<PAGE>
F O R M 1 0 - K
S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission File Number: 0-15240
L O W R A N C E E L E C T R O N I C S, I N C.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 44-0624411
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
12000 East Skelly Drive
Tulsa, Oklahoma 74128
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 437-6881
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par
value $.10 per share
--------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K for any amendment to
this Form 10-K. [X]
Aggregate Market Value of the Voting Stock Held By
Non-Affiliates on October 22, 1996 - $5,585,142
Number of Shares of Common Stock
Outstanding on October 22, 1996 - 3,352,458
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held
December 10, 1996 - Part III
<PAGE>
FORM 10-K
Annual Report for Fiscal Year Ended July 31, 1996
LOWRANCE ELECTRONICS, INC.
<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
PART I
<S> <C> <C>
Item 1. Business................................................ 1
Item 2. Properties.............................................. 11
Item 3. Legal Proceedings....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 13
Item 6. Selected Financial Data................................. 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 15
Item 8. Financial Statements and Supplementary Data............. 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant...... 23
Item 11. Executive Compensation.................................. 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 23
Item 13. Certain Relationships and Related Transactions.......... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K..................................... 24
and F-1 to F-17
Signatures.......................................................... 28
</TABLE>
<PAGE>
LOWRANCE ELECTRONICS, INC.
Annual Report
For the Year Ended July 31, 1996
PART I
Item 1. Business
------- --------
General
-------
The Company designs, manufactures, and markets sonars (also known as depth
sounders) and accessories for use in recreational and commercial boating. The
Company's sonars are principally used by sports fishermen for detecting the
presence of fish and by sports fishermen and boaters as navigational and
safety devices for determining bottom depth in lakes, rivers, and coastal
waters. The Company also designs, manufactures, and markets Global Positioning
System (GPS) navigational receivers that may be attached to and used with
certain of the Company's liquid crystal display (LCD) sonars or to provide
stand-alone navigational information. The GPS navigational receivers can be
used in a variety of marine and non-marine applications, such as aviation,
hunting, hiking, and backpacking. The sonars and GPS navigational receivers
are marketed under the Company's three trade names, "Lowrance" "Eagle", and
"Sea", primarily through wholesalers, original equipment manufacturers (OEMs),
mail-order catalogs, mass merchandisers, and other retail outlets in all fifty
states and to a lesser and limited extent in fifty-five foreign countries.
The Company was formed in 1957, incorporated in 1958, and re-organized as
a Delaware corporation in 1986. As used herein, the term "Company" refers to
Lowrance Electronics, Inc., (including its subsidiaries) and its predecessors,
unless the context indicates otherwise.
The Company's principal executive offices are located at 12000 East Skelly
Drive, Tulsa, Oklahoma, 74128, and its telephone number is (918) 437-6881.
Products
--------
The Company's products consist of sonars and related equipment, such as
water temperature gauges, and Global Positioning System (GPS) navigational
products.
Sonars
------
Each sonar consists of a transmitter, receiver, display, and
transducer. The transmitter, receiver, and display are normally combined
in one housing connected by a cable to the transducer. The housing
containing the transmitter, receiver, and display is normally mounted
where it may be viewed by the boat operator, and the transducer is mounted
under or in the hull of a boat. The transmitter takes electrical energy
and sends it through the cable to the transducer, which converts the
electrical energy to sound pulses. These sound pulses travel through the
water until they hit the bottom or an object such as fish or a shipwreck
and then bounce back as an echo. The transducer converts the echoes back
to electrical impulses which are sent to the receiver. The receiver
processes the impulses and transmits the information to the display for
use by the boater.
1
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The Company's sonars are either waterproof or weatherproof and are
designed to withstand the harsh environments and shocks encountered by
sport boats. Sport boats, unlike offshore commercial boats, are usually
open and subject to shock, rain, salt spray, and temperature extremes that
constantly test the durability of the sonar. The Company's sonars are also
designed for the needs of sport fishermen who, unlike their commercial
counterparts, are sometimes more interested in the size, depth, and
location of individual fish, depth of the thermocline, and underwater
structures, rather than the location of large schools of fish. The
Company's sonars are designed for and used by both fresh and saltwater
sports fishermen and boaters. The Company's sonars feature a variety of
transducers manufactured by the Company in different sizes and shapes to
fit all types of boats and with different frequencies and angles for both
deep and shallow water use. The Company's sonars are distinguished by the
type of display--graphic liquid crystal displays (LCDs) and flashers and
digital LCDs (other sonars).
Graphic Liquid Crystal Display (LCD) Sonars. The Company's LCD
-------------------------------------------
products are easier to use, provide more advanced capabilities, and
incorporate advanced signal processing, which allows automatic
operation of LCD sonars in a way that sets the controls for best
performance whether at trolling or high speeds. The Company markets
twenty-six LCD sonar models. All of the models utilize advanced
computer technology and are keyboard controlled. The Company's LCD
models graphically display the depth of the water, bottom contour,
fish, and other underwater objects on a LCD and digitally display the
water depth. Twelve models can also digitally display the surface
temperature of the water, boat speed, and distance traveled. LCD
sonars are easier to read and interpret than the Company's flasher
sonars. Because LCD sonars have no moving parts, they are more durable
than other sonars. The more advanced models usually retail from $350
to $550. The other LCD models, with fewer features, usually retail
from $99 to $300. The Company's various LCD models range in maximum
depth capabilities from 350 feet to 2,500 feet.
Other Sonars. The Company's others sonars include flasher displays
------------
and digital displays. Flasher models were the first type of sonar
products designed and manufactured by the Company. The display
consists of a neon bulb affixed to a spinning disk. The bulb lights
when it receives a sonar signal, flashing next to the appropriate
depth mark on a calibrated circular dial. Digital sonars are marketed
and used solely to determine water depth which is digitally depicted
on a LCD. The flasher and digital sonars have varying depth
capabilities ranging from 60 feet for flashers to 1,000 feet for
digital sonars and range in retail price from $140 to $300.
2
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Global Positioning System (GPS).
-------------------------------
The Global Positioning System offers worldwide navigational
information for users via a constellation of twenty-four satellites. The
system offers precise global navigation for land, sea, and air applications
providing constant updates of an individual's or object's position in
latitude, longitude, and altitude. Additionally, GPS measures speed and
direction of travel. The Company's GPS navigational modules may be attached
to and used with one of the Company's LCD sonars and one LCD mapping model.
The combination sonar/GPS models (module included) usually retail from $800
to $1000, and the stand-alone, gimbal-mounted GPS mapping model (module
included) retails for about $1,000.
The Company's gimbal mount Global Map 2000 product utilizes input from
either a GPS or Loran module to display the user's position on a pictorial
background map in addition to providing the navigational information and
course plotter available in all Lowrance and Eagle GPS products. Further,
the user, at their option, can purchase mapping cartridges which contain
over 7,000 highly detailed nautical charts. The Global Map 2000 began
shipping in the first quarter of fiscal 1996 and retails for approximately
$1,000 including the GPS module and cartridge reader. This unit is also
sonar capable with the purchase of a sonar access module.
In addition to the Company's gimbal-mounted GPS products, it offers an
expanding range of portable, hand-held GPS navigation receivers. The first
such product, the Eagle AccuNav Sport, began shipping in fiscal 1994,
followed by the Lowrance GlobalNav Sport in fiscal 1995. These products are
battery-powered and feature a high resolution LCD screen with full graphics
capabilities which will display navigational information and course
plotting. During fiscal 1996 the Company began shipping its first hand-held
GPS mapping receiver, the Lowrance GlobalMap Sport, with capabilities
similar to that of the Global Map 2000. These products can be used in both
marine and non-marine applications and retail from approximately $349 to
$649. Also during fiscal 1996 the Company manufactured and sold its first
portable GPS receivers specifically designed for use by commercial and
private pilots. The Lowrance AirMap GPS offers exceptionally detailed
navigation displays including an HSI-style screen, and a detailed database
of all North and South American airports including runway diagrams,
restricted air spaces, tower and communication frequencies, and aviation
services available. The unit's free built-in background map shows U.S.
cities, towns, state and federal highways, all permanent streams and
rivers, and lakes and ponds down to as little as a few acres. The unit can
also utilize the Company's IMS SmartMap detailed mapping cartridges as well
as marine mapping databases. The AirMap retails for approximately $900.
Accessories
-----------
The Company also has a line of accessories consisting of water
temperature gauges, cables, portable power packs, and various mounting
brackets, which are used primarily in conjunction with the Company's
sonars and GPS products.
3
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Product Sales
-------------
The following table sets forth the percentage of total sales of LCD and
other sonars and accessories, including GPS navigational products, sold by the
Company in the past three fiscal years.
<TABLE>
<CAPTION>
Percent of Total Product Sales
------------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Type of Sonar Displays -
Liquid Crystal Graph (LCDs), including
combination navigation units 69.1% 68.9% 62.8%
Other sonars 5.1 4.6 4.0
GPS, including stand-alone units
and modules 13.8 16.3 23.7
Accessories 12.0 10.2 9.5
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Distribution
------------
The Company markets its products under three trade names, "Lowrance",
"Eagle", and "Sea". Sales of the Lowrance and Eagle brand products account for
over 99% of total sales. Sales of Eagle Products, as a percentage of total
sales were approximately 63% in 1994, 58% in 1995 and 50% in 1996.
The Lowrance line in both sonar and GPS, with its selection of eighteen
interchangeable transducers and its more complicated keyboard, is intended for
the more sophisticated user. The wide choice of transducers available with the
Lowrance sonars allows for greater installation and operating flexibility
through selection of a transducer of the appropriate size, shape, and
frequency to meet the boater's specific needs. As a result of recent
developments in transducer design, the Company packages its Lowrance sonar
models with a high-performance transducer suitable for use on nearly all types
of boat hulls. Lowrance customers can exchange this transducer for credit
toward one which better meets their specialized requirement for installation
or operation. Generally, the boater will require special assistance with the
installation and operation of a Lowrance sonar. To this end, the Company sells
its Lowrance line primarily to boat manufacturers, wholesalers, and retailers
that the Company believes have basic knowledge of the installation, use, and
service of the Lowrance line and can pass on such knowledge to customers.
Wholesalers and retailers purchasing products in the Lowrance line are parties
to agreements with the Company providing for non-exclusive authorized
dealerships and distributorships for a term of one year. As of July 31, 1996,
the Company had approximately two thousand two hundred forty wholesalers and
retailers that were parties to such agreements. A sonar installation subsidy
is offered to authorized dealers that sell and install Lowrance products as a
means of sharing the costs of the installation. The Company believes that,
over the past three years, the Lowrance line has been sold primarily through
dealers having the requisite level of knowledge to sell, install, and properly
instruct the fisherman and boat owner as to the product's use. Terms of
payment for products in the Lowrance line vary based on the time of the season
with the longest dating terms of 120 days being offered for shipments during
the first quarter of the fiscal year.
4
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The Eagle line is sold primarily to mass merchandisers, mail-order catalog
companies, retail sporting goods stores, and wholesalers that usually do not
provide technical assistance to the consumer regarding the installation and
operation of sonars and GPS. Recognizing that special assistance will not be
available as to the selection of an appropriate transducer or the operation of
an Eagle sonar or GPS, the Company prepackages each Eagle sonar with a
universal transducer designed to work adequately on most boats and has
simplified the sonar's operating requirements. The Eagle sonars do not have
all of the installation and operating flexibility of the Lowrance sonars but
are less expensive to the consumer. Terms of payment for products in the Eagle
line are generally thirty days. However, dating terms similar to those for the
Lowrance line are also offered.
Beginning in fiscal 1995, the Company began marketing a third brand of
sonar and GPS navigational products, "Sea". These products are marketed
through select coastal dealers and sales of Sea products did not materially
contribute to fiscal 1996 sales.
The Company's products are sold in all fifty states and fifty-five
countries internationally. The Company's international sales totaled
$17,000,000 in fiscal 1994, $21,000,000 in fiscal 1995, and $20,000,000 in
fiscal 1996, representing approximately , 21%, 23%, and 21% of total net sales
in each respective fiscal year. See Note 9 to the consolidated financial
statements. The two largest international markets for the Company's products
are Canada and Australia, where the Company maintains its own distribution
warehouses for sales and distribution of its products. Sales in neither of
these two countries represented 10% or more of the Company's total annual
sales for the latest three fiscal years.
LEI Extras, Inc., a wholly-owned subsidiary, allows consumers to purchase
by mail-order extended warranties for their sonar units and accessories that
otherwise would be difficult to obtain. Because LEI Extras, Inc., is not
intended to directly compete with retail outlets that carry the Company's
products, the Company does not expect revenues from its mail-order operations
to be significant.
Sales to Wal-Mart Stores, Inc., accounted for 14% of the Company's net
sales in each of fiscal years 1994, 1995, and 1996. The top ten customers,
including Wal-Mart Stores, Inc., accounted for approximately 37%, 35%, and 34%
in 1994, 1995 and 1996, respectively, of the Company's net sales.
Inventories and Backlog
-----------------------
The Company normally manufactures its products in anticipation of, and not
in response to, customer orders and fills orders within a short period of time
after receipt. Thus, the Company must maintain significant inventories of
finished goods to permit it to fill orders promptly after receipt. The
Company's receipt of orders generally peaks upon the introduction of a new
product and during the peak sales months of January, February, March, and
April. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".
As of October 22, 1996, the Company's backlog of orders exceeded $10
million, including orders for new products which represented 50% of the
backlog. The backlog one year ago at this time was $10.7 million. Backlog is
not necessarily comparable from year to year because of the significant impact
on backlog resulting from the timing and pent-up demand for the introduction
of the Company's new products each year. While the Company believes that the
present backlog of orders is firm, the orders for its products are subject to
5
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cancellation without further obligation by the customer at any time prior to
shipment.
Advertising and Promotion
-------------------------
To support the sales of its products to wholesalers, mass merchandisers,
mail-order catalog companies, and others, the Company actively promotes and
advertises its products to fishermen, boat owners, and increasingly to other
outdoor enthusiasts. The highly-technical nature of the Company's products
makes education of the user an important aspect of the Company's promotional
activities. Through educating and familiarizing the user with the practical
benefits and use of sonar and GPS products, the Company endeavors to create
demand for its products.
To satisfy this need, the Company utilizes a sales force of twenty-eight
full-time employees to promote its products worldwide. The sales force
replaces the more traditional manufacturer's representative who may represent
more than one brand or product. The sales personnel employed by the Company
have the knowledge and time necessary to educate wholesalers, dealers,
fishermen, and boat owners on sonar products and demonstrate the practical
benefits of sonar. The sales personnel train wholesalers and dealers to sell
the Company's products, give demonstrations at tackle and boat shows, and
participate in store promotions, seminars, and talks.
To supplement the sales force, the Company has a part-time independent
sales group known as the "pro-staff". The pro-staff consists of approximately
two hundred and fifty fishing professionals, tournament fishermen, and serious
amateur fishermen trained and equipped by the Company to promote the Company's
products at fishing tournaments, store promotions, club talks, seminars, and
tackle and boat shows.
The Company also advertises its products in newspapers, magazines, and on
television. In addition, the Company has a video department which produces
and distributes video catalogs and buyer guides, specific instructional tapes,
and sonar educational materials. Within such advertising expenditures are
separate advertising programs designed specifically for the Lowrance line and
the Eagle line.
Public relations activities include a variety of press releases covering
new products and feature stories highlighting use of sonar and navigational
products; press trips, where products are demonstrated to members of the
outdoor media; distribution of product photos and other technical support for
writers and broadcasters.
In addition to advertising expenses and public relations activities, the
Company incurs promotional expenses which include sponsorship of fishing
tournaments, store promotions, and contributions to environmental groups. In
fiscal 1992, the Company became an official sponsor of the Bass Angler's
Sportsman Society's (B.A.S.S.) professional tournament trail, replacing
Techsonic Industries, Inc. The Company continues to be the official sponsor
of B.A.S.S. which is the nation's largest sportsman's organization with more
than 550,000 active members. In addition to conducting the country's largest
and best-known tournament trail, B.A.S.S. publishes four major national
magazines and has more than 2,200 affiliated clubs through which the Company
can strategically market its sonar and navigational products. Dealer and
distributor support includes the availability of point-of-purchase displays,
posters, videos, and product simulators to assist in displaying the Company's
products.
6
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Competition
-----------
Sonar and Sonar/GPS Combination Units-
-------------------------------------
The Company encounters intense competition for its products from a number
of domestic and foreign manufacturers. More than 300 brands of sonars have
been offered to the consumer since the Company's formation in 1957.
Presently, there are more than twenty-five competitors worldwide.
Historically, the sonar market, as it relates to sonars marketed primarily to
sports fishermen and recreational boat owners, has been dominated by the
Company and Techsonic Industries, Inc. According to independent marketing
research commissioned by the Company and issued in September 1996, the Company
together with this competitor currently account for approximately 80% of sonar
sales within this market segment in the United States. In this 1996 study,
the Company's total market share (Eagle and Lowrance brands combined) was
found to be higher than that of Techsonic. The Company believes that the
study results reflect current market conditions.
Competition in the sports fishing and boating market for the Company's
products is based upon a number of factors, including quality, technological
development, performance, service, and price. The primary basis for
competition is technological innovation and price. In order to maintain its
competitive position, the Company must continually enhance and improve its
products and anticipate rapid, major technological innovations and changes
within the industry. Further, the Company believes that the sonar market in
the United States and Canada is mature, with no significant influx of new
participants to either boating or fishing in recent years. Accordingly, the
Company's primary opportunity for sales growth in these markets is to take
market share from its competitors. The Company continues to identify and
pursue significant new market opportunities for its sonar products
internationally.
Hand-held GPS Units -
---------------------
The hand-held GPS market has expanded rapidly in the past two years.
Target markets for these products include but are not limited to boating,
sport fishing, hunting, hiking, off-road vehicles, and aviation. The market
for hand-held GPS products is growing rapidly and is expected to surpass the
size of the market for sonar products during 1997. The Company believes that
it has captured less than 10% of this market to date, although it has recently
introduced two new GPS product designs which began shipping during the first
quarter of fiscal 1997 at highly competitive low-end prices. The Company's
ability to capitalize on the rapid growth of recreational GPS products should
be dramatically improved with these two new price-competitive products. Long
term growth in the Company's GPS market share will require continued
development of advanced GPS technologies which can be quickly brought to
market at competitive prices.
Two competing GPS companies currently dominate this market and the Company
believes these two competitors combined control in excess of 70% of the hand-
held GPS market. The primary reason for their success to date is that both
companies have introduced and marketed products retailing for under $200. It
is the Company's belief that these low-cost products are being produced
outside of the United States to take advantage of lower labor costs. Both
companies offer a range of higher priced products with more features including
products specifically aimed at the avionics market. One of these competitors
recently introduced a combined GPS and sonar model, its first and to date only
sonar product. The Company does not believe that this model will have a
significant impact on its own extensive lines of sonar products during fiscal
1997.
7
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Currently, the Company offers three Eagle and four Lowrance hand-held
products, which retail at prices between $199 and $899. The Lowrance
GlobalMap Sport began shipping in March 1996. This hand-held product combines
the features found in the GlobalNav Sport with mapping capabilities similar to
the GlobalMap 2000 and retails for under $700. The Eagle AccuMap Sport began
shipping in June and retails for approximately $600. There are currently no
other products on the market with these features at or below these price
points, although one major manufacturer has announced plans to sell a product
it claims has similar capabilities. The Company will begin shipping its new
Eagle Explorer handheld GPS during the first quarter of fiscal 1997. This
product features a 12 parallel-channel receiver, high-resolution display,
internal battery back-up of stored information and a unique rechargeable
battery option for a retail price of approximately $199.
The Company has attempted to differentiate its products through quality,
technological development, performance, price, and service. The Company
believes its products offer a competitive advantage due to quality,
technological advancement, and the wide range of features. This advantage
results from the Company's long history of product innovation, such as
Advanced Signal Processing (ASP), fully waterproof sonar/Loran-C and sonar/GPS
combination units, Grayline, interchangeable high-performance transducers and
dual-frequency capability, and innovative features such as optional Broadview
sonars, split screen sonar/navigational displays, mapping capabilities and
programmable "windows".
The Company has been an industry leader in offering advanced performance
products at strategically acceptable price points. Further, the Company
believes that its service programs, designed to rapidly respond to the
customers' needs, along with the extended warranty programs covering the
Lowrance, Eagle and Sea product lines, are the most comprehensive services
available to the customer in the industry.
Product Research and Development
--------------------------------
The Company's operations and competitive position are dependent to a large
extent upon its ability to anticipate and react to the technological
innovations inherent in its industry. The Company has been engaged in the
development of sonars and the refinement of its existing sonar models since
its formation in 1957. See "Patents and Trademarks" below. In 1957, the
Company invented and marketed a portable sonar capable of locating individual
fish and their depths. Among other significant sonar advancements, the
Company developed and patented an effective interface suppression system and
interchangeable high speed transducers which permit operation of sonar at boat
speeds of up to 70 miles per hour. The Company also introduced in 1979 a
computer-controlled sonar with microprocessor chip and software allowing high
speed boating with accurate depth readings and no false signals. In 1987, the
Company introduced the industry's first high resolution and "Supertwist" high
visibility liquid crystal displays. In 1989, the Company introduced the first
fully waterproof sonar/navigation combination units featuring Loran-C
circuitry and software contained solely in the antenna coupler module.
Advanced Signal Processing (ASP), a breakthrough in automatic sonar control
developed in 1990, constantly evaluates the effect of varying water
conditions, boat speeds, and interference sources, adjusting the sonar's many
settings for optimum performance. Based on the Company's belief that the
military's GPS would be the preferred method of navigation in the future, if
it became affordable, the Company introduced six marine GPS products in 1992
with most at breakthrough price points. The SupraPro ID, a new sonar model
for 1994 which retails for under $100, provided users with four times the
resolution of its nearest competitive model. Another new 1994 model, the
Global Map 1000, represented the first fully waterproof mapping unit with a
built-in mapping database and the capability of using highly-popular detailed
8
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mapping cartridges. The AccuNav Sport hand-held GPS product, which retails
for under $400, revolutionized the GPS market in 1994 by offering users all
the highly-detailed chart plotting features previously available only on
larger and more costly gimbal-mounted GPS products at less than half the
price. In 1995, the Company introduced its latest generation of "3D" sonar
products, the ULTRA III 3D and the X-70A 3D which provide expansive underwater
coverage and innovative "3D" images of bottom contours in addition to
traditional detailed "2D" views. Six new 1995 products offered the Company's
new "Broadview" technology. By purchasing a "Broadview" accessory transducer
(which can be installed on the transom or on a trolling motor), users can
expand their sonar coverage to search out -- left or right -- to detect fish
and cover down and outward from the boat. In 1996 the Company introduced and
delivered its first handheld GPS mapping products. In fiscal 1997, the
Company is introducing six new sonar products with unprecedented display
screen resolution, newly designed cases and keypads and improved operating
systems at breakthrough retail price points. Additionally, the Company will
deliver four new GPS products, two handheld receivers and two gimbal-mount
products, each utilizing new 12 parallel-channel receiver technology at price
points below $250 and $350 respectively.
Research and development expenditures of the Company were $2,574,000 in
fiscal 1994, $2,868,000 in fiscal 1995, and $3,439,000 in fiscal 1996. The
Company plans additional development of its LCD sonars to increase performance
and versatility and is conducting research and development into other marine
electronic equipment utilizing technology with which it is familiar. Also,
the Company intends to develop additional GPS products for use in marine and
non-marine applications.
To augment its continued investment in product research and development,
the Company has invested in several new manufacturing and design technologies:
Surface Mount Technology (SMT) production equipment, Computer Aided Design
(CAD) systems, Application Specific Integrated Circuits (ASICS), Tape
Automated Bonding (TAB), Tab-On-Glass (TOG), and Liquid Crystal Display (LCD)
assembly. These advanced technologies, which were essential to the
development of the Company's new sonar and GPS products, have allowed the
Company to reduce its material and manufacturing costs and to provide even
greater product performance.
Manufacturing and Suppliers
---------------------------
Through fiscal 1993, the Company manufactured substantially all of its
products at its plant in Tulsa, Oklahoma. In fiscal 1994, the Company began
manufacturing most of its high volume transducer and cable assemblies in a
25,000 square foot leased manufacturing facility in Ensenada, Mexico, with the
finished assemblies shipped to Tulsa for final inspection, packaging, and
shipping. During fiscal 1997, the Company will expand its production
operation in Mexico by consolidating its existing manufacturing operations in
Ensenada, Mexico into a newly constructed 88,000 square foot leased facility
in Ensenada which has been constructed to allow expansion to 108,000 square
feet as the Company requires more operating space. Currently, the Company
will utilize 70,000 square feet for manufacturing including a 26,000 square
foot clean room of the 88,000 square feet presently occupied by the Company.
The Company will combine its existing Mexico production with expanded Sonar
and GPS manufacturing operations in this new facility. The Company will also
continue to manufacture product in its existing facility in Tulsa, Oklahoma.
The manufacturing process primarily involves the assembly of component parts
purchased from suppliers. Quality control and functional testing, including
component testing, sub-assembly testing, and final testing of finished
products, are an integral part of the Company's manufacturing process. The
Company's Tulsa manufacturing facilities and its expanded Mexico operation,
9
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are sufficient to allow increased production without substantial capital
investments.
Certain component parts of the Company's products are technologically
advanced and/or specifically designed for the Company's use, and thus are
presently available only through single-source suppliers, some of which are
located in foreign countries. Certain other component parts are available
from a number of suppliers, but the Company largely relies on single-source
suppliers for these parts. Purchasing from a single source in these instances
allows the Company to have more consistent quality in the component parts and
to receive quantity discounts and permits the Company to establish long-
standing relationships with its suppliers. The Company believes long-standing
relationships lead to better performance by the Company's suppliers by
shortening delivery time, improving quality, and fostering a better
understanding of and adaptation to the nature of the Company's needs and the
suppliers' capabilities.
With respect to plastic component parts, such as housings for sonars, the
Company, because of the expense, generally maintains only one mold for each
plastic part. Although typically the Company owns each mold and could move it
to another supplier, the Company is limited to one supplier at a time.
The Company has never experienced a substantial interruption in product
shipment resulting in the loss of any material amount of sales due to
unavailability of or delay in receiving component parts. However, if for any
reason (such as a protracted strike, war, fire, explosion, or wind damage
affecting production at the supplier's manufacturing plant or import
restrictions or a damaged or destroyed mold or a supplier being unable to
obtain certain raw materials necessary to produce component parts), certain
critical component parts were to become unavailable or the shipment of such
parts were to be substantially delayed, such unavailability or delay could
materially and adversely affect the Company's ability to produce its products
on a timely basis until an alternative source of supply or a replacement mold
could be made available. This could adversely affect the Company's results of
operations. The use of alternate components may, in some cases, require the
Company to redesign other components or its sub-assemblies and the Company
could experience manufacturing delays. The extent of the impact upon the
Company's sales and earnings would depend upon the products affected and the
time of year of the interruption.
To protect against interruptions and loss of sales, the Company maintains
a limited amount of safety inventory of component parts and some insurance
coverage against loss of supply. The Company limits the amount of safety
stock to avoid the cost of carrying raw material inventory and problems
associated with obsolescence. To further protect against interruptions, the
Company is selective of its suppliers, and with limited exceptions, relies
upon those who are substantial in size, financial strength, background, and
experience.
Product Warranty and Support Services
-------------------------------------
Substantially all of the Company's products are sold with a full one-year
warranty. The Company offers the consumer the right to extend the warranty
for an additional two years on sonar products by purchasing an extended
warranty package. Warranty expenses have averaged approximately 2.0% of sales
during the last three fiscal years. The Company emphasizes service after the
sale in connection with its products by providing a prepaid, pre-addressed
shipping label packed with each unit for use by the consumer located in the
United States electing to return the unit to the Company for warranty or non-
warranty repairs. The Company guarantees a three-day in-house turnaround on
units sent in for repair. Warranty and non-warranty repairs are available
10
<PAGE>
from the Company's plant in Tulsa, Oklahoma, and from ten "depo" centers
throughout the United States and from dealers and distributors in forty-one
foreign countries.
Patents and Trademarks
----------------------
Since 1970, the Company has obtained thirty-five patents expiring at
various dates from 1987 through 2015. Since 1970, eleven design patents have
also been issued. See "Product Research and Development" above. All of the
Company's patents have been assigned to secure the Company's accounts
receivable and inventory line of credit financing. The Company does not
expect that the expiration of patents will have an adverse impact on the
Company's operations.
Notwithstanding the number of patents it has obtained, the Company
believes that its technical and proprietary expertise and continuation of
technological advances are more important factors to the protection of its
ongoing proprietary interests and markets than its patents. However, the
Company will under certain limited circumstances continue to file patent
applications to insure its products remain protected from attack from
competitors.
The Company has registered thirty-one trademarks with the United States
Patent Office including the trademark, "Lowrance" and the trademark "Eagle",
with an accompanying logo and has additional trademark applications filed.
Employees
---------
As of July 31, 1996, the Company employed 970 persons on a full-time basis
of whom approximately 753 were involved in manufacturing and materials. Of
the 753 full time employees involved in manufacturing and materials, 530
employees are located in the Company's headquarters in Tulsa, Oklahoma and 223
are located in the Company's leased manufacturing facility in Ensenada,
Mexico. The remaining 217 employees were engaged in research and development,
sales and marketing, and administration. During the year, the Company
utilizes temporary workers to allow it to adjust its workforce as its
production needs change. At July 31, 1996, approximately 237 of such workers
were engaged by the Company which are included in the above amounts.
Additionally, the Company retains, on a part-time basis, over 250 independent
contractors, the "pro-staff", that assist in promoting its products.
The Company has never experienced a work stoppage, and none of its
employees are represented by a union. Management considers its employee
relations to be excellent.
Item 2. Properties
------- ----------
The Company maintains its offices and manufacturing and warehouse
facilities at 12000 East Skelly Drive, Tulsa, Oklahoma, 74128. The Company's
Tulsa facilities are located on approximately 23 acres of land and consist
primarily of a masonry building containing approximately 116,000 square feet
of floor space, of which 52,000 square feet are used for manufacturing
operations, 19,000 square feet for warehousing, and 45,000 square feet for
office and laboratory space.
The Company, through its Mexican subsidiary, leases a manufacturing
facility in Ensenada, Mexico. The facility has approximately 25,000 square
feet, and the Company uses this facility to manufacture most of its high
volume transducer and cable assemblies. In fiscal 1997, the Company has
expanded its Ensenada, Mexico operations by leasing a new 88,000 square foot
11
<PAGE>
manufacturing facility which has been constructed to permit the Company to
expand into the built out, but unfinished 20,000 square foot, second floor
affording the Company 108,000 square feet. The Company presently is using
70,000 square feet for manufacturing including a 26,000 square foot clean room
of the 88,000 square feet occupied by the Company. The existing facility will
be eliminated during 1997 and the Company will combine the transducer and
cable assembly operations with Sonar and GPS assembly operations.
The Company also leases a 79,000 square foot facility for warehousing and
shipping in Tulsa, Oklahoma and 2,500 square feet and 3,500 square feet of
warehousing, shipping and office space in Australia and Canada, respectively.
The Company believes that its facilities and equipment are well suited to
its needs and are properly maintained. The Company's current manufacturing
facilities, including the expanded Mexico facility are sufficient to allow for
increased production without significant capital investment. The facilities
and equipment are believed to be operating in substantial compliance with all
current regulations. All the facilities and equipment are, in the opinion of
the Company, adequately insured.
Item 3. Legal Proceedings
------- -----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
------- ---------------------------------------------------------------------
As of October 22, 1996, the Company had more than 400 actual holders of
its Common Stock. The Company has not paid cash dividends for over twenty
years. The Company's inventory and accounts receivable line of credit
agreement prohibits the payment of dividends without the prior written consent
of the lender. The Company anticipates that for the foreseeable future its
earnings will be retained for use in its business and no cash dividends will
be paid on the Common Stock. Declaration of dividends in the future will
remain within the discretion of the Company's Board of Directors and will
depend upon the Company's growth, profitability, financial condition, and
other relevant factors.
The Company's Common Stock is traded in the over-the-counter market and is
listed with the NASDAQ National Market System under the NASDAQ symbol of
"LEIX". The table below reflects the high and low trade prices for each of
the Company's fiscal quarters for the latest two fiscal years. The trade
prices reflect inter-dealer prices, without retail mark up, mark down, or
commission and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 1996
----------------- ----------------
High Low High Low
$ $ $ $
----------------- ----------------
<S> <C> <C> <C> <C>
1st Quarter 5 3/4 3 1/4 6 1/2 4 1/2
2nd Quarter 6 1/4 3 3/4 5 1/2 3 3/4
3rd Quarter 7 5 1/4 6 1/2 4 3/4
4th Quarter 7 1/4 5 7 1/4 4 3/4
</TABLE>
13
<PAGE>
Item 6. Selected Financial Data
------- -----------------------
The selected financial information shown below has been extracted from the
consolidated financial statements included elsewhere in this report and from
other financial information of the Company not appearing herein. The balance
sheet information is presented as of the end of the fiscal years shown. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere
herein.
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $ 68,373 $ 79,634 $ 81,250 $ 91,116 $ 94,579
Gross profit $ 24,965 $ 28,182 $ 25,330 $ 31,069 $ 31,988
Income (loss) before
income taxes and
extraordinary credit $ 2,697 $ 4,423 $ (1,663) $ 2,061 $ 2,199
Extraordinary credit $ 863 $ - $ - $ - $ -
Net income (loss) $ 2,501 $ 3,000 $ (672) $ 1,422 $ 1,743
Per Share Data:
Weighted average number
of shares outstanding 3,416 3,403 3,350 3,352 3,352
Income (loss) before
extraordinary credit $ .48 $ .88 $ (.20) .42 .52
Extraordinary credit .25 - - - -
-------- -------- -------- -------- --------
Net income (loss) $ .73 $ .88 $ (.20) $ .42 $ .52
Balance Sheet Data:
Working capital $ 8,122 $ 11,090 $ 12,872 $ 14,777 $ 18,509
Total assets $ 24,391 $ 28,376 $ 35,028 $ 40,228 $ 47,108
Long term debt, less
current maturities $ 3,452 $ 5,269 $ 9,379 $ 9,975 $ 13,705
Stockholders' equity $ 10,036 $ 12,630 $ 11,991 $ 13,452 $ 15,196
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
------- ---------------------------------------------------------------
Results of Operations
---------------------
General
-------
The following table sets forth for the periods indicated the relative
percentages that certain items of income and expense bear to net sales:
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------
1994 1995 1996
---------- ---------- --------
(percent of net sales)
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 68.8 65.9 66.2
----- ----- -----
Gross profit 31.2 34.1 33.8
Operating expenses:
Selling and administrative 27.0 24.2 24.6
Research and development 3.2 3.2 3.6
Unusual Item - 1.2 -
----- ----- -----
Operating income 1.0 5.5 5.6
Interest expense (1.5) (1.7) (2.0)
Other, net (1.5) (1.5) (1.3)
----- ----- -----
Income (loss) before income
taxes (2.0) 2.3 2.3
Provision (benefit) for
income taxes (1.2) .7 .5
----- ----- -----
Net income (loss) (.8) 1.6 1.8
===== ===== =====
</TABLE>
Demand for the Company's products is seasonal with approximately 35% to
40% of its sales and a majority of its net income usually occurring in the
third quarter (February, March, and April). During this period, the Company's
customers purchase the Company's products so that the products will be
available to sport fishermen and recreational boat owners for the peak fishing
and boating season. Generally, with the exception of the third quarter,
quarterly results are dependent on the timing and acceptance of new product
introductions, advertising, and product availability, and as such, the Company
does not experience any consistent quarterly trends for those three quarters.
15
<PAGE>
The following table sets forth the quarterly results for the past three
fiscal years:
<TABLE>
<CAPTION>
Years Ended July 31 Sales Net Income (Loss)
- ------------------------------ --------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
1994
----
First Quarter (Aug.-Oct.) $ 12,176 15.0% $ (1,076) (159.1)%
Second Quarter (Nov.-Jan.) 18,583 22.9 (88) (13.1)
Third Quarter (Feb.-Apr.) 31,614 38.9 966 143.8
Fourth Quarter (May-July) 18,877 23.2 (474) (71.6)
------- ----- ------- ------
Total for Year $ 81,250 100.0% $ (672) (100.0)%
======= ===== ======= =====
1995
----
First Quarter (Aug.-Oct.) $ 14,215 15.6% $ (1,203) (84.6)%
Second Quarter (Nov.-Jan.) 25,417 27.9 445 31.3
Third Quarter (Feb.-Apr.) 32,151 35.3 2,181 153.3
Fourth Quarter (May-July) 19,333 21.2 (1) 0.0
------- ----- ------- -----
Total for Year $ 91,116 100.0% $ 1,422 100.0%
======= ===== ======= =====
1996
----
First Quarter (Aug.-Oct.) $ 13,967 14.8% $ (1,175) (67.4)%
Second Quarter (Nov.-Jan.) 20,692 21.9 (380) (21.8)
Third Quarter (Feb.-Apr.) 32,761 34.6 2,237 128.3
Fourth Quarter (May-July) 27,159 28.7 1,061 60.9
------- ----- ------- -----
Total for Year $ 94,579 100.0% $ 1,743 100.0%
======= ===== ======= =====
</TABLE>
Demand for the Company's products is affected by the rapidly changing
technological environment of consumer electronics. If the Company fails to
anticipate technological innovations advanced by its competitors and introduce
technologically competitive products, demand for the Company's products will
diminish. In each of the past three fiscal years, new product sales have
accounted for more than 20% of total sales.
Additionally, sales of the Company's products are affected by adverse
changes in economic conditions, increased oil prices or adverse weather
conditions. The Company believes that the lower-priced and easier to use LCD
sonar products available in recent years attracted an increased number of less
serious fishermen to the marketplace who are more likely to reduce their
purchase of sonar products during adverse economic conditions and /or
prolonged adverse weather conditions. The Company believes that the sonar
market in the United States and Canada is mature, with no significant growth
in boating or fishing participation in recent years. Any opportunity for
growth in these markets will rely on the ability of the Company to increase
its market share. Some market growth for sonar products is anticipated as
related to international markets as the Company continues to focus efforts in
these areas: This, even though international sales for 1996 decreased from
1995 by $1.3 million (6%) caused primarily by weak market conditions in
Canada. The market for GPS products, both Domestic and International, is
expected to continue to expand. The Company's future success in GPS is
heavily dependent upon keeping pace with competitors who are rapidly
introducing new products and new pricing strategies in the increasingly
competitive marketplace. Accordingly, the Company's future sales could be
adversely affected by a reduction in consumer spending, a decline in
recreational boating and sport fishing resulting from significant increases in
oil prices, or new product introductions by competitors.
16
<PAGE>
Sales of sonar products including combination sonar/GPS units were up $6.7
million (11%) from fiscal 1994 to 1995 and decreased approximately $3.8
million (6%) from fiscal 1995 to 1996. Sales of GPS products increased
approximately $3.6 million (32%) from fiscal 1994 to 1995 and increased
approximately $6.9 million (51%) from fiscal 1995 to 1996. A significant
percentage of the increase for GPS in fiscal 1996, related to the shipment,
late in the year, of two portable mapping units, the GlobalMap Sport and the
AirMap. The shipment of these two products had a positive affect on sales and
net income for the fourth quarter of 1996.
The Company's production of its products is scheduled on the basis of
sales forecasts rather than actual orders. Products are designed and
manufactured and parts are ordered in advance of the peak sales period so that
products can be shipped within days of receipt of customers' orders. The
Company's profitability is largely dependent upon its ability to accurately
forecast and plan for market demand for its products in advance of the peak
selling season and to meet the demand of the peak sales months with
technologically acceptable products at acceptable prices.
The Company begins planning for sales during each fiscal year in February
or March of the preceding year. The planning includes the preparation of an
annual sales forecast for the upcoming fiscal year. The forecast is reviewed
by the Company at least monthly, and if necessary, the forecast is revised.
The forecast of products must allow time for ordering raw materials and parts,
which may take as long as five months for delivery following the Company's
order, and for manufacturing so that the Company has a build-up of finished
goods inventory sufficient to meet demand prior to the peak sales months.
Failure by the Company to accurately forecast market trends, introduction of
technological advancements, or the demand for particular models can result in
a build-up of raw material and finished goods inventory that is obsolete or
must be liquidated at reduced prices. The build-up of raw material and
finished goods inventory in anticipation of orders during the peak selling
season, the cash outlays required to purchase tooling to manufacture new
products, together with extended payment terms of up to 120 days offered by
the Company, which historically, results in a significant increase in working
capital requirements from a low in June through August to a high in September
through December. Working capital at July 31, 1996, increased significantly
from previous years. The reasons for which are discussed below under
"Liquidity and Capital Resources."
The Company uses a Material Requirements Planning system to control
inventory by eliminating stockpiling and by utilizing a continuous flow method
of manufacturing. Under the continuous flow method of manufacturing, parts
and supplies are ordered and scheduled for purchase and delivery only at such
time as they are expected to be needed in the manufacturing process. The
Material Requirements Planning also results in a reduction of the Company's
safety stock and a shorter manufacturing cycle.
The following discussion and analysis relate to factors that have affected
the financial condition and operating results of the Company for fiscal years
1994 through 1996. Reference should also be made to the Consolidated
Financial Statements and the notes thereto included elsewhere herein.
17
<PAGE>
Results of Operations
---------------------
Net Sales
---------
Net sales for fiscal 1996 increased 3.8% over fiscal 1995. Unit sales,
which include sonar units, combination sonar/navigation units, and stand-alone
navigation units, decreased 2.7% and the average price per unit increased 10%.
When comparing fiscal 1996 to 1995, unit sales decreased primarily due to
decreased sales of the Company's Eagle Sonar products which are sold primarily
to mass merchandisers, mail order catalog companies, retail sporting goods
store and wholesalers. Management believes that the following factors
contributed to reduced Eagle sonar sales: 1.) lack of sonar market growth in
North America in general, 2.) inventory dollars at retailers, historically
committed to sonar, are being redirected to Global Positioning System (GPS)
products, 3.) an unusually cold winter and cool spring in many of the
Company's key markets in the United States. The target market for Eagle sonar
products is more affected by adverse weather, 4.) a generally weak fishing
tackle market, and 5.) reduced sales to one of the Company's mass merchant
retailers. Additionally, sonar sales to Original Equipment Manufacturers
(OEM's) were down from 1995 levels. OEM sonar sales were down in line with an
overall decrease in new boat production versus 1995. Lowrance unit sales
increased versus 1995 primarily as the result of the expansion of the Lowrance
product line into several national retail chains.
Reduced unit sales for sonar products were partially offset by increased
sales of the Company's GPS products. The increase in GPS sales resulted from
the continuing expansion of this market as well as the introduction of two new
portable GPS products with mapping capabilities which began shipping in late
1996. The increase in the average price per unit resulted from decreased
sales of the Eagle and OEM sonar products offset by increased sales of the
higher priced GPS products.
Net sales for fiscal 1995 increased 12% over fiscal 1994. Unit sales,
which include sonar units, combination sonar/navigation units, and stand-alone
navigation units, increased 6% and the average price per unit increased 6%.
When comparing fiscal 1995 to 1994, unit sales increased primarily due to:
1) an increase in sales of substantially all of the Company's Lowrance sonar
and sonar/navigation combination units which are sold primarily through boat
and motor dealers, 2) higher sales of units to OEM's and 3) increased sales of
the Company's GPS products. Increased sales of Lowrance models and increased
sales to OEM's can be attributed to continued strong demand for new boats in
the United States. The increased sales of Lowrance products were offset by a
decrease in certain of the Company's Eagle products. The decline in Eagle
units results from competitive factors and an unusually cool and wet spring
and early summer in a large number of the Company's markets. As discussed
above, the Company feels that Eagle product sales are more susceptible to the
effects of adverse weather during the peak selling season.
The 1995 average selling price increased 6% when compared to 1994 due
primarily to the increased sales of Lowrance products, which generally carry
higher prices and the corresponding decrease in Eagle sales which generally
carry lower prices. Also, increased sales of GPS products contributed to the
increase in the average selling price between years.
18
<PAGE>
Gross Profit
------------
The gross profit margin decreased slightly to 33.8% in 1996 from 34.1% in
1995. Price decreases on existing GPS products caused by competitive market
factors resulted in this decline.
The gross profit margin increased to 34.1% in fiscal 1995 from 31.2% in
1994 due primarily to: 1) the shift in mix of units sold to the Lowrance units
which generally carry higher prices and corresponding higher margins and, 2)
the Company's 1995 product offering, which began shipping in volume in the
second quarter of 1995, generally carried higher overall margins than the 1994
product offering. This margin differential was enhanced by volume increases
and increased manufacturing efficiencies.
Operating Expenses
------------------
Operating expenses, comprised of selling, administration and research and
development expenses, as a percentage of net sales, decreased from 28.6% in
fiscal 1995 to 28.3% in 1996. Total costs increased $661,000. The major
factors contributing to this increase were, 1.) increased sales and marketing
costs associated with efforts aimed at existing sonar markets as well as new
GPS markets, and 2.) increased research and development expenses which
resulted from the Company's efforts in new product development, primarily GPS.
These cost increases were offset by a decrease of $1,100,000 in costs
associated with the Settlement Agreement and License Agreement with Computrol
reached on January 10, 1995, and a decrease in other variable selling expenses
consisting of products returns costs.
Operating expenses, as a percentage of net sales decreased from 30.2% in
fiscal 1994 to 28.6% in 1995. Total costs increased $1,523,000. The major
factors contributing to this increase were 1) the $1,100,000 unusual item
related to the settlement Agreement and License Agreement with Computrol, 2)
other variable selling expenses, such as freight-out and products returns
cost, were up approximately $800,000 due to increased volumes, and 3) research
and development expenditures were up $294,000 due to the Company's continuing
efforts to develop new products. Expense reductions in sales and marketing
partially offset the effects of the above increases.
Interest Expense
----------------
Interest expense in fiscal 1996 increased by $300,000 from 1995 due to
increased borrowing levels primarily associated with the Company's revolving
credit line. The increased borrowings under the revolving credit line
resulted from higher working capital needs to support increased sales levels
and to build inventory to support the move of certain manufacturing operations
to the Company's Mexican manufacturing facility.
Interest expense in fiscal 1995 increased by $317,000 from 1994 due to an
increase in the Company's effective interest rate as the prime rate, to which
most of the Company's borrowings are tied, was increased several times.
Income Taxes
------------
The effective tax rate for fiscal 1994, 1995 and 1996 was (59.6)%, 31%,
and 20.7% respectively. For Fiscal 1996, the effective tax rate is less than
the statutory federal tax rate of 34% due primarily to increases in state
income tax credits and refunds of prior years income taxes and related
adjustments. For Fiscal 1995, the effective tax rate is less than the
statutory federal tax rate of 34% due primarily to the research and
development credit offset by state income tax provisions. The effective rate
19
<PAGE>
for fiscal 1994 was positively impacted due to the realization of tax benefits
from the research and development credit, the recognition of foreign tax loss
carryforwards, and state income tax credits.
Income/(Loss)
-------------
Net income (loss), as a percentage of net sales, was 1.8% in fiscal 1996,
1.6% in fiscal 1995, and (.8%) in fiscal 1994. The higher percentages in 1996
and 1995 were primarily the result of increased sales, higher gross margin
percentages during both of those years combined with increased operating
expenses as a percentage of net sales in fiscal 1994. The margin declines in
1994 were the result of price reductions and certain of the operating expense
increases in 1994 were made in response to competitive market conditions.
Liquidity and Capital Resources
-------------------------------
The Company's working capital needs increase in the fall and winter months
as the Company manufactures and stockpiles its products for the peak sales
months of January, February, March, and April. Also, the days outstanding in
the Company's accounts receivable increase in the off-season due to favorable
purchase terms offered to customers in order to stimulate sales during these
slow periods.
The Company's primary sources of liquidity are cash flow from operations,
an accounts receivable and inventory line of credit, and lease financing. The
line of credit allows the Company to borrow up to 85% of its qualifying
accounts receivable, 30% of qualifying raw materials inventory, and 60% of
qualifying finished goods inventory. Borrowings for inventory, however, are
limited to $12,000,000. A yearly lease line of credit is usually established
to finance the acquisition of qualifying equipment and certain other assets.
Traditionally, the Company's near-term liquidity is at its lowest during
the period August through December due to limits on borrowings against
inventories, cash outlays required to purchase tooling to manufacture new
products, and extended payment terms offered to customers to stimulate sales
during the seasonally slow period. As previously described, it is during this
period that the Company begins to manufacture and build-up inventory levels in
anticipation of product demands for the peak sales months. By the end of the
second quarter with the historical increase in sales, the Company's sources of
liquidity begin to improve.
In fiscal 1996, the Company announced plans to expand its Mexican
manufacturing operation to meet increasing demand for its products,
particularly GPS models. The Company entered into a long-term lease for a new
manufacturing facility and is responsible for funding a large portion of the
leasehold improvements necessary for the building to meet its specific
production needs. In addition to funding the leasehold improvements, it was
necessary to build additional inventory levels during the last few months of
fiscal 1996 to support expected sales during the first quarter of fiscal 1997,
which is the period that the Company will use for the transition of its
production operations to Mexico.
Management expects these sources discussed above to satisfy the Company's
financing needs for the short and long-term. At July 31, 1996, there were
approximately $1.9 million of additional borrowings available under the
Company's revolving line of credit. This additional availability was related
solely to the timing of payments to vendors and was depleted in early August
1996. As is consistent with prior years, management expects to be at maximum
borrowing limits through the first two quarters of fiscal 1996.
20
<PAGE>
Because the line of credit will be at its maximum levels during this period,
the Company must delay payments to vendors during these months. Management
does not expect any significant long-term effect from these delayed payments
as most vendors have supplied the Company for years and the overall financial
performance of the Company was improved in 1996 compared to the previous year.
In fiscal 1996, net cash provided by financing activities was used to
finance capital additions (not financed by leases) of $1.9 million and to
provide funds consumed in operating activities of $1.3 million. In fiscal
1995, net cash provided by operating and financing activities was used to
finance capital additions (not financed by leases) of $1.3 million. Cash
flows provided by financing activities for fiscal 1994 were used to finance
capital additions (not financed by leases) of $2 million and to provide funds
consumed in operating activities of $1.2 million.
Working Capital
---------------
The Company's working capital ratio was 1.9 at July 31, 1995 and 2.1 at
July 31, 1996.
Inventory levels at July 31, 1996 are up $2.8 million or 16% from July 31,
1995. The increase in inventory levels can be attributed to the buildup
associated with the start-up of the expanded Mexican manufacturing facility.
The Company does not expect substantial realization problems with this
inventory.
Long-Term Debt and Revolving Credit Agreement
---------------------------------------------
The Company's term and revolving credit loan agreement, which is more
fully described in Note 3 to the Consolidated Financial Statements, provided
for interest at a rate up to 1 1/2% over prime with maximum borrowings of up
to $26,500,000 on the revolving line of credit. In addition to the financing
described above, the Company has arranged a $2.5 million lease line to finance
its qualifying capital additions during fiscal 1997. Also, in October, 1996,
the Company's primary lender agreed to increase funding under the term loan by
$500,000 to be repaid on May 31, 1998.
21
<PAGE>
Capital Expenditures
--------------------
Capital expenditures were $4,221,000, $2,461,000, and $3,968,000 for the
years ended July 31, 1994, 1995, and 1996, respectively. Of the fiscal 1996
total, approximately $2.9 million is related to tooling, molds, dies, and
equipment to design and manufacture the Company's products. The Company
currently plans for capital expenditures of approximately $4 million in fiscal
1997 with approximately $1.6 million for leasehold improvements associated
with the Mexican manufacturing facility, and approximately $2 million for
tooling, molds, dies, and production equipment.
Effects of Inflation
--------------------
A significant portion of the Company's cost and expenses consist of
materials, supplies, salaries, and wages that are impacted by inflation. Due
to the intense market pressures on prices, the Company does not believe that
it will be able to pass on inflationary increases in its selling prices.
Accordingly, the Company concentrates on changes in design, manufacturing
process, material scheduling, and sourcing to help contain costs. The Company
does not expect that the effects of inflation will have a significant impact
on its profitability in the near future. Additionally, a significant portion
of the Company's raw material items are sourced overseas. Significant
devaluation of the dollar relative to these currencies would not be able to be
passed on in the form of price increases to consumers.
Outlook
-------
The Company anticipates continued profitability in fiscal 1997, primarily
as the result of continuing strong economic and market conditions and market
acceptance of the Company's 1997 product offering which includes nine new
models. Management currently anticipates positive cash flows from operations
in fiscal 1997 based on attaining current projections for net income and
inventory levels. These current projections are heavily dependent on the
success of the new products, particularly GPS products, and continued success
of the GlobalMap Sport and AirMap, which began shipping during the fourth
quarter of 1996 and contributed positively to 1996 results. For 1997, the
Company has three new GPS units which are projected to contribute
significantly to the Company's net sales and net income projections. The
Company also has six new sonar products for 1997. Overall, the Company is
expecting new products to generate in excess of 35% of the 1997 net sales
projections. If the Company experiences production delays with its new
products or unforeseen competitive pressures, this could have a material
adverse affect on current projections. Also, because of the dynamic
environment in which the Company operates, one or more key factors which are
discussed in "Part I, Item 1. Business" could have an adverse effect on
results for the upcoming year.
Item 8. Financial Statements and Supplementary Data
------- -------------------------------------------
The Consolidated Financial Statements and Supplementary Data are indexed
in Item 14 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
Financial Disclosures
---------------------
None.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
-------- --------------------------------------------------
Incorporated by reference to the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1996 annual meeting.
Item 11. Executive Compensation
-------- ----------------------
Incorporated by reference to the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1996 annual meeting.
Item 12. Security Ownership of Certain Beneficial Owners and Management
-------- --------------------------------------------------------------
Incorporated by reference to the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1996 annual meeting.
Item 13. Certain Relationships and Related Transactions
-------- ----------------------------------------------
Incorporated by reference to the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
1996 annual meeting.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
------- ----------------------------------------------------------------
(a) Financial Statements, Schedules, and Exhibits:
---------------------------------------------
Page
----
1. Consolidated Financial Statements and Schedules:
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - July 31, 1995 and 1996 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1994, 1995, and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1994, 1995, and 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended July 31, 1994, 1995, and 1996 F-6
Notes to Consolidated Financial Statements
for the Years Ended July 31, 1994, 1995, and 1996 F-7
Schedules for the Years Ended July 31, 1994, 1995, and 1996
II - Valuation and Qualifying Accounts F-15
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
included in the consolidated financial statements or notes thereto.
2. Exhibits:
3.1 Certificate of Incorporation of Lowrance Electronics, Inc.,
previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (SEC File No. 33-9464),
which is incorporated herein by reference thereto.
3.2 By-Laws of Lowrance Electronics, Inc., previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form
S-1 (SEC File No. 33-9464), which is incorporated herein by
reference thereto.
24
<PAGE>
4.1 Shareholders' Agreement dated December 22, 1978, by and
between Darrell J. Lowrance, James L. Knight, and Ben V.
Schneider previously filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (SEC File No. 33-9464),
which is incorporated by reference thereto.
4.2 First Amendment to Shareholders' Agreement dated October 7,
1986 by and between Darrell J. Lowrance, James L. Knight,
and Ben V. Schneider previously filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-1 (SEC File No.
33-9464), which is incorporated by reference thereto.
4.3 Agreement between Stockholders dated October 7, 1986, by and
between the Company and Darrell J. Lowrance, James L.
Knight, and Ben V. Schneider previously filed as Exhibit 4.5
to the Company's Registration Statement on Form S-1 (SEC
File No. 33-9464), which is incorporated herein by reference
thereto.
10.1 1986 Incentive Stock Option Plan of the Company previously
filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (SEC File No. 33-9464), which is
incorporated herein by reference thereto.
10.2 Lowrance Retirement Plan and Trust previously filed as
Exhibit 10.2 to the Company's Registration Statement on Form
S-1 (SEC File No. 33-9464), which is incorporated herein by
reference thereto.
10.3 Form of Distributor Agreements previously filed as Exhibit
10.4 to the Company's Registration Statement on Form S-1
(SEC File No. 33-9464), which is incorporated herein by
reference thereto.
10.4 Form of Service Center Agreement previously filed as Exhibit
10.5 to the Company's Registration Statement on Form S-1
(SEC File No. 33-9464), which is incorporated herein by
reference thereto.
10.5 Credit Agreement dated April 27, 1989, by and between the
Company and Norwest Business Credit, Inc., previously filed
as Exhibit 10.8 to the Company's 1989 Annual Report on Form
10-K, which is incorporated herein by reference thereto.
10.6 Promissory note dated April 27, 1989, by the Company in
favor of Norwest Leasing, Inc., previously filed as Exhibit
10.7 to the Company's 1989 Annual Report on Form 10-K, which
is incorporated herein by reference thereto.
25
<PAGE>
10.7 1989 Stock Option Plan of the Company previously filed as
Appendix A to the Company's Proxy Statement for its Annual
Meeting of Stockholders held on December 12, 1989, which is
incorporated herein by reference thereto.
10.8 First, Second, and Third Amendments to Credit Agreement
dated April 27, 1989, by and between the Company and Norwest
Business Credit, Inc., previously filed as Exhibit 10.8 to
the Company's 1990 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.9 Fourth and Fifth Amendments to Credit Agreement dated April
27, 1989, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.9 to the
Company's 1992 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.10 Sixth Amendment to Credit Agreement dated March 17, 1993, by
and between the Company and Norwest Business Credit, Inc.,
which is incorporated herein by reference thereto.
10.11 Seventh Amendment to Credit Agreement dated October 21,
1993, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.11 to the
Company's 1993 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.12 Eighth Amendment to Credit Agreement dated September 29,
1993, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.12 to the
Company's 1993 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.13 Loan and Security Agreement dated December 15, 1993, by the
Company in favor of Barclays Business Credit, Inc., which is
incorporated herein by reference thereto.
10.14 Amended and Restated Secured Promissory Note dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.), which
is incorporated herein by reference thereto.
10.15 Amended and Restated Revolving Credit Notes dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.), which
is incorporated herein by reference thereto.
10.16 First Amendment to Loan and Security Agreement dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.), which
is incorporated herein by reference thereto.
26
<PAGE>
10.17 Amended and Restated Stock Pledge Agreement dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.), which
is incorporated herein by reference thereto.
10.18 Unconditional Guaranty dated October 16, 1995, by and
between Sea Electronics, Inc. and Shawmut Capital
Corporation, which is incorporated herein by reference
thereto.
10.19 First Amendment to Mortgage, Security Agreement, Financing
Statement and Assignment of Rents dated October 16, 1995, by
and between the Company and Shawmut Capital Corporation
(formally Barclays Business Credit, Inc.) previously filed
as exhibit 10.19 to the Company's 1995 Annual Report on Form
10-K, which is incorporated herein by reference thereto.
10.20 Lease Agreement entered into by and between Eric Juan De
Dios Flourie Geffroy and Electronica Lowrance De Mexico, S.
A. de C. V. dated August 30, 1996, filed herewith.
10.21 Lease Agreement entered into by and between Refugio Geffroy
De Flourie, Eric Juan De Dios Flourie Geffroy, Elizabeth
Flourie Geffroy, Edith Flourie Geffroy and Electronica
Lowrance De Mexico, S. A. de C. V. dated August 30, 1996,
filed herewith.
22.1 Subsidiaries of the Company previously filed as Exhibit 22.1
to the Company's 1993 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
22.12 Subsidiaries of the Company previously filed as Exhibit
22.12 to the Company's 1995 Annual Report on Form 10-K,
which is incorporated herein by reference thereto.
(b) Reports on Form 8-K:
-------------------
May 13, 1996: Item 5 "Other Events - Legal Proceedings" related to
issuance of Series "A" Redeemable Preferred Stock.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LOWRANCE ELECTRONICS, INC.
DATE: October 28, 1996 BY:/s/ Darrell J. Lowrance
------------------------- -------------------------------------
Darrell J. Lowrance,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated:
/s/ Darrell J. Lowrance
---------------------------
Darrell J. Lowrance President, Chief Executive October 28, 1996
Officer, and Director
(Principal Executive Officer)
/s/ Mark C. Wilmoth
---------------------------
Mark C. Wilmoth Vice President of Finance and October 28, 1996
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Alpo F. Crane
---------------------------
Alpo F. Crane Director October 28, 1996
/s/ Willard P. Britton
---------------------------
Willard P. Britton Director October 28, 1996
/s/ Peter F. Foley, III
---------------------------
Peter F. Foley, III Director October 28, 1996
/s/ Ronald G. Weber
---------------------------
Ronald G. Weber Executive Vice President of October 28, 1996
Engineering and Director
/s/ Robert F. Biolchini
---------------------------
Robert F. Biolchini Secretary and Director October 28, 1996
28
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
- ------------------------------------------------------------------------
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - July 31, 1995 and 1996 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1994, 1995, and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1994, 1995, and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1994, 1995, and 1996 F-6
Notes to Consolidated Financial Statements for the Years Ended
July 31, 1994, 1995, and 1996 F-7
</TABLE>
Supplemental Schedule
---------------------
Schedule II - Valuation and Qualifying Accounts
for the Years Ended July 31, 1994, 1995, and 1996 F-17
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Lowrance Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of LOWRANCE
ELECTRONICS, INC., (a Delaware corporation) and subsidiaries as of July 31,
1995 and 1996, and the related consolidated statements of income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended July 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lowrance Electronics, Inc.,
and subsidiaries as of July 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in
the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of
the basic financial statements. This information has been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
October 3, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
JULY 31,
-------------------
1995 1996
---- ----
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalent $ 643 $ 621
Trade accounts receivable, net of reserves
of $480,000 in 1995 and $539,000 in 1996 10,665 12,821
Inventories (Note 2) 17,976 20,773
Prepaid income taxes 1,326 1,304
Prepaid expenses 479 631
------- -------
Total current assets 31,089 36,150
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 8,691 10,043
OTHER ASSETS 448 915
------- -------
$40,228 $47,108
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 3,499 $ 5,019
Accounts payable 7,494 8,158
Accrued liabilities:
Compensation and benefits 2,418 2,482
Product costs 1,656 1,113
Other 1,245 869
------- -------
Total current liabilities 16,312 17,641
------- -------
DEFERRED INCOME TAXES 489 566
------- -------
LONG-TERM DEBT, less current maturities
(Note 3) 9,975 13,705
------- -------
SERIES "A" REDEEMABLE PREFERRED STOCK, $.50 par
value, 70,000 share authorized and issued in 1996 - -
STOCKHOLDERS' EQUITY, per accompanying
statements (Note 5):
Preferred stock, no par value, 300,000 shares
authorized, none issued in 1995 and 230,000
authorized, none issued in 1996 - -
Common stock, $.10 par value, 10,000,000
shares authorized, 3,352,458 shares issued 335 335
Paid-in capital 5,600 5,600
Retained earnings 7,661 9,404
Foreign currency translation adjustment (144) (143)
------- -------
Total stockholders' equity 13,452 15,196
------- -------
$40,228 $47,108
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
----------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
(in thousands, except per share amounts)
NET SALES $81,250 $91,116 $94,579
COST OF SALES 55,920 60,047 62,591
------- ------- -------
Gross profit 25,330 31,069 31,988
------- ------- -------
OPERATING EXPENSES:
Selling and administrative 21,966 22,095 23,285
Research and development 2,574 2,868 3,439
Unusual Item (Note 12) - 1,100 -
------- ------- -------
Total operating expenses 24,540 26,063 26,724
------- ------- -------
Operating income 790 5,006 5,264
------- ------- -------
OTHER EXPENSES:
Interest 1,264 1,581 1,881
Other 1,189 1,364 1,184
------- ------- -------
Total other expenses 2,453 2,945 3,065
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,663) 2,061 2,199
------- ------- -------
PROVISION (BENEFIT) FOR INCOME
TAXES (Note 7) (991) 639 456
-------- ------- -------
NET INCOME (LOSS) $ (672) $ 1,422 $ 1,743
======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE (Note 5) $ (.20) $ .42 $ .52
======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 5) 3,350 3,352 3,352
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED JULY 31, 1994, 1995, AND 1996
-------------------------------------------------
(Note 5)
--------
<TABLE>
<CAPTION>
Foreign
Common Stock Currency
-------------- Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment
------ ------ -------- --------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance -
July 31, 1993 3,347 $ 335 $ 5,589 $ 6,911 $ (205)
Net loss - - - (672) -
Exercised options 5 - 11 - -
Foreign currency
translation adjustment - - - - 22
----- ---- ------ ------ -----
Balance -
July 31, 1994 3,352 335 5,600 6,239 (183)
Net income - - - 1,422 -
Foreign currency
translation adjustment - - - - 39
----- ---- ------ ------ -----
Balance -
July 31, 1995 3,352 335 5,600 7,661 (144)
Net income - - - 1,743 -
Foreign currency
translation adjustment - - - - 1
Balance -
------ ---- ------ ------ -----
July 31, 1996 3,352 $ 335 $ 5,600 $ 9,404 $ (143)
====== ===== ====== ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Note 8)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (672) $ 1,422 $ 1,743
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation 2,212 2,480 2,561
(Gain)loss on sale of fixed assets (1) (8) 55
Change in operating assets and liabilities:
Increase in trade accounts
receivable (861) (1,507) (2,156)
Increase in inventories (1,808) (5,098) (2,797)
Decrease (increase) in
income tax refunds receivable (1,066) 1,066 -
(Increase)decrease in prepaid expenses
and prepaid income taxes (559) 254 (130)
Decrease (increase) in other assets 80 (301) (467)
Increase in accounts payable 2,254 1,824 664
Increase (decrease) in accrued liabilities (397) 581 (855)
Increase (decrease) in other liabilities (365) 135 76
-------- -------- --------
Net cash provided by (used in)
operating activities (1,183) 848 (1,306)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,018) (1,346) (1,942)
Proceeds from sale of property, plant
and equipment 1 8 2
-------- -------- --------
Net cash used in investing activities (2,017) (1,338) (1,940)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit 81,918 91,257 96,406
Repayments of borrowings under lines of
credit (78,188) (89,477) (92,574)
Borrowings under term loan 3,500 - 1,507
Principal payments on term loans and
capital lease obligations (3,600) (1,623) (2,115)
Additional common stock issued 11 - -
-------- -------- --------
Net cash provided by
financing activities 3,641 157 3,224
-------- -------- --------
Net increase(decrease)in cash and
cash equivalent 441 (333) (22)
CASH AND CASH EQUIVALENT - beginning of year 535 976 643
-------- -------- --------
CASH AND CASH EQUIVALENT - end of year $ 976 $ 643 $ 621
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED JULY 31, 1994, 1995, and 1996
-------------------------------------------------
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -
--------
Lowrance Electronics, Inc., and subsidiaries (the Company) design,
manufacture, and market sonars (also known as depth-sounders and fish-
finders) and other marine electronic products and accessories for use in
recreational and commercial boating. The Company's sonars are principally
used by sports fishermen for detecting the presence of fish and by sports
fishermen and boaters as navigational and safety devices for determining
bottom depth in lakes, rivers, and coastal waters. The Company's Loran-C
and Global Positioning System (GPS) navigational modules are used in
conjunction with certain of its sonar units or with stand-alone displays
to provide navigational information.
Principles of Consolidation -
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany transactions
and accounts have been eliminated in consolidation.
Property and Depreciation -
-------------------------
Property, plant, and equipment is stated at cost. For financial reporting
purposes, depreciation is provided on a straight-line basis over the
estimated service lives of the respective classes of property. The
building is being depreciated using an estimated useful life of thirty
years, while the estimated lives for other assets range from two to
fifteen years. Fully depreciated property and equipment with a cost of
approximately $10 million is still in use.
When properties are retired, or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is credited or charged to operations.
Maintenance, repairs, and renewals, including replacement of minor items
of physical properties, are charged to income; major additions and
betterments to physical properties are capitalized.
Research and Development Costs -
------------------------------
Costs associated with the development of new products and changes to
existing products are charged to expense as incurred and include an
allocation of indirect costs.
F-7
<PAGE>
Foreign Currency Translations -
-----------------------------
Foreign currency transactions and financial statements are translated in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
52. Assets and liabilities are translated to U.S. dollars at the current
exchange rate. Income and expense accounts are translated using the
weighted average exchange rate for the period. Adjustments arising from
translation of foreign financial statements are reflected in the
cumulative translation adjustment in the equity section of the
consolidated balance sheet. Transaction gains and losses are included in
net income (loss).
Derivatives -
-----------
The Company uses forward sales contracts to hedge against losses due to
changes in foreign currencies. Gains or losses realized from the
contracts are recognized currently as other income or expense. Gains and
losses resulting from the contracts have not had a material impact on the
Company's results of operations.
Use of Estimates in the Preparation of Financial Statements -
-----------------------------------------------------------
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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Accrued Product Costs -
---------------------
Product Warranties - The majority of the Company's sales are made under a
one-year product warranty. A provision is made at the time of sale for
the estimated future warranty costs.
Dealer Premium Coupons - The Company offers a sonar installation subsidy
to qualified boat and motor dealers of its Lowrance product line. At the
time of shipment, the Company provides for the estimated cost of this
program.
Returns and Refurbishments - Estimated costs related to refurbishment of
returned goods are accounted for by providing a reserve based on the
Company's historical experience. These reserves are analyzed and adjusted
quarterly. Returns are recorded as a reduction of net sales at the time
of receipt of the goods.
Cash and Cash Equivalent -
------------------------
For purposes of the Consolidated Statements of Cash Flows, the Company
considers only certificates of deposit with a maturity of three months or
less to be cash equivalents.
F-8
<PAGE>
(2) BALANCE SHEET DETAIL
Inventories -
--------------------
Inventories are priced at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Raw materials $ 7,670 $ 5,985
Work-in-process 4,764 4,998
Finished goods 6,332 10,466
Excess, obsolete, and realization reserves (790) (676)
------- -------
Total inventories $17,976 $20,773
======= =======
Property, Plant, and Equipment - 1995 1996
------------------------------ ------- -------
(in thousands)
Land $ 557 $ 557
Building and improvements 3,420 3,766
Machinery and equipment 17,546 20,880
Office furniture and fixtures 4,592 4,824
------- -------
26,115 30,027
Less - accumulated depreciation 17,424 19,984
------- -------
Net property, plant, and equipment $ 8,691 $10,043
======= =======
The property, plant, and equipment accounts include the following amounts
for leased property under capitalized leases:
1995 1996
------- -------
(in thousands)
Machinery and equipment $5,383 $7,371
Office furniture and fixtures 1,629 1,661
------ ------
7,012 9,032
Less - accumulated depreciation 3,750 4,745
------ ------
Net property, plant, and equipment
under capitalized leases $3,262 $4,287
====== ======
</TABLE>
F-9
<PAGE>
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE
Long-term debt and the revolving credit line are summarized below:
<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Revolving credit line $ 7,693 $11,524
Term loan, payable in monthly
installments of $23,167 with
interest at prime plus 1.5%, with
the final payment due December 1998 2,037 2,766
Capitalized equipment lease
obligations, payable in monthly
installments of approximately
$160,000, including interest at
rates from 7% to 13%, with final
payments ranging from April 1997
through July 2001 3,744 4,434
------ ------
13,474 18,724
Less - current maturities 3,499 5,019
------ ------
Total long-term debt $ 9,975 $13,705
====== ======
</TABLE>
Future maturities of the above debt obligations at July 31, 1996, are
$5,019,000, $1,867,000, $10,660,000, $427,000, and $751,000 for the years
ending July 31, 1997 through 2001, respectively.
The Company has a $30 million financing package which consists of a $3.5
million term loan together with a $26.5 million revolving credit line.
The financing package expires in December 1998. The term loan is payable
in monthly installments of $23,167 plus interest at 1.5% over prime
(currently 8.25%). A principal payment for the term loan of $500,000 was
paid on May 31, 1996, and another principal payment of $500,000 is payable
on May 31, 1997. The revolving credit line provides for borrowings up to
$26.5 million based on varying percentages of qualifying categories of
receivables and inventories and carries an interest rate of prime plus
.75%. Borrowings against inventories are limited to $12 million in total.
During October 1995, the Company's financing package was amended.
Significant provisions of the amendment included: 1) The due date was
extended to December 1998 from December 1996; 2)The interest rate for the
revolver was reduced from prime plus 1.00% to prime plus .75% and to prime
plus .50% effective August 1, 1996, and 3) The term loan was funded to
its original $3.5 million amount with monthly principal payments of
$23,167 plus interest at prime plus 1.5%.
During October 1996, $500,000 was refunded on the term loan to be repaid
on May 31, 1998.
F-10
<PAGE>
Current maturities for the revolving credit line are estimated based on
future results and collateral limitations. The terms of the foregoing
agreement include a commitment fee based on the unused portion of the bank
credit line in lieu of compensating balances.
The agreement requires, among other things, that the Company maintain a
minimum tangible net worth and limits the ratio of total liabilities to
tangible net worth. Additionally, the agreement limits capital
expenditures and capital leases. Violation of any of these provisions
would constitute an event of default which, if not cured, would empower
the lender to declare all amounts immediately payable.
The Company's indebtedness is collateralized by substantially all of the
Company's assets.
Average short-term borrowings under the revolving credit line and related
interest rates shown in the following table are weighted by using the
average month-end principal balances.
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------
1994 1995 1996
---------- ---------- --------
(in thousands)
<S> <C> <C> <C>
Highest amount borrowed $14,824 $14,422 15,773
Average amount borrowed $ 9,796 9,552 11,850
Weighted average interest rate 8.3% 9.8% 9.2%
</TABLE>
The carrying value of the Company's debt approximates fair value.
(4) LEASES
Capital Leases-
--------------
Certain equipment is leased under agreements that are structured as
capital leases. Accordingly, such equipment has been recorded as an
asset, and the discounted value of the remaining lease obligations has
been recorded as a liability in the accompanying Consolidated Balance
Sheets (See Note 3).
The following is a schedule by years of future minimum lease payments
under capital leases, together with the present value of the net minimum
lease payments as of July 31, 1996, (in thousands):
<TABLE>
<CAPTION>
Years ending July 31:
<S> <C>
1997 $1,532
1998 1,217
1999 1,243
2000 596
2001 794
------
Total minimum lease payments 5,382
Less amounts representing interest 948
------
Present value of net minimum lease payments $4,434
======
Current portion of obligations under
capital leases $1,216
Long-term portion of obligations under
capital leases $3,218
</TABLE>
F-11
<PAGE>
Operating Leases-
----------------
During 1994, 1995 and 1996 the Company recorded $754,300, $732,971 and
$1,119,082, respectively, of expense related to operating leases.
At July 31, 1996, future minimum rental payments for operating leases
totaled $7,825,000. On August 30, 1996, the Company entered into a ten
year non-cancelable lease for a manufacturing facility in Ensenada,
Mexico. The lease has a fair market purchase option after three years and
accordingly will be accounted for as an operating lease. Payments for
this facility will be approximately $46,500 per month and will begin
November 1, 1996 total future minimum rental payments under operating
leases for the years ending July 31, 1997 through July 31, 2001 (including
the rental for the Mexican facility assuming the purchase option is not
made) are $1,498,000, $1,353,000, 790,000, $691,000, and $564,000,
respectively.
(5) STOCKHOLDERS' EQUITY AND RELATED ITEMS
The Company's 1986 and 1989 Stock Option Plans provide for a maximum of
400,000 common shares to be issued under these Plans. Options and stock
appreciation rights granted cannot have terms greater than ten years. The
Plans provide for non-qualified stock options to be granted at an option
price of not less than 100% of the fair market value of the Company's
Common Stock at the date of grant.
Following is a summary of outstanding and exercisable options under the
Plans as of July 31 for the respective years set forth below:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Total outstanding 92,500 92,500 75,000
Average option price $ 2.92 $ 2.92 $ 2.93
</TABLE>
No options were exercised in 1995 or 1996. In 1994, options on 5,000
shares were exercised and options on 32,500 shares expired. In 1996,
options on 17,500 shares were terminated.
On May 13, 1996, the Company issued 70,000 shares of Series "A" Redeemable
Preferred Stock in a private placement to five key officers of the
Company. The Series "A" Preferred Stock is a nonvoting stock paying a
noncumulative dividend of 2 1/2 cents. Each share of Series "A" Preferred
Stock is convertible into five shares of the Company's Common Stock at a
cash purchase price of $5.00 per share of Common Stock, but only if (i)
the Chief Executive Officer of the Company sells in excess of 30 percent
of his Common Stock of the Company or (ii) the Company sells substantially
all of its assets and operations to a third party. The Series "A"
Preferred Stock has been issued for a term of ten years for a purchase
price of $6.875 per share. The Company financed the total purchase price
of $481,250 for the five key officers of the Company pursuant to
Promissory Notes bearing interest at Chase prime and Security Agreements
where all of such Series "A" Preferred Stock is pledged to the Company to
secure the Promissory Notes. In the event the Series "A" Preferred Stock
is not converted within the ten year term, the holder is required to
surrender the Series "A" Preferred Stock for cancellation by the Company
in exchange for the Company forgiving the principal amount of the
Promissory Note. If any of the key officers terminate their employment
with the Company for any reason, except death, they immediately forfeit
ownership rights to the Series "A" Preferred Stock
F-12
<PAGE>
which is immediately surrendered to the Company for cancellation in
exchange for cancellation of the principal amount owing on the Promissory
Note, provided all accrued interest on the Promissory Note is paid to the
date of the key employee's termination. The Promissory Notes receivables
have been netted against Preferred Stock in the Consolidated Balance
Sheets.
Earnings per share were computed using the weighted average number of
common shares, including common share equivalents outstanding during each
year. Stock options, including the Redeemable Preferred Stock, were not
considered in the calculation of earnings per share since they are
immaterial. Earnings per share assuming full dilution would be the same
as primary earnings per share.
(6) RETIREMENT PLANS
Substantially all Company employees participate in the Lowrance Savings
Plans which require the Company to contribute 3% of the participants'
qualified earnings to the Plans. Also, each participant may make
contributions of qualified earnings into the Plans which will be matched
by the Company at 100% for the first $10 per pay period and 50%
thereafter, not to exceed 3% of compensation. Contributions made by the
Company to the Plans for the years ended July 31, 1994, 1995, and 1996
were $547,000, $596,000, and $586,000, respectively.
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current $(1,066) $ 505 $ 365
Deferred 75 134 91
------- ----- -----
Total $ (991) $ 639 $ 456
======= ===== =====
</TABLE>
The provision (benefit) for income taxes differs from the amount
calculated by multiplying income (loss) before provision (benefit) for
income taxes by the statutory Federal income tax rate due to the
following:
F-13
<PAGE>
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Statutory rate (34.0)% 34.0% 34.0%
State income taxes (10.1) 3.8 (3.8)
Refunds of prior year taxes
and related adjustments - - (8.6)
Research & development credits (7.2) (6.0) -
Realized loss of
foreign subsidiary (9.7) - -
Other 1.4 (.8) (.9)
------ ---- -----
Effective rate (59.6)% 31.0% 20.7%
====== ==== =====
</TABLE>
The Company accounts for income taxes in accordance with Statement No. 109
of the Financial Accounting Standards Board which requires an asset and
liability approach to financial accounting and reporting for income taxes.
The difference between the financial statement and tax bases of assets and
liabilities is determined and deferred tax assets or liabilities are
computed for those differences that have future tax consequences. The
Company determined that no valuation allowance is necessary as of July 31,
1996.
The tax effect of temporary differences giving rise to the Company's
consolidated deferred income taxes at July 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets -
Reserves for product costs $ 560 $ 441
Reserves for compensation and benefits 410 389
State tax credit carryforwards 198 281
Accounts receivable reserves 112 144
Other accruals 46 49
------ ------
$1,326 $1,304
====== ======
Deferred tax liabilities -
Depreciation $ 489 $ 566
====== ======
</TABLE>
(8) CONSOLIDATED STATEMENTS OF CASH FLOWS
During 1994, 1995, and 1996, the Company acquired approximately
$2,191,000, $1,081,000, and $2,026,000, respectively, in equipment under
capital lease obligations. These transactions were accounted for as non-
cash investing and financing activities, and therefore, are not included
in the Consolidated Statements of Cash Flows. Interest of approximately
$1,264,000, $1,581,000, and $1,881,000 was paid during 1994, 1995, and
1996, respectively. Income tax payments for 1994, 1995, and 1996 were
$378,000, $475,000, and $541,000, respectively. An income tax refund of
$1,066,000 was received in 1995.
F-14
<PAGE>
(9) SALES BY GEOGRAPHIC REGION
The Company markets its products internationally through foreign
distributors, except in Canada and Australia where it has established its
own distribution operation. The following table presents a summary of
domestic, export, and foreign sales:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net sales:
Domestic $63,789 $69,846 $74,560
Export sales 6,329 8,779 9,598
Foreign sales 11,132 12,491 10,421
------- ------- -------
Total $81,250 $91,116 $94,579
======= ======= =======
</TABLE>
The majority of export and foreign sales are concentrated in Canada,
Australia and Europe.
(10) SALES TO A MAJOR CUSTOMER
During 1994, 1995, and 1996, one customer accounted for approximately 14%
of consolidated net sales in each year. No other customer accounted for
10% or more of consolidated net sales in 1994, 1995, and 1996.
(11) CONCENTRATIONS OF CREDIT RISK
The Company extends credit to various companies in the marine and non-
marine markets in the normal course of business. Within these markets,
certain concentrations of credit risk exist. These concentrations of
credit risk may be similarly affected by changes in economic or other
conditions and may, accordingly, impact the Company's overall credit risk.
However, management believes that receivables are well diversified,
thereby reducing the potential credit risk and that allowances for
doubtful accounts are adequate to absorb estimated losses at July 31,
1996.
At July 31, 1995 and 1996, trade receivables related to these group
concentrations were:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Marine 55% 49%
Non-Marine 45% 51%
</TABLE>
F-15
<PAGE>
(12) UNUSUAL ITEM
On January 10, 1995, the Company entered into a Settlement Agreement with
Computrol, Inc., resolving a patent infringement lawsuit filed against the
Company in November 1993. This legal proceeding was previously disclosed
by the Company on its Form 10-Q in Item 1 of Part II filed with the
Securities and Exchange Commission on March 15, 1994, June 15, 1994,
December 15, 1994, March 17, 1995, June 14, 1995, and the Company's 8-K,
in Item 5, filed on January 11, 1995, as well as in Item 3 of Part I of
the Company's Form 10-K filed on October 29, 1994.
The Settlement Agreement called for four payments beginning January 10,
1995, and ending June 30, 1995, totaling $1,000,000 in exchange for a
mutual release and settlement of the lawsuit. All required payments were
made by the Company in fiscal 1995.
The Company also entered into a License Agreement with Computrol, Inc.,
and paid a one-time license fee of $100,000. The License Agreement allows
the Company to use the Computrol patent on any new products or the
existing product which was the subject of the lawsuit.
At this time, the Company has no current products that utilize the
technologies covered by this License Agreement and has no immediate plans
to produce and market such products. Accordingly, the $100,000 license fee
along with the $1 million settlement amount has been expensed in full
during fiscal 1995.
F-16
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR THE YEARS ENDED JULY 31, 1994, 1995, and 1996
-------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------- ------------ ------------- -------------------- ---------
<S> <C> <C> <C> <C>
Net (write-offs)
Balance at recoveries Balance at
beginning Charged to charged against end of
Classification of period expense reserve period
- --------------------------- ------------ ------------- -------------------- ---------
Reserve for Doubtful
- --------------------
Accounts and Sales Returns
---------------------------
Year Ended July 31, 1994 $733 $(103) $(147) $483
Year Ended July 31, 1995 $483 $ 58 $ (61) $480
Year Ended July 31, 1996 $480 $ 220 $(161) $539
Excess, Obsolete, and
- ---------------------
Realizability Reserves
----------------------
Year Ended July 31, 1994 $399 $ 375 $(326) $448
Year Ended July 31, 1995 $448 $ 465 $(123) $790
Year Ended July 31, 1996 $790 $ 515 $(629) $676
</TABLE>
F-17
<PAGE>
EXHIBIT 10.20
LEASE AGREEMENT ENTERED INTO BY AND BETWEEN ERIC JUAN DE DIOS
FLOURIE GEFFROY (ON HIS BEHALF AND WITH THE AUTHORIZATION OF
REFUGIO GEFFROY DE FLOURIE, ELIZABETH FLOURIE GEFFROY AND EDITH
FLOURIE GEFFROY) (HEREINAFTER REFERRED TO AS THE "LESSOR") AND
ELECTRONICA LOWRANCE DE MEXICO, S.A. DE C.V., REPRESENTED HEREIN
BY MR. TERRY NIMMO (HEREINAFTER REFERRED TO AS THE "LESSEE"),
PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES.
R E C I T A L S
I.- LESSOR hereby states:
A. That he has agreed to erect an industrial facility on lots
313, 314, 315 at Colonia Pacheco, Ensenada, B.C., Mexico
Fraction B, property of Mrs. Refugio Geffroy de Flourie and
co-owners as evidence by deed No. 13,579 dated August 14,
1996 granted before Mr. Angel Saad, Notary No. 4, for
Ensenada, Baja California, Mexico. The industrial building
has a ground floor area of 8,256 square meters and a second
floor consisting of 1,800 m2, as well as the tenant
improvements, in accordance with the drawings,
specifications, schedule of work and construction term set
forth by the parties and attached hereto as Exhibit "A".
Said building will be referred to as "the LEASED PREMISES".
B. That he is duly authorized to execute this contract in
accordance with certain agreements and authorizations
entered into and granted by Refugio Flourie de Geffroy,
Elizabeth Flourie de Geffroy and Edith Flourie Geffroy,
dated August 15, 1996.
C. That the building is being constructed on the following
address at the corner of Ave. Reforma and Calle Lirios,
of Colonia Pacheco, Ensenada, B.C., Mexico. A drawing
showing exact location as well as a description of the
referred piece of real estate is attached hereto as Exhibit
"B", being an integral part hereof.
D. He is willing to lease the LEASED PREMISES to the LESSEE
pursuant to the terms and conditions of this agreement.
II. LESSEE hereby states that:
A. It is a corporation duly organized and existing according to
the Laws of the Mexican Republic, as evidenced by deed No.
126,217, dated September 8, 1993, granted before Mr. Lic.
Gabriel Moreno Mafud, Notary Public No. 2 for Tijuana, Baja
California, Mexico. A copy of said deed is attached hereto
as exhibit "C".
2
B. Mr. TERRY NIMMO evidences to be duly authorized to execute
this agreement through the public deed which is referred to
in the preceding paragraph, and further states that such
authority has not been limited or revoked in any manner
whatsoever."
<PAGE>
C. That on a prior date it requested that the LESSOR construct
an industrial building to be part of the LEASED PREMISES
pursuant to LESSOR's drawings, specifications and schedule
of work which are attached hereto as Exhibit "A".
D. For the purposes of this agreement its domicile is located
at the LEASED PREMISES, that is at corner of Ave.
Reforma
and Calle de los Lirios s/n Colonia Pacheco, Ensenada, Baja
California 22800, and 12000 East Skelly Drive, Tulsa,
Oklahoma, 74128.
E. It wishes to lease from the LESSOR the LEASED PREMISES
pursuant to the terms and conditions hereunder.
IN VIEW OF THE FOREGOING, the parties hereto agree as follows:
C L A U S E S
FIRST. LEASE AND DELIVERY
The LESSOR hereby leases to the LESSEE and the LESSEE hereby
leases from the LESSOR the LEASED PREMISES, which are located at
corner of Ave. Reforma Esquina Calle de los Lirios s/n Colonia
Pacheco, Ensenada, Baja California 22800, and which are
described in Exhibit "B" hereto.
SECOND.- IMPROVEMENTS
2.1 LESSOR, at LESSOR's own cost and expense shall perform all
work, provide all labor, furnish all new materials, and
obtain all certificates and permits necessary to construct
an industrial building with an area ground floor of 8,256 m2
and a second floor consisting of approximately 1800 meters
(19,368 square feet) on the LEASED PREMISES (hereinafter the
"Improvements") in accordance with the preliminary
3
drawings, specifications, schedule of work and construction
terms set forth by the parties and attached hereto as
exhibit "A". The parties agree that within a term of 30
days as of the date hereof a final set of drawings and
specifications shall be completed and attached to exhibit
"A" herein. Unless LESSOR and LESSEE are able to reach
accord within thirty (30) days from the date hereof on a
final set of detailed drawings and specifications to replace
Exhibit "A" that are satisfactory to both LESSOR and LESSEE,
either party is free to terminate this lease.
2.2 By approval of the drawings and specifications, LESSEE
assumes no responsibility for technical compliance with the
terms and specifications set forth in exhibit "A" hereto.
The approval by LESSEE is for general arrangements only,
unless otherwise noted, and does not relieve LESSOR of full
<PAGE>
responsibility for the proper and correct design,
construction, function, and erection of the Improvements as
required.
2.3 LESSOR shall indemnify and hold harmless LESSEE from any and
all claims, assessments by government authorities, including
but not limited to property tax, real and attached personal
property. special assessments, fees, penalties thereon,
Social Security Institute, Workers Housing Institute and Tax
Authorities, as well as from damages and cost resulting from
or arising out of LESSOR's lack of performance of any of its
obligations for construction of Improvements, fixturs,
machinery and equipment to the LEASED PREMISES required
hereunder.
2.4 LESSOR acknowledges and agrees that LESSEE may request
changes in the design and specifications of the
Improvements, provided such changes do not affect the cost
thereof or the work schedule for construction of same. In
the event such changes affect the cost of the Improvements
or the work schedule, LESSOR and LESSEE shall jointly
determine the effects of the change in cost and any
extension to such schedule. All changes to the design and
specification of the Improvements shall be approved in
writing by both LESSEE and LESSOR and any if there is any
additional fees or charges to be assessed against LESSEE in
4
connection with any such change, the dollar amount of such
change must be agreed to in writing in advance; neither
LESSOR nor LESSEE shall make any changes in the drawings and
specifications of the Improvement without the express
written consent of both LESSEE and LESSOR.
2.5 As established in the specifications, drawings and schedule
of work incorporated by reference as exhibit "A", LESSOR
shall diligently complete the Improvements on the LEASED
PREMISES in order that LESSEE may use and occupy such
Improvements pursuant to the following schedule:
a) Beneficial Occupancy of LEASED PREMISES: August 15,
1996.
b) Final Occupancy of the LEASED PREMISES: October 1,
1996.
For purposes hereof, Beneficial and Final Occupancy shall be
defined as follows:
Beneficial Occupancy.- Shall be defined as the delivery to
LESSEE of the industrial portion of the Improvements
including walls, roof, floor slab, docks, in order that
LESSEE may move in its equipment into the LEASED PREMISES,
and that such equipment and any tenant Improvements that may
<PAGE>
be installed, be secured and not be damaged by weather or
the process of construction.
Final Occupancy.- Shall be defined as the substantial
completion of all works and interior finishing of the
industrial and office areas of the Improvements and all
exterior and infrastructure Improvements to permit LESSEE to
commence utilization of the LEASED PREMISES and all
Improvements for the unencumbered conduct of its business,
excluding non functional minor cosmetic items, or a punch
list of items not to exceed 2% of the construction price of
the improvements established pursuant to exhibit "B" hereto.
2.6 At all times following the execution of this Lease
Agreement, LESSEE shall have the right to enter the LEASED
PREMISES to inspect the progress of construction of the
5
Improvements, and LESSOR shall place the construction log
and any construction reports available at the disposal of
LESSEE, in order that LESSEE may be continuously appraised
of construction of the Improvements. If so requested by
LESSEE, LESSOR shall prepare a translation into English of
any such reports for LESSEE, and LESSEE agrees to reimburse
LESSOR for any expenses incurred in connection therewith.
2.7 LESSOR agrees to furnish to LESSEE a copy of results of all
tests effected by LESSOR or its contractors with regard to
the LEASED PREMISES or the construction of the Improvements,
and LESSEE shall be entitled to effect independent testing
of any portion of the LEASED PREMISES, Improvements or
materials and components of construction, at its sole
expense, in order to ascertain that the Improvements are
constructed in accordance with exhibit "A" hereto. Any such
independing testing by LESSEE shall not release LESSOR from
any obligations to construct the Improvements in accordance
with exhibit "A" hereto.
2.8 In the event the result of any of LESSEE's test indicate
that there is a material deviation in the terms and
specifications for construction of the Improvements, LESSEE
shall notify LESSOR of any such deviation and request
immediate correction thereof.
2.9 Should LESSOR fail to conclude construction of the initial
Improvements in order that LESSEE may occupy the LEASED
PREMISES on the date of Beneficial Occupancy set forth
hereinabove, LESSEE shall be entitled to receive as
contractual penalty liquidated damages the abatement of two
days of rent for each calendar day the initial Improvements
are not concluded pursuant to exhibit "A" hereof. This
abatement shall apply towards the first, and if applicable,
following months on which LESSEE commences to effect rental
payments as set forth herein. Notwithstanding such penalty
<PAGE>
and/or rental abatement, nothing contained herein shall
extend the date of Final Occupancy or diminish the
liquidated damages that LESSEE is entitled to receive in the
event LESSOR fails to provide LESSEE with Final Occupancy on
the date set forth in paragraph 2.5 above.
6
2.10 Furthermore, should LESSOR fail to complete construction of
the Improvements pursuant to exhibit "A" on or before the
date of Final Occupancy of the LEASED PREMISES, LESSEE shall
be entitled to receive as liquidated damages and in addition
to the rent abatement set forth in the preceding paragraph
the amount corresponding to two days rent for each calendar
day of delay following the projected date of Final
Occupancy, provided, however that should such delay continue
for sixty (60) days following the aforementioned date,
LESSEE, at its option, may terminate this agreement. Any
abatements hereunder shall apply towards the first, and if
applicable, following months on which LESSEE commences to
effect rental payments as set forth herein. The parties
acknowledges and agree that the date of Final Occupancy
shall be extended for a term equivalent to delays
attributable to LESSEE or LESSEE's contractors or
subcontractors, acts of God or force majeure. Likewise, and
in th event of heavy rain period, this being understood as
rainfall exceeding two inches in one day, during the three
months following the date of execution hereof, the dates of
Beneficial Occupancy and Final Occupancy will be extended
for a period to be agreed upon by the parties, which shall
not exceed thirty (30) days.
THIRD. OCCUPANCY BY LESSEE
The LESSEE shall use the LEASED PREMISES for clean and light
operations as per the authorizations and licenses which the
LESSEE shall obtain from the environmental and other competent
authorities, and therefore, agrees not to use the LEASED PREMISES
for chemical, heavy or other industries of similar nature.
Accordingly, it is hereby agreed that:
3.1. The LESSEE may, at its own risk and expense, install on
the LEASED PREMISES such fixtures, equipment and
furniture as it may deem necessary, provided, that such
items are installed and are removed without damage to the
LEASED PREMISES, except for the usual wear and tearand
normal damage required to remove LESSEE's fixtures,
equipment and furniture from the LEASED PREMISES".
7
3.2. The LESSEE shall repair all damages caused to the LEASED
PREMISES during installation or removal of the fixtures,
<PAGE>
equipment and furniture mentioned in the preceding
paragraph, usual wesr and tear excepted.
3.3. The LESSEE shall perform the installation or removal of
its equipment and furniture in accordance with all applicable
laws, ordinances, and regulations, being liable for any
violations thereto.
3.4. The LESSEE agrees to retrieve such fixtures, equipment,
furniture and/or improvements it may have installed in
the LEASED PREMISES on or before the date of termination
of this lease. Should the LESSEE fail to retrieve such
fixtures, equipment, furniture and/or improvements from
the LEASED PREMISES as provided above, the LESSOR shall
be entitled to either retrieve such fixtures, equipment,
furniture and/or improvements from the LEASED PREMISES at
the LESSEE's risk and expense, or deem that said
fixtures, equipment, furniture and/or improvements have
been left in the LEASED PREMISES by the LESSEE to
gratuitously inure in favor of the LESSOR. If LESSEE has
not removed all of LESSEE's furniture, fixtures and
equipment and improvements from the LEASED PREMISES
within thirty (30) days from the date of termination of
the Lease by LESSEE, then LESSOR upon providing LESSEE
with thirty (30) days written notice in advance, shall
thereafter have the right to either remove or retain
LESSOR's fixtures, equipment and furniture and
improvements if not removed by LESSEE in this thirty (30)
day period as set forth hereafter.
3.5. The LESSEE may not modify the exterior structure, facade
or public services of the LEASED PREMISES, nor it may
perform any works or make alteration without the
LESSOR's prior written consent, which will not be
unreasonably withheld. LESSEE shall have the right to
make any changes in the interior of the LEASED PREMISES
necessary for its ongoing operations, provided LESSEE
does not move any load bearing walls or harm the safety
or soundness of the LEASED PREMISES.
8
FOURTH. LEASE TERM
4.1. The term of this Lease shall commence on October 1, 1996
(the Effective Date) and shall end on September 30, 2006.
4.2. LESSEE shall have the option to renew this Lease for four
(4) additional terms of five (5) years each on the terms
and conditions set forth herein. Such option shall be
exercised by providing LESSOR with notice of its intent
to do so not less than three (3) months prior to the
expiration of then-current term.
<PAGE>
FIFTH. RENT
The LESSEE shall punctually and without deductions (except for
those provided by the applicable tax laws) pay to the LESSOR, at
its address or any other address as instructed by the LESSOR.
5.1. From the EFFECTIVE DATE, and payable in advance during
the first 5 (five) days of each month, the LESSEE shall
punctually pay to the LESSOR, as monthly rent, at its
address or any other address as instructed by the LESSOR,
and without deductions (except for those provided by the
applicable tax laws), the amount of $32,500.00 Dollars.
LESSEE agrees to pay the monthly installments at LESSOR's
domicile, or at the place and to the person that LESSOR
designates by given written notice to LESSEE.
5.2. After the second full year, LESSEE's monthly Base Rent
shall be increased each year thereafter by a fixed amount
of 3% per annum for each remaining year of the term of
this Lease.
5.3. All rental payments made after the term set forth above
shall accrue delinquent interest at a rate of five
percent (5%) per month).
9
SIXTH. INSURANCE
6.1. During the life of this agreement, the LESSEE, shall
cover the LESSEE and the LESSOR against any civil
liability claims, demands, lawsuits or actions, or
against the accidents or decease of any person, or from
any damages to the goods of any third party in connection
with the use by the LESSEE of the LEASED PREMISES.
LESSEE's indemnity to Landlord under this paragraph 6.1
shall be limited to the amount of insurance required by
LESSEE in paragraph 6.3 hereof.
6.2. During the life of this agreement, the LESSEE shall
be fully responsible for rents unpaid for any reason
imputable to LESSEE.
6.3. During the life of this agreement, the LESSEE agrees to
obtain an insurance policy in favor of the LESSOR to
cover the LEASED PREMISES against fire, lightning,
explosion, falling aircraft, collision, smoke, storms,
hail, vehicle damage, earthquakes, volcanic eruption,
strikes, riots, civil commotion, vandalism, flood and any
<PAGE>
other risks currently covered or which in the future may
be covered under the so called "extended coverage" policy
(including windows and gas tank coverage). In view of
the foregoing, the LESSEE hereby waives any right to
demand payment from the LESSOR for damages caused by
fire, explosion and other unforeseen events. The
corresponding insurance policy shall cover an insurable
value of $2'600,000.00 DOLLARS (TWO MILLION SIX HUNDRED
THOUSAND DOLLARS 00/100 U.S. Cy.).
6.4. The coverage mentioned in paragraph 6.3 above shall be
annually increased thereafter in accordance with the
annualized percentage increase of theConsumer Price Index
for the San Diego, California Metropolitan Area,
published by the U.S. Department of Labor for the
immediately preceding year.
SEVENTH. TAXES AND COSTS
The LESSOR shall be responsible of payment of the income and
10
assets taxes to which it is obligated. On its part, the LESSEE
shall be responsible for the payment of the real estate and any
other taxes or costs which may affect the LEASED PREMISES,
including VAT, which may derive from this agreement or which may
derive from the use of the LEASED PREMISES by the LESSEE. The
LESSEE shall submit to the LESSOR evidence satisfactory to the
LESSOR that such taxes have been paid.
EIGHTH. REPAIRS AND MAINTENANCE
8.1. LESSOR
8.1.1. After written notice from the LESSEE, the LESSOR
shall repair the structural or construction defects of
the foundation, floors, walls and roof of the LEASED
construction or as a consequence of the normal use of the
same, and for defective construction of HVAC, plumbing
and other systems, attempting to carry out this work
within 24 hours from notification. The LESSOR shall not
be responsible for the repairs of the LEASED PREMISES,
unless the LESSEE informs such circumstances immediately
to the LESSOR.
8.1.2. The LESSOR shall not be responsible, nor have the
obligation to repair the damages caused by the LESSEE'S
negligence, or that of LESSEE's workers, clients,
contractors or guests.
LESSOR shall not be responsible for leaking roofs if this
has been caused by any of LESSEE's workers, clients,
contractors or guests by not carefully walking on roof
while working.
<PAGE>
8.2. LESSEE
8.2.1. LESSEE shall be responsible for the repairs to
the damages suffered in the LEASED PREMISES other than
those referred to in clause 8.1. hereinabove. The
damages referred to in this paragraph include, but are
not limited to, the damages and maintenance that shall
be given to the plumbing systems, sewage, telephone, gas,
as well as for the equipment, interior walls, interior
painting, air conditioning, heaters, doors and windows,
11
etc., of the LEASED PREMISES. All the expenses resulting
of disregarding and the negligence of the LEASED
PREMISES, or a violation and the obligations of the
LESSEE set herein, shall be borne by the LESSEE. Among
the responsibilities are included among other things the
maintenance of the roof gutters and landscaping.
8.2.2. The LESSEE shall maintain the LEASED PREMISES and
its improvements free from any liens.
NINTH. INDEMNIFICATION
If either party (the "INDEMNIFIED PARTY") is held responsible
for any obligation undertaken by the other (the "INDEMNIFYING
PARTY"), the INDEMNIFYING PARTY shall indemnify and hold the
INDEMNIFIED PARTY harmless from any and all claims for damages or
losses of any kind, and to restore or reimburse any all such
costs and expenses to the INDEMNIFIED PARTY.
TENTH. UTILITY SERVICES
The LESSEE agrees to request directly from the corresponding
utility companies that the public services be rendered by such
companies, to pay for the corresponding connection fees and to
promptly pay for any and all utilities and related services
furnished to the LESSEE in the LEASED PREMISES, including but not
limited to water, gas, electricity, and telephone charges.
ELEVENTH. ASSIGNMENT AND SUBLETTING
11.1 The LESSEE may not assign its rights and obligations
under this agreement unless the assignee is an
affiliate of the LESSOR, nor may it sublet the LEASED
PREMISES unless it obtains the prior written
authorization of the LESSOR not be unreasonably withheld.
11.2 The LESSOR shall be entitled to assign, in whole or in
part, its rights and obligations under this agreement.
Consequently, the LESSEE hereby grants authorization to
<PAGE>
12
the LESSOR so that the latter may formalize, the
assignments which it may deem appropriate. Likewise,
LESSOR shall be expressly entitled to guarantee any of
its present or future obligations with its rights under
this agreement. LESSEE shall have the right to approve
in writing in advance any such assignment by LESSOR and
LESSOR agrees to provide LESSEE all names of the
prospective individual owners of the entity to which
LESSOR desires to assign the lease and the financial
capability of such new entity and/or owners.
TWELFTH. ACCESS TO THE LEASED PREMISES
12.1 The LESSOR or its authorized representatives shall have
the right to enter the LEASED PREMISES in emergencies at
all times, and at mutually agreeable times to make
repairs, additions, or alterations to the LEASED
PREMISES which it may be authorized or obligated to do
under this agreement.
12.2 LESSOR, within a ninety (90) days period prior to the
termination of this agreement, shall have the right to
show the LEASED PREMISES to any prospective clients,
provided such prospective client or tenant does not
compete with LESSEE in the same business, in whole or in
part. Likewise, and during the above mentioned term, the
LESSOR shall have the right to post the signs which it
may deem appropriate in the facade of the LEASED
PREMISES in order to promote the same.
12.3 Except in case of emergency, the LESSOR shall give notice
to the LESSEE before entering the LEASED PREMISES, and
the LESSEE shall have the right to escort any
representatives of the LESSOR and prospective clients.
LESSEE shall have the right to protect LESSEE's
proprietary data and information as well as proprietary
engineering or manufacturing processes and operations
from disclosure to any third party, even though such
third party may be a prospective client or tenant of
LESSOR.
13
THIRTEENTH. DAMAGE OR DESTRUCTION
13.1 TOTAL
In the event the whole or substantial part of the LEASED
PREMISES are damaged or destroyed so as to impede the
LESSEE's operation for the purposes for which the same
were leased, the LESSOR shall, within ten (10) days from
<PAGE>
such destruction, determine whether the LEASED PREMISES
can be restored within the following three (3) months
and notify the LESSEE of such determination. If the
LESSOR determines that the LEASED PREMISES cannot be
restored within the following three (3) months, either
the LESSOR or the LESSEE shall have the right and option
to immediately terminate this Lease Agreement by means
of a written notice to the other party. If the
LESSOR determines that the LEASED PREMISES can be
restored within said three (3) month period, the LESSOR
shall, at its own expense, proceed diligently to
reconstruct the LEASED PREMISES, but only up to the
amount which it may obtain from the insurance coverage
mentioned in Clause Sixth above.
13.2 PARTIAL
In the event the referred damages do not prevent the
LESSEE, in a substantial way, from continuing the
normal operation of its business on the LEASED PREMISES,
the LESSOR or the LESSEE, as the case may be, shall
repair said damages under the terms of clause EIGHT
above.
13.3 If the damage in question is caused by a negligent or
willful act of the LESSEE or its employees, the LESSEE
agrees to punctually pay the rent hereunder.
FOURTEENTH.- CAUSES FOR TERMINATION OF LEASE.
The LESSEE will have the right to terminate this lease at
any time in case that for any circumstance of force majeure,
14
fortuitous case or acts of government (expropiation, seizure,
etc.) he cannot continue industrial operations within the leased
premises. In such a case the LESSEE will notify the LESSOR of
his intention to terminate the lease 30 days in advance of the
effective date of termination. In the event LESSEE elects to
terminate the lease as allowed in this paragraph 14, then the
LESSEE shall be free of any further obligations or lease payments
under the lease upon written notification to LESSOR of LESSEE's
termination, as provided for in this paragraph 14.
FIFTEENTH. LESSOR'S RIGHT TO PERFORM THE LESSEE'S COVENANTS.
If the LESSEE shall at any time fail to perform any one or more
of its covenants made in this lease, the LESSOR, after five (5)
business days written notice to the LESSEE (or without notice in
the event the act or acts to be performed in fulfillment of the
breached covenant require an immediate action) and without
<PAGE>
waiving or releasing the LESSEE from any obligation of the LESSEE
contained in this Lease, may (but shall be under no obligation to)
perform any act on the LESSEE's part to be performed as provided in
this lease, and may enter upon the LEASED PREMISES for that purpose
and take all such actions thereon as may be necessary therefor.
All sums paid by the LESSOR and all costs and expenses incurred
by the LESSOR in connection with the performance of any such
obligation of the LESSEE, shall be payable by the LESSEE to the
LESSOR on demand, in the the late understanding that reimbursement
of costs and expenses shall accrue delinquent interest at a rate of
five percent (5%) per month.
SIXTEENTH.- GUARANTIES
16.1 LESSOR hereby acknowledges to have received from LESSEE, as
deposit, the amount of $65,000.00 DOLLARS (SIXTY FIVE THOUSAND
DOLLARS 00/100 U.S.Cy.) consisting of the equivalent of two
month's rent as security deposit throughtout the course of the
lease.
15
16.2 The deposit of $65,000 Dollars will be reimbursed to the
LESSEE, without interest, after the LESSOR carries out an
inspection of the condition on which the leased Premises are
returned.
16.3 LESSEE shall obtain and deliver to LESSOR, within 5 days
following execution of this agreement, a guaranty from
LOWRANCE ELECTRONICS, INC. under the terms of the
"Absolute Guarantee of Lease" which is attached hereto as
Exhibit "D". Accordingly, LOWRANCE ELECTRONICS, INC.
shall guaranty any and all obligations of the LESSEE
under this agreement.
16.4 In case of early termination for any forseeable cause
attributable to the LESSEE, the LESSOR shall be entitled
to keep any amounts delivered to the LESSOR as
prepaid rent or deposit, regardless of any other rights
which the LESSOR may be entitled to. Such amount shall
be applied to amounts owed by LESSEE hereunder.
SEVENTEENTH.- NOTICES
17.1 Any notice to be given to the LESSOR under this agreement
shall be sent to the address mentioned in recital I.B.
or to such other addresses which may from time to time
be notified by the LESSOR to the LESSEE.
<PAGE>
17.2 Any notice to be given to the LESSEE under this agreement
shall be addressed to the LEASED PREMISES, with a copy to
12000 East Skelly Drive, Tulsa, Oklahoma 74128, Ave.
Reforma #____, Ensenada, Baja California, Mexico.
17.3 Said notices shall be in writing, and shall be delivered
personally to the legal representative of the party in
question, or sent by certified mail, postage prepaid to
the addresses mentioned above, in which case the
corresponding notice shall be deemed delivered fourteen
(14) days after the date of mailing thereof.
16
EIGHTEENTH. EARLY TERMINATION
The LESSOR may terminate this agreement with proper written
notification or default in any of the following circumstances:
18.1 In case the term expressed in clause FOURTH above
expires.
18.2 The LESSEE's failure to pay any monthly rent due and
payable hereunder within 10 days of receipt of notice of
such failure.
18.3 Default in the performance of any of the LESSEE's
covenants, agreements or obligations hereunder which
remains incured 10 days after LESSEE's receipt of notice
thereof or, if such default cannot be fully cured within
10 days, if LESSEE has not commenced such cure within 10
days.
18.4 The filing of a petition of bankruptcy against the
LESSEE.
18.5 In case any competent court declares that any provision
hereunder is null and void so that the purposes of the
parties in entering this Lease are rendered futile.
18.6 Any other cause provided in the corresponding civil code.
In case LESSOR initiates any action to terminate this agreement,
due to the LESSEE's vacancy of the LEASED PREMISES prior to the
end of the LEASE TERM or its failure to vacate at the end of the
LEASE TERM, LESSEE shall reimburse LESSOR any costs of such
action. The LESSEE acknowledges that this clause shall not be
construed as an authrorization to occupy the LEASED PREMISES
beyond the term set forth herein.
<PAGE>
17
NINETEENTH.- MISCELANEOUS
19.1 In case any party fails to execute any action against the
other as to project a certain right under this agreement,
said failure shall not be construed as a waiver of any other
rights derived herefrom.
19.2 This agreement may only be modified by written agreement
signed by the authorized representatives of the parties.
19.3 In case any party hereto exercises an action against the
other in order to demand the performance of this agreement,
the prevailing party shall be entitled to reasonable attorney's
fees.
19.4 The parties agree that this Lease Agreement shall be
governed by the laws of State of Baja California. For
everything pertaining to the interpretation and compliance
of this Lease Agreement the parties hereby expressly submit
to the jurisdiction of the Civil Courts of the City of Tijuana,
Baja California,waiving any other jurisdiction which might be
applicable by reason of their present or future domiciles or
otherwise.
IN WITNESS WHEREOF, the parties have executed this agreement in
the places and on the dates stated hereinbelow.
LESSOR LESSEE
ERIC JUAN DE DIOS FLOURIE ELECTRONICA LOWRANCE DE
GEFFROY MEXICO, S.A. DE C.V.
___________________________ By: _____________________
Name: Terry Nimmo
Title: __________________
Date: _____________________ Date: ___________________
Place: ____________________ Place: __________________
18
GUARANTOR
LOWRANCE ELECTRONICS, INC.
<PAGE>
By: _______________________
Name: ______________________
Title: _____________________
Date: ______________________
Place: _____________________
WITNESS WITNESS
________________________
________________________
lowrance
P.1-18/last
<PAGE>
EXHIBIT 10.21
LEASE AGREEMENT ENTERED INTO BY AND BETWEEN ERIC JUAN DE DIOS
FLOURIE GEFFROY (ON HIS BEHALF AND WITH THE AUTHORIZATION OF
REFUGIO GEFFROY DE FLOURIE, ELIZABETH FLOURIE GEFFROY AND EDITH
FLOURIE GEFFROY) (HEREINAFTER REFERRED TO AS THE "LESSOR") AND
ELECTRONICA LOWRANCE DE MEXICO, S.A. DE C.V., REPRESENTED HEREIN
BY MR. TERRY NIMMO (HEREINAFTER REFERRED TO AS THE "LESSEE"),
PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES.
R E C I T A L S
I.- LESSOR hereby states:
A. That he has agreed to erect an industrial facility on lots
313, 314, 315 at Colonia Pacheco, Ensenada, B.C., Mexico
Fraction B, property of Mrs. Refugio Geffroy de Flourie and
co-owners as evidence by deed No. 13,579 dated August 14,
1996 granted before Mr. Angel Saad, Notary No. 4, for
Ensenada, Baja California, Mexico. The industrial building
has a ground floor area of 8,256 square meters and a second
floor consisting of 1,800 m2, as well as the tenant
improvements, in accordance with the drawings,
specifications, schedule of work and construction term set
forth by the parties and attached hereto as Exhibit "A".
Said building will be referred to as "the LEASED PREMISES".
B. That he is duly authorized to execute this contract in
accordance with certain agreements and authorizations
entered into and granted by Refugio Flourie de Geffroy,
Elizabeth Flourie de Geffroy and Edith Flourie Geffroy,
dated August 15, 1996.
C. That the building is being constructed on the following
address at the corner of Ave. Reforma and Calle Lirios,
of Colonia Pacheco, Ensenada, B.C., Mexico. A drawing
showing exact location as well as a description of the
referred piece of real estate is attached hereto as Exhibit
"B", being an integral part hereof.
D. He is willing to lease the LEASED PREMISES to the LESSEE
pursuant to the terms and conditions of this agreement.
II. LESSEE hereby states that:
A. It is a corporation duly organized and existing according to
the Laws of the Mexican Republic, as evidenced by deed No.
126,217, dated September 8, 1993, granted before Mr. Lic.
Gabriel Moreno Mafud, Notary Public No. 2 for Tijuana, Baja
California, Mexico. A copy of said deed is attached hereto
as exhibit "C".
2
B. Mr. TERRY NIMMO evidences to be duly authorized to execute
this agreement through the public deed which is referred to
in the preceding paragraph, and further states that such
authority has not been limited or revoked in any manner
whatsoever."
<PAGE>
C. That on a prior date it requested that the LESSOR construct
an industrial building to be part of the LEASED PREMISES
pursuant to LESSOR's drawings, specifications and schedule
of work which are attached hereto as Exhibit "A".
D. For the purposes of this agreement its domicile is located
at the LEASED PREMISES, that is at corner of Ave.
Reforma
and Calle de los Lirios s/n Colonia Pacheco, Ensenada, Baja
California 22800, and 12000 East Skelly Drive, Tulsa,
Oklahoma, 74128.
E. It wishes to lease from the LESSOR the LEASED PREMISES
pursuant to the terms and conditions hereunder.
IN VIEW OF THE FOREGOING, the parties hereto agree as follows:
C L A U S E S
FIRST. LEASE AND DELIVERY
The LESSOR hereby leases to the LESSEE and the LESSEE hereby
leases from the LESSOR the LEASED PREMISES, which are located at
corner of Ave. Reforma Esquina Calle de los Lirios s/n Colonia
Pacheco, Ensenada, Baja California 22800, and which are
described in Exhibit "B" hereto.
SECOND.- IMPROVEMENTS
2.1 LESSOR, at LESSOR's own cost and expense shall perform all
work, provide all labor, furnish all new materials, and
obtain all certificates and permits necessary to construct
an industrial building with an area ground floor of 8,256 m2
and a second floor consisting of approximately 1800 meters
(19,368 square feet) on the LEASED PREMISES (hereinafter the
"Improvements") in accordance with the preliminary
3
drawings, specifications, schedule of work and construction
terms set forth by the parties and attached hereto as
exhibit "A". The parties agree that within a term of 30
days as of the date hereof a final set of drawings and
specifications shall be completed and attached to exhibit
"A" herein. Unless LESSOR and LESSEE are able to reach
accord within thirty (30) days from the date hereof on a
final set of detailed drawings and specifications to replace
Exhibit "A" that are satisfactory to both LESSOR and LESSEE,
either party is free to terminate this lease.
2.2 By approval of the drawings and specifications, LESSEE
assumes no responsibility for technical compliance with the
terms and specifications set forth in exhibit "A" hereto.
The approval by LESSEE is for general arrangements only,
unless otherwise noted, and does not relieve LESSOR of full
<PAGE>
responsibility for the proper and correct design,
construction, function, and erection of the Improvements as
required.
2.3 LESSOR shall indemnify and hold harmless LESSEE from any and
all claims, assessments by government authorities, including
but not limited to property tax, real and attached personal
property. special assessments, fees, penalties thereon,
Social Security Institute, Workers Housing Institute and Tax
Authorities, as well as from damages and cost resulting from
or arising out of LESSOR's lack of performance of any of its
obligations for construction of Improvements, fixturs,
machinery and equipment to the LEASED PREMISES required
hereunder.
2.4 LESSOR acknowledges and agrees that LESSEE may request
changes in the design and specifications of the
Improvements, provided such changes do not affect the cost
thereof or the work schedule for construction of same. In
the event such changes affect the cost of the Improvements
or the work schedule, LESSOR and LESSEE shall jointly
determine the effects of the change in cost and any
extension to such schedule. All changes to the design and
specification of the Improvements shall be approved in
writing by both LESSEE and LESSOR and any if there is any
additional fees or charges to be assessed against LESSEE in
4
connection with any such change, the dollar amount of such
change must be agreed to in writing in advance; neither
LESSOR nor LESSEE shall make any changes in the drawings and
specifications of the Improvement without the express
written consent of both LESSEE and LESSOR.
2.5 As established in the specifications, drawings and schedule
of work incorporated by reference as exhibit "A", LESSOR
shall diligently complete the Improvements on the LEASED
PREMISES in order that LESSEE may use and occupy such
Improvements pursuant to the following schedule:
a) Beneficial Occupancy of LEASED PREMISES: August 15,
1996.
b) Final Occupancy of the LEASED PREMISES: October 1,
1996.
For purposes hereof, Beneficial and Final Occupancy shall be
defined as follows:
Beneficial Occupancy.- Shall be defined as the delivery to
LESSEE of the industrial portion of the Improvements
including walls, roof, floor slab, docks, in order that
LESSEE may move in its equipment into the LEASED PREMISES,
and that such equipment and any tenant Improvements that may
<PAGE>
be installed, be secured and not be damaged by weather or
the process of construction.
Final Occupancy.- Shall be defined as the substantial
completion of all works and interior finishing of the
industrial and office areas of the Improvements and all
exterior and infrastructure Improvements to permit LESSEE to
commence utilization of the LEASED PREMISES and all
Improvements for the unencumbered conduct of its business,
excluding non functional minor cosmetic items, or a punch
list of items not to exceed 2% of the construction price of
the improvements established pursuant to exhibit "B" hereto.
2.6 At all times following the execution of this Lease
Agreement, LESSEE shall have the right to enter the LEASED
PREMISES to inspect the progress of construction of the
5
Improvements, and LESSOR shall place the construction log
and any construction reports available at the disposal of
LESSEE, in order that LESSEE may be continuously appraised
of construction of the Improvements. If so requested by
LESSEE, LESSOR shall prepare a translation into English of
any such reports for LESSEE, and LESSEE agrees to reimburse
LESSOR for any expenses incurred in connection therewith.
2.7 LESSOR agrees to furnish to LESSEE a copy of results of all
tests effected by LESSOR or its contractors with regard to
the LEASED PREMISES or the construction of the Improvements,
and LESSEE shall be entitled to effect independent testing
of any portion of the LEASED PREMISES, Improvements or
materials and components of construction, at its sole
expense, in order to ascertain that the Improvements are
constructed in accordance with exhibit "A" hereto. Any such
independing testing by LESSEE shall not release LESSOR from
any obligations to construct the Improvements in accordance
with exhibit "A" hereto.
2.8 In the event the result of any of LESSEE's test indicate
that there is a material deviation in the terms and
specifications for construction of the Improvements, LESSEE
shall notify LESSOR of any such deviation and request
immediate correction thereof.
2.9 Should LESSOR fail to conclude construction of the initial
Improvements in order that LESSEE may occupy the LEASED
PREMISES on the date of Beneficial Occupancy set forth
hereinabove, LESSEE shall be entitled to receive as
contractual penalty liquidated damages the abatement of two
days of rent for each calendar day the initial Improvements
are not concluded pursuant to exhibit "A" hereof. This
abatement shall apply towards the first, and if applicable,
following months on which LESSEE commences to effect rental
payments as set forth herein. Notwithstanding such penalty
<PAGE>
and/or rental abatement, nothing contained herein shall
extend the date of Final Occupancy or diminish the
liquidated damages that LESSEE is entitled to receive in the
event LESSOR fails to provide LESSEE with Final Occupancy on
the date set forth in paragraph 2.5 above.
6
2.10 Furthermore, should LESSOR fail to complete construction of
the Improvements pursuant to exhibit "A" on or before the
date of Final Occupancy of the LEASED PREMISES, LESSEE shall
be entitled to receive as liquidated damages and in addition
to the rent abatement set forth in the preceding paragraph
the amount corresponding to two days rent for each calendar
day of delay following the projected date of Final
Occupancy, provided, however that should such delay continue
for sixty (60) days following the aforementioned date,
LESSEE, at its option, may terminate this agreement. Any
abatements hereunder shall apply towards the first, and if
applicable, following months on which LESSEE commences to
effect rental payments as set forth herein. The parties
acknowledges and agree that the date of Final Occupancy
shall be extended for a term equivalent to delays
attributable to LESSEE or LESSEE's contractors or
subcontractors, acts of God or force majeure. Likewise, and
in th event of heavy rain period, this being understood as
rainfall exceeding two inches in one day, during the three
months following the date of execution hereof, the dates of
Beneficial Occupancy and Final Occupancy will be extended
for a period to be agreed upon by the parties, which shall
not exceed thirty (30) days.
THIRD. OCCUPANCY BY LESSEE
The LESSEE shall use the LEASED PREMISES for clean and light
operations as per the authorizations and licenses which the
LESSEE shall obtain from the environmental and other competent
authorities, and therefore, agrees not to use the LEASED PREMISES
for chemical, heavy or other industries of similar nature.
Accordingly, it is hereby agreed that:
3.1. The LESSEE may, at its own risk and expense, install on
the LEASED PREMISES such fixtures, equipment and
furniture as it may deem necessary, provided, that such
items are installed and are removed without damage to the
LEASED PREMISES, except for the usual wear and tearand
normal damage required to remove LESSEE's fixtures,
equipment and furniture from the LEASED PREMISES".
7
3.2. The LESSEE shall repair all damages caused to the LEASED
PREMISES during installation or removal of the fixtures,
<PAGE>
equipment and furniture mentioned in the preceding
paragraph, usual wesr and tear excepted.
3.3. The LESSEE shall perform the installation or removal of
its equipment and furniture in accordance with all applicable
laws, ordinances, and regulations, being liable for any
violations thereto.
3.4. The LESSEE agrees to retrieve such fixtures, equipment,
furniture and/or improvements it may have installed in
the LEASED PREMISES on or before the date of termination
of this lease. Should the LESSEE fail to retrieve such
fixtures, equipment, furniture and/or improvements from
the LEASED PREMISES as provided above, the LESSOR shall
be entitled to either retrieve such fixtures, equipment,
furniture and/or improvements from the LEASED PREMISES at
the LESSEE's risk and expense, or deem that said
fixtures, equipment, furniture and/or improvements have
been left in the LEASED PREMISES by the LESSEE to
gratuitously inure in favor of the LESSOR. If LESSEE has
not removed all of LESSEE's furniture, fixtures and
equipment and improvements from the LEASED PREMISES
within thirty (30) days from the date of termination of
the Lease by LESSEE, then LESSOR upon providing LESSEE
with thirty (30) days written notice in advance, shall
thereafter have the right to either remove or retain
LESSOR's fixtures, equipment and furniture and
improvements if not removed by LESSEE in this thirty (30)
day period as set forth hereafter.
3.5. The LESSEE may not modify the exterior structure, facade
or public services of the LEASED PREMISES, nor it may
perform any works or make alteration without the
LESSOR's prior written consent, which will not be
unreasonably withheld. LESSEE shall have the right to
make any changes in the interior of the LEASED PREMISES
necessary for its ongoing operations, provided LESSEE
does not move any load bearing walls or harm the safety
or soundness of the LEASED PREMISES.
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FOURTH. LEASE TERM
4.1. The term of this Lease shall commence on October 1, 1996
(the Effective Date) and shall end on September 30, 2006.
4.2. LESSEE shall have the option to renew this Lease for four
(4) additional terms of five (5) years each on the terms
and conditions set forth herein. Such option shall be
exercised by providing LESSOR with notice of its intent
to do so not less than three (3) months prior to the
expiration of then-current term.
<PAGE>
FIFTH. RENT
The LESSEE shall punctually and without deductions (except for
those provided by the applicable tax laws) pay to the LESSOR, at
its address or any other address as instructed by the LESSOR.
5.1. From the EFFECTIVE DATE, and payable in advance during
the first 5 (five) days of each month, the LESSEE shall
punctually pay to the LESSOR, as monthly rent, at its
address or any other address as instructed by the LESSOR,
and without deductions (except for those provided by the
applicable tax laws), the amount of $32,500.00 Dollars.
LESSEE agrees to pay the monthly installments at LESSOR's
domicile, or at the place and to the person that LESSOR
designates by given written notice to LESSEE.
5.2. After the second full year, LESSEE's monthly Base Rent
shall be increased each year thereafter by a fixed amount
of 3% per annum for each remaining year of the term of
this Lease.
5.3. All rental payments made after the term set forth above
shall accrue delinquent interest at a rate of five
percent (5%) per month).
9
SIXTH. INSURANCE
6.1. During the life of this agreement, the LESSEE, shall
cover the LESSEE and the LESSOR against any civil
liability claims, demands, lawsuits or actions, or
against the accidents or decease of any person, or from
any damages to the goods of any third party in connection
with the use by the LESSEE of the LEASED PREMISES.
LESSEE's indemnity to Landlord under this paragraph 6.1
shall be limited to the amount of insurance required by
LESSEE in paragraph 6.3 hereof.
6.2. During the life of this agreement, the LESSEE shall
be fully responsible for rents unpaid for any reason
imputable to LESSEE.
6.3. During the life of this agreement, the LESSEE agrees to
obtain an insurance policy in favor of the LESSOR to
cover the LEASED PREMISES against fire, lightning,
explosion, falling aircraft, collision, smoke, storms,
hail, vehicle damage, earthquakes, volcanic eruption,
strikes, riots, civil commotion, vandalism, flood and any
<PAGE>
other risks currently covered or which in the future may
be covered under the so called "extended coverage" policy
(including windows and gas tank coverage). In view of
the foregoing, the LESSEE hereby waives any right to
demand payment from the LESSOR for damages caused by
fire, explosion and other unforeseen events. The
corresponding insurance policy shall cover an insurable
value of $2'600,000.00 DOLLARS (TWO MILLION SIX HUNDRED
THOUSAND DOLLARS 00/100 U.S. Cy.).
6.4. The coverage mentioned in paragraph 6.3 above shall be
annually increased thereafter in accordance with the
annualized percentage increase of theConsumer Price Index
for the San Diego, California Metropolitan Area,
published by the U.S. Department of Labor for the
immediately preceding year.
SEVENTH. TAXES AND COSTS
The LESSOR shall be responsible of payment of the income and
10
assets taxes to which it is obligated. On its part, the LESSEE
shall be responsible for the payment of the real estate and any
other taxes or costs which may affect the LEASED PREMISES,
including VAT, which may derive from this agreement or which may
derive from the use of the LEASED PREMISES by the LESSEE. The
LESSEE shall submit to the LESSOR evidence satisfactory to the
LESSOR that such taxes have been paid.
EIGHTH. REPAIRS AND MAINTENANCE
8.1. LESSOR
8.1.1. After written notice from the LESSEE, the LESSOR
shall repair the structural or construction defects of
the foundation, floors, walls and roof of the LEASED
construction or as a consequence of the normal use of the
same, and for defective construction of HVAC, plumbing
and other systems, attempting to carry out this work
within 24 hours from notification. The LESSOR shall not
be responsible for the repairs of the LEASED PREMISES,
unless the LESSEE informs such circumstances immediately
to the LESSOR.
8.1.2. The LESSOR shall not be responsible, nor have the
obligation to repair the damages caused by the LESSEE'S
negligence, or that of LESSEE's workers, clients,
contractors or guests.
LESSOR shall not be responsible for leaking roofs if this
has been caused by any of LESSEE's workers, clients,
contractors or guests by not carefully walking on roof
while working.
<PAGE>
8.2. LESSEE
8.2.1. LESSEE shall be responsible for the repairs to
the damages suffered in the LEASED PREMISES other than
those referred to in clause 8.1. hereinabove. The
damages referred to in this paragraph include, but are
not limited to, the damages and maintenance that shall
be given to the plumbing systems, sewage, telephone, gas,
as well as for the equipment, interior walls, interior
painting, air conditioning, heaters, doors and windows,
11
etc., of the LEASED PREMISES. All the expenses resulting
of disregarding and the negligence of the LEASED
PREMISES, or a violation and the obligations of the
LESSEE set herein, shall be borne by the LESSEE. Among
the responsibilities are included among other things the
maintenance of the roof gutters and landscaping.
8.2.2. The LESSEE shall maintain the LEASED PREMISES and
its improvements free from any liens.
NINTH. INDEMNIFICATION
If either party (the "INDEMNIFIED PARTY") is held responsible
for any obligation undertaken by the other (the "INDEMNIFYING
PARTY"), the INDEMNIFYING PARTY shall indemnify and hold the
INDEMNIFIED PARTY harmless from any and all claims for damages or
losses of any kind, and to restore or reimburse any all such
costs and expenses to the INDEMNIFIED PARTY.
TENTH. UTILITY SERVICES
The LESSEE agrees to request directly from the corresponding
utility companies that the public services be rendered by such
companies, to pay for the corresponding connection fees and to
promptly pay for any and all utilities and related services
furnished to the LESSEE in the LEASED PREMISES, including but not
limited to water, gas, electricity, and telephone charges.
ELEVENTH. ASSIGNMENT AND SUBLETTING
11.1 The LESSEE may not assign its rights and obligations
under this agreement unless the assignee is an
affiliate of the LESSOR, nor may it sublet the LEASED
PREMISES unless it obtains the prior written
authorization of the LESSOR not be unreasonably withheld.
11.2 The LESSOR shall be entitled to assign, in whole or in
part, its rights and obligations under this agreement.
Consequently, the LESSEE hereby grants authorization to
<PAGE>
12
the LESSOR so that the latter may formalize, the
assignments which it may deem appropriate. Likewise,
LESSOR shall be expressly entitled to guarantee any of
its present or future obligations with its rights under
this agreement. LESSEE shall have the right to approve
in writing in advance any such assignment by LESSOR and
LESSOR agrees to provide LESSEE all names of the
prospective individual owners of the entity to which
LESSOR desires to assign the lease and the financial
capability of such new entity and/or owners.
TWELFTH. ACCESS TO THE LEASED PREMISES
12.1 The LESSOR or its authorized representatives shall have
the right to enter the LEASED PREMISES in emergencies at
all times, and at mutually agreeable times to make
repairs, additions, or alterations to the LEASED
PREMISES which it may be authorized or obligated to do
under this agreement.
12.2 LESSOR, within a ninety (90) days period prior to the
termination of this agreement, shall have the right to
show the LEASED PREMISES to any prospective clients,
provided such prospective client or tenant does not
compete with LESSEE in the same business, in whole or in
part. Likewise, and during the above mentioned term, the
LESSOR shall have the right to post the signs which it
may deem appropriate in the facade of the LEASED
PREMISES in order to promote the same.
12.3 Except in case of emergency, the LESSOR shall give notice
to the LESSEE before entering the LEASED PREMISES, and
the LESSEE shall have the right to escort any
representatives of the LESSOR and prospective clients.
LESSEE shall have the right to protect LESSEE's
proprietary data and information as well as proprietary
engineering or manufacturing processes and operations
from disclosure to any third party, even though such
third party may be a prospective client or tenant of
LESSOR.
13
THIRTEENTH. DAMAGE OR DESTRUCTION
13.1 TOTAL
In the event the whole or substantial part of the LEASED
PREMISES are damaged or destroyed so as to impede the
LESSEE's operation for the purposes for which the same
were leased, the LESSOR shall, within ten (10) days from
<PAGE>
such destruction, determine whether the LEASED PREMISES
can be restored within the following three (3) months
and notify the LESSEE of such determination. If the
LESSOR determines that the LEASED PREMISES cannot be
restored within the following three (3) months, either
the LESSOR or the LESSEE shall have the right and option
to immediately terminate this Lease Agreement by means
of a written notice to the other party. If the
LESSOR determines that the LEASED PREMISES can be
restored within said three (3) month period, the LESSOR
shall, at its own expense, proceed diligently to
reconstruct the LEASED PREMISES, but only up to the
amount which it may obtain from the insurance coverage
mentioned in Clause Sixth above.
13.2 PARTIAL
In the event the referred damages do not prevent the
LESSEE, in a substantial way, from continuing the
normal operation of its business on the LEASED PREMISES,
the LESSOR or the LESSEE, as the case may be, shall
repair said damages under the terms of clause EIGHT
above.
13.3 If the damage in question is caused by a negligent or
willful act of the LESSEE or its employees, the LESSEE
agrees to punctually pay the rent hereunder.
FOURTEENTH.- CAUSES FOR TERMINATION OF LEASE.
The LESSEE will have the right to terminate this lease at
any time in case that for any circumstance of force majeure,
14
fortuitous case or acts of government (expropiation, seizure,
etc.) he cannot continue industrial operations within the leased
premises. In such a case the LESSEE will notify the LESSOR of
his intention to terminate the lease 30 days in advance of the
effective date of termination. In the event LESSEE elects to
terminate the lease as allowed in this paragraph 14, then the
LESSEE shall be free of any further obligations or lease payments
under the lease upon written notification to LESSOR of LESSEE's
termination, as provided for in this paragraph 14.
FIFTEENTH. LESSOR'S RIGHT TO PERFORM THE LESSEE'S COVENANTS.
If the LESSEE shall at any time fail to perform any one or more
of its covenants made in this lease, the LESSOR, after five (5)
business days written notice to the LESSEE (or without notice in
the event the act or acts to be performed in fulfillment of the
breached covenant require an immediate action) and without
<PAGE>
waiving or releasing the LESSEE from any obligation of the LESSEE
contained in this Lease, may (but shall be under no obligation to)
perform any act on the LESSEE's part to be performed as provided in
this lease, and may enter upon the LEASED PREMISES for that purpose
and take all such actions thereon as may be necessary therefor.
All sums paid by the LESSOR and all costs and expenses incurred
by the LESSOR in connection with the performance of any such
obligation of the LESSEE, shall be payable by the LESSEE to the
LESSOR on demand, in the the late understanding that reimbursement
of costs and expenses shall accrue delinquent interest at a rate of
five percent (5%) per month.
SIXTEENTH.- GUARANTIES
16.1 LESSOR hereby acknowledges to have received from LESSEE, as
deposit, the amount of $65,000.00 DOLLARS (SIXTY FIVE THOUSAND
DOLLARS 00/100 U.S.Cy.) consisting of the equivalent of two
month's rent as security deposit throughtout the course of the
lease.
15
16.2 The deposit of $65,000 Dollars will be reimbursed to the
LESSEE, without interest, after the LESSOR carries out an
inspection of the condition on which the leased Premises are
returned.
16.3 LESSEE shall obtain and deliver to LESSOR, within 5 days
following execution of this agreement, a guaranty from
LOWRANCE ELECTRONICS, INC. under the terms of the
"Absolute Guarantee of Lease" which is attached hereto as
Exhibit "D". Accordingly, LOWRANCE ELECTRONICS, INC.
shall guaranty any and all obligations of the LESSEE
under this agreement.
16.4 In case of early termination for any forseeable cause
attributable to the LESSEE, the LESSOR shall be entitled
to keep any amounts delivered to the LESSOR as
prepaid rent or deposit, regardless of any other rights
which the LESSOR may be entitled to. Such amount shall
be applied to amounts owed by LESSEE hereunder.
SEVENTEENTH.- NOTICES
17.1 Any notice to be given to the LESSOR under this agreement
shall be sent to the address mentioned in recital I.B.
or to such other addresses which may from time to time
be notified by the LESSOR to the LESSEE.
<PAGE>
17.2 Any notice to be given to the LESSEE under this agreement
shall be addressed to the LEASED PREMISES, with a copy to
12000 East Skelly Drive, Tulsa, Oklahoma 74128, Ave.
Reforma #____, Ensenada, Baja California, Mexico.
17.3 Said notices shall be in writing, and shall be delivered
personally to the legal representative of the party in
question, or sent by certified mail, postage prepaid to
the addresses mentioned above, in which case the
corresponding notice shall be deemed delivered fourteen
(14) days after the date of mailing thereof.
16
EIGHTEENTH. EARLY TERMINATION
The LESSOR may terminate this agreement with proper written
notification or default in any of the following circumstances:
18.1 In case the term expressed in clause FOURTH above
expires.
18.2 The LESSEE's failure to pay any monthly rent due and
payable hereunder within 10 days of receipt of notice of
such failure.
18.3 Default in the performance of any of the LESSEE's
covenants, agreements or obligations hereunder which
remains incured 10 days after LESSEE's receipt of notice
thereof or, if such default cannot be fully cured within
10 days, if LESSEE has not commenced such cure within 10
days.
18.4 The filing of a petition of bankruptcy against the
LESSEE.
18.5 In case any competent court declares that any provision
hereunder is null and void so that the purposes of the
parties in entering this Lease are rendered futile.
18.6 Any other cause provided in the corresponding civil code.
In case LESSOR initiates any action to terminate this agreement,
due to the LESSEE's vacancy of the LEASED PREMISES prior to the
end of the LEASE TERM or its failure to vacate at the end of the
LEASE TERM, LESSEE shall reimburse LESSOR any costs of such
action. The LESSEE acknowledges that this clause shall not be
construed as an authrorization to occupy the LEASED PREMISES
beyond the term set forth herein.
<PAGE>
17
NINETEENTH.- MISCELANEOUS
19.1 In case any party fails to execute any action against the
other as to project a certain right under this agreement,
said failure shall not be construed as a waiver of any other
rights derived herefrom.
19.2 This agreement may only be modified by written agreement
signed by the authorized representatives of the parties.
19.3 In case any party hereto exercises an action against the
other in order to demand the performance of this agreement,
the prevailing party shall be entitled to reasonable attorney's
fees.
19.4 The parties agree that this Lease Agreement shall be
governed by the laws of State of Baja California. For
everything pertaining to the interpretation and compliance
of this Lease Agreement the parties hereby expressly submit
to the jurisdiction of the Civil Courts of the City of Tijuana,
Baja California,waiving any other jurisdiction which might be
applicable by reason of their present or future domiciles or
otherwise.
IN WITNESS WHEREOF, the parties have executed this agreement in
the places and on the dates stated hereinbelow.
LESSOR LESSEE
ERIC JUAN DE DIOS FLOURIE ELECTRONICA LOWRANCE DE
GEFFROY MEXICO, S.A. DE C.V.
___________________________ By: _____________________
Name: Terry Nimmo
Title: __________________
Date: _____________________ Date: ___________________
Place: ____________________ Place: __________________
18
GUARANTOR
LOWRANCE ELECTRONICS, INC.
<PAGE>
By: _______________________
Name: ______________________
Title: _____________________
Date: ______________________
Place: _____________________
WITNESS WITNESS
________________________
________________________
lowrance
P.1-18/last
