<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 2, 2000 Commission file number: 1-5761
- --------------------------------------------------------------------------------
LaBarge, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 73-0574586
- ----------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124
- ------------------------------------------- --------------------------------
(Address) (Zip Code)
(314) 997-0800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including Area Code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No | |.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of January 2, 2000. 14,795,018 shares of common stock.
<PAGE> 2
LABARGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 21,228 $ 23,779 $ 37,730 $ 48,445
COSTS AND EXPENSES:
Cost of sales 17,315 18,983 31,153 38,272
Selling and administrative expense 4,082 3,594 8,050 7,005
Gain on settlement of Transmedica (2,300) - (2,300) -
Interest expense 512 370 980 679
Loss from NotiCom 632 244 1,152 272
Minority interest income (loss) 8 (5) (2) 142
Other income, net (111) (59) (181) (212)
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 1,090 652 (1,122) 2,287
INCOME TAX EXPENSE (BENEFIT) 364 241 (449) 844
--- --- ---- ---
NET EARNINGS (LOSS) $ 726 $ 411 $ (673) $ 1,443
======== ======== ========= =========
BASIC NET EARNINGS (LOSS) PER COMMON SHARE $ .05 $ .03 $ (.05) $ .09
AVERAGE COMMON SHARES OUTSTANDING 14,782 15,311 14,772 15,383
======== ======== ========= =========
DILUTED NET EARNINGS (LOSS) PER COMMON SHARE $ .05 $ .03 $ (.05) $ .09
AVERAGE DILUTED COMMON SHARES OUTSTANDING 14,782 15,372 14,772 15,450
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
LABARGE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,743 $ 495
Accounts and notes receivable, net 10,555 12,492
Inventories 17,918 16,093
Prepaid expenses 870 727
Deferred tax assets, net 664 664
---------- -----------
TOTAL CURRENT ASSETS 31,750 30,471
---------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 12,995 13,188
DEFERRED TAX ASSETS, NET 2,391 1,818
INVESTMENT IN NOTICOM 2,518 2,780
INTANGIBLE ASSETS, NET 6,520 6,941
OTHER ASSETS, NET 4,698 4,456
---------- -----------
$ 60,872 $ 59,654
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 3,865 $ 930
Current maturities of long-term debt 1,820 1,771
Trade accounts payable 8,981 5,847
Accrued employee compensation 3,548 3,873
Other accrued liabilities 2,116 2,863
---------- -----------
TOTAL CURRENT LIABILITIES 20,330 15,284
---------- -----------
LONG-TERM DEBT 12,744 15,866
SUBORDINATED DEBT 4,424 4,424
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 40,000,000 shares;
issued 15,773,253 shares at January 2, 2000 and 15,711,395
at June 27, 1999, including shares in treasury 158 157
Additional paid-in capital 13,722 13,615
Retained earnings 12,730 13,403
Less cost of common stock in treasury, 978,235 shares at
January 2, 2000 and 955,853 shares at June 27, 1999 (3,236) (3,095)
TOTAL STOCKHOLDERS' EQUITY 23,374 24,080
---------- -----------
$ 60,872 $ 59,654
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
LABARGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
JANUARY 2, December 27,
2000 1998
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (673) $ 1,443
Adjustments to reconcile net cash (used) provided by operating
activities:
Gain on settlement of Transmedica (100) -
Loss on disposal of property - 18
Undistributed loss from NotiCom 783 272
Minority interest (loss) income (2) 142
Depreciation and amortization 1,849 899
Deferred taxes (573) 700
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net 1,937 4,212
Inventories (1,825) 508
Prepaid expenses (143) (87)
Trade accounts payable 3,134 (474)
Accrued liabilities (1,070) (2,808)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,317 4,825
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (713) (1,801)
Additions to other assets (295) (427)
Acquisition of majority business interest - (313)
Investments in and advances to NotiCom (890) (4,001)
------ ------
NET CASH USED BY INVESTING ACTIVITIES (1,898) (6,542)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt - 7,288
Repayments of long-term debt (3,073) (20)
Net sale of common stock 108 79
Net purchase of common stock for treasury (141) (1,235)
Net change in short-term borrowings 2,935 (3,440)
------ ------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (171) 2,672
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,248 955
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 495 540
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,743 $ 1,495
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LABARGE, INC.
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS - BASIS OF PREPARATION
The consolidated balance sheets at January 2, 2000 and June 27, 1999, the
related consolidated statements of operations for the three and six months ended
January 2, 2000 and December 27, 1998 and the consolidated statements of cash
flows for the six months ended January 2, 2000 and December 27, 1998 have been
prepared by LaBarge, Inc. (the "Company") without audit. In the opinion of
management, adjustments, all of a normal and recurring nature, necessary to
present fairly the financial position and the results of operations and cash
flows for the aforementioned periods, have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Forms 10-K and
10-K/A for the fiscal year ended June 27, 1999.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
Billed shipments, net of progress payments $ 10,574 $ 11,819
Less allowance for doubtful accounts 162 347
---------- ----------
Trade receivables, net 10,412 11,472
Notes receivables - 2,000
Less allowance for doubtful notes - 2,000
---------- ----------
Notes receivable, net - -
Income tax receivable - 863
Other current receivables 143 157
---------- ----------
$ 10,555 $ 12,492
========== ==========
</TABLE>
Progress payments are payments from customers in accordance with contractual
terms for contract costs incurred to date. Such payments are credited to the
customer at the time of shipment.
5
<PAGE> 6
Transmedica International, Inc. ("Transmedica") issued the promissory note to
LaBarge in June 1998. The note, which was secured by substantially all of
Transmedica's assets, represented $1.2 million in converted accounts receivable
owed to LaBarge by Transmedica and $800,000 in operating capital extended to
Transmedica by LaBarge. When Transmedica failed to repay the note, which was due
on June 2, 1999, LaBarge took legal action against Transmedica seeking payment.
The claim for payment of the note was added to pending litigation filed by
LaBarge against Transmedica in October 1998 in St. Louis County. The litigation
sought resolution of disputes between the two companies pertaining to a portable
medical laser device called the Laser Lancet(R). As a result of Transmedica's
default on the note and litigation, the Company decided to reserve the full
amount of its investment in Transmedica ($4.6 million) at June 27, 1999.
In December 1999, the Company resolved all pending litigation with Transmedica.
LaBarge received $2.3 million of cash and securities of Norwood Abbey, Ltd., an
Australian-based provider of medical devices.
3. INVENTORIES
Inventories consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- ---------
<S> <C> <C>
Raw materials $ 11,621 $ 9,472
Work in progress 7,067 7,755
---------- ---------
18,688 17,227
Less progress payments 770 1,134
---------- ---------
$ 17,918 $ 16,093
========== =========
</TABLE>
In accordance with contractual agreements, the U.S. Government has a security
interest in inventories identified with related contracts for which progress
payments have been received.
4. INTANGIBLE ASSETS, NET
Intangible assets, net, is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- ---------
<S> <C> <C>
Software $ 1,290 $ 1,124
Patents 75 73
Goodwill 7,202 7,214
--------- ---------
8,567 8,411
Less amortization 2,047 1,470
--------- ---------
$ 6,520 $ 6,941
========= =========
</TABLE>
Amortization expense was $270,000 for the quarter ended January 2, 2000 and
$28,000 for the quarter ended December 27, 1998.
6
<PAGE> 7
5. INVESTMENT IN NOTICOM
Investment in NotiCom is summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
Investment in technology $ 1,686 $ 1,686
Less amortization 606 237
----- -----
Investment in technology, net 1,080 1,449
Investment in joint venture 1,438 1,331
----- -----
$ 2,518 $ 2,780
========= =========
</TABLE>
The investments in joint venture and technology pertain to NotiCom and its
related advance notification technology.
During the first quarter of fiscal 2000, NotiCom needed additional cash
contribution totaling approximately $405,000 to continue its development and
marketing efforts. LaBarge made these contributions. No cash contributions were
made in the second quarter. The Company provided equipment valued at $485,000
during the second quarter of fiscal 2000. This amount was added to the Company's
investment in NotiCom. LaBarge anticipates NotiCom will require an additional
cash contribution in the third quarter of fiscal 2000, as NotiCom continues its
development and marketing efforts.
The Company has contributed 100% of the cash required from the partners for the
operation of NotiCom. As a result, the Company recognizes as its share of the
joint venture's losses, the larger of its equity percentage in the joint venture
or the cash loss (net loss excluding non-cash amortization) of the joint
venture.
At January 2, 2000 quarter-end, NotiCom's total assets were $3.7 million and its
total liabilities were $1.9 million. NotiCom's operations incurred a loss for
the six months ended January 2, 2000 of $1.3 million, including $514,000 of
amortization. Included in the Company's results from operations for the six
months ended January 2, 2000 is 100% of the cash losses from NotiCom, amounting
to $783,000 plus $369,000 of amortization of the technology recorded on
LaBarge's balance sheet.
6. OTHER ASSETS
Other assets consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
Cash value of life insurance $ 3,098 $ 2,903
Deposits, licenses, and other 1,514 1,560
Investments in businesses 100 2,250
----- -----
4,712 6,713
Less allowance for revaluation of impaired assets - 2,250
Less amortization 14 7
----- -----
$ 4,698 $ 4,456
========= =========
</TABLE>
7
<PAGE> 8
7. SHORT AND LONG-TERM OBLIGATIONS
Short-term borrowings, long-term debt and the current maturities of long-term
debt consist of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
Short-term borrowings:
Revolving credit agreements:
Balance at period end $ 3,865 $ 930
Interest rate at period end 8.50% 7.79%
Average amount of short-term borrowings outstanding during period $ 1,741 $ 1,681
Average interest rate for period 7.62% 6.69%
Maximum short-term borrowings at any month end $ 4,280 $ 6,390
========= =========
Long-term debt:
Senior lender:
Term loan 7,228 10,214
Mortgage loan 6,038 6,082
Subordinated debt 4,424 4,424
Other 1,298 1,341
--------- ---------
18,988 22,061
Less current maturities 1,820 1,771
--------- ---------
Subordinated debt 4,424 4,424
Long-term debt, less current maturities $ 12,744 $ 15,866
========= =========
</TABLE>
The average interest rate was computed by dividing the sum of daily interest
costs by the sum of the daily borrowings for the respective periods.
SENIOR LENDER
In fiscal 1999, the Company amended its senior loan agreement with Bank of
America. The original agreement included a term loan and revolving credit
facility totaling $20.0 million.
That amendment reestablished the bank's secured position, reinstated a borrowing
base limitation on the revolver and established new covenants and performance
measures to reflect the effect of LaBarge's new investments (NotiCom and OCS),
as well as the reserve for loss on the Transmedica assets in fiscal 1999. The
senior loan agreement was further amended on September 30, 1999.
8
<PAGE> 9
The following is a summary of the current senior loan agreement:
o A term loan, with a current balance of $7,228,000, requiring repayments of
principal quarterly. This loan matures in September 2005.
o A revolving credit facility up to $15.0 million based on a borrowing base
formula equal to the sum of 85% of eligible receivables, 50% of eligible
finished goods inventories, 30% of other eligible inventories, 50% of the
net book value of equipment and 75% of the net book value of certain real
property and 70% of appraised value of other real property less the current
term loan balance and outstanding letters of credit. As of January 2, 2000,
the maximum allowable was approximately $6.6 million. The revolver
borrowing at January 2, 2000 was $2.9 million.
o Covenants and performance specify minimum performance criteria which
involve Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") and, after June 30, 2000, EBITDA in relation to debt and EBITDA
in relation to fixed charges. The Company is in compliance with its
borrowing agreement covenants for the quarter and six months ended January
2, 2000.
o Interest on the loans is at prime or a stated rate over LIBOR based on
certain ratios. For the six months ended January 2, 2000, the average rate
was approximately 7.62%.
In addition to the senior lending agreement, bank working capital borrowings
consist of the following:
SECONDARY LINE OF CREDIT
LaBarge Clayco Wireless has a line of credit with Mercantile Bank N.A. This line
was renegotiated in November 1999 to expire November 2000, and is in the amount
of $1.0 million. The interest rate on this note is a 1/4% over the bank's prime
rate. At the end of the second quarter of fiscal 2000, the outstanding amount
was $950,000 at an interest rate of 8.75%. LaBarge Clayco Wireless modified the
loan agreement on January 19, 2000 to increase the line of credit amount to $2.0
million.
8. MINORITY INTEREST
On May 7, 1996, the Company, through its wholly owned subsidiary LaBarge
Wireless Inc., entered into a 50%/50% joint venture with Clayco Construction
Company ("Clayco") to form LaBarge Clayco Wireless L.L.C. ("LCW"). The Company
reported results of operations using the equity method of accounting. In the
second quarter of fiscal 1998, the Company increased its ownership of LaBarge
Clayco Wireless to 51%. Beginning with the second quarter of fiscal 1998, the
Company began consolidating 100% of the results of this unit into its financial
statements and deducting the minority interest share before arriving at earnings
before taxes. In the second quarter of fiscal 1999, the Company purchased from
Clayco an additional 39% of LCW for $300,000 to increase its ownership to 90%.
The minority interest loss for six months ending January 2, 2000 was $2,000
compared with $142,000 in income for the six months ending December 27, 1998.
The minority holders' interest is included in other liabilities and was $97,000
at January 2, 2000, compared with $98,000 at June 27, 1999.
9
<PAGE> 10
9. INCOME TAXES
As of January 2, 2000, the Company had alternative minimum tax credit
carryforwards and investment tax credits of approximately $821,000 available to
reduce future regular federal income taxes. Investment tax credits of $59,000
and $4,000 will expire in fiscal years 2000 and 2001, respectively.
10. CASH FLOWS
Total cash payments for interest for the three and six months ended January 2,
2000 were $548,000 and $1.1 million, respectively, compared with $292,000 and
$643,000, respectively, for the three and six months ended December 27, 1998.
Cash refunds for income taxes for the three and six months ended January 2, 2000
were $-0- and $754,000, respectively, compared with a payment of $137,000 and
$1.0 million, respectively, for the three and six months ended December 27,
1998.
11. EARNINGS PER COMMON SHARE
Basic and diluted earnings (loss) per share are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net earnings (loss) $ 726 $ 411 $ (673) $ 1,443
-------- ------- --------- ---------
DENOMINATOR:
Denominator for basic net
earnings (loss) per share --
Weighted-average shares 14,782 15,311 14,772 15,383
Effect of dilutive securities-
employee stock options - 61 - 67
-------- ------- --------- ---------
POTENTIAL COMMON SHARES:
Denominator for diluted net earnings
(loss) per shares -- adjusted weighted-
average shares and assumed
conversions 14,782 15,372 14,772 15,450
-------- ------- --------- ---------
BASIC NET EARNINGS (LOSS) PER
COMMON SHARE $ .05 $ .03 $ (.05) $ .09
======== ======= ========= =========
DILUTED NET EARNINGS (LOSS) PER
COMMON SHARE $ .05 $ .03 $ (.05) $ .09
======== ======= ========= =========
</TABLE>
The effect of conversion of the Subordinated Convertible Notes into common stock
is not considered in the calculations of diluted net earnings per common share
because they would have an anti-dilutive effect on earnings per share as stated
in SFAS No. 128, "Earnings Per Share."
10
<PAGE> 11
12. BUSINESS SEGMENT INFORMATION
Business segments:
(dollars in thousands)
NET SALES TO CUSTOMERS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Manufacturing Services Group $ 17,414 $ 21,570 $ 31,463 $ 42,650
LaBarge Clayco Wireless 3,676 2,209 6,047 5,795
Network Technologies Group 138 - 220 -
-------- --------- --------- --------
$ 21,228 $ 23,779 $ 37,730 $ 48,445
======== ========= ========= ========
</TABLE>
EARNINGS (LOSS) BEFORE INCOME TAXES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Manufacturing Services Group $ 546 $ 1,010 $ (296) $ 2,342
Gain on settlement of Transmedica 2,300 - 2,300 -
------- ------- ------- -------
Net Manufacturing Services Group 2,846 1,010 2,004 2,342
LaBarge Clayco Wireless 105 (32) 25 285
Network Technologies Group (594) - (1,081) -
Loss from NotiCom (632) (244) (1,152) (272)
Corporate and other items (123) 288 62 611
Interest expense (512) (370) (980) (679)
------- ------- ------- -------
$ 1,090 $ 652 $(1,122) $ 2,287
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
DEPRECIATION & AMORTIZATION EXPENSE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Manufacturing Services Group $ 321 $ 349 $ 716 $ 660
LaBarge Clayco Wireless 17 8 45 16
Network Technologies Group 246 - 515 -
Equity in NotiCom 178 28 369 28
Corporate and other items 101 84 204 195
--- -- --- ---
$ 863 $ 469 $ 1,849 $ 899
====== ====== ======== =======
</TABLE>
INVESTMENTS & CAPITAL EXPENDITURES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Manufacturing Services Group $ 284 $ 84 $ 511 $ 976
LaBarge Clayco Wireless 14 326 24 331
Network Technologies Group 16 - 100 -
Equity in NotiCom 485 500 890 4,001
Corporate and other items 163 1,261 373 1,234
--- ----- --- -----
$ 962 $ 2,171 $ 1,898 $ 6,542
======= ======== ======= ========
</TABLE>
TOTAL ASSETS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 2, June 27,
2000 1999
<S> <C> <C>
Manufacturing Services Group $ 31,187 $ 30,752
LaBarge Clayco Wireless 5,082 3,537
Network Technologies Group 6,360 6,691
Investment in NotiCom 2,518 2,780
Corporate and other items 15,725 15,894
------ ------
$ 60,872 $ 59,654
========== ==========
</TABLE>
GEOGRAPHIC INFORMATION:
The Company has no sales offices or facilities outside of the United States.
Sales for export did not exceed 10% of total sales in fiscal year 1999 or second
quarter of fiscal year 2000.
12
<PAGE> 13
LABARGE, INC.
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Statements contained in this Report which are not historical facts are
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements involve risks and uncertainties. Future events and
the Company's actual results could differ materially from those contemplated by
those forward-looking statements. Important factors which could cause the
Company's actual results to differ materially from those projected in, or
inferred by, forward-looking statements are (but are not necessarily limited to)
the following: the impact of increasing competition or deterioration of economic
conditions in the Company's markets; cutbacks in defense spending by the U.S.
Government; lack of acceptance by the market for the BusCall(TM) product; lack
of acceptance by the market for the products of LaBarge's Network Technologies
Group; the outcome of litigation the Company is party to; unexpected increases
in the cost of raw materials, labor and other resources necessary to operate the
Company's business; the availability, amount, type and cost of financing for the
Company and any changes to that financing.
LaBarge, Inc. ("LaBarge" or the "Company") is a Delaware Corporation. The
Company is engaged in the following primary business activities:
o The MANUFACTURING SERVICES GROUP is the Company's core manufacturing
business, which has been its principal business since 1985. This group
designs, engineers and produces sophisticated electronic systems and
devices and complex interconnect systems on a contract basis for its
customers. The Company derived approximately 83% of its total revenues from
this group for the six months ended January 2, 2000, compared with
approximately 88% for the six months ended December 27, 1998.
The group markets its services to companies desiring an engineering and
manufacturing partner capable of developing and providing high-reliability
electronic equipment, including products capable of performing in harsh
environmental conditions, such as high and low temperature, severe shock
and vibration. The group serves customers in a variety of markets with
significant revenues from customers in the defense, aerospace and
geophysical markets. The group's manufacturing facilities are located in
Arkansas, Missouri, Oklahoma and Texas.
o LABARGE CLAYCO WIRELESS L.L.C. ("LaBarge Clayco Wireless") provides turnkey
construction, engineering and equipment installation services for the
wireless telecommunications industry. It was established in fiscal 1996 as
a 50%/50% joint venture with Clayco Construction Company in St. Louis,
Missouri. The operating results of LaBarge Clayco Wireless were accounted
for on the equity method through fiscal 1997. In the second quarter of
fiscal 1998, LaBarge increased its ownership interest in LaBarge Clayco
Wireless to 51% and began consolidating the total operations of this joint
venture. In the second quarter of fiscal 1999, the Company purchased from
Clayco Construction Company an additional 39% of LaBarge Clayco Wireless
for $300,000 to increase its ownership to 90%. LaBarge Clayco Wireless
became a reportable segment in fiscal 1999, due to the changes in ownership
and its growth in revenues. For the six months ended January 2, 2000, the
Company derived approximately 16% of its total revenues from this group
compared with 12% for the six months ended December 27, 1998.
o The NETWORK TECHNOLOGIES GROUP is the Company's newest business activity.
This group was started in fiscal 1999 through the acquisition of privately
held Open Cellular Systems, Inc. ("OCS"). The group designs and markets
proprietary cellular and network communication system products and Internet
services that provide monitoring and control of remote industrial and
equipment. Results of the group are included in the consolidated results of
the Company since the date of the OCS acquisition, March 2,
13
<PAGE> 14
1999. This group is focusing its marketing efforts initially toward the
railroad industry to monitor railroad crossing equipment and its
performance and toward the oil and gas pipeline industry to monitor
cathodic protection devices. In six months ended January 2, 2000,
approximately 1% of the Company's revenue was derived from this group.
o NOTICOM L.L.C. JOINT VENTURE
In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia ("Global") formed NotiCom L.L.C. ("NotiCom"), a
Georgia limited liability company, to develop and market electronic systems
providing advance notice of the impending arrival of passenger motor
vehicles. The first product to be marketed by NotiCom is BusCall(TM) which
provides households with advance notice of the impending arrival of school
buses. The NotiCom investment is accounted for using the equity method.
Beginning in fiscal 2000, the Company has contributed 100% of the cash
required from the partners for the operation of NotiCom. As a result, the
Company recognizes as its share of the joint venture's losses, the larger
of its equity percentage in the joint venture or the cash loss (net loss
excluding non-cash amortization) of the joint venture. Throughout its
history, NotiCom has been a development-stage company.
During the early stages of testing the BusCall system in a major
metropolitan market, additional design engineering requirements were
identified and are presently be evaluated.
SIGNIFICANT EVENTS
Recent significant events include:
o Transmedica International, Inc. ("Transmedica") issued the promissory note
to LaBarge in June 1998. The note, which was secured by substantially all
of Transmedica's assets, represented $1.2 million in converted accounts
receivable owed to LaBarge by Transmedica and $800,000 in operating capital
extended to Transmedica by LaBarge. When Transmedica failed to repay the
note, which was due on June 2, 1999, LaBarge took legal action against
Transmedica seeking payment. The claim for payment of the note was added to
pending litigation filed by LaBarge against Transmedica in October 1998 in
St. Louis County. The litigation sought resolution of disputes between the
two companies pertaining to a portable medical laser device called the
Laser Lancet(R). As a result of Transmedica's default on the note and the
litigation, the Company decided to reserve the full amount of its
investment in Transmedica ($4.6 million) at June 27, 1999.
In December 1999, the Company resolved all pending litigation with
Transmedica. LaBarge received $2.3 million of cash and securities of
Norwood Abbey, Ltd., an Australian-based provider of medical devices.
o On March 2, 1999, the Company acquired the remaining 90% of Open Cellular
Systems, Inc. ("OCS") for approximately $5.6 million. The purchase price
was paid by issuing Subordinated Convertible Notes due in June 2003 and
bearing interest of 7.5% per annum payable quarterly beginning June 29,
1999. Each share of OCS stock was valued at $4.25 in the transaction. Under
the terms of the Notes, each holder has the right to convert the Notes into
LaBarge, Inc. Common Stock at a conversion price of $8.00 per share at any
time after the first anniversary of the Notes up to their maturity date.
Further, the noteholders are entitled to receive participation payments
from the Company for each fiscal year through 2003 equal to the amount by
which 35% of the net income of OCS exceeds the 7.5% interest on the Notes
for the fiscal year.
Initially, on March 2, 1999, 1,008,622 shares of OCS common stock were
exchanged for $4.3 million of Subordinated Convertible Notes. Options to
acquire 310,000 shares of OCS common stock were converted to 310,000 shares
of common stock of LaBarge-OCS, Inc., the acquiring subsidiary and
represent shares acquired by the holders through exercise of employee stock
options. These shares are
14
<PAGE> 15
callable by LaBarge, Inc. pursuant to a call agreement whereby the Company,
at its discretion, may exchange the shares for Subordinated Convertible
Notes at $4.25 per share or $1.3 million after the first anniversary of the
merger (March 2, 2000) and prior to June 15, 2000. This dollar amount is
included in other current liabilities at the balance sheet date due to the
call agreement. The Company recorded goodwill of $6.8 million in this
transaction, which is reflected in other assets.
OCS now operates as the Company's Network Technologies Group.
o In the first quarter of fiscal 1999, LaBarge and Global Research Systems,
Inc. of Rome, Georgia ("Global"), formed NotiCom L.L.C. ("NotiCom"), a
Georgia limited liability company, to develop and market electronic systems
providing advance notice of the impending arrival of passenger motor
vehicles. The first product to be marketed by NotiCom is BusCall(TM).
BusCall uses a combination of technologies, including Global Positioning
System satellite location data, wireless communications techniques and
telephony, to notify parents by phone when their children's school bus is
approaching the bus stop. It is being marketed to telephone companies and
other potential service providers, which can offer BusCall as a value-added
service. LaBarge's Manufacturing Services Group is the exclusive
manufacturer of all products sold by NotiCom.
LaBarge and Global each initially had a 50% interest in NotiCom, except
that after an aggregate of $1.0 million has been distributed by NotiCom,
Global will be entitled to 75% of subsequent distributions until it has
received preferred distributions aggregating $1.3 million. LaBarge
initially invested $1.8 million in cash in NotiCom along with $500,000 of
development services. In addition, LaBarge has paid Global $1.7 million for
a 50% interest in intellectual property and has licensed the technology to
NotiCom.
Because NotiCom is a start-up venture, it is too early to predict if or to
what extent NotiCom may contribute to the Company's revenues or earnings.
Given the risks inherent in a start-up operation, the Company elected,
during the fourth quarter of fiscal 1999, to amortize the technology over
three years. For the fiscal 2000 second quarter, the amortization of this
investment was approximately $433,000. Non-cash amortization in this
investment is expected to be $1.1 million for each of the fiscal years 2000
and 2001. The investment is accounted for using the equity method.
Beginning in fiscal 2000, the Company has contributed 100% of the cash
required from the partners for the operation of NotiCom. As a result, the
Company recognizes as its share of the joint venture's losses, the larger
of its equity percentage in the joint venture or the cash loss (net loss
excluding non-cash expense) of the joint venture. Throughout its history,
NotiCom has been a development-stage company.
During the first quarter of fiscal 2000, NotiCom needed additional cash
contributions totaling approximately $405,000 to continue its development
and marketing efforts. LaBarge made these contributions. No cash
contributions were required during the second quarter of fiscal 2000.
Equipment valued at $485,000 was added to the Company's investment in
NotiCom during the second quarter of fiscal 2000. The Company anticipates
NotiCom will require an additional cash contribution in the third quarter
of fiscal 2000, as NotiCom continues its development and marketing efforts.
15
<PAGE> 16
RESULTS OF OPERATIONS -- QUARTER ENDED JANUARY 2, 2000
SALES
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ------------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Manufacturing Services Group $ 17,414 $ 21,570 $ 31,463 $ 42,650
LaBarge Clayco Wireless 3,676 2,209 6,047 5,795
Network Technologies Group 138 - 220 -
--- --------- --- --------
$ 21,228 $ 23,779 $ 37,730 $ 48,445
======== ========= ========= ========
</TABLE>
The MANUFACTURING SERVICES GROUP. The Manufacturing Services Group's sales for
the second quarter of fiscal 2000 were $17.4 million compared with $21.6 million
for the fiscal 1999 second quarter, a 19.3% decline. The group, which accounted
for approximately 82% of total second quarter sales, experienced lower sales to
customers in the defense and geophysical markets.
Sales to defense customers were down $9.4 million to a total of $14.5 million.
The decline was principally due to lower shipments on the U.S. Navy's AEGIS
shipboard weapon system program for the first six months of fiscal 2000 versus
the first six months of fiscal 1999.
For the fiscal 2000 second quarter, approximately 51% of the group's sales were
to customers in commercial markets, including geophysical and aerospace. Sales
to geophysical customers were $3.1 million in the second quarter of fiscal 2000,
compared with sales of $4.0 million reported for the second quarter of fiscal
1999. The downturn in the oil and gas industry, which has affected the entire
market for equipment for the exploration and production of oil, is the cause.
The group's backlog of firm, unshipped orders at January 2, 2000 was up
substantially to approximately $58.3 million, compared with $42.7 million at
June 27, 1999 year-end. The backlog at January 2, 2000 consisted of
approximately $26.4 million for various defense customers and approximately
$31.9 million for commercial electronics customers. This is compared with $26.6
million for defense customers and $16.1 million for commercial customers at June
27, 1999 year-end.
LABARGE CLAYCO WIRELESS. Sales by LaBarge Clayco Wireless were $3.7 million and
represented approximately 17% of total Company sales for the second quarter of
fiscal 2000, an increase of $1.5 million from the second quarter of fiscal 1999.
The increase is attributable to higher backlog due to delays in several
customers' build-out schedules early in the first quarter and new bookings. The
unit's backlog of new contracts at January 2, 2000 was $3.3 million compared
with $1.5 million at the end of the prior year. The Company expects the unit's
third fiscal quarter sales to be consistent with those in the second quarter.
The NETWORK TECHNOLOGIES GROUP. Sales by the Network Technologies Group were
$138,000 for the fiscal 2000 second quarter and are expected to grow as the year
progresses. The group's backlog at January 2, 2000 was $1.4 million.
16
<PAGE> 17
GROSS PROFIT
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Gross profit $ 3,913 $ 4,796 $ 6,577 $ 10,173
Gross margin 18.4% 20.2% 17.4% 21.0%
======== ======== ========= =========
</TABLE>
A breakdown of margins by group shows the following:
The MANUFACTURING SERVICES GROUP. This group's gross margin was 19.4% for the
quarter (18.5% for the six months) ended January 2, 2000, compared with 20.6%
for the quarter (21.0% for the six months) ended December 27, 1998.
LABARGE CLAYCO WIRELESS. This group's gross margin was 15.0% for the quarter
(12.5% for the six months) ended January 2, 2000, versus 11.8% for the quarter
(16.3% for the six month) ended December 27, 1998. The gross margin change was
due to the mix of business in the first six months of fiscal 2000, compared with
the first six months of fiscal 1999.
The NETWORK TECHNOLOGIES GROUP. This group's gross margin was 2.2% for the six
months ended January 2, 2000. The group was formed in March 1999, so no
comparable data for prior periods exists.
SELLING AND ADMINISTRATIVE EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Selling and administrative expenses $ 4,082 $ 3,594 $ 8,050 $ 7,005
Percent of sales 19.2% 15.1% 21.3% 14.5%
======== ======== ======== ========
</TABLE>
Selling and administrative expenses increased 13.6% in the second quarter of
fiscal 2000, compared with the second quarter of fiscal 1999. $1.0 million of
the increase is attributable to the Network Technologies Group which was
purchased March 2, 1999, and was not included in December 27, 1998 totals.
The MANUFACTURING SERVICES GROUP. Selling and administrative expenses for this
group were $1.9 million (10.4% of sales) for the quarter ended January 2, 2000,
versus $2.3 million (10.3% of sales) in the previous fiscal year. For the six
months ended January 2, 2000, expenses were $4.0 million (12.0% of sales),
compared with $4.4 million (10.0% of sales) for the six months ended December
27, 1998.
LABARGE CLAYCO WIRELESS. Selling and administrative expenses for this group were
$448,000 (12.2% of sales) for the quarter ended January 2, 2000, versus $293,000
(13.3% of sales) in the previous fiscal year. For the six months ended January
2, 2000, expenses were $730,000 (12.1% of sales), compared with $658,000 (11.4%
of sales) for the six months ended December 27, 1998.
The NETWORK TECHNOLOGIES GROUP. This group accounted for $553,000 of selling and
administrative expenses for the quarter ended January 2, 2000, ($1.0 million for
the six months). This included $250,000 in the second quarter ($499,000 for the
six months) in amortization of goodwill related to the group's acquisition in
March 1999.
17
<PAGE> 18
INTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ---------------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest expense $ 512 $ 370 $ 980 $ 679
===== ===== ===== =====
</TABLE>
Interest expense increased in the fiscal 2000 second quarter and the six months
ended January 2, 2000. This is due to higher borrowings levels and interest
rates.
LOSS FROM NOTICOM
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Loss from NotiCom $ 632 $ 244 $ 1,152 $ 272
===== ===== ======= ======
</TABLE>
The loss for NotiCom pertains to the joint venture developing advance
notification systems and technology. At quarter end, January 2, 2000, NotiCom's
total assets were $3.7 million and total liabilities were $1.9 million. In the
fourth quarter of fiscal 1999, after reevaluating the amortization schedule for
the NotiCom technology, the Company began to amortize the technology over a
three-year period.
The loss from NotiCom, which is included in the Company's results from
operations, is 100% of the cash losses from the joint venture, amounting to
$783,000 plus $369,000 of amortization of the technology for the six months
ended January 2, 2000. The Company is recognizing 100% of the cash loss since
its joint venture partner, Global Research Systems, Inc., has not made
additional cash contributions to cover the operating requirements of NotiCom.
NotiCom's operations incurred a loss for the six months ended January 2, 2000 of
$1.3 million, including $514,000 of amortization.
PRETAX EARNINGS (LOSS)
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ------------------------------
JANUARY 2, December 27, JANUARY 2, December 27,
2000 1998 2000 1998
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Pretax earnings (loss) $ 1,090 $ 652 $ (1,122) $ 2,287
======= ====== ======== ========
</TABLE>
The change in earnings in the second quarter of fiscal 2000, compared with the
second quarter of fiscal 1999, is attributable to: a $2.3 million settlement
with Transmedica; a $137,000 increase in earnings from LaBarge Clayco Wireless;
$632,000 in losses (including non-cash amortization of $178,000) from NotiCom; a
$594,000 loss from operations of the Network Technologies Group; and $142,000 in
higher interest costs due to higher rates and increased borrowings;.
18
<PAGE> 19
The following shows LaBarge's equity and debt positions:
STOCKHOLDERS' EQUITY AND DEBT
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, June 27,
2000 1999
---------- --------
<S> <C> <C>
Stockholders' equity $23,374 $24,080
Debt $22,853 $22,991
======= =======
</TABLE>
Currently, the Company's debt-to-equity ratio is .98 to 1 versus .95 to 1 at the
end of fiscal 1999.
As of June 25, 1999, we amended our senior lending agreement with Bank of
America. This included revising the borrowing base, granting a security interest
in the assets of the Company and revising covenants and performance measures to
reflect the reserve for loss of the Transmedica assets and the additions of OCS
and NotiCom as new businesses of the Company. At January 2, 2000, availability
under the Company's revolving line of credit was $6.6 million, with $2.9 million
outstanding.
RISK FACTORS
The NotiCom joint venture, as a start-up company, has a higher risk factor than
our manufacturing services business. Further, development and testing of the
BusCall product has required additional cash and equipment investment of
approximately $890,000 thus far in fiscal 2000, and it is expected that
additional cash will be needed to fully bring the product to market. Given the
risks inherent in a start-up operation, it is too early to predict if or to what
extent NotiCom may contribute to the Company's revenues or earnings.
The Network Technologies Group, although beyond the start-up stage, has used
cash during its first nine months of operation. During the second quarter, the
Network Technologies Group received important new orders and is expected to
contribute to Company profits in the last two quarters of fiscal 2000.
We believe our availability of funds going forward from cash generated from
operations and available credit under the Company's senior lending agreement
will be sufficient to support the planned operations of our business.
FINANCIAL CONDITION & LIQUIDITY
Cash and cash equivalents at January 2, 2000 were $1.7 million compared with
$495,000 at June 27, 1999.
Accounts and notes receivable at January 2, 2000, were $10.6 million, compared
with $12.5 million at June 27, 1999, a decrease of $1.9 million. Accounts
receivables were down due to better collections during the second quarter.
Inventories at January 2, 2000 and June 27, 1999 were $17.9 million and $16.1
million, respectively, an increase of $1.8 million, reflecting anticipated
higher sales levels in the second half of fiscal 2000.
During the six months ended January 2, 2000, the Company purchased $713,000 in
property, plant and equipment.
During the first six months of fiscal 2000, the Company invested $890,000 in
NotiCom L.L.C.
19
<PAGE> 20
YEAR 2000
LaBarge relies on computer technology for much of its operations. The Company
has been analyzing all of its information and data systems for possible Year
2000 ("Y2K") problems. To date, the Company has not experienced any material
problems.
We believe that the most likely worst-case scenario due to a Y2K failure of our
internal and third-party external systems would be the inability to manufacture
and ship products in a timely manner. This could have negative impact on our
relationships with our customers and an adverse effect on our financial
condition and results of operations. To date, no problem with material impact
has been encountered.
Costs incurred to date for Y2K remediation activity have been immaterial and
have been included in operating expenses. The Company experienced no material
disruptions associated with possible Year 2000 ("Y2K") problems.
20
<PAGE> 21
PART II
10.8(b) Fourth Amendment to Loan Agreement between Bank of
America, formerly NationsBank, N.A. and LaBarge, Inc.,
LaBarge/STC, Inc., LaBarge Wireless, Inc. and
LaBarge-OCS, Inc. dated June 25, 1999 and attached hereto
as reference.
10.7(a) Modification Agreement between LaBarge Clayco Wireless,
L.L.C. and Mercantile Bank N.A., formerly known as
Mercantile Bank of St. Louis N.A. dated January 19, 2000
and attached hereto as reference.
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LABARGE, INC.
Date: February 11, 2000
/s/ Donald H. Nonnenkamp
-----------------------------
Donald H. Nonnenkamp
Vice President
and Chief Financial Officer
22
<PAGE> 1
EXHIBIT 10.7(a)
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (this "Agreement") is made as of January
19, 2000, by and between: LABARGE CLAYCO WIRELESS, L.L.C., a Missouri limited
liability company ("Borrower"); and MERCANTILE BANK NATIONAL ASSOCIATION,
formerly known as Mercantile Bank of St. Louis National Association, a national
banking association ("Bank").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Revolving Credit executed by Borrower
and Bank on September 1, 1997 (as modified and extended, the "Revolving
Credit"), Borrower executed a certain Promissory Note payable to Bank dated
September 1, 1997, in the original principal amount of $1,000,000.00 (as
modified and extended, the "Note");
WHEREAS, the Revolving Credit and Note are described in and secured by
a certain Security Agreement, executed by Borrower in favor of Bank on September
1, 1997, and covering the property as more particularly described therein (the
"Security Agreement");
WHEREAS, the Revolving Credit and Note are further described in and
guaranteed by the certain Limited Guaranty executed by LaBarge, Inc. (the
"Guarantor") in favor of Bank on September 1, 1997 (the "Guaranty"); and
WHEREAS, Revolving Credit and Note were modified and/or extended
pursuant to a certain Extension Agreement dated as of September 1, 1997, a
certain Extension Agreement dated as of September 1, 1998, a certain
Modification Agreement dated as of January 21, 1999, a certain Extension
Agreement dated as of September 1, 1999, and a certain Extension Agreement dated
as of November 30, 1999, and Borrower desires to further modify the terms of the
Revolving Credit and Note in the manner set forth herein and Bank is willing to
agree to said modification on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. The references to "One Million and 00/100 Dollars ($1,000,000.00)"
and "$1,000,000.00" in the Revolving Credit and the Note are deleted and
substituted with "Two Million and 00/100 Dollars ($2,000,000.00)" and
"$2,000,000.00" respectively.
2. Borrower shall maintain an annual tangible net worth for each fiscal
year (as calculated under generally accepted accounting principles consistently
applied) of at least Six Hundred Fifty Thousand and 00/100 Dollars
($650,000.00), to be calculated as of the end of each fiscal year. The failure
of Borrower to maintain said annual tangible net worth requirement shall be an
Event of Default under the Note.
-1-
<PAGE> 2
3. The Revolving Credit and Note, as hereby modified, are, and shall
continue to be, secured by the Security Agreement and Guaranty and any reference
to the Revolving Credit and Note in such documents shall hereafter be deemed to
include the Revolving Credit and Note as hereby modified.
4. The Revolving Credit, Note and Security Agreement are, and shall
remain, the binding obligations of Borrower, and all of the provisions, terms,
stipulations, conditions, covenants and powers contained therein shall stand and
remain in full force and effect, except only as the same are herein and hereby
expressly and specifically varied or amended, and the same are hereby ratified
and confirmed, and Bank reserves unto itself all rights and privileges granted
thereunder.
5. Borrower hereby reaffirms all representations, warranties, covenants
and agreements recited in the Revolving Credit, Note and Security Agreement as
of the date hereof, and the same are hereby adopted as representations,
warranties, covenants and agreements of Borrower herein. Borrower further
represents and warrants that it is not in default under any of its obligations
under the Revolving Credit, Note and Security Agreement and that it has full
power and authority to execute and deliver this Agreement, and that the
execution and delivery hereof has been duly authorized, and that all necessary
and proper acts have been performed or taken.
6. Borrower agrees to pay all expenses incurred by Bank in connection
with this Agreement, including, but not limited to, Bank's legal fees. Said sums
are payable on demand and are secured by the Security Agreement and Guaranty.
7. NOTICE REQUIRED BY SECTION 432.045 R.S. MO.: ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT YOU (BORROWER(S) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN
THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
(SIGNATURES ON FOLLOWING PAGE)
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BORROWER:
LABARGE CLAYCO WIRELESS, L.L.C.
By: /s/ Donald H. Nonnenkamp
-------------------------
Title: Manager
BANK:
MERCANTILE BANK NATIONAL ASSOCIATION
By: /s/ Jaycee D. Greene
-------------------------
Title: Assistant Vice President
CONSENT OF GUARANTOR
Guarantor hereby joins in and consents to this Agreement and
acknowledges that the Revolving Credit and Note, as modified by this Agreement,
shall be and remain shall be and remain binding obligations of Borrower and of
Guarantor pursuant to the Guaranty.
LABARGE, INC., GUARANTOR
By: /s/ Donald H. Nonnenkamp
-------------------------
Title: Vice President & CFO
Date: January 19, 2000
-3-
<PAGE> 1
FOURTH AMENDMENT
TO
LOAN AGREEMENT
AMONG
BANK OF AMERICA, N.A.
AND
LABARGE, INC.,
LABARGE/STC, INC.,
LABARGE WIRELESS, INC.
AND
LABARGE OCS, INC.
This AMENDMENT to LOAN AGREEMENT (the "Amendment") is entered into as
of September 30, 1999, by LABARGE, INC., LABARGE/STC, INC., LABARGE WIRELESS,
INC., AND LABARGE OCS, INC. (collectively and separately, "Borrower") and BANK
OF AMERICA. N.A. (formerly known as NationsBank, N.A., which was successor by
merger to The Boatmen's National Bank of St. Louis) ("Bank").
RECITALS:
A. Borrower and Bank are parties to that certain Loan Agreement dated as of June
25, 1996, as amended by the amendment thereto dated March 20, 1997, and the
amendment thereto dated as of June 25, 1999 (as it may be amended, restated,
extended, renewed, replaced, or otherwise modified from time to time, the "Loan
Agreement").
B. Borrower has requested that Bank amend the Loan Agreement to increase
availability under the Borrower Base, which Bank is willing to do upon the terms
and conditions contained herein.
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower
and Bank hereby amend the Loan Agreement as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the meanings given them in the Loan Agreement as amended hereby.
2. EFFECTIVE DATE OF AMENDMENT. This Amendment shall become effective as
of September 30, 1999.
3. AMENDMENTS TO LOAN AGREEMENT.
3.1 REVISED BORROWING BASE. Section 3.1.2 of the Loan
Agreement is hereby amended to read in its entirety as follows:
"3.1.4. BORROWING BASE. The "Borrowing Base" on any date for any
Revolving Advance shall be the sum of:
3.1.4.1. 85% of the total outstanding principal balance of
Eligible Accounts as of the close of business on such date, or
as certified in the Borrowing Base
1
<PAGE> 2
Certificate most recently furnished to Lender as required in
Section 14.14, whichever is less; plus
3.1.4.2. An amount equal to the sum of (i) 50% of the value of
all Eligible Inventory that is finished goods, (ii) 30% of the
value of all Eligible Inventory that is raw materials or
work-in-process at the close of business on such date, or as
certified in the Borrowing Base Certificate most recently
furnished to Lender as required in Section 14.14, whichever is
less; plus
3.1.4.3 50% of the net book value of Borrower's equipment in
which Lender has a first priority Security Interest; plus
3.1.4.4. 75% of the net book value of Borrower's owned real
property (excluding its owned real property in Joplin,
Missouri); plus
3.1.4.5. $910,000 (which equals 70% of the current appraised
value of Borrower's owned real property in Joplin, Missouri).
For purposes of calculating the Borrowing Base: (i) all Inventory of
Borrower shall be valued at the lower of cost or market on a
first-in-first-out basis; (ii) raw materials and work-in-process shall
be deemed to be equal to total Eligible Inventory less unapplied
progress payments and inventory reserves as regularly maintained by
Borrower; and (iii) finished goods shall be deemed to be equal to the
estimated cost of Borrower's unbilled jobs."
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents and
warrants to Bank as of the date hereof that (i) this Amendment has been duly
authorized by Borrower's Board of Directors, (ii) no consents are necessary from
any third parties for Borrower's execution, delivery or performance of this
Amendment, (iii) this Amendment constitutes the legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its terms
except as the enforcement thereof may be limited by bankruptcy, insolvency or
other laws related to creditors rights generally or by the application of equity
principles, (iv) the representations and warranties in the Loan Agreement are
true and correct and have been true and correct at all times since the Effective
Date, except as described in Exhibit A hereto, and (v) there exists no Default
or Event of Default under the Loan Agreement, as amended by this Amendment.
6. EFFECT OF AMENDMENT. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Bank
under the Loan Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement, any of the other Loan Documents
or any existing Default or Event of Default, nor act as a release or
subordination of the security interests of Bank under the Security Documents.
Each reference in the Loan Agreement to "the Agreement", "hereunder", "hereof",
"herein", or words of like import, shall be read as referring to the Loan
Agreement as amended by this Amendment.
7. REAFFIRMATION. Borrower hereby acknowledges and confirms that (i) except as
expressly amended hereby the Loan Agreement remains in full force and effect,
(ii) the Loan Agreement, as amended hereby, is in full force and effect, (iii)
Borrower has no defenses to its obligations under the Loan Agreement and the
other Loan Documents, and (iv) Borrower has no claim against Bank arising from
or in connection with the Loan Agreement or the other Loan Documents.
2
<PAGE> 3
8. GOVERNING LAW. This Amendment has been executed and delivered in St. Louis,
Missouri, and shall be governed by and construed under the laws of the State of
Missouri without giving effect to choice or conflicts of law principles
thereunder.
9. SECTION TITLES. The section titles in this Amendment are for convenience of
reference only and shall not be construed so as to modify any provisions of this
Amendment.
10. COUNTERPARTS; FACSIMILE TRANSMISSIONS. This Amendment may be executed in one
or more counterparts and on separate counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument. Signatures to this Amendment may be given by facsimile or other
electronic transmission, and such signatures shall be fully binding on the party
sending the same.
11. NOTICE ADDRESSES. The addresses of Bank and Borrower on the signature page
hereof hereby replace the addresses for notices to Bank and Borrower,
respectively, as referred to Section 19.1 of the Loan Agreement and listed on
the signature page thereof.
12. INCORPORATION BY REFERENCE. Bank and Borrower hereby agree that all of the
terms of the Loan Documents are incorporated in and made a part of this
Amendment by this reference.
13. STATUTORY NOTICE. The following notice is given pursuant to Section 432.045
of the Missouri Revised Statutes; nothing contained in such notice will be
deemed to limit or modify the terms of the Loan Documents or this Amendment:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITOR) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
BORROWER AND BANK HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT AGREEMENT
BETWEEN BORROWER AND BANK WITH RESPECT TO THE SUBJECT MATTER OF THIS AMENDMENT.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by appropriate duly authorized officers as of the date first above
written.
LABARGE/STC, INC. LABARGE WIRELESS, INC.
By its President By its President
/s/ Craig E. LaBarge /s/ Craig E. LaBarge
- ---------------------------- ----------------------------
Print Name: Craig E. LaBarge Print Name: Craig E. LaBarge
Notice Address: Notice Address:
C/O LaBarge, Inc. C/O LaBarge, Inc.
9900A Clayton Road 9900A Clayton Road
St. Louis, MO 63124 St. Louis, MO 63124
Attn: William J. Maender Attn: William J. Maender
FAX # 812-9438 FAX # 812-9438
TEL # 997-0800 TEL # 997-0800
LABARGE, INC. LABARGE OCS, INC.
by its President by its President
/s/ Craig E. LaBarge /s/ Craig E. LaBarge
- ---------------------------- ----------------------------
Print Name: Craig E. LaBarge Print Name: Craig E. LaBarge
Notice Address: Notice Address:
LaBarge, Inc. C/O LaBarge, Inc.
9900A Clayton Road 9900A Clayton Road
St. Louis, MO 63124 St. Louis, MO 63124
Attn: William J. Maender Attn: William J. Maender
FAX # 812-9438 FAX # 812-9438
TEL # 997-0800 TEL # 997-0800
BANK OF AMERICA, N.A.
By its Assistant Vice President
- ----------------------------
Peter J. Adams II
Notice Address:
800 Market Street
St. Louis, MO 63101
Attn: Peter J. Adams II
M01-800-12-01
FAX # 466-7783
TEL # 466-6061
4
<PAGE> 5
EXHIBIT A
Additions to the Disclosure Schedule in the Loan Agreement
None if nothing listed.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-02-2000
<PERIOD-END> JAN-02-2000
<CASH> 1,743
<SECURITIES> 0
<RECEIVABLES> 10,555
<ALLOWANCES> 162
<INVENTORY> 17,918
<CURRENT-ASSETS> 31,750
<PP&E> 12,995
<DEPRECIATION> 12,573
<TOTAL-ASSETS> 60,872
<CURRENT-LIABILITIES> 20,330
<BONDS> 0
0
0
<COMMON> 158
<OTHER-SE> 23,216
<TOTAL-LIABILITY-AND-EQUITY> 60,872
<SALES> 37,730
<TOTAL-REVENUES> 37,730
<CGS> 31,153
<TOTAL-COSTS> 38,852
<OTHER-EXPENSES> 969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 980
<INCOME-PRETAX> (1,122)
<INCOME-TAX> (449)
<INCOME-CONTINUING> (673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (673)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
