmental Entity,
including, without limitation, all banking, securities, energy, safety,
environmental, zoning, health, export, import, trade practice,
antidiscrimination, antitrust, wage, hour and price control laws, orders, rules
or regulations. Schedule 4.20 lists all citations issued to Seller with respect
to the Division in the three years prior to the date hereof from any
Governmental Entity. All citations that have been issued have been properly
remedied. No notice from any Governmental Entity or other Person has been served
upon Seller or upon any of the Purchased Assets claiming any violation or
alleged violation of any law, ordinance, code, rule or regulation or requiring,
or calling attention to the need for, any work, repairs, construction,
alterations or installation on or in connection with the Purchased Assets or the
Division with which Seller has not complied. To Seller's knowledge, the Seller
has no liability (whether accrued, absolute, contingent, direct or indirect) for
past or continuing violations of any law, ordinance, code, rule or regulation.
All reports and returns required to be filed by Seller with respect to the
Division with any Governmental Entity have been filed and were accurate and
complete in all material respects when filed.
No payments of cash or other consideration have been made to any Person or
Governmental Entity by Seller or by any agent, employee, officer, director,
shareholder or other person or entity on behalf of Seller which were unlawful
under the laws of the United States or any state or other Governmental Entity.
4.21 ASSIGNED CONTRACTS. With respect to each Assigned Contract, except as
set forth on Schedule 4.21:
(a) The contract or lease is legal, valid, binding, enforceable and in
full force and effect;
(b) The benefits and burdens of such contract or lease will continue
on substantially similar terms following consummation of the transactions
contemplated hereby;
(c) Seller is not in breach or default under the contract or lease and
has not repudiated any provision of the contract or lease; and
(d) To Seller's knowledge, no other party is in breach or default
under the contract or lease, no other party has repudiated any provision of
the contract or lease, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or permit termination,
modification or acceleration under the contract or lease.
4.22 PRODUCT LIABILITY. Except as set forth on Schedule 4.22, there is no
present (and Seller has no knowledge of any facts which could reasonably be
expected to result in any future) action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against Seller or its
Subsidiaries or the Division giving rise to any liability arising out of any
injury to individuals or property as a result of the ownership, possession or
use of any product manufactured, sold, leased or delivered by the Division.
Seller's and its Subsidiaries' products and services with respect to the
Division have been designed, manufactured and provided so as to meet and comply
with all material governmental standards and specifications currently in effect.
4.23 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.23(a) lists or describes, solely as it relates to the
Division, any pension, retirement, savings, disability, medical, dental,
health, life (including any individual life insurance policy as to which
Seller is the owner, beneficiary or both), death benefit, group insurance,
profit sharing, deferred compensation, stock option, bonus incentive,
vacation pay, severance pay, "cafeteria" or "flexible benefit" plan under
section 125 of the Internal Revenue Code of 1986 as amended (the "Code"),
or other employee benefit plan, trust, arrangement, contract, agreement,
policy or commitment, under which
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employees of Seller or its Subsidiaries are entitled to participate by
reason of their employment with Seller or its Subsidiaries, (i) to which
Seller or a Subsidiary is a party or a sponsor or a fiduciary thereof or
(ii) with respect to which Seller or a Subsidiary has made payments,
contributions or commitments, or has any liability (collectively, the
"Employee Benefit Plans").
(b) To Seller's knowledge, the Employee Benefit Plans have been
operated and administered by Seller in compliance in all material respects
with all applicable laws relating to employment or labor matters, including
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Code and all contributions required under such
plans have been made as required.
(c) Each Employee Benefit Plan that is intended to be tax qualified
under section 401(a) of the Code has received, or Seller has applied for or
will in a timely manner apply for, a favorable determination letter from
the Internal Revenue Service (the "IRS") stating that the Plan meets the
requirements of the Code and that any trust or trusts associated with the
plan are tax exempt under section 501(a) of the Code.
(d) Neither Seller nor any of its Subsidiaries maintains, and neither
Seller nor any of its Subsidiaries has maintained or contributed to, any
defined benefit plan covering employees of Seller or its Subsidiaries
within the meaning of section 3(35) of ERISA or any multiemployer plan.
(e) Schedule 4.23(e) sets forth a list of all written employment
agreements, employment contracts or understandings relating to employment
(other than relating to "at-will" employment) to which Seller or any of its
Subsidiaries is a party as to employees that work in the Division.
4.24 LABOR MATTERS.
(a) Neither Seller nor any of its Subsidiaries is a party to or bound
by any union collective bargaining agreements or other labor contracts.
Neither Seller nor any of its Subsidiaries, with respect to the Division,
is a party to any pending arbitration or grievance proceeding or other
claim relating to any labor contract nor, to Seller's knowledge, is any
such action threatened and no set of facts would reasonably be expected to
constitute a basis for any such action. Except as set forth on Schedule
4.24, within the last five years, neither Seller nor any of its
Subsidiaries has experienced any labor disputes, union organization
attempts or any work stoppage due to labor disagreements in connection with
the Division, and there is currently no labor strike, dispute, request for
representation, slow down or stoppage actually pending, or to the knowledge
of Seller, threatened against or affecting the Seller or its Subsidiaries
nor a secondary boycott with respect to the products of the Seller or its
Subsidiaries.
(b) Neither Seller nor any of its Subsidiaries is bound by any court,
administrative agency, tribunal, commission or board decree, judgment,
decision, arbitration agreement or settlement relating to collective
bargaining agreements, conditions of employment, employment discrimination
or attempts to organize a collective bargaining unit which in any case may
materially and adversely affect Seller, the Division or the Purchased
Assets. Seller has no notice or knowledge of any employment discrimination,
safety or unfair labor practice or other employment-related investigation,
claim or allegation against Seller or any of its Subsidiaries or any set of
facts which would reasonably be expected to constitute a basis for such an
action.
(c) Seller has provided Purchaser all of Seller's and its
Subsidiaries' written employment policies presently in effect.
(d) On or before the Closing Date, Seller and its Subsidiaries shall
have paid all of their obligations relating to employees (whether arising
by operation of law, by contract or by past service) or payments to trusts
or other funds, to any Governmental Entity or to any individual employee
(or his or her legal representatives) with respect to unemployment
compensation benefits, profit sharing, retirement benefits, vacation pay or
Social Security benefits. Seller has no regular full-time employees of the
Division, except those domiciled in Michigan, Missouri, Kentucky and
Canada.
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4.25 TAXES.
(a) Seller and its Subsidiaries have filed or caused to be filed with
the appropriate Governmental Entity, all foreign, federal, state,
municipal, and local income, franchise, excise, sales, real and personal
property, and other tax returns and reports that are required to be filed,
and neither Seller nor any of its Subsidiaries is delinquent in the payment
of any taxes shown on such returns or reports or on any material
assessments for any such taxes received by it and has otherwise complied in
all material respects with all legal requirements applicable to Seller and
its Subsidiaries with respect to all income, sales, use, real or personal
property, excise or other taxes. Except as set forth on Schedule 4.25,
neither Seller nor any of its Subsidiaries has executed or filed with the
Internal Revenue Service any agreement extending the period for assessment
and collection of any federal tax. Neither Seller nor any of its
Subsidiaries is a party to any pending action or proceeding, nor, to the
knowledge of Seller, has any action or proceeding been threatened, by any
Governmental Entity for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against Seller or any
of its Subsidiaries. Each of Seller and its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
all amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
(b) Pursuant to MCLA 205.27(a), MSA 7.657(27a), 1986 PA 58, Section
27a, Seller waives all confidentiality regarding any Taxes that are payable
to the State of Michigan and agrees that the appropriate authorities of the
State of Michigan may release to Purchaser Seller's known Tax liability.
Seller agrees to execute any separate waivers of confidentiality that
Purchaser or the appropriate authorities might require to implement to the
terms of this subsection.
(c) The information contained on the Michigan Employment Security
Commission Form 1027, Business Transferor's Notice to Transferee of
Unemployment Tax Liability and Rate, is correct and complete.
4.26 ENVIRONMENTAL, HEALTH AND SAFETY.
(a) ENVIRONMENTAL LAWS. The term "Environmental Laws" shall mean all
foreign, federal, interstate, state and local laws, including statutes,
rules, regulations, and other governmental orders and guidances relating to
the presence, discharge, release, emission, dispersal, spilling, leaking,
dumping or migration of Hazardous Substances or otherwise relating to the
protection of the environment, the management of Hazardous Substances or
the protection of employee health and safety or safeguarding public health
and welfare including, but not limited to, the Solid Waste Disposal Act,
the Clean Air Act, the Water Pollution Control Act, the Resource
Conservation and Recovery Act of 1976, the Comprehensive, Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments
and Reauthorization Act, the Occupational Safety and Health Act of 1970,
the Toxic Substances Control Act, the Hazardous Materials Transportation
Act (all as the same may have been amended), rules and regulations of the
United States Environmental Protection Agency, rules and regulations of the
United States Nuclear Regulatory Agency, rules and regulations of the
United States Department of Transportation, state environmental protection
statutes, and rules and regulations of any state or local department of
environmental or natural resources or any state or local environmental
protection agency now in effect.
(b) HAZARDOUS SUBSTANCES. The term "Hazardous Substances" shall mean
all hazardous and toxic materials or wastes (including, without limitation,
petroleum products, asbestos and raw materials which include hazardous
constituents), fumes, smoke, soot, acids, alkalis, chemicals, liquids,
gases, vapors, wastes and materials; any pollutants or contaminants; and
any other similar substances or materials which are regulated under
Environmental Laws.
(c) Schedule 4.26(c) describes:
(i) With expiration dates, all permits, licenses, approvals and
consents issued by or received from government agencies (including local
sewerage districts) relating to Environmental Laws or Hazardous
Substances which are held by Seller and which relate to the Purchased
Assets or the Division (the "Environmental Permits").
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(ii) All above or below ground storage tanks presently or formerly
located under, at or on the Real Property, and identifies all products
and materials stored in such tanks.
(d) Except as described on Schedule 4.26(d), (i) to the Seller's
knowledge, the Environmental Permits are in full force and effect and
constitute all permits, licenses, approvals and consents relating to
Environmental Laws or Hazardous Substances required for the operation of
the Division and the use of the Purchased Assets in compliance with
Environmental Laws; (ii) no proceeding alleging or asserting a violation of
any Environmental Permit or seeking the suspension, revocation or
cancellation of any Environmental Permit is pending or, to the Seller's
knowledge, threatened and (iii) no applications for permits or reports
filed by Seller or its Subsidiaries with respect to the Division or the
Purchased Assets in connection with any Environmental Law or Environmental
Permit contained any untrue statement of material fact or omitted any
statement of material fact necessary to make the statements made not
misleading.
(e) Except as set forth on Schedule 4.26(e), to Seller's knowledge,
Seller and its Subsidiaries (i) has filed all reports, returns and other
filings required to be filed with respect to the Purchased Assets and the
Division under Environmental Laws and the Environmental Permits; and (ii)
have furnished Purchaser complete copies of all environmental filings
described in this subparagraph which have been made since January 1, 1997.
(f) Except as set forth on Schedule 4.26(f), (i) to the Seller's
knowledge, the Division and the Purchased Assets have, in all material
respects, been operated by Seller in compliance with the Environmental Laws
and Environmental Permits; and (ii) neither Seller nor any of its
Subsidiaries has received oral or written notice that the Division or the
Purchased Assets are not in material compliance with any Environmental Law
or Environmental Permit.
(g) Except as described on Schedule 4.26(g), to Seller's knowledge,
there are no actions, claims or investigations pending or to Seller's
knowledge threatened against the Division or the Purchased Assets, which in
any case assert or allege (i) Seller, its Subsidiaries, the Division or the
Purchased Assets materially violated any Environmental Law or Environmental
Permit or is in material default with respect to any Environmental Permit
or any environmental order, writ, judgment, variance, award or decree of
any government authority; (ii) Seller and each of its Subsidiaries is, with
respect to the Division, required to clean up or undertake any
investigation or any remedial or other response action due to the presence,
disposal, discharge or other release of any Hazardous Substance at, on, in,
under or migrating to or from on the Real Property or elsewhere; or (iii)
Seller and each of its Subsidiaries is, with respect to the Division or the
Purchased Assets, required to contribute to the cost of any past, present
or future investigative, cleanup or remedial or other response action which
arises out of or is related to the presence, disposal, discharge or other
release of any Hazardous Substance by Seller, or any of its Subsidiaries,
the Division or the Purchased Assets. Except as described on Schedule
4.26(g), neither the Division nor the Purchased Assets are subject to any
judgment, stipulation, order, information request, deed notice, use,
restriction, decree or agreement arising under Environmental Laws.
(h) Except as described on Schedule 4.26(h), with respect to the
period during which Seller or any of its Subsidiaries owned or occupied the
Real Property and, to Seller's knowledge, prior to the period of Seller's
ownership or operation (i) no Hazardous Substances have been released,
treated, recycled or disposed of (intentionally or unintentionally) in
material violation of Environmental Law at the time such release,
treatment, recycling or disposal occurred, on, under or at the Real
Property and/or such release, treatment, recycling or disposal will not
result in any requirement for investigation or cleanup under current
Environmental Law; (ii) there has been no release or threatened release of
any Hazardous Substance from the Division, the Purchased Assets or the Real
Property in material violation of Environmental Law at the time such
release occurred or was threatened and/or such release or threatened
release will not result in any requirement for investigation or cleanup
under current Environmental Law; (iii) there have not been nor are there
now any Hazardous Substances present in the surface or subsurface soil,
water, groundwater, air or other media at, on, in, upon, under or, to
Seller's knowledge, migrating to or from the Real Property (iv) there have
been no activities, conditions or
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circumstances on the Real Property which would subject Purchaser, or any
subsequent owner, lessee, occupant or operator of the Real Property, the
Division or the Purchased Assets to damages, penalties, injunctive relief,
investigative or claims, notices, restrictions or cleanup costs under any
Environmental Laws; and (v) any release, treatment, recycling or disposal
of Hazardous Substances conducted off the Real Property has been in
substantial compliance with all Environmental Laws and Environmental
Permits in effect at the time of the release, treatment, recycling or
disposal.
4.27 RECORDS. Books of account and minute books of the Seller insofar as
they relate to or affect the business of the Division and the Purchased Assets
are substantially complete and correct in all respects, and there have been no
transactions involving the business of the Division which properly should have
been set forth therein and which have not accurately so set forth.
4.28 YEAR 2000 COMPLIANCE. Except as set forth on Schedule 4.28, all
software, hardware, databases and embedded control systems used by Seller and
its Subsidiaries in the operation of the Division (collectively, the "System")
and each of the products of the Division (the "Products") are Year 2000
Compliant. As used herein, the term "Year 2000 Compliant" means that the Systems
and Products (i) accurately process date and time data (including, without
limitation, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000, and leap year
calculations and (ii) operate accurately with other software and hardware that
use standard format (four digits) for representations of the year. Following the
Closing, Purchaser shall not incur any material expenses arising from or
relating to the failure of any of the Systems or Products to be Year 2000
Compliant.
4.29 DISCLOSURE. No representation or warranty by Seller contained in this
Agreement nor any statement or certificate furnished or to be furnished by
Seller to Purchaser or its representatives in connection herewith or pursuant
hereto contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to make the statements
herein or therein contained not misleading. There is no fact (other than matters
of general economic or political nature which do not affect the business of the
Division uniquely) known to Seller which might reasonably be expected to have a
Seller Material Adverse Effect. All projections, forecasts or other
forward-looking information contained in the Confidential Information Memorandum
(as defined below) that were furnished to Purchaser by or on behalf of Seller
were prepared in good faith and based upon reasonable estimates and the facts
and circumstances then known to Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND GUARANTOR
The term "Purchaser Material Adverse Effect" as used in this Agreement
shall mean any change or effect that, individually or when taken together with
all such other changes or effects, is or may be materially adverse to the
condition (financial or otherwise), results of operations, business, properties,
assets or liabilities of Purchaser and its Subsidiaries, taken as a whole. The
term "Guarantor Material Adverse Effect" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all such
other changes or effects, is or may be materially adverse to the condition
(financial or otherwise), results of operations, business, properties, assets or
liabilities of Guarantor and its Subsidiaries, taken as a whole.
Purchaser and Guarantor represent and warrant to Seller that the statements
contained in this Article V are true and correct as of the date of this
Agreement and as of the Closing Date.
5.01 ORGANIZATION AND QUALIFICATION.
(a) Purchaser is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of Michigan, and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted.
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(b) Guarantor is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted.
5.02 AUTHORITY.
(a) Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the Related Agreements by Purchaser, and the
consummation by Purchaser of the transactions contemplated by this
Agreement and the Related Agreements, have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part
of Purchaser are necessary to authorize this Agreement and the Related
Agreements or to consummate the transactions contemplated by this Agreement
and the Related Agreements. This Agreement is, and the Related Agreements
will be when so executed, legal, valid and binding obligations of Purchaser
enforceable against Purchaser in accordance with their terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
relating to or affecting the rights and remedies of creditors generally and
by general principles of equity, regardless of whether enforceability is
considered in a proceeding in equity or at law.
(b) Guarantor has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder,
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the Guaranty by Guarantor, and the
consummation by Guarantor of the transactions contemplated by this
Agreement and the Guaranty, have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of
Guarantor are necessary to authorize this Agreement and the Guaranty or to
consummate the transactions contemplated by this Agreement and the
Guaranty. This Agreement is, and the Guaranty will be when so executed,
legal, valid and binding obligations of Guarantor enforceable against
Guarantor in accordance with their terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws relating to
or affecting the rights and remedies of creditors generally and by general
principles of equity, regardless of whether enforceability is considered in
a proceeding in equity or at law.
5.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Purchaser does
not, and the performance of this Agreement by Purchaser will not, (i)
violate the Articles of Incorporation or By-Laws or equivalent
organizational documents of Purchaser, (ii) subject to obtaining the
consents, approvals, authorizations and permits of, and making filings with
or notifications to, any Governmental Entity pursuant to the applicable
requirements, if any, of the Exchange Act, conflict with or violate any
laws applicable to Purchaser or by which any of its properties is bound or
affected, (iii), except as set forth on Schedule 5.03(a), result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to any Person any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of
Purchaser or require any notice pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument, arrangement or obligation to which Purchaser is a party or by
which Purchaser or its properties is bound. The execution and delivery of
this Agreement by Purchaser does not, and the performance of this Agreement
by Purchaser shall not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entities,
except as described in section 5.03(a) above.
(b) The execution and delivery of this Agreement by Guarantor does
not, and the performance of this Agreement by Guarantor will not, (i)
violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of Guarantor, (ii) subject to obtaining the
consents, approvals, authorizations and permits of, and making filings with
or notifications to, any Governmental Entity pursuant to the applicable
requirements, if any, of the Exchange Act, conflict with or violate any
laws
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applicable to Guarantor or by which any of its properties is bound or
affected, (iii), except as set forth on Schedule 5.03(b), result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to any Person any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of
Guarantor or any of its Subsidiaries, or require any notice pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument, arrangement or obligation to which
Guarantor or any of its Subsidiaries is a party or by which Guarantor or
any of its Subsidiaries or any of their respective properties is bound. The
execution and delivery of this Agreement by Guarantor does not, and the
performance of this Agreement by Guarantor shall not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any Governmental Entities, except as described in section 5.03(a) above.
5.04 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Purchaser.
5.05 FINANCIAL STATEMENT; UNDISCLOSED LIABILITIES.
(a) Guarantor has delivered to Seller copies of the following
financial statements prepared by Guarantor, including in each case all
notes thereto, all of which have been prepared in accordance with GAAP and
fairly present the financial condition of Guarantor as of their respective
dates and results of its operations for the periods covered thereby:
(i) Audited balance sheets of Guarantor as of March 31, 1996 and
1998 (the March 31, 1998 balance sheet being referred to herein as the
"Guarantor Balance Sheet" and March 31, 1998 being referred to herein as
the "Guarantor Balance Sheet Date") and audited statements of income and
cash flows of Guarantor for each of the years then ended; and
(ii) A reviewed balance sheet of Guarantor as of March 31, 1997 and
the related reviewed statements of income and cash flows for the
12-month period ending March 31, 1997.
(b) Except as set forth on Schedule 5.05(b), there are, to Guarantor's
knowledge, no liabilities or obligations, direct or indirect, absolute or
contingent, known or unknown, or any outstanding evidence of indebtedness
arising out of or relating to, Guarantor, except (i) as fully reflected and
specifically reserved against on the Guarantor Balance Sheet; and (ii)
liabilities incurred in the ordinary course of business after the Guarantor
Balance Sheet Date, which, in the aggregate, do not result in any Guarantor
Material Adverse Effect.
5.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
5.06 or as contemplated by this Agreement, since Guarantor's Balance Sheet Date:
(a) There has not been any change in the accounting methods or
practices followed by Guarantor, except as required by GAAP;
(b) There has not been any sale, lease, transfer, assignment,
abandonment or other disposition of (including, without limitation, any
grant of an option or similar right to purchase) any asset or assets in
excess of $10,000 in the aggregate other than sales of inventory for fair
consideration in the ordinary course of business, except with respect to
the potential sales transactions or transfer transactions made in
connection with previously acquired businesses;
(c) No party (including Purchaser and Guarantor) has accelerated,
terminated, modified or canceled (prior to the expiration of its term) any
material agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) to which Guarantor is a party
or by which any of its assets is bound and which would cause a Purchaser
and Guarantor Material Adverse Effect;
(d) Neither Purchaser nor Guarantor has delayed or postponed the
payment of accounts payable or other liabilities of any kind or nature
outside the ordinary course of business;
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(e) Neither Guarantor nor Purchaser has canceled, compromised, waived,
or released any right or claim except with respect to the potential sales
transactions or transfer transactions made in connection with previously
acquired businesses (or series of related rights and claims) outside the
ordinary course of business;
(f) Except with respect to the potential sales transactions or
transfer transactions made in connection with previously acquired
businesses, neither Guarantor nor Purchaser has sold or otherwise
transferred any intangible asset or granted any license or sublicense of
any rights under or with respect to any intangible assets;
(g) There has not been any payment of any liability other than those
then required to be discharged or satisfied or current liabilities shown on
the Guarantor Balance Sheet, and current liabilities incurred in the
ordinary course of business and consistent with past practices;
(h) Except with respect to the potential sales transactions or
transfer transactions made in connection with previously acquired
businesses, there has not been any material deviation from the ordinary and
usual course of operation of Purchaser's or Guarantor's Business in
contemplation of the transactions described in this Agreement and all
actions required by this Agreement;
(i) Neither Guarantor nor Purchaser has permitted or caused to be
permitted any lien upon any of its assets, except in connection with
funding for this Agreement;
(j) Guarantor has not entered into any material transaction with any
of its officers, directors or employees, other than in the ordinary course
of business;
(k) Neither Guarantor nor Purchaser has entered into any commitment or
other agreement to do any of the foregoing except with respect to the
potential sales transactions or transfer transactions made in connection
with previously acquired businesses and actions required by this Agreement;
(l) Neither Guarantor or Purchaser has experienced any uninsured
damage, destruction or loss (whether or not covered by insurance) to any
material assets of its business, ordinary wear and tear excepted;
(m) Except with respect to the potential sales transactions or
transfer transactions made in connection with previously acquired
businesses, each of Guarantor and Purchaser has conducted its business in
the ordinary course and consistent with its past practice; and
(n) There has not been any Guarantor Material Adverse Effect.
5.07 PURCHASER'S CREDIT FACILITY. Exhibits J and I are true and correct
copies of the Purchaser's executed bank commitment letter (including final
financial covenants) dated as of April 26, 1999 (the "Commitment Letter") and a
form of Subordination and Intercreditor Agreement (the "Subordination Agreement"
and, together with the Commitment Letter, the "Collateral Bank Documents"). The
Commitment Letter has been duly authorized and executed and is enforceable
against Purchaser in accordance with its terms. Pursuant to the Commitment
Letter as in effect on and as of the date hereof, the Purchaser's loan agreement
and related documents (including the final subordination agreement), to be
entered into in connection therewith contemporaneously with the Closing,
(collectively, the "Loan Documents") shall contain usual and customary events of
default, cure and remedy provisions and other usual and customary terms and
conditions for a financing of the nature outlined therein not inconsistent with
the Collateral Bank Documents or this Agreement. The Loan Documents will not
permit amendment in a manner so as to conflict with the terms and provisions
contained in Exhibits I and J without the prior written consent of Seller, which
shall not be unreasonably withheld, conditioned or delayed.
5.08 DISCLOSURE. No representation or warranty by Purchaser or Guarantor
contained in this Agreement or the schedules to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to the make the statements herein or therein
contained not misleading. There is no fact (other than matters of general
economic or political nature which do not affect the business of Purchaser or
Guarantor uniquely) known to Purchaser or Guarantor which might be
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reasonably expected to have a Purchaser Material Adverse Effect or Guarantor
Material Adverse Effect, as applicable. All projections, forecasts or other
forward-looking information contained in the information furnished to Seller by
or on behalf of Guarantor and Purchaser were prepared in good faith and upon a
reasonable basis except that Purchaser makes no representation or warranty with
respect to the information relating to or supplied by Seller or the Division
contained in such projections, forecasts or forward looking information.
ARTICLE VI
COVENANTS
6.01 AFFIRMATIVE COVENANTS OF SELLER. Seller covenants and agrees that
prior to the Closing Date, unless otherwise contemplated by this Agreement or
consented to in writing by Purchaser, Seller will and will cause each of its
Subsidiaries to:
(a) Operate the Division in the ordinary course of business and
consistent with its past practice (provided, however, that Seller will not
cause or permit the Division to engage in any practice, take any action or
enter into any transaction of the sort described in Section 4.06 above);
(b) Use reasonable efforts to preserve intact the Division and the
assets thereof, and maintain its rights and franchises, retain the services
of its respective officers and key employees and maintain the relationships
with its respective key customers, lessors, licensors and suppliers with
respect to the Division;
(c) Confer with Purchaser at its reasonable request to report
operational matters of a material nature relating to the Division and to
report the general status of the ongoing operations of the Division;
(d) Maintain compliance with all permits, laws, rules, regulations and
orders applicable to the Division; and
(e) Maintain the Purchased Assets in good working order and condition,
ordinary wear and tear excepted.
6.02 NEGATIVE COVENANTS OF SELLER. Except as contemplated by this Agreement
or consented to in writing by Purchaser, from the date of this Agreement until
the Closing Date, Seller shall not do, and shall not permit any of its
Subsidiaries to do, any of the following:
(a) Increase the compensation payable to any employee of the Division,
except for increases in salary or wages payable or to become payable in the
ordinary course of business and consistent with the policies currently in
effect;
(b) Enter into or establish any new compensation plan or employee
benefit plan, except Seller may submit a stock option plan to its
shareholders for adoption;
(c) Sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any assets of the Division, except for
dispositions of inventory and supplies in the ordinary course of business
and consistent with Seller's past practice;
(d) Change any of its methods of accounting in effect at December 31,
1998 or make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending December 31, 1998, except in
either case as may be required by law, the IRS, or GAAP or in the ordinary
course of business consistent with past practice; provided, however, that
Seller shall immediately notify Purchaser of any such change or other
action;
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(e) Incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business or as
approved by Purchaser in advance;
(f) Guarantee any debts or obligations of any Person; or
(g) Agree in writing or otherwise to do any of the foregoing.
6.03 ACQUISITION PROPOSALS. Upon execution of this Agreement, Seller and
its Subsidiaries and their respective officers, directors, employees, agents and
advisors (a) will immediately cease any existing discussions or negotiations
with any parties with respect to any Acquisition Proposal (as hereinafter
defined), and (b) (except as described in the next sentence) shall not
participate in any new discussions or negotiations with respect to any
Acquisition Proposal. Seller may, directly or indirectly, furnish information
and access, in each case only in response to requests that were not solicited by
Seller (or any officer, director, employee, agent or advisor on its behalf)
after the date of this Agreement, to any Person (a "Potential Purchaser")
pursuant to confidentiality agreements, and may participate in discussions and
negotiate with a Potential Purchaser concerning any Acquisition Proposal, if
such Potential Purchaser has submitted a written proposal (a copy of which shall
be promptly delivered to Purchaser) to the Seller's Board of Directors relating
to any such transaction, and the Board of Directors determines in good faith
after receiving a written opinion of independent legal counsel that the failure
to provide such information or access or to engage in such discussions or
negotiations would be inconsistent with their fiduciary duties to Seller's
shareholders under applicable law. Seller shall notify Purchaser immediately if
any such request or proposal, or any inquiry or contact with any Person with
respect thereto, is made and shall keep Purchaser apprised of all developments
that could reasonably be expected to culminate in the Board withdrawing,
modifying or amending its recommendation of the Asset Sale and the other
transactions contemplated by this Agreement, including, without limitation,
delivering to Purchaser copies of any amendments or proposed amendments to the
Potential Purchaser's written proposal. Seller agrees not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which Seller is a party unless, in the opinion of the Board of
Directors after receiving a written opinion of independent legal counsel, the
failure to provide such release or waiver would be inconsistent with its
fiduciary duties to Seller's shareholders under applicable law. For purposes of
this section 6.03, the term "Acquisition Proposal" means any proposal or offer
for a merger, asset acquisition, stock acquisition or other business combination
involving the acquisition, directly or indirectly, of the Division or any
material assets of the Division.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
Seller shall prepare and file with the SEC, and shall use all reasonable
efforts to have promptly cleared by the SEC, and promptly thereafter shall
mail to its shareholders, a proxy statement and a form of proxy
(collectively, the "Proxy Statement"), as may be amended and supplemented,
to be used in connection with the annual meeting (the "Stockholders'
Meeting") of Seller's shareholders to consider the Asset Sale. Seller shall
provide Purchaser with a reasonable opportunity to review and comment upon
issues related to the Asset Sale and to information about Purchaser
contained in the Proxy Statement prior to its filing with the SEC and
distribution to Seller's shareholders. Seller shall notify Purchaser
promptly of the receipt of any comments of the SEC with respect to issues
related to the Asset Sale and to information about Purchaser contained in
the Proxy Statement and of any requests by the SEC for amendments or
supplements to the Proxy Statement to the extent such amendments or
supplements relate to the Asset Sale or Purchaser. Seller will supply
Purchaser with copies of all correspondence between Seller and its
representatives, on the one hand, and the SEC or the members of its staff,
on the other hand, with respect to issues related to the Asset Sale and to
information about Purchaser contained in the Proxy Statement. Seller and
Purchaser shall each use reasonable efforts to obtain and furnish
information required to be included in
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the Proxy Statement; and Seller, after consultation with Purchaser, shall
use reasonable efforts (and Purchaser agrees to reasonably cooperate with
Seller in connection therewith) to respond promptly to any comments made by
the SEC with respect to the Proxy Statement and cause the Proxy Statement
to be mailed to its shareholders at the earliest practicable time. Seller
shall notify Purchaser of its intention to mail the Proxy Statement to the
shareholders of Seller at least 24 hours prior to the intended time of such
mailing. The Proxy Statement shall include the recommendation of Seller's
Board of Directors in favor of the Asset Sale and approval of this
Agreement, unless independent outside legal counsel to Seller shall advise
Seller's Board of Directors in writing that the directors' fiduciary duties
under applicable law make such recommendation inappropriate.
(b) The information included in the Proxy Statement shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to shareholders or at the time of the Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Stockholders'
Meeting, any event or circumstance relating to Seller or any of its
Subsidiaries, or its or their respective officers or directors, is
discovered by Seller which should be set forth in a supplement to the Proxy
Statement, Seller shall promptly inform Purchaser. All documents that
Seller is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in
all material respects with the applicable requirements of the Exchange Act.
7.02 MEETING OF STOCKHOLDERS. As promptly as practicable after the
execution of this Agreement, Seller shall take all action necessary or
appropriate in accordance with the Michigan Law and its Articles of
Incorporation and By-Laws to convene the Stockholders' Meeting, and Seller shall
consult with Purchaser in connection therewith. Seller shall use reasonable
efforts to solicit from the shareholders of Seller proxies in favor of the Asset
Sale and shall take all other actions necessary or advisable to secure the vote
or consent of shareholders required by the Michigan Law to approve this
Agreement, unless otherwise required by the applicable fiduciary duties of
directors or officers of Seller.
7.03 APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Subject to the terms and conditions herein provided, Seller and
Purchaser shall use all reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do or cause to be done, all things
necessary, proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable, (ii) obtain from all Governmental
Entities all consents, licenses or orders required to be obtained by
Purchaser or Seller or any of their respective Subsidiaries in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Asset Sale, and (iii) make all necessary
notifications and filings and thereafter make any other required
submissions with respect to this Agreement and the Asset Sale required
under (A) the Exchange Act and any other applicable federal or state
securities laws, and (B) any other applicable law; provided that Purchaser
and Seller shall cooperate with each other in connection with the making of
all such filings. Seller and Purchaser shall furnish to each other all
information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable law (including all
information required to be included in the Proxy Statement) in connection
with the transactions contemplated by this Agreement.
(b) (i) Seller and Purchaser shall give (or cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause
their respective Subsidiaries to use, all reasonable efforts to obtain any
third-party consents, (A) necessary to consummate the transactions
contemplated in this Agreement, (B) disclosed or required to be disclosed
in the disclosure schedules to this Agreement, or (C) required to prevent a
Seller Material Adverse Effect or Purchaser Material Adverse Effect from
occurring prior to the Closing Date.
(ii) In the event that any party shall fail to obtain any
third-party consent described in subsection (b)(i) above, such party
shall use reasonable efforts, and shall take any such actions
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reasonably requested by the other party to minimize any adverse effect
upon the other party, its Subsidiaries and its businesses resulting, or
which could reasonably be expected to result after the Closing Date,
from the failure to obtain such consent.
(c) From the date of this Agreement until the Closing Date, Seller
shall promptly notify Purchaser in writing of any pending or, to the
knowledge of Seller, threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages
in connection with the Asset Sale, (ii) alleging that the consent of such
Governmental Entity or Person may be required in connection with the Asset
Sale or this Agreement, (iii) seeking to restrain or prohibit the
consummation of the Asset Sale or otherwise limit the right of Purchaser or
its Subsidiaries to own or operate all or any portion of the businesses or
assets of the Division, or (iv) involving any of the Purchased Assets or
either of the Division.
(d) From the date of this Agreement until the Closing Date, Purchaser
shall promptly notify Seller in writing of any pending or, to the knowledge
of Purchaser, threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages
in connection with the Asset Sale or the ability of Purchaser to execute
and deliver the Subordinated Note; (ii) alleging that the consent of such
Government Entity or Person may be required in connection with the Asset
Sale or this Agreement; (iii) seeking to restrain or prohibit the
consummation of the Asset Sale or otherwise limit the right of Purchaser or
its Subsidiaries to own or operate all or any portion of the business or
assets of the Division; or (iv) involving any of the material assets of
Purchaser subject to the General Business Security Agreement.
7.04 UPDATE DISCLOSURE. From and after the date of this Agreement until the
Closing Date, each party shall promptly notify the other party hereto by written
update to its disclosure schedules ("Update Schedule") of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
reasonably likely to cause any condition to the obligations of any party to
effect the Asset Sale and the other transactions contemplated by this Agreement
not to be satisfied, (ii) the failure of Seller or Purchaser, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it pursuant to this Agreement which would be
reasonably likely to result in any condition to the obligations of any party to
effect the Asset Sale and the other transactions contemplated by this Agreement
not to be satisfied, or (iii) of any changes to the information contained in its
disclosure schedules (including any change to any representations or warranties
herein as to which no schedule has been created as of the date hereof but as to
which a schedule would have been required hereunder to have been created on or
before the date hereof if such change had existed on the date hereof). No
disclosure by any party pursuant to this Section 7.04, however, shall cure any
breach of any representation or warranty made by such party as of the date of
this Agreement.
7.05 EMPLOYEES. Purchaser shall have no obligation to hire any of Seller's
employees; provided, however, that Purchaser shall be free to negotiate with and
hire any of Seller's employees working exclusively within the Division. Seller
shall cooperate and encourage all such Division employees to accept employment
with Purchaser. Seller shall be responsible and liable for any salary, wages,
bonuses, commissions, accrued vacation, sick leave time, profit sharing or
pension benefits, any other compensation or benefits, as well as any actions or
causes of action, including, without limitation, unemployment compensation
claims, workers' compensation claims, claims for race, age and sexual
discrimination and sexual harassment that any of its employees assert accruing
or relating to events occurring prior to the Closing Date (which shall be deemed
Excluded Liabilities). Seller shall be further responsible for all rights of
Seller's employees under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA"). Purchaser shall not be required or obligated to assume the role
of sponsor of any Employee Benefit Plans described in Schedule 4.23(a). At the
election of any of Seller's employees hired by Purchaser, Seller shall fully
cooperate with Purchaser in rolling over the account balances of Seller's profit
sharing and 401(k) plan into Purchaser's comparable plan, if any. No person not
a party to this Agreement shall be entitled to any rights of enforcement or
otherwise under this Agreement.
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Purchaser shall be prohibited from seeking to hire Seller's employees
included on Schedule 7.05 for a period of two (2) years after the Closing Date.
7.06 RISK OF LOSS. The risk of loss or damage to the Purchased Assets from
fire or other casualty or cause shall be on Seller at all times up to the
Closing, and it shall be the responsibility of Seller to repair, or cause to be
repaired, and to restore property to the condition it was before the loss or
damage.
7.07 SELLER'S NAME. Seller agrees that from and after the Closing Date,
Purchaser shall have the right to use the Name in connection with the conduct of
its business (whether carried on by it directly or through any affiliate).
Seller warrants to Purchaser that it has taken all necessary action to protect
the Name in the State of Michigan and agrees to take or cause to be taken any
and all steps or actions that shall be or become permissible, proper or
convenient to enable or permit Purchaser to use the Name. It is contemplated
that on or as soon as practicable after the Closing Date, Seller will change its
name to some name which is different from, and not confusingly similar to, the
Name. After the Closing Date, Seller agrees that it will not use, either
directly or indirectly, the Name or any name that may be confused with the Name.
7.08 RECORDS AND DOCUMENTS. For a period of seven years after the Closing
Date, neither party shall dispose of any records relating to the Division
without first providing the other party with 15 days' prior written notice.
Prior to and after the Closing Date, each party shall have access to records and
documents relating to the Division (including the Documents) and shall have the
right to inspect and copy such documents with the full cooperation of the other
party.
7.09 ACCOUNTS RECEIVABLE.
(a) Seller agrees that Purchaser shall have the right and authority to
collect for its own account or the accounts of its affiliates, Accounts
Receivable of Seller that are transferred and assigned to Purchaser as
provided herein and Purchaser and its affiliates shall have the right to
endorse the name of Seller on any checks received on account of any such
receivable. Seller agrees that it will promptly transfer and deliver to
Purchaser any cash or other property that Seller may receive in respect of
such receivables. Purchaser agrees that it will promptly transfer and
deliver to Seller any cash or other property that Purchaser may receive
from Seller's customers (as a result of Purchaser obtaining the name
"Medar") which are not in respect of such receivables.
(b) Purchaser will use reasonable efforts in accordance with its
normal business practices (not including resorting to or threatening
litigation) to collect the Accounts Receivable. If any Accounts Receivable
remain uncollected 150 days after the Closing Date, such Accounts
Receivable shall be deemed uncollectible (the "Uncollectible Accounts") and
Purchaser shall have the right to recover from Seller the aggregate amount
of any such Uncollectible Accounts, by means of setoff, in good faith,
against payments or amounts due to Seller under the Subordinated Note or
any other Related Agreement, and such good faith setoff shall not be deemed
a breach of any other such agreement. Upon such setoff, Purchaser will
reassign and transfer any such Uncollectible Accounts to Seller for
collection in accordance with its normal business practices; provided,
however, that Seller shall not resort to or threaten litigation without
first providing Purchaser with five days' prior written notice of Seller's
intent to resort to or threaten litigation.
ARTICLE VIII
CLOSING
8.01 CLOSING. Unless this Agreement shall have been terminated pursuant to
section 10.01 and subject to the fulfillment or waiver of each of the conditions
set forth in Article IX, the closing ("Closing") of the transactions pursuant to
this Agreement shall take place at (a) Warren Cameron Faust & Asciutto, P.C.,
2161 Commons Parkway, Okemos, Michigan 48864, at 10 a.m. on the date agreed to
by the parties within five (5) days of the approval of Seller's shareholders or
(b) at such other time and place as the parties hereto shall mutually agree.
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ARTICLE IX
CLOSING CONDITIONS
9.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT. The
respective obligations of each party to effect the transactions contemplated by
this Agreement shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any or all of which may be waived by the
parties hereto, in whole or in part, to the extent permitted by applicable law:
(a) STOCKHOLDER APPROVAL. This Agreement and the Asset Sale shall have
been approved by the requisite vote of the shareholders of Seller in
accordance with the Michigan Law and the Articles of Incorporation and
By-Laws of Seller.
(b) NO ACTION OR PROCEEDING. There shall not have been instituted and
there shall not be pending any action or proceeding by a Governmental
Entity, and no such action or proceeding shall have been approved by a
Governmental Entity with authority to institute such an action or
proceeding, before any court of competent jurisdiction or governmental
agency or regulatory or administrative body, and no order or decree shall
have been entered in any action or proceeding before such court, agency or
body of competent jurisdiction: (i) imposing or seeking to impose
limitations on the ability of Purchaser to acquire or hold or to exercise
full rights of ownership of any of the Purchased Assets; (ii) imposing or
seeking to impose limitations on the ability of Purchaser to combine and
operate the business and assets of the Division with any of Purchaser's
Subsidiaries or other operations; (iii) imposing or seeking to impose other
sanctions, damages or liabilities arising out of the Asset Sale on
Purchaser, Seller or any of their officers or directors; (iv) requiring or
seeking to require divestiture by Purchaser of all or any material portion
of the Division or the assets thereof; or (v) restraining, enjoining or
prohibiting or seeking to restrain, enjoin or prohibit the consummation of
the Asset Sale, in each case, with respect to clauses (i) through (iv)
above, which would or is reasonably likely to result in a Seller Material
Adverse Effect on or prior to or after the Closing Date or, with respect to
clauses (i) through (v) above, which would or is reasonably likely to
subject any of their respective officers or directors to any penalty or
criminal liability. Notwithstanding the foregoing, prior to invoking the
condition set forth in this section 9.01(b), the party seeking to invoke it
shall have used its reasonable efforts to have any such pending or approved
action or proceeding withdrawn or dismissed or such order or decree
vacated.
(c) OTHER APPROVALS OR NOTICES. All other consents, waivers, approvals
and authorizations required to be obtained from, and all filings or notices
required to be made with, any Governmental Entity by Purchaser or Seller or
any Subsidiary prior to consummation of the transactions contemplated in
this Agreement shall have been obtained from and made with all required
Governmental Entities, except for such consents, waivers, approvals or
authorizations which the failure to obtain, or such filings or notices
which the failure to make, would not have a Seller Material Adverse Effect
prior to or after the Closing Date or a Purchaser Material Adverse Effect
before or after the Closing Date or be reasonably likely to subject Seller,
Purchaser, or any of their respective Subsidiaries or any of their
respective officers, directors, employees, agents or representatives to
substantial penalty or criminal liability.
9.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to effect the transactions contemplated in this Agreement are also
subject to the satisfaction on or prior to the Closing Date of the following
conditions, any or all of which may be waived, in whole or in part, by Purchaser
in its sole discretion:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Seller contained in this Agreement shall have been true and
correct in all respects when made and the information contained therein, as
updated by any Update Schedule, taken as a whole, shall not have materially
adversely changed; and each of the representations and warranties of Seller
contained in this Agreement shall be true and correct in all respects as of
the Closing Date. Purchaser shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of Seller to that effect.
(b) AGREEMENTS AND COVENANTS. Seller shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on
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or prior to the Closing Date, except to the extent failure to perform is
caused by or is consented to by Purchaser. Purchaser shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Seller to that effect.
(c) CONSENTS UNDER AGREEMENTS. Seller shall have obtained the third
party consents described on Schedule 4.04(a), except those for which the
failure to obtain such consents and approvals would not have a Seller
Material Adverse Effect prior to or after the Closing Date or a Purchaser
Material Adverse Effect before or after the Closing Date.
(d) DELIVERIES ON OR PRIOR TO CLOSING. Seller shall have delivered or
cause to be delivered to Purchaser the following documents at or prior to
Closing:
(i) A General Bill of Sale duly executed by Seller, in the form
attached hereto as Exhibit B;
(ii) Assignments of all United States and foreign patents, patent
applications, trademarks and trade names and other similar Intangible
Assets to be transferred in accordance with section 1.01(e), duly
executed by Seller;
(iii) Titles and registrations to all Vehicles, duly executed by
Seller;
(iv) A certificate of good standing of Seller issued by the
Secretary of State of Michigan and other appropriate jurisdictions
within one week of the Closing Date;
(v) The Assignment and Assumption Agreement duly executed by
Seller, in the form attached hereto as Exhibit C (the "Assignment and
Assumption Agreement");
(vi) An opinion of Warren Cameron Faust & Asciutto, P.C., counsel
to Seller, addressed to Purchaser, dated as of the Closing Date, in the
form attached hereto as Exhibit D;
(vii) Releases of mortgages, liens and/or financing statements to
reflect the termination of any Liens (other than Permitted Encumbrances)
against, or security interest in, any of the Purchased Assets;
(viii) The Non-Competition Agreement duly executed by Seller, in
the form attached hereto as Exhibit E;
(ix) The Mutual Release duly executed by Seller, in the form
attached hereto as Exhibit F;
(x) Certified copies of resolutions adopted by the shareholders and
Board of Directors of Seller authorizing the execution of this Agreement
and the Asset Sale;
(xi) Certificate of Amendment to the Articles of Incorporation,
duly executed in duplicate by the proper officers of Seller, in a form
acceptable to Purchaser's counsel, changing Seller's name to a name that
does not include the words "Medar";
(xii) A Transition Services Agreement, duly executed by Seller in
the form attached hereto as Exhibit G;
(xiii) If reasonably requested by Purchaser, at or prior to
Closing, a written estoppel certificate from the parties to the Assigned
Contracts acknowledging and certifying that (i) such party is a party to
a contract of a certain date with Seller; (ii) such contract has not
been amended or modified, or if it has, reciting the dates and substance
of such modifications; (iii) such contract is in full force and effect;
(iv) as of the date of the certificate, Seller is not in default under
such contract; (v) that such party consents to the assignment of such
contract to Purchaser in conjunction with the transaction contemplated
by the Agreement; and (vi) if Seller is the landlord or payee under any
Assigned Contract, no payment has been made more than 30 days in advance
of the due date;
(xiv) A Foreign Investors Real Property Tax Act of 1980, as amended
("FIRPTA"), Non-Foreign Status Affidavit attesting to the fact that
Seller is not a "foreign person" for purposes of FIRPTA;
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(xv) A warranty deed, duly executed by Seller, for the Owned Parcel
free and clear of all liens and encumbrances, except municipal and
zoning ordinances, real estate taxes not yet due and payable (not to
include special assessments for work commenced or levied against the
Real Property prior to Closing, which shall be paid in full by Seller
prior to Closing) and other easements and restrictions of record which
do not materially interfere with the conduct of the operations currently
conducted on the Owned Parcel together with (a) the appropriate transfer
tax return and (b) an assignment of Seller's right, title and interest
in any certificates, licenses, guaranties, warranties, permits,
authorizations or appraisals relating to the Owned Parcel or its systems
or fixtures, to the extent such items are assignable;
(xvi) At least five days prior to the Closing Date, a current
ALTA-ACSM Land Title Survey of the Real Property prepared in insurable
form. The survey shall contain a certification, acceptable to title
company and Purchaser's attorney, that the surveyor has surveyed the
Real Property and shown all improvements and encroachments, all
easements and other encumbrances of record and that the surveyor's
liability extends to those who purchase, mortgage or guarantee title to
the property within at least one year from the date of the survey and
such other ALTA certification as acceptable to the title insurance
company for removal of the survey exceptions in the title insurance
policy;
(xvii) At least five days prior to Closing, a title insurance
commitment, Alta Form B-1990, issued by Chicago Title Insurance Company,
agreeing to issue to Purchaser, upon recording of deeds described in
this Agreement, an owner's policy in the amount of $2,800,000 and
showing title to the Owned Parcel to be in the condition called for by
section 4.16 of this Agreement, subject only to financial encumbrances
which shall be discharged by Seller at or before Closing and containing
such endorsements as Purchase or Purchaser's lenders may reasonably
require (including, without limitation, a "gap" endorsement, a zoning
3-1 endorsement and an access endorsement). Seller shall remove the
standard exceptions from the title insurance commitment by Closing. The
premium for the policy and the endorsements described above shall be
paid by Purchaser on or before Closing. Any condition of title not
permitted by this Agreement shall be considered a title defect which
Seller, at its cost, shall immediately correct;
(xviii) Duly executed transfer fee returns, owner affidavits and
such other documents typically executed in connection with a transfer of
an interest in real property;
(xix) A standard real estate closing statement which shall prorate
real estate taxes, personal property taxes, utilities, water and sewer
bill and other such items as are customarily prorated between buyers'
and sellers' for the Owned Parcel and the Purchased Assets. Such
proration shall be effective as of the date of Closing. All such utility
charges, including, but not limited to, electricity, gas, water, sewer,
steam and telephone shall be determined by actual meter readings, if
available; otherwise they shall be estimated on the basis of the last
billing available from the respective utilities;
(xx) A Subordination and Intercreditor Agreement, duly executed by
Seller in the form of Exhibit I attached hereto; and
(xxi) Such other documents as Purchaser reasonably deems necessary
and appropriate to document the transfer of the Purchased Assets and the
assumption of the Assumed Liabilities.
(e) ACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS. Except for the
transactions contemplated by this Agreement, Seller shall not have taken
any material action outside the ordinary course of business with respect to
the Division from the date hereof until the Closing Date without the prior
written consent of Purchaser.
(f) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, no
condition or fact shall have occurred which, as of the Closing Date, is or
may have a Seller Material Adverse Effect.
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(g) ENVIRONMENTAL REVIEW. Purchaser shall have received, at its cost
and expense, a written report of a site assessment environmental audit,
prepared by an independent, competent and qualified engineer, that in its
scope, form and substance is satisfactory to Purchaser for the Real
Property. Purchaser shall also receive, at its cost and expense, any
updates it deems necessary or appropriate to such site assessment and
environmental audit. Purchaser shall be satisfied, in its sole and absolute
discretion, that there will not be, at and after the Closing, any basis for
the imposition on Purchaser of any liability under any Environmental Laws.
(h) TAX CLEARANCE. Seller shall have applied for (and provided to
Purchaser evidence of the same) a certificate of conditional tax clearance
from the Revenue Commissioner of the State of Michigan showing that Seller
has filed all tax returns and reports required to be filed before Closing
and that it has paid all taxes due pursuant to section 27(a) of Act No. 58
of the Michigan Public Acts of 1986, MCLA 205.27(a), MSA 7.657(27a).
(i) MESC CONTRIBUTION LIABILITY. Seller shall have provided to
Purchaser a statement from the Commissioner of the Michigan Employment
Security Commissioner certifying the status of Seller's contribution
liability under section 15g of the Michigan Employment Security Act, MCLA
421.15(g), MSA 17.515[g].
(j) LIEN SEARCH. Purchaser shall have received UCC lien searches on
the Purchased Assets in form and content satisfactory to Purchaser.
9.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of
Seller to effect the transactions contemplated in this Agreement is also subject
to the satisfaction on or prior to the Closing Date of the following conditions,
any or all of which may be waived, in whole or in part, by Seller in its sole
discretion:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Purchaser contained in this Agreement shall have been true
and correct in all respects when made and the information contained
therein, as updated by any Update Schedule, taken as a whole, shall not
have materially adversely changed; and each of the representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all respects as of the Closing Date. Seller shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Purchaser to that effect.
(b) AGREEMENTS AND COVENANTS. Purchaser shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date. Seller shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Purchaser to that
effect.
(c) FAIRNESS OPINION. Seller shall have received from NatCity an
opinion, dated as of the date that the Seller's Board approves this
Agreement, to the effect that the consideration to be received under this
Agreement is fair to the Seller from a financial point of view in such form
and containing such other customary provisions as determined by NatCity.
(d) DELIVERIES ON OR PRIOR TO CLOSING. Purchaser shall have delivered
or cause to be delivered to Seller the following documents at or prior to
Closing:
(i) Wire transfer of immediately available funds in the amount of
the Cash Purchase Price;
(ii) The Subordinated Note, duly executed by Purchaser;
(iii) Certificates of status for Purchaser issued by the Secretary
of State of Delaware and the Secretary of State of Illinois within one
week of the Closing Date;
(iv) The Assignment and Assumption Agreement duly executed by
Purchaser.
(v) Seller shall have received an opinion of Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, s.c., counsel to Purchaser, addressed to
Seller, dated as of the Closing Date, in the form attached hereto as
Exhibit H;
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(vi) The Non-Competition Agreement, duly executed by Purchaser;
(vii) The Mutual Release, duly executed by Purchaser;
(viii) Certified copies of resolutions adopted by the Boards of
Directors of Purchaser authorizing the execution of this Agreement and
the Asset Sale;
(ix) A Transition Services Agreement, duly executed by Purchaser;
(x) A General Business Security Agreement, duly executed by
Purchaser in a form reasonably agreed to by the parties and approved by
the Bank pursuant to which Purchaser will grant Seller a security
interest in the same assets as Purchaser grants to the Bank and
containing such other terms reasonably agreed to by the parties;
(xi) UCC Financing Statements in a form reasonably agreed to by the
parties;
(xii) The Subordination and Intercreditor Agreement in the form of
Exhibit I, duly executed by Purchaser's Bank;
(xiii) The Guaranty of Guarantor, duly executed by an authorized
officer of Guarantor in the form of Exhibit K attached hereto;
(xiv) The Limited Guaranty of Durrell G. Miller in form and
substance similar to the guaranty given by Mr. Miller to the Bank but
subordinate to such guaranty as required by the Bank pursuant to which
Mr. Miller will guaranty payment of a like percent of the Subordinated
Note as the percent of the Bank borrowings which he has guaranteed; and
(xv) Such other documents as Seller reasonably deems necessary and
appropriate to document the transfer of the Purchased Assets and the
assumption of the Assumed Liabilities.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.01 TERMINATION. This Agreement may be terminated upon written notice by
the terminating party at any time prior to the Closing, whether before or after
approval of this Agreement and the Asset Sale by the shareholders of Seller:
(a) By mutual written consent of Purchaser and Seller;
(b) By either Purchaser or Seller in the event the conditions to such
party's (the "Nonfailing Party") obligations under Article IX shall not
have been met or waived by the Nonfailing Party on or prior to July 31,
1999, but only if the party terminating has not caused the condition giving
rise to termination to be not satisfied through its own action or inaction;
(c) By either Purchaser or Seller if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or
any Governmental Entity preventing or prohibiting consummation of the Asset
Sale shall have become final and nonappealable;
(d) By Purchaser, if (A) the Proxy Statement does not include the
recommendation of Seller's Board of Directors in favor of this Agreement
and the Asset Sale, or (B) the Board of Directors of Seller withdraws,
modifies or changes in a manner materially adverse to Purchaser its
recommendation of this Agreement or the Asset Sale or shall have resolved
to do any of the foregoing, or (C) the Board of Directors of Seller shall
have recommended to the shareholders of Seller any proposed, direct or
indirect, acquisition of the Division by any Person or any "group" (as such
term is defined under section 13(d) of the Exchange Act) other than
Purchaser and its Affiliates by (i) merger, consolidation, share exchange,
business combination or other similar transaction which would result in the
acquisition of the Division or a substantial part of the assets of the
Division, (ii) purchase of all or a substantial part of the assets of
Seller relating to the Division, or (iii) the acquisition of more than 50%
of Seller's outstanding equity securities ((i), (ii) and (iii) are
hereafter referred to as "Competing Transaction") or resolved to do so,
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or (D) a tender offer or exchange offer for 50% or more of the outstanding
shares of capital stock of Seller is commenced, and the Board of Directors
of Seller, within 10 business days after such tender offer or exchange
offer is so commenced, either fails to recommend against acceptance of such
tender offer or exchange offer by its shareholders or takes no position
with respect to the acceptance of such tender offer or exchange offer by
its shareholders;
(e) By Seller if Seller's Board of Directors, in the exercise of its
judgment as to its fiduciary duties to its shareholders as imposed by
applicable law and after consultation with and receipt of a written opinion
from outside legal counsel, determines that such termination is required by
reasons of any Competing Transaction being made or proposed;
(f) By either Purchaser or Seller, if any Update Schedule of the other
party contains disclosures of any fact or condition which makes untrue, or
shows to have been untrue, any representation or warranty by the other
party in this Agreement, unless concurrently with the delivery of the
Update Schedule, the other party represents and warrants that the disclosed
fact or condition can and will be corrected at the other party's expense
prior to the Closing Date (but in no event more than 30 days after the
delivery of the Update Schedule); provided that the right to terminate only
exists if the effect of the fact or condition so disclosed upon the
representation or warranty so affected constitutes a Seller Material
Adverse Effect or Purchaser Material Adverse Effect, as applicable; or
(g) By either Purchaser or Seller, at any time after the Stockholders'
Meeting, in the event this Agreement and the Asset Sale are not approved by
the requisite vote of the shareholders of Seller in accordance with the
Michigan Law and the Articles of Incorporation and By-Laws of Seller.
10.02 EFFECT OF TERMINATION. Subject to the remedies of the parties set
forth in section 10.03(c), in the event of the termination of this Agreement
pursuant to section 10.01, this Agreement shall forthwith become void, and,
subject to sections 10.03(c), (d) and (e), there shall be no liability under
this Agreement on the part of Purchaser or Seller or any of their respective
officers or directors and all rights and obligations of each party hereto shall
cease.
10.03 EXPENSES.
(a) Except as provided in section 10.03(c) and section 10.03(d), all
Expenses incurred by the parties shall be borne solely and entirely by the
party which has incurred the same. Seller shall pay for all Expenses
related to printing, filing and mailing the Proxy Statement and all SEC and
other regulatory filing fees incurred in connection with the Proxy
Statement and all Expenses related to the engagement of NatCity.
(b) "Expenses" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a party and its Affiliates) incurred by a party or on its
behalf in connection with or related to this Agreement or the transactions
contemplated hereby, including, without limitation, all expenses related to
the authorization, preparation, negotiation, execution and performance of
this Agreement, the preparation, printing, filing and mailing of the Proxy
Statement, the solicitation of stockholder approvals and all other matters
related to the closing of the transactions contemplated by this Agreement.
(c) Seller and Purchaser each agree that with respect to any
termination of this Agreement pursuant to section 10.01(b) as a direct
result of a material intentional breach by a party of any of its covenants
or agreements contained in this Agreement, all remedies available to the
other party either in law or equity on account of such failure to close,
including, without limitation, the right to seek specific performance of
this Agreement as well as the right to pursue a claim for damages on
account of a breach of this Agreement, shall be preserved and shall survive
any termination of this Agreement.
(d) If all conditions to the obligations of a party at Closing
contained in Article IX of this Agreement have been satisfied (or waived by
the party entitled to waive such conditions), and the other party does not
proceed with the Closing, all remedies available to the party seeking to
proceed, either at law or in equity, on account of such failure to close,
including, without limitation, the right to seek
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specific performance of this Agreement as well as the right to pursue a
claim for damages on account of a breach of this Agreement, shall be
preserved and shall survive any termination of this Agreement.
(e) Notwithstanding anything to the contrary herein, Seller agrees
that if this Agreement is terminated pursuant to [i] section 10.01(d) or
section 10.01(e) or [ii] pursuant to section 10.01(b) (provided the
termination was not due to Purchaser's failure to satisfy a material
closing condition) or 10.01(g) after a bona fide Competing Transaction
proposal has been received by Seller and, within four months after the date
of such termination, Seller enters into an agreement for a Competing
Transaction and subsequently closes that Competing Transaction Seller shall
pay to Purchaser, as liquidated damages and not as a penalty, $2,500,000.
Such payment shall be made as promptly as practicable but in no event later
than one business day following termination of this Agreement if pursuant
to clause [i] or one business day after the closing of the Competing
Transaction if pursuant to clause [ii], and shall be made by wire transfer
of immediately available funds to an account designated by Purchaser. Any
amount of the $2,500,000 which is not timely paid shall bear interest until
paid at the rate of 18% per annum and Purchaser shall be entitled to
recover all costs of collection of same, including reasonable attorneys'
fees.
ARTICLE XI
INDEMNIFICATION BY PURCHASER
11.01 INDEMNIFICATION. Notwithstanding the Closing, and regardless of any
investigation made at any time by or on behalf of Seller or any information
Seller may have, Purchaser and its successors hereby agree to indemnify, defend
and hold Seller, each fiduciary of Seller's employee benefit plans, each of
Seller's Subsidiaries, shareholders, directors, affiliates, officers, employees,
agents, successors and assigns (Seller and such persons, collectively, "Seller's
Indemnified Persons") harmless from and against any demand, claim, damage
(compensatory, consequential and other), liability, loss (which will include any
diminution in value), cost, or deficiency or expense (including, but not limited
to, interest, penalties, costs of preparation and investigation and the
reasonable fees, disbursements and expenses of attorneys, accountants and other
professional advisors whether or not asserted by third parties, each a "Loss"
and collectively, "Losses"), imposed or incurred by Seller's Indemnified
Persons, directly or indirectly, arising out of, resulting from or relating to:
(a) Any inaccuracy in, or breach of, any representation or warranty of
Purchaser pursuant to this Agreement in any respect, including schedules
and documents delivered pursuant hereto;
(b) Any failure by Purchaser to perform or pay as due the Assumed
Liabilities; or
(c) Any failure of Purchaser to duly perform or observe any term,
provision, covenant or agreement to be performed or observed by Purchaser
pursuant to this Agreement or the documents contemplated by this Agreement.
11.02 PROCEDURES. Seller's Indemnified Persons shall give Purchaser prompt
notice of any Loss, written claim, demand, assessment, action, suit or
proceeding to which the indemnity set forth in this Article XI applies. If a
document evidencing such Loss, written claim, demand, assessment, action, suit
or proceeding is a court pleading, Seller shall give such notice, including a
copy of such pleading, within five days of receipt of such pleading, otherwise,
Seller shall give such notice within 30 days of the date it receives written
notice of such claim. Failure to give timely notice of a matter which may give
rise to an indemnification claim shall not affect the rights of Seller's
Indemnified Persons to collect such Loss from Purchaser to the extent such
failure to so notify does not materially adversely affect Purchaser's ability to
defend such Loss against a third party.
If Seller's Indemnified Persons request for indemnification arises from the
claim of a third party, Purchaser may, at its option, assume control of the
defense of any such claim, or any litigation resulting from such claim. Failure
by Purchaser to notify Seller's Indemnified Persons of its election to defend a
complaint by a third party within five days shall be a waiver by Purchaser of
its right to respond to such complaint and within 20 days after notice thereof
shall be a waiver by Purchaser of its right to assume control of the defense of
such claim or action. If Purchaser assumes control of the defense of such claim
or litigation resulting
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therefrom, Purchaser shall take all reasonable steps necessary in the defense or
settlement of such claim or litigation resulting therefrom and Purchaser shall
hold Seller's Indemnified Persons, to the extent provided in this Article XI,
harmless from and against all Losses arising out of or resulting from any
settlement approved by Purchaser or any judgment in connection with such claim
or litigation. Notwithstanding Purchaser's assumption of the defense of such
third-party claim or demand, Seller's Indemnified Persons shall have the right
to participate in the defense of such third-party claim or demand at its own
expense. Purchaser shall not, in the defense of such claim or litigation,
consent to entry of any judgment against Seller's Indemnified Persons or enter
into any settlement, involving any of Seller's Indemnified Persons, except in
either case with written consent of Seller's Indemnified Persons, which consent
shall not be unreasonably withheld. Seller shall furnish Purchaser in reasonable
detail all information Seller may have with respect to any such third-party
claim and shall make available to Purchaser and its representatives all records
and other similar materials which are reasonably required in the defense of such
third-party claim and shall otherwise cooperate with and assist Purchaser in the
defense of such third-party claim.
If Purchaser does not assume control of the defense of any such third-party
claim or litigation resulting therefrom, Seller's Indemnified Persons may defend
against such claim or litigation in such manner as Seller may reasonably deem
appropriate, and Purchaser shall indemnify Seller's Indemnified Persons from any
Loss indemnifiable under section 11.01 incurred in connection therewith.
If Purchaser shall pay any amount hereunder in settlement of any such claim
or litigation against Seller's Indemnified Persons, such Seller's Indemnified
Persons shall assign all its related rights against third parties to Purchaser.
11.03 PAYMENT. Seller's Indemnified Persons shall be entitled to recover
any Losses pursuant to this Article XI in cash or immediately available funds
within 30 days of (a) the settlement or a judgment with respect to a third-party
claim and (b) Seller's written notice of its right to indemnification with
respect to all other claims. Should Seller's Indemnified Persons subsequently be
found not to be entitled to indemnification under this Article XI, Seller's
Indemnified Persons shall pay Purchaser as full and complete liquidated damages
and not as a penalty, such amount and interest on the amount calculated from the
date of payment by Purchaser to the date of payment by Seller, at an annual rate
equal to the rate of interest under the Subordinated Note.
11.04 SURVIVAL OF INDEMNIFICATION. No demand or claim for indemnification
pursuant to section 11.01(a) shall be made after 24 months following the Closing
Date.
11.05 BASKET PAYMENT. No indemnification shall be payable by Purchaser
pursuant to section 11.01(a) unless the aggregate Losses incurred by all of
Seller's Indemnified Persons exceed $100,000, at which time Seller's Indemnified
Persons shall be entitled to recover from the Purchaser all Losses.
11.06 REMEDIES CUMULATIVE. The remedies provided by this section shall be
cumulative and shall not preclude the assertion by Seller's Indemnified Persons
of any other rights or the seeking of any remedies against Purchaser.
ARTICLE XIII
INDEMNIFICATION BY SELLER
12.01 INDEMNIFICATION. Notwithstanding the Closing, and regardless of any
investigation made at any time by or on behalf of Purchaser or any information
Purchaser may have, Seller and its successors hereby agree to indemnify, defend
and hold Purchaser, each fiduciary of Purchaser's employee benefit plans, each
of Purchaser's subsidiaries, shareholders, directors, affiliates, officers,
employees, agents, successors and assigns (Purchaser and such persons,
collectively, "Purchaser's Indemnified Persons") harmless from and against any
Loss imposed or incurred by Purchaser's Indemnified Persons, directly or
indirectly, arising out of, resulting from or relating to:
(a) Any inaccuracy in or breach of any representation or warranty of
Seller pursuant to this Agreement in any respect, including schedules and
documents delivered pursuant hereto;
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(b) Any failure of Seller to duly perform or observe any term, provision,
covenant or agreement to be performed or observed by Seller pursuant to this
Agreement or documents contemplated by this Agreement; or
(c) Any and all liabilities or obligations of Seller other than the Assumed
Liabilities, including, but not limited to, the Excluded Liabilities.
12.02 PROCEDURES. Purchaser's Indemnified Persons shall give Seller prompt
notice of any Loss, written claim, demand, assessment, action, suit or
proceeding to which the indemnity set forth in this Article 12 applies. If a
document evidencing such Loss, written claim, demand, assessment, action, suit
or proceeding is a court pleading, Purchaser shall give such notice, including a
copy of such pleading, within five days of receipt of such pleading, otherwise,
Purchaser shall give such notice within 30 days of the date it receives written
notice of such claim. Failure to give timely notice of a matter which may give
rise to an indemnification claim shall not affect the rights of Purchaser's
Indemnified Persons to collect such Loss from Seller to the extent such failure
to so notify does not materially adversely affect Seller's ability to defend
such Loss against a third party.
If Purchaser's Indemnified Persons request for indemnification arises from
the claim of a third party, Seller may, at its option, assume control of the
defense of any such claim, or any litigation resulting from such claim. Failure
by Seller to notify Purchaser's Indemnified Persons of its election to defend a
complaint by a third party within five days shall be a waiver by Seller of its
right to respond to such complaint and within 20 days after notice thereof shall
be a waiver by Seller of its right to assume control of the defense of such
claim or action. If Seller assumes control of the defense of such claim or
litigation resulting therefrom, Seller shall take all reasonable steps necessary
in the defense or settlement of such claim or litigation resulting therefrom and
Seller shall hold Purchaser's Indemnified Persons, to the extent provided in
this Article XII, harmless from and against all Losses arising out of or
resulting from any settlement approved by Seller or any judgment in connection
with such claim or litigation. Notwithstanding Seller's assumption of the
defense of such third-party claim or demand, Purchaser's Indemnified Persons
shall have the right to participate in the defense of such third-party claim or
demand at their own expense. Seller shall not, in the defense of such claim or
litigation, consent to entry of any judgment against any of Purchaser's
Indemnified Persons or enter into any settlement, involving any of Purchaser's
Indemnified Persons, except in either case with written consent of Purchaser's
Indemnified Persons, which consent shall not be unreasonably withheld.
Purchaser's Indemnified Persons shall furnish Seller in reasonable detail all
information Purchaser's Indemnified Persons may have with respect to any such
third-party claim and shall make available to Seller and its representatives all
records and other similar materials which are reasonably required in the defense
of such third-party claim and shall otherwise cooperate with and assist Seller
in the defense of such third-party claim.
If Seller does not assume control of the defense of any such third-party
claim or litigation resulting therefrom, Purchaser's Indemnified Persons may
defend against such claim or litigation in such manner as they may reasonably
deem appropriate, and Seller shall indemnify Purchaser's Indemnified Persons
from any Loss indemnifiable under section 12.01 incurred in connection
therewith.
If Seller shall pay any amount hereunder in settlement of any such claim or
litigation against any of Purchaser's Indemnified Persons, such Purchaser's
Indemnified Persons shall assign all their related rights against third parties
to Seller.
12.03 PAYMENT. Purchaser's Indemnified Persons shall be entitled to recover
any Losses pursuant to this Article XII (a) in cash or immediately available
funds within 30 days of (i) the settlement or a judgment with respect to a
third-party claim or (ii) Purchaser's written notice of its right to
indemnification with respect to all other claims and (b) by means of setoff, in
good faith, of any such Losses against payments or amounts due to Seller under
the Subordinated Note or any other Related Agreement, and such good faith setoff
shall not be deemed a breach of any other such agreement. Notwithstanding the
foregoing, Purchaser shall not set off any amounts until it has first given
Seller 30 days prior written notice of the matter giving rise to the claim for
set off and the parties shall negotiate in good faith to resolve such dispute.
If the dispute is not resolved within 90 days, the parties shall proceed to
arbitration pursuant to the terms of this Agreement. Should Purchaser's
Indemnified Persons subsequently be found not to be entitled to indemnification
under this Article XII,
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Purchaser's Indemnified Persons shall pay Seller as full and complete liquidated
damages and not as a penalty, such amount and interest on the amount calculated
from the date of payment or setoff at the annual rate equal to the rate of
interest under the Subordinated Note, and the obligations of Seller shall
continue in full force and effect without any right of Seller applicable upon
default resulting from Purchaser's Indemnified Persons setoff.
12.04 SURVIVAL OF INDEMNIFICATION. No demand or claim for indemnification
pursuant to sections 12.01(a) shall be made after 24 months following the
Closing Date, except as follows: (a) claims for indemnification for
representations and warranties contained in sections 4.01 and 4.02 may be made
up to the fifth anniversary of the Closing; (b) claims for indemnification for
representations and warranties contained in sections 4.12 and 4.26 may be up to
the seventh anniversary of the Closing and (c) claims for indemnification for
representations and warranties contained in section 4.25 may be brought at any
time until the underlying obligation is barred by the applicable period of
limitation under federal and state laws relating thereto (as such may be
extended by waiver).
12.05 BASKET PAYMENT. No indemnification shall be payable by Seller
pursuant to section 12.01(a) unless the aggregate Losses incurred by all of
Purchaser's Indemnified Persons exceed $100,000, at which time the Purchaser's
Indemnified Persons shall be entitled to recover from the Seller all Losses.
Notwithstanding the foregoing, there shall be no limitation upon Purchaser's
Indemnified Persons right to recover any and all Losses related to any
inaccuracy or breach of the representations and warranties contained in section
4.19.
12.06 REMEDIES CUMULATIVE. The remedies provided by this section shall be
cumulative and shall not preclude the assertion by Purchaser's Indemnified
Persons of any other rights or the seeking of any remedies against Seller.
ARTICLE XIV
GENERAL PROVISIONS
13.01 NOTICES. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made upon receipt, if delivered personally, on the third business day
following deposit in the U.S. mail if mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or when sent by electronic transmission to the telecopier
number specified below with receipt acknowledged:
(a) If to Purchaser:
Weltronic/Technitron, Inc.
150 East St. Charles Road
Carol Stream, IL 60188
Attn: Durrell G. Miller, President
With a copy to:
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street, Suite 2100
Milwaukee, WI 53202
Telecopier: 414-298-8097
Attention: Daniel J. Brink, Esq.
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(b) If to Seller:
Medar, Inc.
38700 Grand River
Farmington Hills, MI 48335-1563
Telecopier: 248-615-2971
Attention: Charles J. Drake, Chairman and CEO
With a copy to:
Warren Cameron Faust & Asciutto, P.C.
2161 Commons Parkway
Okemos, MI 48864
Telecopier: 517-349-3311
Attention: J. Michael Warren, Esq.
13.02 AMENDMENT. This Agreement may be amended by the parties by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Closing; provided, however, that after approval of this Agreement by the
shareholders of Seller, no amendment may be made without further approval of
such shareholders, which amendment would (i) reduce the amount or change the
type of consideration to be received by Seller, (ii) alter the amount or type of
assets to be sold or (iii) which would otherwise materially change Seller's
rights or obligations upon consummation of the Asset Sale. This Agreement may
not be amended except by an instrument in writing signed by each of the parties
hereto.
13.03 WAIVER. At any time prior to the Closing, any party may (a) extend
the time for the performance of any of the obligations or other acts of any
other party, (b) waive any inaccuracies in the representations and warranties of
any other party contained in this Agreement or in any document delivered
pursuant to this Agreement, or (c) waive compliance by any other party with any
of the agreements or conditions contained in this Agreement. Notwithstanding the
foregoing, no failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
13.04 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
13.05 SEVERABILITY. If any term or other provision of this Agreement is
finally adjudicated by a court of competent jurisdiction to be invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
13.06 ENTIRE AGREEMENT. This Agreement (together with the Exhibits, the
disclosure schedules to this Agreement, the other documents delivered pursuant
hereto and that certain Confidentiality Agreement between Seller and Guarantor
dated January 28, 1999), constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter hereof.
13.07 ASSIGNMENT. This Agreement shall not be assigned, whether by
operation of law or otherwise, without the prior written consent of the parties
hereto. Notwithstanding the preceding sentence, Purchaser may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates and
(ii) designate
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one or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases Purchaser nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
13.08 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of and be enforceable by each party and its respective
successors and permitted assigns, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
13.09 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law,
provided, however, that if any court of competent jurisdiction determines not to
construe this Agreement in accordance with the laws of the State of Michigan,
then this Agreement shall be governed by, and construed in accordance with, the
laws of the State of Michigan, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
13.10 COUNTERPARTS. This Agreement may be executed by facsimile and in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
13.11 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other party; provided,
however, that any party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable best efforts to advise the other party prior to making the
disclosure).
13.12 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
13.13 EMPLOYEES. Purchaser shall not assume and shall not be deemed to have
assumed any obligation in respect of any employee of Seller or its Subsidiaries,
any employee benefit plans or any other similar obligations (including, but not
limited to wages, severance pay and vacation pay) of Seller or its Subsidiaries
to their employees who are employed at or in connection with the Division or
otherwise. Purchaser shall not assume and shall not be deemed to have assumed
any employee insurance or benefit plan or formal or informal practice maintained
by or contributed to by Seller or its Subsidiaries.
13.14 WARN. Seller shall be responsible for all notices and liabilities
required under WARN.
13.15 ACCESS. From the date of this Agreement until the Closing Date,
Seller shall, and Seller shall cause each of its Subsidiaries to, afford
Purchaser and its representatives full and complete access to the books and
records, financial statements, tax returns and tax records, facilities,
employees and such other information of Seller and its Subsidiaries as Purchaser
may reasonably request to evaluate the business, operations, properties, assets,
liabilities and prospects of the Division. In connection therewith,
representatives of Purchaser shall be entitled to consult with the
representatives, officers and employees of Seller and its Subsidiaries. Such
access to information and any such consultations shall be conducted in a manner
not to unreasonably interfere with the operation of the business of Seller and
its Subsidiaries.
13.16 BULK SALES. The parties waive compliance with the Michigan Bulk Sales
Act or any similar law. Seller shall promptly pay and discharge when due all
liabilities and obligations arising out of or relating to Seller's ownership,
operation and sale of the Division and its properties other than the Assumed
Liabilities. Except for the Assumed Liabilities, Seller hereby agrees to
indemnify, defend and hold Purchaser's Indemnified Persons and Purchaser's
institutional lenders harmless from and against any and all Losses arising
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out of or relating to claims asserted against any of such persons under the
Michigan Bulk Sales Act or any similar law.
13.17 LITIGATION SUPPORT. In the event and for so long as either party is
contesting or defending any action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand in connection with any of the warranties or
obligations under this Agreement, including the Assumed Liabilities, the other
party will use reasonable efforts to cooperate with the litigating party and its
counsel in the contest or defense, make available its personnel and provide such
testimony and access to its books and records that shall be reasonably necessary
in connection with the contest or defense, all at the sole cost and expense of
the litigating party.
13.18 USE OF MARKETING MATERIALS. For a period of one year after the
Closing Date, Purchaser shall be entitled to use without charge any and all of
the current stock of sales and marketing materials used by Seller in connection
with the operation of the Division.
13.19 SUBORDINATION. If requested by the "Refinancing Lender" (as defined
below) upon any refinancing, renewal, extension or replacement of Purchaser's
debts and obligations to American National Bank and Trust Company of Chicago
(the "Bank"), Seller agrees to enter into a subordination agreement agreeing
with Refinancing Lender to subordinate its right of payment under the
Subordinated Note to the prior payment in full of Purchaser's obligations to the
Refinancing Lender provided, however, that Seller shall only be obligated to
enter into such new subordination agreement if it is in all essential ways the
same as the existing Subordination and Intercreditor Agreement attached as
Exhibit I., Seller agrees to promptly execute any document reasonably requested
by the Refinancing Lender to evidence such subordination. In addition, Seller
agrees that at any time and from time to time Purchaser may receive an equity or
subordinated debt infusion of up to $7 million (the "Infusion") provided that if
the Infusion is in the form of debt, payment of the debt shall be fully
subordinate to the payment of the Subordinated Note except that prior to a
default on the Subordinated Note, interest only on the debt Infusion may be paid
in the first year and after the first year principal may be paid on an
amortization schedule of not less than four years and the interest rate shall be
not greater then prime plus 1%.
13.20 ARBITRATION.
i. Any dispute, controversy, or claim arising out of or relating to
this Agreement or relating to the breach, termination, or invalidity of
this Agreement, whether arising in contract, tort, or otherwise, shall at
the request of any party be resolved in binding arbitration. Any
arbitration shall proceed in accordance with the current Commercial
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association ("AAA") to the extent that the Arbitration Rules do not
conflict with any provision of this Section.
ii. No provision of or the exercise of any rights under this Section
shall limit the right of any party to seek and obtain provisional or
ancillary remedies (such as specific enforcement, injunctive relief,
attachment, or the appointment of a receiver) from any court having
jurisdiction before, during, or after the pendency of an arbitration
proceeding under this Section. The institution and maintenance of any such
action or proceeding shall not constitute a waiver of the right of any
party (including the party taking the action or instituting the proceeding)
to submit a dispute, controversy, or claim to arbitration under this
Section.
iii. Any award, order, or judgment made pursuant to arbitration shall
be deemed final and may be entered in any court having jurisdiction over
the enforcement of the award, order, or judgment.
iv. The arbitration shall be held before one arbitrator knowledgeable
in the general subject matter of the dispute, controversy, or claim and
selected by AAA in accordance with the Arbitration Rules.
v. The arbitration shall be held at the office of AAA located in
Detroit, Michigan (as the same may be from time to time relocated), or at
another place the parties agree on.
vi. In any arbitration proceeding under this Section, subject to the
award of the arbitrator(s), each party shall pay all its own expenses and
an equal share of the fees and expenses of the arbitrator. The arbitrator
shall have the power to award recovery of costs and fees (including
reasonable attorney fees,
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administrative and AAA fees, and arbitrator's fees) among the parties as
the arbitrator determine to be equitable under the circumstances.
13.21 FURTHER ASSURANCES. After the Closing, Seller shall from time to
time, at Purchaser's request and without further consideration, execute and
deliver to Purchaser such other instruments of conveyance and transfer and take
such other action as Purchaser may reasonably request so as to more effectively
transfer, assign and deliver and vest in Purchaser title to the Purchased Assets
as provided in this Agreement.
The parties have executed this Agreement on the date set forth on the first
page of this Agreement.
MIAC ACQUISITION, INC.
By /s/ DURRELL G. MILLER
------------------------------------
Durrell G. Miller, President
WELTRONIC/TECHNITRON, INC.
By /s/ DURRELL G. MILLER
------------------------------------
Durrell G. Miller, President
MEDAR, INC.
By /s/ CHARLES J. DRAKE
------------------------------------
Charles J. Drake, Chairman and CEO
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EXHIBIT A
SUBORDINATED NOTE
$7,400,000 Farmington Hills, Michigan
, 1999
FOR VALUE RECEIVED, MIAC ACQUISITION, INC., a Michigan corporation
("Maker") promises to pay to the order of MEDAR, INC., a Michigan corporation,
("Payee") the principal sum of Seven Million Four Hundred Thousand Dollars
($7,400,000) plus interest thereon at an annual rate equal to the lowest rate of
interest (as determined from time to time) paid by Payee to its lender pursuant
to the revolving credit facility or term loan for borrowings related to the
transactions contemplated by the Purchase Agreement, plus 1%.
This Subordinated Note is issued and executed pursuant to a certain Asset
Purchase Agreement entered into between Maker and Payee dated April , 1999
(the "Purchase Agreement"), which Purchase Agreement and all of the terms,
conditions, covenants and provisions thereof are incorporated herein by this
reference, including, without limitation, Maker's right to set off against
payments due Payee under this Subordinated Note. In addition, the payment of
principal and interest on this Subordinated Note is subordinated in right of
payment to the prior payment in full of certain other obligations of Maker to
the extent and in the manner set forth in the Subordination and Intercreditor
Agreement of even date herewith ("Subordination Agreement") among American
National Bank and Trust Company of Chicago (the "Bank") and Payee.
Payment of principal under this Subordinated Note shall be made in 16 equal
quarterly installments of $462,500 plus accrued interest, commencing on
September 30, 1999 and continuing on each December 31, March 31, June 30 and
September 30 thereafter through September 30, 2003. Accrued interest under this
Subordinated Note shall be payable with each principal payment. Notwithstanding
anything herein to the contrary, $300,000 of the first quarterly installment of
principal and interest shall be paid directly to Square D Company, on Payee's
behalf, pursuant to the terms and conditions of that certain Patent License
Agreement dated October 4, 1995 between Square D Company and Payee.
Payments hereunder shall be made at 38700 Grand River, Farmington Hills,
Michigan 48335-1563 or such other place as may be designated from time to time
by Payee or the holder of this Subordinated Note. Principal of and interest on
this Subordinated Note shall be payable in lawful money of the United States of
America. Prepayments in whole or in part may be made upon this Subordinated Note
at any time without penalty. Partial prepayments shall be applied first against
accrued but unpaid interest and then against installments of principal in the
inverse order of their maturities.
This Subordinated Note and all obligations of the Maker shall immediately
become due and payable upon:
1. The failure of Maker to pay any installment of principal and interest
when due and such default continues uncorrected for a period of 10 days after
written notice to Maker of such default.
2. The occurrence of an Event of Default as defined in that certain Loan
Agreement between the Bank and Maker dated as of the date hereof , which Event
of Default remains uncured after expiration of any applicable cure period.
3. The entry of a decree or order by a court having jurisdiction in the
premises adjudging the Maker bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or composition
of or in respect of the Maker under the United States Bankruptcy Code or any
other applicable federal or state law, or appointing a receiver, liquidator,
assignee or trustee of the Maker, or any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
such decree or order unstayed and in effect for a period of 60 consecutive days.
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4. The institution by the Maker of proceedings to be adjudicated bankrupt
or insolvent, or consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under the United States Bankruptcy Code or any
other applicable federal or state law, or the consent by it to the following of
any such petition or to the appointment of a receiver, liquidator, assignee or
trustee of the Maker, or any substantial part of its property, or making by it
of an assignment for the benefit of creditors or the admission by it in writing
of its inability to pay its debts generally as they become due or the taking of
corporate action by the Maker in furtherance of any such action.
5. A transaction involving a Change in Control (as defined below) or upon
the occurrence of a public debt offering by the Maker. "Change in Control" shall
mean a merger of the Maker with or into any other person, or any transaction or
series of transactions, immediately after which any person or persons other than
Durrell G. Miller, Daniel W. Thibodeau and NADEX Co., Ltd. control or own
beneficially, directly or indirectly, 50 % or more of the Maker's equity
interests.
No delay or remission of Payee to exercise any right hereunder, whether
before or after the happening of any event of default, shall impair any such
right or shall be construed as a waiver thereof. Except as otherwise provided
herein, Maker waives demand, presentment, protest, diligence, notice of dishonor
and any other formality in connection with this Subordinated Note. This
Subordinated Note shall be governed and construed according to the internal laws
of the State of Michigan.
Dated this day of , 1999.
MIAC ACQUISITION, INC.
By
------------------------------------
Durrell G. Miller, President
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EXHIBIT E
NON-COMPETITION AGREEMENT
THIS AGREEMENT is dated as of , 1999 between MEDAR, INC., a
Michigan corporation ("Seller"), and MIAC ACQUISITION, INC., a Michigan
corporation ("Purchaser").
RECITALS
A. Purchaser is engaged in the design, manufacture, sale and distribution
of weld controls and related equipment (the "Purchaser's Business").
B. Seller and Purchaser have entered into a certain Asset Purchase
Agreement dated April , 1999 (the "Purchase Agreement") whereby Purchaser has
agreed to purchase substantially all of the assets of Seller's resistance spot
welding division which consists of designing, manufacturing, selling and
distributing weld controls and related equipment (the "Seller's Business") (the
Purchaser's Business and the Seller's Business are collectively referred to
herein as the "Welding Business").
C. Seller is entering into this Agreement to induce Purchaser to enter
into the Purchase Agreement and in consideration for the compensation
contemplated thereby.
D. Purchaser would be greatly and irreparably damaged if Seller were to
compete with Purchaser in the Welding Business after the consummation of the
transactions contemplated by the Purchase Agreement.
E. Capitalized terms not otherwise defined herein shall have the meanings
given such term in the Purchase Agreement.
AGREEMENTS
In consideration of the recitals and the mutual agreements which follow,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
1. COVENANT NOT TO COMPETE. Seller covenants and agrees with Purchaser
that, for a period beginning on the date hereof and ending five years
thereafter, it shall not, either directly or indirectly, whether as agent,
stockholder, member, employer, consultant, representative, trustee, partner,
proprietor, employee or otherwise:
(a) CUSTOMERS. Canvass, solicit or accept from any person or entity
who is a customer of Purchaser (any such person or entity is hereinafter
referred to individually as a "Customer" and collectively as the
"Customers") any orders for the design, manufacture, sale or distribution
of resistance spot welding equipment.
(b) OWNERSHIP OF COMPETING INTEREST. Provide assistance to, engage in
or have a financial or other interest in any business, activity or
enterprise which designs, manufactures, sells or distributes resistance
spot welding equipment; provided, however, that the ownership of less than
2% of the stock of a corporation whose shares are traded in a recognized
stock exchange or traded in the over-the-counter market, even though that
corporation may be a competitor of Purchaser, shall not be deemed financial
participation in a competitor.
2. CONFIDENTIAL INFORMATION; EMPLOYEES; RELATIONS WITH SUPPLIERS.
(a) Use or Disclosure of Confidential Information. Seller agrees and
acknowledges that customers, procedures, operations, techniques, trade
secrets, patents and other assets of the Welding Business (collectively the
"Confidential Information") have been established at great expense and
protected by Seller as confidential information, are extremely valuable to
Seller and will provide Purchaser with a substantial competitive advantage
in conducting the Welding Business as previously conducted by Seller.
Seller further acknowledges that irreparable harm will be caused to
Purchaser's business if Seller discloses any such Confidential Information.
Therefore, Seller agrees that for the lesser of (i) five years or (ii)
until such information becomes known to the public generally through no
fault of Seller, Seller
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will not, directly or indirectly, use or disclose to any third party any
Confidential Information, unless required by law or court order.
(b) SELLER'S RECRUITMENT OF EMPLOYEES. Seller acknowledges that the
employees of Seller which are hired by Purchaser possess substantial
technical and business expertise. Therefore, Seller, for a period of two
years from the date hereof, shall not solicit or hire any of the employees
of Purchaser who were formerly employees of Seller without Purchaser's
prior written consent.
(c) RELATIONS WITH SUPPLIERS. Seller agrees that the supplier
contacts and relations of the Welding Business are extremely valuable, have
been established and maintained at great expense and that Seller has had
unique and extensive exposure to and contact with Seller's suppliers, and
that it has had a unique relationship with these suppliers that will enable
it to unfairly compete with Purchaser; provided, however, that the
foregoing sentence shall not be construed as a limitation on Seller's
ability to continue its relationships with its current suppliers. Seller
agrees that the profitability and goodwill of Purchaser depends on
continued, amicable relations with its suppliers, and Seller agrees that
for five years commencing on the date hereof, Seller will not cause,
request or advise any suppliers of Purchaser to curtail or cancel their
business with Purchaser.
3. REASONABLENESS OF RESTRICTIONS. Seller acknowledges that the
restrictions provided for herein are reasonable and the consideration provided
herein is sufficient to fully and adequately compensate Seller for agreeing to
the restrictions.
4. SPECIFIC PERFORMANCE. Seller acknowledges and agrees that breach of this
Agreement by Seller would cause irreparable damage to Purchaser and that
monetary damages alone would not provide Purchaser with an adequate remedy for
breach of this Agreement. Therefore, if any controversy arises concerning the
rights or obligations under this Agreement, such rights or obligations shall be
specifically enforceable by an injunction order issued by a court of competent
jurisdiction. Such remedy, however, shall be cumulative and nonexclusive, and
shall be in addition to any other remedy to which Purchaser may be entitled.
5. SALE, CONSOLIDATION OR MERGER. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against the Purchaser
and Seller, and their successors and assigns. In the event of consolidation or
merger of the Seller with or into another corporation or entity, or the sale,
assignment or transfer of substantially all of the operating assets of the
Seller to another corporation, entity or individual, the successor-in-interest
shall by acquiring such assets be bound by this Agreement and shall be deemed to
have assumed all rights and liabilities of the Seller under this Agreement.
6. COMMON LAW OF TORTS AND TRADE SECRETS. Seller agrees that nothing in
this Agreement shall be construed to limit or negate the common law of torts and
trade secrets where it provides Purchaser with broader protection than that
provided herein.
7. APPLICABLE LAW; BINDING EFFECT; WAIVER. This Agreement shall be governed
by the laws, and enforced in the courts, of the State of Michigan and shall be
binding upon the parties and inure to the benefit of the successors and assigns
of the respective parties hereto; provided, however, that this Agreement and all
rights hereunder may not be assigned by either party except by or with the
written consent of the other party. The failure of any party to this Agreement
to insist, in any one or more instances, upon performance of any of the terms
and conditions of this Agreement shall not be considered as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such terms, covenants or conditions.
8. SEVERABILITY. The parties expressly agree that if any claim is made by
any party asserting that any covenant contained in this Agreement is invalid or
unenforceable, predicated upon the length of its term or its geographic area or
otherwise, the provision in question shall not thereby be rendered invalid or
unenforceable but shall instead be modified so as to be valid and fully
enforceable for the maximum duration and maximum geographic area or otherwise
(but never for a longer period than set forth above) as any court of competent
jurisdiction shall find to be reasonable, necessary, valid and legally
enforceable. The parties specifically acknowledge that the covenant not to
compete and the covenants not to disclose Confidential Information, recruit
employees or interfere with suppliers are separate and independent agreements.
Seller and Purchaser
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acknowledge and agree that they are entering into this Agreement in connection
with the sale of substantially all of the assets of the Welding Business to
Purchaser.
9. CAPTIONS. The captions contained in this Agreement are for the
convenience of the parties and shall not be deemed or construed in any way as
limiting or expanding the language of the provisions to which such captions
refer.
Dated as of the day, month and year first above written.
MEDAR, INC.
By
--------------------------------------
Charles J. Drake,
Chairman of the Board and CEO
MIAC ACQUISITION, INC.
By
--------------------------------------
Durrell G. Miller, President
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EXHIBIT G
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT, dated as of , 1999 (the
"Effective Date"), is made between MEDAR, INC., a Michigan corporation
("Medar"), with offices at 38700 Grand River, Farmington Hills, Michigan
48335-1563 and MIAC ACQUISITION, INC,, a Michigan corporation ("MIAC"), with
offices at 150 East St. Charles Road, Carol Stream, Illinois 60188.
RECITALS
A. Medar is selling its welding division (the "Division") to MIAC (the
"Purchase") pursuant to the terms and conditions of an Asset Purchase Agreement
between MIAC and Medar dated April , 1999 (the "Purchase Agreement"), and such
Division consists of production, marketing, sales and administrative operations
located at its facility in Farmington Hills, Michigan.
B. Prior to the Purchase, Medar provided certain administrative and
manufacturing services to support the Division's operations.
C. MIAC intends to provide such administrative and manufacturing support
services for its operations, without Medar's assistance, as soon as it is
reasonably feasible to do so.
D. MIAC desires and Medar is willing to provide certain administrative and
consulting services for MIAC's operations for a certain specified interim period
after the Purchase. In addition, Medar has its static free room available for
MIAC's use after the Purchase.
AGREEMENTS
In consideration of the promises set forth herein, the parties agree as
follows:
1. GENERAL ADMINISTRATIVE AND CONSULTING SERVICES PROVIDED BY
MEDAR. Subject to the terms and conditions provided herein, Medar shall provide
MIAC with General Administrative Services and Consulting Services (hereafter
referred to collectively as "Services" and individually as a "Service") on an
interim basis and, during the term hereof, also be available on A STANDBY BASIS,
to provide the services, consisting of:
(a) General Administrative Services which shall consist of
(i) Financial Services which shall mean those services which
facilitate the transfer of the general accounting services previously
provided by Medar to the Division to MIAC, which services shall include
any ordinary business accounting services such as general ledger use and
reporting services, cost accounting services, receivable and payable
processing services, the computation of gross payroll services for
hourly workers and property accounting services.
(ii) Information Systems Services which shall mean those services
which facilitate to MIAC the transfer of data processing, communications
and maintenance of records and files, arising from centralized data
processing and file storage operations, as previously provided by Medar
to the Division and to the extent such Information Systems Services
cannot be provided by MIAC's MIS manager (formerly employed by Medar).
(b) Consulting Services which shall mean those services (other than
General Administrative Services) necessary or desirable for the transition
of all aspects of the business of the Division (other General
Administrative Services) to MIAC, including, but not limited to, the
Division's operations, marketing and sale of products, financial matters,
budget matters, business combination prospects and the defense, compromise
or settlement of any claim, demand, action, suit or proceeding pertaining
to the Division. The services shall be provided by the employees of Medar
reasonably requested by MIAC, including, without limitation, Charles J.
Drake, Richard R. Current, and Mark R. Doede.
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2. USE OF STATIC FREE ROOM AND ACCESS TO SPACE FOR INVENTORY CAROUSELS. For
a period of twenty months from the date of this Agreement, MIAC shall be
entitled to use Medar's static free room and access to space for inventory
carousels on an as needed basis after reasonable advance notice and on
reasonable times.
3. JAPANESE VISION WELDING MARKET FEASIBILITY. Within 12 months of this
Agreement, Medar shall provide MIAC with a study evaluating the marketing
feasibility of providing vision welding services in the Japanese market.
4. AGREEMENT PRINCIPLES AND GUIDELINES. By this Agreement, Medar and MIAC
seek to implement the general principle that with the exceptions noted herein or
in the Purchase Agreement, Medar will provide Services on an interim basis
similar to those previously offered to the Division while it is not reasonably
feasible for MIAC to independently provide such Services itself Except as
specifically provided in the Purchase Agreement, neither party agrees, promises
or covenants to provide any other services to the other party. Medar will
continue to offer Services in the same or similar magnitude as previously
offered to the Division and by this Agreement does not promise, covenant or
agree to provide a greater level or magnitude of Services. In addition, no
employee of Medar will be required to spend more than 50% of his or her time
providing the services hereunder during the first month of the term, nor more
than 25% in the second or third month.
Either party may reasonably request Services that it desires the other to
perform and upon such request, the party providing such Services will take those
actions which it reasonably believes necessary to perform the requested
Services.
5. PAYMENTS. In consideration of the Services to be provided by Medar
hereunder and Medar's agreement to be available to provide other services on a
standby basis, MIAC shall pay to Medar upon execution of this Agreement, a total
of $1,450,000, comprised of the following:
a. $950,000 for the senior management consulting under General
Administrative Services;
b. $140,000 for the general employee consulting under the General
Administrative Services for 14 months;
c. $160,000 for the use of the static free room and access to space
for inventory carousels for 20 months; and
d. $200,000 for the marketing and feasibility study for the Japanese
vision welding market potential.
6. TERM. This Agreement shall be effective upon the date of closing under
the Purchase Agreement ("Effective Date") and, except as otherwise specifically
set forth herein shall continue until it is reasonably feasible for MIAC to
provide administrative, manufacturing and manufacturing support services for the
Division, without Medar's assistance, but in no event (except as set forth
herein) for more than 12 months from the Effective Date (the "Service Period").
7. INVENTORY CAROUSELS AND JOINT INVENTORY:
(a) INVENTORY CAROUSELS. MIAC is purchasing certain inventory
carousels located at Medar's principal place of business. Medar agrees to
provide MIAC and its employees or agents with access to the inventory
carousels during Medar's normal business hours until the inventory
carousels are moved to MIAC's principal place of business or the twenty
month period specified in section 2 expires, whichever occurs first,
(b) JOINT INVENT. MIAC and Medar will use certain inventory items
listed on Schedule I attached hereto ("Joint Inventory"). In the event MIAC
or Medar needs any Joint Inventory item and the other party has the item in
its inventory, MIAC or Medar, as the case may be, may purchase such Joint
Inventory item from the other at the other's cost for such item.
8. FORCE MAJEURE. Neither party shall be liable to the other if such
party's fulfillment or performance of any terms or provisions of this Agreement
is delayed or prevented by revolution or other civil disorders, wars, act of
enemies, strikes, electrical equipment availability failures, labor disputes,
fires, floods, act of God,
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federal, state, or municipal action, statute, ordinance or regulation, or,
without limiting the foregoing, any other causes not within its reasonable
control, and which by the exercise of reasonable diligence it is unable to
prevent, whether of the class of causes hereinbefore enumerated or not.
9. EMPLOYEES. Except for the former Medar MIS Manager hired by MIAC, all
employees of Medar providing Services to MIAC will continue to remain employees
of Medar.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be construed in accordance
with the internal laws of the State of Michigan.
(b) LIMITATIONS. Nothing in this Agreement is to be construed as an
assignment or grant of any right, title or interest in any trademark,
copyright, design or trade dress or patent right.
(c) PARTIES IN INTEREST. This Agreement may be assigned to a parent or
subsidiary of a party, or to a third party acquiring substantially all of
the assets of a party, provided that prior to such assignment the other
party has granted its written consent to the assignment, and further
provided that neither party may unreasonably withhold its consent to a
request for assignment. Except as provided above, this Agreement may not be
assigned to a third party.
(d) ENTIRE AGREEMENT. This Agreement is the entire agreement between
the parties in connection with the matters set forth herein. This Agreement
may only be amended in writing signed by both parties.
(e) NOTICES. All notices and communications required or permitted
under this Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been duly made if personally delivered,
or if mailed by first class mail, postage prepaid, or by air express
service, with charges prepaid and addressed as follows:
If to Medar:
Medar, Inc.
38700 Grand River
Farmington Hills, MI 48335-1563
ATT.: Charles J. Drake Chairman of the Board
If to MIAC:
Weltronic/Technitron, Inc.
150 East St. Charles Road
Carol Stream, IL 60188
Att.: Durrell G, Miller, President
Either party may, by written notice so delivered to the other, change the
address to which future delivery shall be made.
(f) NO RELIANCE. No third party is entitled to rely on any of the
representations, warranties and agreements of the parties contained in this
Agreement. The parties assume no liability to any third party because of
any reliance on the representation, warranties and agreements of the
parties contained in this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first written above.
MEDAR, INC.
By
------------------------------------
Charles J. Drake,
Chairman of the Board
MIAC ACQUISITION, INC.
By
------------------------------------
Durrell G, Miller, President
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EXHIBIT I
SUBORDINATION AND INTERCREDITOR AGREEMENT
This Subordination and Intercreditor Agreement ("AGREEMENT") is made on
, 1999 (the "EFFECTIVE DATE"), between American National Bank and
Trust Company of Chicago, a national banking association (together with its
subsidiaries, successors and assigns, the "SENIOR LENDER") and Medar, Inc., a
Michigan corporation (together with its subsidiaries, successors and assigns,
the "JUNIOR LENDER").
RECITALS
A. Weltronic/Technitron Corporation, an Illinois corporation ("BORROWER")
has entered into that certain Loan and Security Agreement dated the Effective
Date with Senior Lender (said loan agreement, as amended, modified, restated or
replaced from time to time will be referred to as the "LOAN AGREEMENT," and the
Loan Agreement, together with all associated notes, agreements, instruments or
filings associated or executed in connection therewith from time to time, will
be referred to collectively as the "LOAN DOCUMENTS"). Senior Lender may from
time to time extend in the future additional loans and credit accommodations to
the Borrower (as used in this Agreement, all Obligations, loans, credit
accommodations, interest due, guaranty obligations, indebtedness or other
obligations of any kind owed by Borrower to Senior Lender, whether direct or
indirect, liquidated in amount or contingent, presently existing or arising in
the future, or created under the Loan Agreement existing as of the Effective
Date, or any amendments to or replacements or restatements of such Loan
Agreement, are collectively referred to as the "Senior Liabilities"). The
maximum amount of Senior Liabilities will be the sum of: (i) $45,000,000.00 in
principal; plus (ii) all associated interest, costs, fees and expenses of Senior
Lender, including but not limited to legal fees and collection costs. All
capitalized terms not defined in this Agreement will have the meanings ascribed
to them in the Loan Agreement. The Senior Liabilities are secured by the
Collateral.
B. Among other things, the credit facility established under that Loan
Agreement will enable Borrower to acquire substantially all the assets of the
resistance spot welding division of Junior Lender and Junior Lender's
wholly-owned subsidiary Medar Canada Ltd., a Canadian corporation (the "MEDAR
SUBSIDIARY"). The "Medar Subsidiary" is included within the rubric of "Junior
Lender" as defined in this Agreement. Borrower's purchase of the assets of
Junior Lender as aforesaid is evidenced by that certain Asset Purchase Agreement
dated April 28, 1999 (the "Asset Agreement"). (The Asset Agreement, together
with all associated notes, security agreements, pledges, guaranties and other
instruments or documents of any type or nature will be referred to collectively
in this Agreement as the "ACQUISITION DOCUMENTS").
C. Under the Asset Agreement, Borrower incurred an obligation to pay Junior
Lender a conditional earn-out, which could be a maximum of $3,000,000.00 (the
"EARN-OUT") if all performance criteria related to the Earn-out are satisfied.
In addition, Borrower deferred its obligation to pay $7,400,000 of the purchase
price for Junior Lender's assets, pursuant to that certain Subordinated
Promissory Note payable over four (4) years, a copy of which (without exhibits)
is set forth on attached SCHEDULE 1 to this Agreement (said note, as amended or
replaced, will be referred to as the "SUB NOTE").
D. Junior Lender acknowledges that Borrower would not have had the
financial capacity to acquire Junior Lender's assets under the Acquisition
Documents, unless Lender extended the credit facilities to Borrower which are
created under the Loan Agreement. Junior Lender therefore desires to induce
Senior Lender to extend said credit facilities to Borrower by entering into this
Agreement with Senior Lender, to set forth the relative rights and priorities
which each have with respect to the payment and collection of the Senior
Liabilities and the "JUNIOR LIABILITIES" (as defined in Section 1 below) and the
rights which each may have with respect to the Collateral.
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CLAUSES
Now, therefore, in consideration of the preceding, and for other good and
valuable consideration, the receipt and adequacy of which is acknowledged, the
parties agree as follows:
1. JUNIOR LIABILITIES DEFINED. For purposes of this Agreement, the term
"JUNIOR LIABILITIES" means and includes all payment, performance,
indemnification, compensation, interest or other obligations at any time or from
time to time owing from Borrower to Junior Lender, whether under any of the
Acquisition Documents or otherwise, whether fixed or contingent, direct or
indirect, liquidated in amount, presently existing or arising in the future or
arising at law, in equity, via judgment or otherwise, and however evidenced.
2. SUBORDINATION. Junior Lender expressly postpones and subordinates, to
the extent and in the manner provided in this Agreement, all payments and
performance of the Junior Liabilities, to both the prior, indefeasible payment
and performance of the Senior Liabilities, however evidenced and now existing or
arising in the future, including but not limited to any refinancings,
replacements, amendments or other indulgences granted concerning any of the
Loans or other Obligations. Borrower may pay interest and principal on Junior
Liabilities when the same are due, if and only if Senior Lender has not provided
Junior Lender with a "Standstill Notice" (as defined in Section 6(a) below). If
Senior Lender has provided Junior Lender with a Standstill Notice, than no
Junior Liabilities will be paid, except as provided in Section 6 below. Any
liens, security interests, mortgages, pledges of or in any of the Collateral in
favor of or for the benefit of Junior Lender, now existing or arising in the
future, are expressly made subordinate and junior in priority and right of
enforcement to any liens, security interest, mortgages or pledges of or in any
of the Collateral now existing or arising in the future which secure any Senior
Liabilities.
3. PRIORITY. Irrespective of the date, manner or order of perfection or
attachment of any security interests, mortgages or Liens Borrower has granted in
favor of Junior Lender (if any), and notwithstanding the usual applications of
the priority provisions of the UCC or any other applicable law or judicial
decision, Junior Lender's security interests which secure the Junior Liabilities
(if any) whether now existing or arising in the future, shall be junior and
subordinated in all respects to the Security Interests of Senior Lender.
Borrower and Junior Lender shall make such filings and recordings in public
records as Senior Lender requests from time to time to evidence the aforesaid
subordination of security interests, and the provisions of this Section may be
specifically enforced.
4. ENFORCEMENT OF JUNIOR LIABILITIES. Except as provided in Section 6(c)
below, whether or not a Default Event has occurred or is continuing, without the
prior written consent of Senior Lender, which Senior Lender may give or withhold
in its sole discretion, Junior Lender agrees to take no action: (i) to assert,
collect, sue upon, or enforce all, or any part of, the Junior Liabilities; (ii)
to realize or execute upon any Collateral; or (iii) to take any enforcement
actions against Borrower with respect to the Junior Liabilities.
5. NO PREPAYMENTS. Until Borrower indefeasibly pays and performs all Senior
Liabilities in full to Senior Lender, Borrower shall not make, and Junior Lender
shall not accept, any prepayments of any Junior Liabilities, whether consisting
of principal, interest or otherwise.
6. STANDSTILL.
(a) STANDSTILL NOTICES AND LIMITED PAYMENT EVENTS. Senior Lender
agrees to provide Junior Lender with a written notice of the occurrence of
any of the following (each a "STANDSTILL NOTICE"); (i) any Default Event
under the Loan Agreement; (ii) Borrower is not then current in any payment
or performance obligation it owes to Senior Lender under any Loan Document;
(iii) the payment of any Junior Liabilities could in any way result in a
material adverse effect on Borrower's ability to pay or perform any Senior
Liabilities owed to Senior Lender; or (iv) a "Limited Payment Event" has
occurred, as that term is defined below in this Section. For purposes of
this Agreement, a "LIMITED PAYMENT EVENT" means Senior Lender has
determined, in its sole discretion, that the Borrower's making a full
installment payment of all Junior Liabilities then due could result in a
Default Event, but Borrower's partial payment of such installment of then
due Junior Liabilities will not result in a Default Event. Senior Lender
will make the determination that a Limited Payment Event has occurred
predicated on certificates Borrower delivers to Senior Lender on a
quarterly basis, pursuant to which Borrower certifies
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to Senior Lender that: (i) no Default Event then exists; (ii) Borrower is
able to pay all or a portion of the installment of Junior Liabilities then
currently due without creating a Default Event; and (iii) Borrower has the
availability under the Revolving Loan to make a payment of all or a portion
of the Junior Liabilities then currently due. If a Limited Payment Event
occurs, the following will pertain: (i) Borrower will be authorized to make
a partial payment of the installment of Junior Liabilities then due, as
identified in the Standstill Notice Senior Lender provides; (ii) if any or
all of the Earn-Out may not be paid when due, then Borrower's ability to
make all or a portion of such Earn-Out payment to Junior Lender will be
re-evaluated on a quarterly basis thereafter, in accordance with the
criteria established above in this Section for determining Limited Payment
Events generally; and (iii) if any or all of any installment of any other
type of Junior Liability may not be paid when due, said installment of
Junior Liability will be added onto the final installment payment due under
the Sub Note.
(b) STANDSTILL PERIOD. For purposes of this Agreement, the term
"STANDSTILL PERIOD" means that period of time which commences on the date
Senior Lender provides Junior Lender with a Standstill Notice, and
continues until such time as Senior Lender provides Junior Lender with
written notice that Senior Lender, in its sole discretion, has determined
that the applicable Default Event has been cured, and Borrower is in full
compliance with all terms, conditions and covenants set forth in the Loan
Documents (A "RELEASE NOTICE"). The Standstill Period is subject to
adjustment as provided in Section 6(c) below. Senior Lender agrees to
provide such Release Notice to Junior Lender within ten (10) Business Days
of Senior Lender making the determination, in its sole discretion, that
issuing such Release Notice is warranted, as aforesaid. Upon the
commencement of the Standstill Period and continuing until Junior Lender
receives a Release Notice from Senior Lender, Borrower shall not make and
Junior Lender shall not receive, accept or retain any payments of any
Junior Liabilities, whether consisting of principal, interest, costs,
expenses, compensation, Earn-out, reimbursements or otherwise, except for
such Limited Payment Events as Senior Lender may identify, if any. Any
payment or distribution which, but for the terms of this Agreement, would
be payable or deliverable as a component of the Junior Liabilities, instead
will be paid and delivered directly to Senior Lender for application to the
Senior Liabilities, until such time as all Senior Liabilities are
indefeasibly paid and/or performed in full. Junior Lender irrevocably
authorizes and empowers Senior Lender to demand, sue for, collect and
receive every such payment or distribution of Junior Liabilities during the
continuation of any Standstill Period. Junior Lender specifically
acknowledges that Junior Lender has no right to participate in or consent
to any negotiations or settlement between Senior Lender and Borrower
whether occurring during, prior to or subsequent to any Standstill Period.
Junior Lender covenants that it will not interfere with or impede any
actions or decisions which Senior Lender makes, directs or undertakes with
or without the involvement of Junior Lender in any workout involving
Borrower and/or the Senior Liabilities.
(c) ADJUSTMENT TO STANDSTILL PERIOD. The Standstill Period will be of
indefinite duration as provided in Section 6(b) above, for so long as
Senior Lender, in its sole discretion, has determined that Borrower owes to
Senior Lender an over formula advance under any of the Loan Documents (an
"OFA"). Upon Senior Lender's determination that the OFA of Borrower under
the Loan Documents has been reduced to zero dollars, Senior Lender will
provide Junior Lender with written notice thereof (a "STANDSTILL PERIOD
ADJUSTMENT NOTICE"). Upon Junior Lender's receipt of a Standstill Period
Adjustment Notice from Senior Lender, the Standstill Period identified in
Section 6(b) above will be limited to a maximum of six (6) months from the
date Senior Lender transmits a Standstill Notice to Junior Lender. If
Borrower is in default in its repayment of Junior Liabilities following the
expiration of any such six (6) month Standstill Period, Junior Lender may
commence to enforce such past due amounts against Borrower provided,
however, that Junior Lender acknowledges that the commencement of any such
enforcement action by Junior Lender will constitute a Default Event under
the Loan Documents and that Junior Lender's rights to receive any payment
of such defaulted Junior Liabilities in any such enforcement action will be
subordinated to Senior Lender's rights to receive prior payment of all
Senior Liabilities as provided in this Agreement. Moreover, if at any time
following Senior Lender's provision to Junior Lender of a Standstill Period
Adjustment Notice, Senior Lender determines that Borrower has incurred a
new OFA under any Loan Document, then Senior Lender will provide written
notice thereof to Junior Lender (a "RESCISSION NOTICE"). Upon Junior
Lender's (receipt of a Rescission Notice, the
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Standstill Period will return to an indefinite period of time as provided
above in Section 6(b) of this Agreement and will not be limited to six (6)
months in duration.
7. INSOLVENCY PROCEEDINGS. If any insolvency, bankruptcy, receivership,
liquidation, custodianship, reorganization, assignment for the benefit of
creditors or other proceeding for the liquidation, dissolution or winding up of
Borrower or any portion of Borrower's property or any Collateral, action, suit
or proceeding is filed by or against Borrower, the following will pertain: (i)
all Senior Liabilities will be indefeasibly paid in full before the payment of
any Junior Liabilities; (ii) all payments of any type or nature which, but for
the subordination provisions set forth in this Agreement, would be payable in
connection with the Junior Liabilities, instead will be paid directly to the
Senior Lender for application to the Senior Liabilities, until such time as all
the Senior Liabilities are indefeasibly paid and/or performed in full; (iii)
Junior Lender irrevocably authorizes, empowers and directs all receivers,
trustees, liquidators, custodians, conservators and others having authority in
the premises to effect all such payments and deliverables in accordance with the
subordination provisions of this Agreement; and (iv) Junior Lender shall execute
and deliver such instruments as Senior Lender deems necessary to effectuate the
terms and provisions of this Section, and Junior Lender agrees to take such
actions as Senior Lender reasonably may request to enable Senior Lender to
enforce all claims upon or in respect of the Junior Liabilities and apply all
amounts Senior Lender collects in connection therewith to the payment of the
Senior Liabilities.
8. NO MODIFICATION OR IMPAIRMENT OF THIS SUBORDINATION. The terms of
subordination set forth in this Agreement will not be affected, modified or
impaired in any manner by any event, including but not limited to the following:
(i) any amendment, modification or supplement to or replacement of any Loan
Document; (ii) the validity or enforceability of any Loan Document or instrument
executed in connection therewith; or (iii) Senior Lender's exercise or failure
to exercise any rights, remedies or powers available to Senior Lender under any
Loan Document or related instrument. Junior Lender specifically authorizes
Senior Lender to: (i) renew, compromise, extend or otherwise change the time of
payment for or any other terms concerning any of the Senior Liabilities; (ii)
exchange, enforce, waive or release any security or guaranty delivered or
executed in connection with any of the Senior Liabilities; or (iii) apply such
security and direct the order or manner of sale thereof in any manner which
Senior Lender, in its sole discretion determines, all without providing any
notice to Junior Lender and without affecting the subordination created under
this Agreement.
9. TURNOVER OF PROHIBITED TRANSFERS. If, notwithstanding the terms of this
Agreement, any payment or distribution on account of, or any collateral for any
part of, the Junior Liabilities is received by Junior Lender in contravention of
the terms of this Agreement, such payment or collateral shall be delivered
forthwith by Junior Lender to Senior Lender for application to the Senior
Liabilities, in the form received, except for the addition of any endorsement or
assignment necessary to effect a transfer of all rights therein to Senior
Lender. Junior Lender irrevocably authorizes Senior Lender to supply any such
endorsement or assignment which may have been omitted. Until delivered in
accordance with the terms of this Section 9, any such payment, distribution or
collateral shall be held by Junior Lender in trust for the sole benefit of
Senior Lender and shall not be commingled with other funds or property of Junior
Lender.
10. APPOINTMENTS AS ATTORNEY-IN-FACT TO ACT FOR JUNIOR LENDER. For so long
as any Senior Liabilities remain unpaid or unperformed, Junior Lender
irrevocably appoints Senior Lender as Junior Lender's true and lawful attorney,
and grants to Senior Lender a power of attorney with full power of substitution,
in the name of Junior Lender or in the name of Senior Lender, for the use and
benefit of Senior Lender, without notice to Junior Lender or any of its
representatives, successors or assigns, to perform the following acts, at Senior
Lender's sole option, at any meeting of creditors of Borrower or in connection
with any case or proceeding, whether voluntary or involuntary, for the
distribution, division or application of the assets of Borrower or the proceeds
thereof, dissolution, winding up of affairs, reorganization or arrangement of
Borrower, or for the composition of the creditors of Borrower, in bankruptcy or
in connection with a receivership, or under an assignment for the benefit of
creditors or Borrower or otherwise:
(i) to enforce claims comprising the Junior Liabilities, either in
Senior Lender's name or in the name of Junior Lender, by proof of debt,
proof of claim, suit or otherwise;
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(ii) to collect any assets of Borrower distributed, divided or applied
by way of dividend or payment, or any securities issued, on account of any
Junior Liabilities and to apply the same, or the proceeds of any
realization upon the same, to the Senior Liabilities, until all of the
Senior Liabilities (including, without limitation, collection expenses and
all interest accruing on the Senior Liabilities after the commencement of
any bankruptcy case) have been indefeasibly paid or performed in full,
rendering any surplus to Junior Lender, if and to the extent permitted by
law;
(iii) to vote claims comprising the Junior Liabilities to accept or
reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension; and
(iv) to take generally any action in connection with any such meeting,
case or proceeding that Junior Lender would be authorized to take.
In no event will Senior Lender be liable to Junior Lender for any failure
to prove the Junior Liabilities, to exercise any right with respect thereto, or
to collect any sums payable thereon. The power of attorney granted in this
Agreement is coupled with an interest, is granted to induce Lender to grant to
Borrower the Credit Facilities established under the Loan Agreement, is of the
essence of this Agreement, and is therefore irrevocable specifically will
survive the merger, dissolution or reorganization of Junior Lender.
11. WARRANTIES AND REPRESENTATIONS OF JUNIOR LENDER. Junior Lender
represents and warrants to Senior Lender that: (i)Junior Lender has not relied
and will not rely on any representation or information of any nature made by or
received from Senior Lender relative to Borrower in deciding to execute this
Agreement or to permit it to continue in effect; (ii) no part of the Junior
Liabilities is evidenced by any instrument, security or other writing which has
not previously been or is not concurrently herewith being deposited with Senior
Lender; (iii) Junior Lender is the lawful owner of the Junior Liabilities and no
part of Junior Liabilities is subject to any defense, offset or counterclaim
except as provided in the Acquisition Documents; (iv) Junior Lender has not
assigned or transferred any of the Junior Liabilities, any interest therein or
any collateral or security pertaining thereto and Junior Lender will not make
any such transfer or assignment; and (v) Junior Lender has not given any
subordination in respect of any Junior Liabilities, other than those set forth
in this Agreement.
12. ADDITIONAL COVENANTS OF JUNIOR LENDER. Until all of the Senior
Liabilities have been indefeasibly paid and performed and Senior Lender
acknowledges the same in a written acknowledgment Senior Lender delivers to
Junior Lender (which acknowledgment Senior Lender agrees to provide within ten
(10) Business Days of Senior Lender's determination, in its sole discretion,
that such indefeasible payment and performance have been rendered), the Junior
Lender shall not: (i) commence or join with any other creditors of Borrower in
commencing any bankruptcy, reorganization, receivership or insolvency
proceeding, action against Borrower or any of Borrower's managers, shareholders,
officers, directors, members, partners or agents, whether by judicial proceeding
or otherwise, to collect or accelerate any portion of the Junior Liabilities or
to enforce any lien or security interest in any property of Borrower; (ii) take
or permit any action prejudicial to or inconsistent with Senior Lender's
priority position over Junior Lender that is created by this Agreement; (iii)
take, receive, or demand any payments upon the Junior Liabilities except as
specifically permitted in this Agreement; (iv) extend any loans or credit
accommodations to Borrower after the Effective Date without the prior written
consent of the Senior Lender; or (v) modify, amend, replace or restate any
Acquisition Documents.
13. WAIVERS. JUNIOR LENDER WAIVES ANY DEFENSE BASED ON THE ADEQUACY OF A
REMEDY AT LAW WHICH MIGHT BE ASSERTED AS A BAR TO THE REMEDY OF SPECIFIC
PERFORMANCE OF THIS AGREEMENT IN ANY ACTION BROUGHT FOR THAT PURPOSE BY SENIOR
LENDER. TO THE FULLEST EXTENT PERMITTED BY LAW, JUNIOR LENDER FURTHER WAIVES:
PRESENTMENT, DEMAND, PROTEST, NOTICE OF PROTEST, NOTICE OF DEFAULT OR DISHONOR,
NOTICE OF PAYMENT OR NONPAYMENT, RIGHT TO A JURY TRIAL ON ANY ACTIONS ARISING IN
CONNECTION WITH THIS AGREEMENT, AND ANY AND ALL OTHER NOTICES AND DEMANDS OF ANY
KIND IN CONNECTION WITH ALL NEGOTIABLE INSTRUMENTS EVIDENCING ALL OR ANY PORTION
OF THE SENIOR LIABILITIES OR THE JUNIOR LIABILITIES TO WHICH BORROWER OR JUNIOR
LENDER MAY BE A PARTY; NOTICE OF THE ACCEPTANCE OF THIS AGREEMENT BY
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SENIOR LENDER; NOTICE OF ANY LOANS MADE, EXTENSIONS GRANTED OR OTHER ACTION
TAKEN IN RELIANCE ON THIS AGREEMENT; AND ALL OTHER DEMANDS AND NOTICES OF EVERY
KIND IN CONNECTION WITH THIS AGREEMENT, THE SENIOR LIABILITIES OR THE JUNIOR
LIABILITIES. JUNIOR LENDER ASSENTS TO ANY RELEASE, RENEWAL, EXTENSION,
EXPANSION, COMPROMISE OR POSTPONEMENT OF THE TIME OF PAYMENT OF ANY SENIOR
LIABILITIES, OR ANY INCREASE IN THE AMOUNT OF SENIOR LIABILITIES, AND TO ANY
SUBSTITUTION, EXCHANGE OR RELEASE OF COLLATERAL.
14. VALIDITY OF JUNIOR LIABILITIES. The provisions of this Agreement
subordinating the Junior Liabilities are solely for the purpose of defining the
relative rights of Senior Lender and Junior Lender and shall not impair, as
between Junior Lender and Borrower, the obligation of Borrower to pay the Junior
Liabilities. Nothing contained in this Agreement will be deemed to confer any
rights upon Borrower or to alter or modify any of the rights or duties of
Borrower with respect to either Senior Liabilities or Junior Liabilities.
15. DURATION AND TERMINATION. This Agreement constitutes a continuing
agreement of subordination, and shall remain in effect until all the Senior
Liabilities have been indefeasibly paid and performed in full, and Senior Lender
acknowledges the same, in writing (which acknowledgment Senior Lender agrees to
provide within ten (10) Business Days of Senior Lender's determination, in its
sole discretion, that such indefeasible payment and performance have been
rendered). Additionally, this Agreement shall include any future indebtedness
Borrower owes to Junior Lender. Borrower may not incur any such additional
indebtedness without obtaining the prior, written consent of Senior Lender,
which Senior Lender may grant or withhold, in its sole discretion. Senior Lender
may, without notice to Junior Lender, extend or continue credit and make other
Loans and financial accommodations to or for the account of Borrower in reliance
upon this Agreement.
16. LEGENDS. Any and all instruments which evidence any Junior Liabilities
will have the following legend:
"THE OBLIGATIONS THIS INSTRUMENT EVIDENCES ARE SUBORDINATED IN
THE MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN
SUBORDINATION AND INTERCREDITOR AGREEMENT DATED APRIL , 1999
(THE "AGREEMENT") BETWEEN AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, A NATIONAL BANKING ASSOCIATION AND MEDAR,
INC. EACH HOLDER OF THIS INSTRUMENT UPON ITS, HIS OR HER
ACCEPTANCE OF THIS INSTRUMENT SHALL: (I) BE BOUND BY THE
SUBORDINATION TERMS SET FORTH IN THE AGREEMENT; AND (II)
ACKNOWLEDGES THAT THE SUBORDINATION TERMS SET FORTH IN THE
AGREEMENT SHALL CONTROL ANY CONFLICT WHICH MAY EXIST BETWEEN
THE TERMS OF THIS INSTRUMENT AND THE TERMS OF THE AGREEMENT."
17. SENIOR LENDER'S DUTIES LIMITED. The rights granted to Senior Lender in
this Agreement are solely for its protection and nothing contained in this
Agreement imposes on Senior Lender any duties with respect to any property of
Borrower or Junior Lender received before or after the execution of this
Agreement by Senior Lender, beyond reasonable care in the custody and
preservation of such property while in Senior Lender's possession. Senior Lender
has no duty to preserve rights against prior parties on any instrument or
chattel paper received from Borrower or Junior Lender as collateral security for
the Senior Liabilities or any portion of the Senior Liabilities.
18. AUTHORITY. Junior Lender represents and warrants to the Senior Lender
that it has the authority to enter into this Agreement and that the person
signing for it is duly authorized and directed to do so.
19. ENTIRE AGREEMENT. This Agreement constitutes and expresses the entire
understanding between the parties with respect to the subject matter of this
Agreement, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written concerning said subject matter. Neither this Agreement nor any portion
or provision of this Agreement may be changed, waived or amended orally or in
any manner other than by an agreement in writing signed by Senior Lender and
Junior Lender.
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20. ADDITIONAL DOCUMENTATION. Junior Lender shall execute and deliver to
Senior Lender such further instruments and shall take such further actions as
Senior Lender may at any time or times reasonably requests in order to
effectuate the provisions and intent of this Agreement.
21. EXPENSES. Junior Lender agrees to pay Senior Lender on demand all
expenses of any kind, including reasonable attorneys' fees, that Senior Lender
may incur in enforcing any of its rights under this Agreement, and agrees that
all such fees and cost constitute part of the "Senior Liabilities" (as defined
in this Agreement), unless Senior Lender does not prevail on the merits in any
lawsuit Senior Lender files to enforce this Agreement.
22. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
Senior Lender, its successors and assigns, and shall be binding upon Junior
Lender and its respective successors and assigns.
23. JOINT AND SEVERAL. The duties and obligations of the Junior Lender
under this Agreement are joint and several duties and obligations.
24. DEFECTS WAIVED. This Agreement is effective notwithstanding any defect
or voidability in the validity or enforceability of any instrument or document
evidencing any Senior Liabilities, or the perfection of any lien or security
interest of the Senior Lender in the Collateral.
25. NOTICES. All notices concerning this Agreement shall be given in
writing, as follows: (i) by actual delivery of the notice into the hands of the
party entitled to receive it, in which case such notice shall be deemed given on
the date of delivery; (ii) by mailing such notice by registered or certified
mail, return receipt requested, in which case such notice shall be deemed given
five (5) days from the date of its mailing; (iii) by Federal Express, UPS, DHL
or any other overnight carrier, in which case such notice shall be deemed given
two (2) days from the date of its transmission; or (iv) by Facsimile or
telecopy, in which case such notice shall be deemed given on the date it is
sent. All notices which concern this Agreement shall be addressed as follows:
If to Senior Lender: If to Junior Lender:
AMERICAN NATIONAL BANK AND TRUST MEDAR, INC.
COMPANY OF CHICAGO 38700 GRAND RIVER AVE.
120 SOUTH LASALLE FARMINGTON HILLS, MICHIGAN 48335-1563
CHICAGO, ILLINOIS ATTN: CHARLES J. DRAKE, CHAIRMAN AND CEO
ATTN: ROBERT J. SHANAHAN, VICE PRESIDENT FAX NO.: (248) 615-2971
CHRISTOPHER J. FOLTMAN, VICE PRESIDENT
FAX NO.: (312) 661-6929
WITH A COPY TO: WITH A COPY TO:
MUCH SHELIST FREED DONENBERG WARREN CAMERON FAUST & ASCIUTTO, P.C.
AMENT & RUBENSTEIN, P.C. 2161 COMMONS PARKWAY
200 NORTH LASALLE STREET, SUITE 2100 OKEMOS, MICHIGAN 48884
CHICAGO, ILLINOIS 60601-1095 ATTN: J. MICHAEL WARREN
ATTN: RALPH M. MARTIRE FAX NO.: (517) 349-3311
FAX NO.: (312) 621-1750
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
27. DESCRIPTIVE HEADINGS. All section headings, titles and subtitles are
inserted in this Agreement for convenience of reference only, and are to be
ignored in any construction of this Agreement's provisions.
28. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) APPLICABLE LAW. THE LAWS OF THE STATE OF ILLINOIS (OTHER THAN
THOSE PERTAINING TO CONFLICTS OF LAW) SHALL GOVERN ALL ASPECTS OF THIS
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AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE LOANS, IRRESPECTIVE OF THE FACT
THAT ONE OR MORE OF THE PARTIES NOW IS OR MAY BECOME A RESIDENT OF A
DIFFERENT STATE OR COUNTRY, AND WITHOUT REFERENCE TO OR INCLUSION OR
APPLICATION OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS, SAID CONVENTION BEING EXPRESSLY EXCLUDED IN
ITS ENTIRETY. THE PARTIES SHALL SUBMIT ALL DISPUTES WHICH ARISE UNDER THIS
AGREEMENT TO STATE OR FEDERAL COURTS LOCATED IN THE CITY OF CHICAGO,
ILLINOIS FOR RESOLUTION. THE PARTIES ACKNOWLEDGE THE AFORESAID COURTS HAVE
EXCLUSIVE JURISDICTION OVER THIS AGREEMENT, AND SPECIFICALLY WAIVE ANY
CLAIMS WHICH THEY MAY HAVE THAT INVOLVE JURISDICTION OR VENUE, INCLUDING
BUT NOT LIMITED TO FORUM NON CONVENIENS. SERVICE OF PROCESS FOR ANY CLAIM
WHICH ARISES UNDER THIS AGREEMENT SHALL BE VALID IF MAILED TO THE PARTY
BEING SERVED, BY FIRST-CLASS MAIL, DHL, FEDERAL EXPRESS, UPS, OR ANOTHER
INTERNATIONAL CARRIER, TO THE ADDRESSES AND AS OTHERWISE SET FORTH IN
SECTION 25 ABOVE. IF SERVICE OF PROCESS IS MADE AS AFORESAID, THE PARTY
SERVED AGREES THAT SUCH SERVICE CONSTITUTES VALID SERVICE, AND SPECIFICALLY
WAIVES AND AGREES NOT TO PLEAD ANY OBJECTIONS THE PARTY SERVED MAY HAVE
UNDER ANY STATE OR FEDERAL LAW OR RULE CONCERNING SERVICE OF PROCESS.
SERVICE OF PROCESS IN ACCORDANCE WITH THIS SECTION IS IN ADDITION TO AND
NOT TO THE EXCLUSION OF ANY OTHER SERVICE OF PROCESS METHOD LEGALLY
AVAILABLE. JUNIOR LENDER AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST SENIOR LENDER OR ANY OF SENIOR LENDER'S DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT
OF OR RELATING TO OR REFERENCED IN THIS AGREEMENT IN ANY COURT OTHER THAN
ONE LOCATED IN COOK COUNTY, ILLINOIS. JUNIOR LENDER WAIVES PERSONAL SERVICE
OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS AGREEMENT. SHOULD JUNIOR LENDER FAIL TO APPEAR OR ANSWER
ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SERVED WITHIN THIRTY (30) DAYS
AFTER THE MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS.
(b) NO LIMIT. Nothing in this Agreement shall limit the right of
Senior Lender, to the extent permitted by applicable law, to bring actions,
suit or proceedings with respect to the Obligations under, or any other
matter arising out of or in connection with this Agreement or any Loan
Document, or for recognition or enforcement of any judgment rendered in any
such action, suit or proceeding, in the courts of any jurisdiction in which
any office of Borrower may be located, or any Collateral or other assets,
properties or revenues of Borrower may be found, or as Senior Lender
otherwise deems appropriate, or the right to effect service of process in
any jurisdiction in any other manner permitted by law.
(c) COMITY. The parties to this Agreement expressly represent and
warrant to each other that they are sophisticated commercial parties, who
understand the jurisdictional and related issues set forth in Sections
28(a) and (b) above, and acknowledge that said Sections form an integral
and essential part of this Agreement. Therefore, each party to this
Agreement specifically authorizes and directs any appropriate judicial,
administrative or other Governmental Authority located anywhere throughout
the world, to enforce specifically and in accordance with its terms,
without change, modification or deletion, any judgment rendered by a court
authorized to do so under Sections 28(a) and (b) of this Agreement.
(d) GOVERNING LANGUAGE AND CURRENCY. The English language version of
this Agreement shall be the governing and binding version of this
Agreement, irrespective of any other language this Agreement or any other
Loan Document may be translated into or performed under. In addition, all
payments
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required under and monetary amounts identified in this Agreement shall be
United States of America Dollars.
29. SEVERABILITY. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is ruled by a court with valid
jurisdiction as prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
The parties have caused this Agreement to be signed, sealed and delivered
and to be effective as of the __ day of ______, 1999.
SENIOR LENDER:
American National Bank and Trust
Company of Chicago, a national banking
association
By:
------------------------------------
Its:
------------------------------------
JUNIOR LENDER:
Medar, Inc., a Michigan corporation
By:
------------------------------------
Its:
------------------------------------
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EXHIBIT K
GUARANTY
THIS GUARANTY is made as of this day of , 1999
by WELTRONIC/ TECHNITRON, INC., a Delaware corporation ("Guarantor"), for the
benefit of MIAC ACQUISITION, INC., a Michigan corporation ("Purchaser"), and at
the request of MEDAR, INC., a Michigan corporation ("Seller").
RECITALS
A. Pursuant to an Asset Purchase Agreement dated April , 1999 between
Purchaser and Seller (the "Purchase Agreement"), Seller has agreed to sell and
transfer certain assets to Purchaser and accept Purchaser's Subordinated Note
(the "Note") in partial payment of Purchaser's obligations under the Purchase
Agreement.
B. Purchaser is a wholly-owned subsidiary of Guarantor.
C. As a condition to entering into the Purchase Agreement, Seller required
Guarantor to execute and deliver to Seller a guaranty of Purchaser's obligations
under the Purchase Agreement and the Note.
AGREEMENTS
In consideration of the recitals, the mutual agreements which follow and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Guarantor covenants and agrees as follows:
1. GUARANTY OF OBLIGATIONS. Guarantor hereby guarantees the timely, full
and complete payment to Seller of amounts due Seller under the Purchase
Agreement and the Note (collectively referred to herein as the "Obligations").
2. DURATION OF GUARANTY. This Guaranty shall continue in full force and
effect until the first to occur of the following: (a) all of the Obligations
have been fully and completely paid, performed, discharged and satisfied in
full; or (b) Seller expressly consents in writing to the termination of this
Guaranty.
3. NOTICE. Except as otherwise provided in the Purchase Agreement or the
Note, Guarantor hereby waives presentment, demand for payment or performance,
protest and notice of any kind, including, without limitation, notice of
acceptance of this Guaranty, notice of nonperformance or nonpayment, notice of
dishonor or notice of any proceedings to obtain performance or payment by
Purchaser.
4. RIGHTS AGAINST GUARANTOR. Except as otherwise provided in the Purchase
Agreement and the Note, in the event Purchaser fails to pay Seller, as and when
due, any of the payments due under the Purchase Agreement or the Note, Seller is
not required to take any action or steps whatsoever to collect any payments or
obtain any performance by Purchaser of any of the Obligations prior to
proceeding against Guarantor under this Guaranty to collect any amounts due
hereunder and enforce any rights of Seller hereunder.
5. ACCELERATION.
(a) EVENT OF ACCELERATION. For purposes of this Guaranty, an "Event of
Acceleration" will be deemed to have occurred if:
(i) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Guarantor bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment, or composition of or in respect of the
Guarantor under the United States Bankruptcy Code or any other
applicable federal or state law, or appointing a receiver, liquidator,
assignee or trustee of the Guarantor, or any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of such decree or order unstayed and in effect for a
period of 60 consecutive days;
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(ii) the institution by the Maker of proceedings to be adjudicated
bankrupt or insolvent, or consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition
or answer or consent seeking reorganization or relief under the United
States Bankruptcy Code or any other applicable federal or state law, or
the consent by it to the following of any such petition or to the
appointment of a receiver, liquidator, assignee or trustee of the Maker,
or any substantial part of its property, or making by it of an
assignment for the benefit of creditors or the admission by it in
writing of its inability to pay its debts generally as they become due
or the taking of corporate action by the Maker in furtherance of any
such action; or
(iii) a transaction involving a Change in Control (as defined
below) or upon the occurrence of a public debt offering by the
Guarantor. "Change in Control" shall mean a merger of the Maker with or
into any other person, or any transaction or series of transactions,
immediately after which any person or persons other than Durrell G.
Miller, Daniel W. Thibodeau and NADEX Co., Ltd. control or own
beneficially, directly or indirectly, 50 % or more of the Maker's equity
interests.
(b) SELLER'S RIGHT TO ACCELERATE. Immediately upon the occurrence of
an Event of Acceleration, Seller has the right to enforce this Guaranty and
the Obligations guaranteed hereunder shall be immediately due and payable
in their entirety.
6. ENFORCEABILITY. Guarantor shall be bound, and this Guaranty shall be
valid and enforceable against Guarantor, notwithstanding that any of the
Obligations may be invalid or unenforceable against Purchaser or that any or all
of the Obligations may be discharged as against Purchaser in bankruptcy or
insolvency proceedings. The liabilities of Guarantor hereunder are separate and
independent of the Obligations, and a separate action may be brought and
prosecuted against Guarantor whether or not any action is brought against
Purchaser and whether or not Purchaser is joined in any such action.
7. MISCELLANEOUS.
(a) Guarantor hereby agrees to pay all reasonable attorneys' fees and
all other reasonable costs and expenses which Seller may incur (assuming
such fees and expenses have not already been paid by Purchaser) in the
enforcement of this Guaranty.
(b) The obligations of Guarantor hereunder shall be binding upon its
successors and assigns.
(c) The terms and provisions of this Guaranty shall be severable and
separable, and the invalidity or unenforceability of one or more of them
shall in no manner affect the validity or enforceability of the remaining
provisions.
(d) This Guaranty has been made and executed in the State of Michigan
and the validity, enforceability, interpretation and effect hereof shall be
governed by the internal laws of the State of Michigan.
(e) The individual signing on behalf of Guarantor personally warrants
and represents that he is duly authorized to execute this Guaranty on
behalf of Guarantor.
(f) Guarantor warrants and represents that this Guaranty has been duly
authorized by all requisite corporate action and that this Guaranty
constitutes a binding obligation of Guarantor, enforceable against it in
accordance with its terms, except that such enforceability may be subject
to bankruptcy, insolvency, reorganization, moratorium or similar laws now
or hereafter in effect and the remedy of specific
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performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
The Guarantor has executed this Guaranty as of the day and year first above
written.
GUARANTOR:
WELTRONIC/TECHNITRON, INC.
By
--------------------------------------
Durrell G. Miller, President
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APPENDIX B
- ----------------------------------------------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES -- CORPORATION, SECURITIES
AND LAND DEVELOPMENT BUREAU
- ----------------------------------------------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
This document is effective on the date filed, unless a
subsequent effective date within 90 days after received date is
stated in the document.
- -------------------------------------------------
- -------------------------------------------------------------------------
Name
Warren Cameron Faust & Asciutto, P.C. (J.L. Cameron)
- -------------------------------------------------------------------------
Address
P.O. Box 26067
- -------------------------------------------------------------------------
City State Zip Code
Lansing MI 48909 EFFECTIVE DATE:
- -------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Document will be returned to the name and address you enter above.
If left blank document will be mailed to the
registered office.
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT AND NONPROFIT CORPORATIONS
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Medar, Inc.
2. The identification number assigned by the Bureau is: 105-593
3. Article I of the Articles of Incorporation is hereby amended to
read as follows:
The name of the corporation is: Integral Vision, Inc.
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156
COMPLETE ONLY ONE OF THE FOLLOWING:
4. (FOR AMENDMENTS ADOPTED BY UNANIMOUS CONSENT OF INCORPORATORS BEFORE THE
FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES.)
The foregoing amendment to the Articles of Incorporation were duly adopted on
the ____ day of ________, 19__, in accordance with the provisions of the Act by
the unanimous consent of the incorporator(s) before the first meeting of the
Board of Directors or Trustees.
Signed this ______ day of __________, 19__
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Type or Print Name)
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Type or Print Name)
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Type or Print Name)
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Type or Print Name)
5. (FOR PROFIT AND NONPROFIT CORPORATIONS WHOSE ARTICLES STATE THE CORPORATION
IS ORGANIZED ON A STOCK OR ON A MEMBERSHIP BASIS.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the
____ day of May, 1999, by the shareholders if a profit corporation, or by the
shareholders or members if a nonprofit corporation (check one of the following)
X at a meeting the necessary votes were cast in favor of the amendment.
___ by written consent of the shareholders or members having not less than the
minimum number of votes required by statute in accordance with Section
407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of
the Act if a profit corporation. Written notice to shareholders or members
who have not consented in writing has been given. (Note: Written consent by
less than all of the shareholders or members is permitted only if such
provision appears in the Articles of Incorporation.)
___ by written consent of all the shareholders or members entitled to vote in
accordance with section 407(3) of the Act if a nonprofit corporation, or
Section 407(2) of the Act if a profit corporation.
___ by the board of a profit corporation pursuant to section 611(2).
- ----------------------------------------------------- -----------------------------------------------------
Profit Corporations Nonprofit Corporations
Signed this ____ day of May __, 1999 Signed this ____ day of ________, 19__
By ------------------------------------------------- By -------------------------------------------------
(Signature of an authorized officer or agent) (Signature of President, Vice-President, Chairperson
or Vice-Chairperson)
Richard R. Current, Vice President -----------------------------------------------------
- ----------------------------------------------------- (Type or Print Name) (Type or Print
(Type or Print Name) Title)
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157
6. (FOR A NONPROFIT CORPORATION WHOSE ARTICLES STATE THE CORPORATION IS
ORGANIZED ON A DIRECTORSHIP BASIS.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the
____ day of ________, 19____ , by the directors of a nonprofit corporation whose
articles of incorporation state it is organized on a directorship basis (check
one of the following)
___ at a meeting the necessary votes were cast in favor of the amendment.
___ by written consent of all directors pursuant to Section 525 of the Act.
Signed this ______ day of __________, 19______
By
------------------------------------------------------------------------------
(Signature of President, Vice-President, Chairperson or Vice-Chairperson)
- --------------------------------------------------------------------------------
(Type or Print Name) (Type or Print Title)
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Name of Person or Organization Preparer's Name and Business
Remitting Fees: Telephone Number:
Warren Cameron Faust & Asciutto, P.C. Josephine L. Cameron
(517) 349-8600
INFORMATION AND INSTRUCTIONS
1. The amendment cannot be filed until this form, or a comparable document, is
submitted.
2. Submit one original of this document. Upon filing, the document will be added
to the records of the Corporation, Securities and Land Development Bureau.
The original will be returned to your registered office address, unless you
enter a different address in the box on the front of this document.
Since this document will be maintained on optical disk media, it is important
that the filing be legible. Documents with poor black and white contrast, or
otherwise illegible, will be rejected.
3. This Certificate is to be used pursuant to the provisions of section 631 of
Act 284, P.A. of 1972 or Act 162, P.A. of 1982, for the purpose of amending
the Articles of Incorporation of a domestic profit corporation or nonprofit
corporation. Do not use this form for restated articles.
4. Item 2 -- Enter the identification number previously assigned by the Bureau.
If this number is unknown, leave it blank.
5. Item 3 -- The article(s) being amended must be set forth in its entirety.
However, if the article being amended is divided into separately identifiable
sections, only the sections being amended need be included.
6. For nonprofit charitable corporations, if an amendment changes the term of
existence to other than perpetual, Attorney General Consent should be
obtained at the time of dissolution.
7. This document is effective on the date endorsed "filed" by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may be
stated as an additional article.
8. Signatures:
PROFIT CORPORATIONS:
1) Item 4 must be completed and signed by at least a majority of the
Incorporators listed in the Articles of Incorporation.
2) Item 5 must be completed and signed by an authorized officer or agent
of the corporation.
NONPROFIT CORPORATIONS:
1) Item 4 must be completed and signed by all of the incorporators listed
in the Articles of Incorporation.
2) Item 5 or 6 must be completed and signed by either the president,
vice-president, chairperson or vice-chairperson.
9. NONREFUNDABLE FEE: Make remittance payable to the State of Michigan. Include
corporation name and identification number on check or money order.....$10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES OF PROFIT
CORPORATIONS ARE:
each additional 20,000 authorized shares or portion
thereof................................................... $30.00
maximum fee per filing for first 10,000,000 authorized
shares.................................................... $5,000.00
each additional 20,000 authorized shares or portion thereof
in excess of 10,000,000 shares............................ $30.00
maximum fee per filing for authorized shares in excess of
10,000,000 shares......................................... $200,000.00
--------------------------------------------------------------------------------------------
TO SUBMIT BY MAIL:
Michigan Department of Consumer & Industry
Services Corporation, Securities & Land
Development Bureau Corporation Division
7150 Harris Drive
P.O. Box 30054
Lansing, Michigan 48909
TO SUBMIT IN PERSON:
6546 Mercantile Way
Lansing, MI 48911
Telephone: (517) 334-6302
Fees may be paid by VISA or Mastercard when
delivered in person to our office.
--------------------------------------------------------------------------------------------
To submit electronically: (517) 334-8048
* To use this service complete a MICH-ELF application to provide your VISA or Mastercard
number. Include your assigned Filer number on your transmission. To obtain an
application for a filer number, contact (517) 334-6327 or visit our WEB site at
http://www.cis.state.mi.us/corp/.
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APPENDIX C
LETTERHEAD OF NATCITY INVESTMENTS, INC.
April 28, 1999
The Board of Directors of Medar, Inc.
38700 Grand River Avenue
Farmington Hills, MI 48335
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by Medar, Inc. (the "Company")
pursuant to an Asset Purchase Agreement dated as of the date hereof (the
"Agreement"), between the Company and Weltronic/Technitron, Inc. ("Weltronic").
The Agreement provides for, among other things, the sale of the Company's
Welding Division.
NatCity Investments, Inc., as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements, and valuations for estate, corporate and other purposes. We have
acted as financial advisor to the Board of Directors of the Company in
connection with the transactions described above and we will receive a fee for
our services.
In connection with this opinion, we have reviewed certain publicly
available financial information concerning the Company and certain internal
financial analyses and other information furnished us by the Company and
Weltronic. We have also held discussions with members of the senior management
of the Company and Weltronic regarding the business and prospects of their
respective enterprises, including the entity resulting from the combination of
Weltronic with the Company's Welding Division, ("Weltronic Combined"). In
addition, we have (i) reviewed the reported price and trading activity for the
Company's Common Stock; (ii) compared certain financial and other information
for the Company with similar information for certain comparable companies whose
securities are publicly traded; (iii) reviewed financial terms of certain recent
business combinations which we deemed comparable in whole or in part; and (iv)
performed such studies and considered such other factors as we deemed
appropriate.
We have not independently verified the information described above, and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of the Company
and Weltronic Combined, we have assumed that such information reflects the best
currently available estimates and judgements of the respective managements of
the Company and Weltronic as to the likely future financial performance of the
Company and Weltronic Combined. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities of either the Company or
Weltronic Combined, nor have we been furnished with any such evaluation or
appraisal. Our opinion is based on market, economic and other conditions as they
exist and can be evaluated as of the date of this letter.
Our opinion set forth below is directed to the Board of Directors of the
Company and does not constitute a recommendation to any shareholder of the
Company with respect to the approval of the transactions contemplated by the
Agreement. This letter is for the information of the Board of Directors of the
Company only in connection with its consideration of the Agreement and may not
be quoted or referred to, in whole or in part, in any document prepared in
connection with the transactions contemplated by the Agreement, nor shall this
letter be used for any other purpose or publicly disclosed without our prior
written consent; provided, however, that the Company is authorized to include
this letter in its entirety and, subject to our approval, summaries of the
procedures we performed and references to this letter in the proxy materials
contemplated by the Agreement. It is understood that this letter and the proxy
materials contemplated by the Agreement will be filed with the Securities and
Exchange Commission.
In the ordinary course of business, NatCity Investments, Inc. may actively
trade the equity securities of the Company for its own account and for the
accounts of its customers and, accordingly, may at any time hold
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The Board of Directors of Medar, Inc.
April 28, 1999, Page 2
long or short positions in such securities. Within the past three years, NatCity
Investments, Inc. has written research reports for publication on, and has been
a market maker in the equity securities of the Company.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the Company pursuant to
the Agreement is fair, from a financial point of view, to Medar, Inc.
Very truly yours,
/s/ NATCITY INVESTMENTS, INC.
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APPENDIX D
VOTING AGREEMENT
THIS VOTING AGREEMENT, dated as of April 28, 1999 is made among CHARLES J.
DRAKE, RICHARD R. CURRENT, MAX A. COON, and MAXCO, INC. (each "Shareholder" and
collectively, the "Shareholders"), and MIAC ACQUISITION, INC., a Michigan
corporation ("MIAC").
RECITALS
A. The Shareholders are shareholders of Medar, Inc., a Michigan corporation
("Medar").
B. The Shareholders collectively own, directly or indirectly, approximately
25% of Medar's issued and outstanding voting securities as set forth on Schedule
I attached hereto.
C. Medar has executed and delivered an Asset Purchase Agreement dated April
, 1999 (the "Purchase Agreement") pursuant to which it has agreed to sell,
subject to various conditions, its resistance spot welding division (the
"Division") to MIAC.
D. Pursuant to the terms and conditions of the Purchase Agreement, the
Shareholders have agreed to execute and deliver this Voting Agreement.
AGREEMENTS
In consideration of the promises set forth herein, the parties agree as
follows:
1. VOTING AGREEMENT. Each Shareholder represents and warrants that he or it
beneficially owns, directly or indirectly, the shares set forth opposite the
Shareholder's name on Schedule 1. Each Shareholder in his or its capacity as a
shareholder agrees to vote all voting securities of Medar held by such
Shareholder as of the record date for the shareholders' meeting in favor of [i]
the sale and purchase of the Division pursuant to the Purchase Agreement and
[ii] adoption of the Purchase Agreement.
2. OTHER PROVISIONS. Each Shareholder in his or its capacity as a
shareholder agrees that, prior to the date of termination of the Purchase
Agreement, such Shareholder will not (a) vote or execute any written consent in
favor of any amendment to the Articles of Incorporation (other than an amendment
to change the name of Medar) or By-Laws of Medar or any Competing Transaction
(as defined in the Purchase Agreement) or (b) prior to the record date for the
meeting of Medar's shareholders to vote upon the sale of the Division, transfer,
assign or convey (collectively, a "Transfer") any of his or its shares to any
other person or entity unless the Shareholder retains the voting rights with
respect to those shares and votes those shares as required by this Agreement.
3. MISCELLANEOUS.
(a) GOVERNING LAW. This Voting Agreement shall be construed in
accordance with the internal laws of the State of Michigan.
(b) AMENDMENT, BENEFIT AND ASSIGNMENT. This Voting Agreement may be
amended only by an agreement in writing signed by all of the parties
hereto. This Voting Agreement shall be binding upon and inure to the
benefit of the parties hereto, MIAC, and their respective heirs,
successors, assigns and beneficiaries in interest. No party may assign this
Voting Agreement or any of the rights and obligations hereunder without the
prior written consent of all of the other parties.
(c) SEVERABILITY. If any provision of this Voting Agreement or the
application of such provision to any person or circumstances is held
invalid or unenforceable by a court of competent jurisdiction, such
provision or application shall be unenforceable only to the extent of such
invalidity or unenforceability, and the remainder of the provision held
invalid or unenforceable and the application of such provision to persons
or circumstances, other than the party as to which it is held invalid, and
the remainder of this Voting Agreement, shall not be affected.
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162
(d) COUNTERPARTS. This Voting Agreement may be executed in
counterparts, each of which shall be deemed an original, but both of which
taken together shall constitute one and the same instrument.
(signatures of following page)
/s/ CHARLES J. DRAKE
--------------------------------------
Charles J. Drake
/s/ RICHARD R. CURRENT
--------------------------------------
Richard R. Current
/s/ MAX A. COON
--------------------------------------
Max A. Coon
MAXCO, INC.
By /s/ MAX A. COON
------------------------------------
Max A. Coon, President
MIAC ACQUISITION, INC.
By /s/ DURRELL G. MILLER
------------------------------------
Durrell G. Miller, President
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163
SCHEDULE I
SHARES DIRECTLY OR
SHAREHOLDER INDIRECTLY OWNED
----------- ------------------
Charles J. Drake.......................................... 91,500
Richard R. Current........................................ 1,000
Max A. Coon............................................... 88,000
Maxco, Inc. .............................................. 2,130,605
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164
MDARR-PS-99
165
MEDAR, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 1999.
The undersigned hereby constitutes and appoints Max A. Coon and Charles J.
Drake, and each or any of them, attorney and proxy for and in the names and
stead of the undersigned, to vote all stock of Medar, Inc. ("Medar") on all
matters unless the contrary is indicated herein at the Annual Meeting of
Shareholders to be held at the corporate offices, 38700 Grand River Avenue,
Farmington Hills, Michigan on June 28, 1999, at 4:00 p.m. local time or at any
adjournments or postponements thereof, according to the number of votes that the
undersigned could vote if personally present at said meeting. The undersigned
directs that this proxy be voted as follows on the reverse side.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned Shareholder. If no direction is made, this proxy will be
voted FOR Proposals 1, 2, 3, 4, 5 and 6.
- --------------------------------------------------------------------------------
PLEASE MARK, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the reverse side. When shares
are held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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166
1. SALE OF WELDING DIVISION. Approval of the sale of the assets of the
Company's Welding Division to Weltronic/Technitron, Inc.
(__) FOR (__) AGAINST (__) ABSTAIN
2. CORPORATE NAME CHANGE. Approval of an amendment of the Company's
Articles of Incorporation to change its name to Integral Vision, Inc.
immediately following the sale of the Welding Division.
(__) FOR (__) AGAINST (__) ABSTAIN
3. ADJOURNMENT OF ANNUAL MEETING. Authorization to adjourn or postpone the
Annual Meeting for up to 30 days in order to continue to solicit
proxies if the above proposals have not been approved.
(__) FOR (__) AGAINST (__) ABSTAIN
4. ELECTION OF DIRECTORS For All With- For All
Nominees hold Except
M. Coon V. Shunsky _______ _____ _______
R. Current W. Wallace
C. Drake S. Sharf
INSTRUCTION: To WITHHOLD AUTHORITY to vote for any individual nominee,
mark the "For All Except" box and strike a line through the Name(s) of
the nominee(s). Your shares will be voted for the remaining nominee(s).
5. STOCK OPTION PLAN. Adoption of new stock option plan authorizing
qualified and nonqualified options to be granted on up to 500,000
shares of the Common Stock of the Company.
(__) FOR (__) AGAINST (__) ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark box at right if an address change or comment has been noted
on the reverse side of this card. [ ]
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. DATED: , 1999
--------------------------
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Shareholder sign here Co-owner sign here