<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, 1997
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 27, 1997 - $5,436,002
Number of Shares of Common Stock
Outstanding on October 27, 1997 - 3,352,458
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held
December 9, 1997 - Part III
<PAGE>
FORM 10-K
Annual Report for Fiscal Year Ended July 31, 1997
LOWRANCE ELECTRONICS, INC.
Page
----
Table of Contents
-----------------
PART I
Item 1. Business............................................. 1
Item 2. Properties........................................... 12
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
<PAGE>
LOWRANCE ELECTRONICS, INC.
Annual Report
For the Year Ended July 31, 1997
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-nine 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.
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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 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 GlobalMap 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 $600.
In fiscal year 1997, the Company began shipping its breakthrough 12-
channel GPS receivers with the introduction of two new gimbal-mount units,
the Eagle View and Lowrance GlobalNav 310, and two new hand-held GPS
products, the Eagle Explorer and Lowrance GlobalNav 200. The highly-compact
Eagle View and Lowrance GlobalNav 310 GPS receivers feature an integrated 12
parallel-channel receiver for outstanding performance at retail prices of
$299 and $369 respectively. Featuring a powerfully-fast and highly-
dependable 12 parallel-channel receiver, advanced navigational software and
exclusive rechargeable battery options, the Eagle Explorer and Lowrance
GlobalNav 200 were introduced at retail prices of $199 and $239,
respectively.
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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.
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
---------------------------------
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Type of Sonar Displays -
LCD's, including combination
navigation units 68.9% 62.8% 51.4%
Other sonars 4.6 4.0 4.0
GPS, including stand-alone units
and modules 16.3 23.7 35.8
Accessories 10.2 9.5 8.8
----- ----- -----
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 98% of total sales. Sales of Eagle products, as a percentage of total
sales were approximately 58% in 1995, 50% in 1996 and 54% in 1997.
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, 1997, the Company had
approximately 2,400 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
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with the longest dating terms of 90 days being offered for shipments during the
first quarter of the fiscal year.
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 accounted for less than two
percent of fiscal 1997 sales.
The Company's products are sold in all fifty states and fifty-nine countries
internationally. The Company's international sales totaled $21,000,000 in
fiscal 1995, $20,000,000 in fiscal 1996, and $25,000,000 in fiscal 1997,
representing approximately , 23%, 21%, and 24% 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 1995, 1996, and represented 10% of net sales in 1997.
The top ten customers, including Wal-Mart Stores, Inc., accounted for
approximately 35%, 34%, and 34% in 1995, 1996 and 1997, 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 27, 1997, the Company's backlog of orders exceeded $9.8
million, including orders for new products which represented 21% of the backlog.
The backlog one year ago at this time was $10 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
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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
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 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, serious outdoors
enthusiasts and pilots trained and equipped by the Company to promote the
Company's products at fishing tournaments, store promotions, club talks,
seminars, and tackle, and boat, hunting and aviation shows.
The Company also advertises its products in newspapers, magazines, and on
television. 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. The Company, through
its Eagle brand, is also an Affiliate Sponsor of the new Wal-Mart FLW tournament
trail in 1998. The Wal-Mart FLW tour offers the world's largest cash prize for
bass tournaments, including a $1,000,000 purse. The Wal-Mart FLW tour is
sponsored by Genmar Holdings, which also owns numerous boat manufacturers
including Ranger, Lund, Crestliner and Carver Yachts, to whom the Company
provides OEM sonar products. Dealer and distributor support
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includes the availability of point-of-purchase displays, posters, videos, and
product simulators to assist in displaying the Company's products.
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 June 1997, the Company together with this competitor
currently account for approximately 80% of sonar sales within this market
segment in the United States. In this 1997 study, the Company's total market
share (Eagle and Lowrance brands combined) was found to be greater than 50%.
The Company believes that the study results reflect current market conditions.
Competition in the sports fishing and recreational 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 and is expected to approach the size of the market
for sonar products during 1997. The Company believes that it has captured less
than 20% of this market to date. It introduced two new GPS product designs last
year which began shipping during the first and second quarters of fiscal 1997 at
highly competitive low-end prices. The Company's ability to capitalize on the
growth of recreational GPS products improved with these new price-competitive
products and two additional models which began shipping during the first quarter
of fiscal 1998. 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 continue to control in excess of 70% of
the hand-held GPS market. The primary reason for their success is that both
companies have introduced and marketed several products retailing for under $200
and have, as a result of the Company's new low-priced products with 12-channel
receivers, been forced to close-out large volumes of their single channel
products for under $130 retail. Both companies offer a range of higher priced
products with more features than their lowest priced models including products
specifically aimed at the avionics market. Last year, one of these competitors
introduced a combined GPS and sonar model and a sonar-
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only model, to date, their only sonar products. The Company does not believe
that these models will have a significant impact on its own extensive lines of
sonar products during fiscal 1998.
Currently, the Company offers four Eagle and six Lowrance hand-held
products, which retail at prices between $179 and $799. The Company began
shipping it's new Eagle Explorer hand-held GPS during the second quarter of
fiscal 1997. This product features a 12 parallel-channel receiver, high-
resolution display, internal battery back-up for stored information and a unique
rechargeable battery option for a retail price of approximately $199.
Together with the Lowrance GlobalNav 200, the Eagle Explorer was
instrumental in establishing the Company's immediate and increased presence in
multiple non-marine retail markets and outlets. These products, combined with
an extensive advertising and promotion campaign, significantly increased
consumer awareness and recognition of the Eagle and Lowrance brand names in
historically non-traditional markets. Currently, the Company enjoys
distribution through several new outdoor recreational outlets who serve hikers,
campers, skiers, climbers and other outdoor enthusiasts.
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 United States military's GPS would be the preferred method of
navigation in
8
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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 introduced in 1994, now retails for under $100, provided users
with four times the resolution of its nearest competitive model. Another model
new in 1994, the GlobalMap 1000, represented the first fully waterproof mapping
unit with a built-in mapping database and the capability of using highly-popular
detailed 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 navigation 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 "three dimensional" 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 hand-held GPS mapping products. In fiscal 1998, the Company
is introducing two new sonar products with enhanced display screen resolution
and newly designed cases, as well as operating software in several of its sonar
and GPS products. Additionally, the Company will deliver four new hand-held GPS
products, each utilizing new 12 parallel-channel receiver technology.
Research and development expenditures of the Company were $2,868,000 in
fiscal 1995, $3,439,000 in fiscal 1996, and $3,936,000 in fiscal 1997. 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 expanded its production operation in
Mexico by consolidating its existing manufacturing operations in Ensenada,
Mexico into a newly constructed 88,000 square foot leased facility which has
been constructed to allow expansion to 108,000 square feet as the Company
requires more operating space. Currently, the Company utilizes 70,000 square
feet for manufacturing, including a 26,000 square foot clean room within the
88,000 square feet presently occupied by the Company. In the expanded Mexico
facility, the Company manufactures its transducer and cable assemblies as well
as assembles most of the liquid crystal displays used in its products.
Additionally, the Company performs final assembly, final testing and packing
operations on most of its products in the Mexico facility. The transfer of
9
<PAGE>
the final assembly and liquid crystal display assembly operations from the
Company's Tulsa facility began in August 1996 and was completed in July 1997.
The Company will continue to assemble and test all circuit boards in its
existing facility in Tulsa. 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, with its
expanded Mexico operation, are sufficient to allow increased production without
substantial future 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 with 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.
10
<PAGE>
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 from the Company's
plant in Tulsa, Oklahoma, and from ten "depot" centers throughout the United
States and from dealers and distributors in fifty-nine foreign countries.
Patents and Trademarks
- ----------------------
Since 1970, the Company has obtained thirty-seven 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 forty 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, 1997, the Company employed 1,338 persons on a full-time basis
of whom approximately 1,122 were involved in manufacturing and materials. Of
the 1,122 full time employees involved in manufacturing and materials, 386
employees are located in the Company's headquarters in Tulsa and 736 are located
in the Company's leased manufacturing facility in Ensenada, Mexico. The
remaining 216 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. All
of the temporary workers are located in the Tulsa facility. At July 31, 1997,
approximately 150 of such workers were engaged by the Company and 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.
11
<PAGE>
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 35,000 square feet are used for manufacturing operations, 36,000
square feet for warehousing, and 45,000 square feet for office and laboratory
space.
Prior to fiscal 1997, the Company, through its Mexican subsidiary, leased a
25,000 square foot manufacturing facility in Ensenada, Mexico. In fiscal 1997,
the Company expanded its Ensenada, Mexico operations by leasing a new 88,000
square foot 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. During fiscal 1997, the
existing facility was eliminated and combined with operations in the new
facility.
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 27, 1997, 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>
1996 1997
-------------- --------------
High Low High Low
$ $ $ $
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter 6 1/2 4 1/2 8 1/4 5
2nd Quarter 5 1/2 3 3/4 11 6 1/2
3rd Quarter 6 1/2 4 3/4 10 7 1/2
4th Quarter 7 1/4 4 3/4 8 5/8 5
</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,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $79,634 $81,250 $91,116 $94,579 $104,659
Gross profit $28,182 $25,330 $31,069 $31,988 $ 26,881
Income (loss) before
income taxes and
extraordinary credit $ 4,423 $(1,663) $ 2,061 $ 2,199 $ (7,877)
Net income (loss) $ 3,000 $ (672) $ 1,422 $ 1,743 $ (5,190)
Per Share Data:
Weighted average number
of shares outstanding 3,403 3,350 3,352 3,352 3,352
Net income (loss) $.88 $(.20) $.42 $.52 $(1.55)
Balance Sheet Data:
Working capital $11,090 $12,872 $14,777 $18,509 $ 18,427
Total assets $28,376 $35,028 $40,228 $47,108 $ 61,366
Long term debt, less
current maturities $ 5,269 $ 9,379 $ 9,975 $13,705 $ 21,805
Stockholders' equity $12,630 $11,991 $13,452 $15,196 $ 9,952
</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,
-----------------------
1995 1996 1997
----- ----- -----
(percent of net sales)
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 65.9 66.2 74.3
----- ----- -----
Gross profit 34.1 33.8 25.7
Operating expenses:
Selling and administrative 24.2 24.6 25.7
Research and development 3.2 3.6 3.8
Unusual Item 1.2 - -
----- ----- -----
Operating income (loss) 5.5 5.6 (3.8)
Interest expense (1.7) (2.0) (2.3)
Other, net (1.5) (1.3) (1.4)
----- ----- -----
Income (loss) before income
taxes 2.3 2.3 (7.5)
Provision (benefit) for
income taxes .7 .5 (2.6)
----- ----- -----
Net income (loss) 1.6 1.8 (4.9)
===== ===== =====
</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>
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%
======== ===== ======= =======
1997
----
First Quarter (Aug.-Oct.) $ 14,110 13.5% $(2,371) (45.7)%
Second Quarter (Nov.-Jan.) 20,114 19.2 (1,246) (24.0)
Third Quarter (Feb.-Apr.) 39,594 37.8 1,209 23.3
Fourth Quarter (May-July) 30,841 29.5 (2,782) (53.6)
-------- ----- ------- -------
Total for Year $104,659 100.0% $(5,190) (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. International
sales for 1997 increased over 1996 by $5.4 million (25%). Canadian sales grew
37%, Australian sales were up 19%, and all other International sales increased
25%, primarily because of improving European economies, expanded points of
distribution and increased sales of GPS products. 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
16
<PAGE>
recreational boating and sport fishing resulting from significant increases in
oil prices, or new product introductions by competitors.
Sales of sonar products including combination sonar/GPS units were down $5.9
million (9.5%) from fiscal 1996 to 1997, following a decrease of approximately
$3.8 million (6%) from fiscal 1995 to 1996. The decline in sonar sales when
comparing 1996 to 1997 results from limited product availability caused by
production delays on the Company's new mid and upper series sonar products in
1997. Sales of GPS products increased approximately $6.9 million (51%) from
fiscal 1995 to 1996 and increased approximately $15.1 million (84%) from fiscal
1996 to 1997. 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 effect on sales and net income for the fourth quarter of 1996. The
1997 increase is primarily attributable to the introduction of the low-cost
gimbal-mount and hand-held GPS products.
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.
The Company uses a Material Requirements Planning (MRP) 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 MRP system
also results in a reduction of the Company's safety stock and a shorter
manufacturing cycle. However, extenuating circumstances can and do occur which
render a MRP system ineffective at controlling inventory levels. Such
circumstances were experienced during 1997 and are discussed below in "Working
Capital".
The following discussion and analysis relate to factors that have affected
the financial condition and operating results of the Company for fiscal years
1995 through 1997. 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 1997 increased 10.7% over fiscal 1996. Unit sales,
which include sonar units, combination sonar/navigation units, and stand-alone
navigation units, increased 19.4% and the average price per unit decreased 7.9%.
When comparing fiscal 1997 to 1996, unit sales increased because of higher
sales of the Company's new low-cost hand-held GPS products which are sold
primarily to mass merchandisers, mail order catalog companies, retail sporting
goods stores and wholesalers. This increase was slightly offset by decreased
sales of the Company's sonar products. The increase in GPS sales resulted from
the continuing expansion of this market, as well as the Company's introduction
of the $199 Eagle Explorer and the $239 Lowrance GlobalNav 200 models which
began shipping in the second and third quarters of fiscal 1997, respectively.
Also, the two new portable GPS products with mapping capabilities, which began
shipping in late 1996, were available for the entire year in 1997. The decrease
in the average price per unit resulted from increased sales of the Explorer and
GlobalNav units and an increased weighting in the sonar sales mix toward low-
priced sonar units. This weighting was the result of limited availability of
the Company's six new mid and upper priced sonar products. Production delays
resulted in several of these products shipping in limited quantities until late
in the third quarter. Additionally, retailers are allocating more shelf space
and are open to allocate more inventory dollars to GPS at the expense of sonar
products due to the rapid growth and market potential of GPS.
Net sales for fiscal 1996 increased 3.8% over fiscal 1995. Unit sales
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.
18
<PAGE>
Gross Profit
- ------------
The gross profit margin decreased from 33.8% in fiscal 1996 to 25.7% in 1997
due primarily to: 1) the shift in mix of units sold to the low-priced GPS units
which generally have a correspondingly low profit margin; 2) unplanned
production of certain new 1997 products in the Company's Tulsa production
facility versus in the new Mexico facility; 3) inefficiencies in certain
production processes in the Tulsa production facility; and 4) high production
labor cost and employee turnover in Tulsa due to record low unemployment in that
labor market. Additionally, the new sonar products, which began shipping in
volume in the second and third quarters of 1997, generally carry above average
margins for the Company, but were not available for much of the year.
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.
Operating Expenses
- ------------------
Operating expenses, as a percentage of net sales increased from 28.3% in
fiscal 1996 to 29.5% in 1997. Total costs increased $4,106,000. The major
factors contributing to this increase were 1) $3,400,000 additional advertising
and marketing expenses related to the Company's push to acquire market share in
the GPS market and in introducing the new sonar products; 2) other variable
selling expenses, such as freight-out and product returns cost, were up
approximately $700,000 due to increased volumes, and 3) research and development
expenditures were up $500,000 due to the Company's continuing efforts to develop
new products. Expense reductions in general and administrative costs partially
offset the effects of the above increases.
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.
Interest Expense
- ----------------
Interest expense in fiscal 1997 increased by $517,000 from 1996 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, the buildup
of inventories, and for support of the move of certain manufacturing operations
to the Company's Mexico manufacturing facility.
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.
Income Taxes
- ------------
The effective tax rate for fiscal 1995, 1996 and 1997 was 31%, 20.7%, and
(34.1)%, respectively. For Fiscal 1996, the effective tax rate is less than the
statutory federal tax rate of 34% due primarily to increases in state
19
<PAGE>
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.
Income/(Loss)
- -------------
Net income (loss) as a percentage of net sales was (4.9%) in fiscal 1997,
1.8% in fiscal 1996, and 1.6% in fiscal 1995. The loss in 1997 was attributable
to the factors discussed above in this section.
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
$13,000,000. 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,
sales historically increase and 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 was 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.
During fiscal 1997, the Company began relocating certain of its
manufacturing operations to its new plant in Mexico. The start-up of the new
facility in Mexico was substantially on schedule. However, record low
unemployment rates in Tulsa resulted in excessive turnover of production workers
and an inability to maintain sufficient trained staff to support the Company's
substantially increased production schedule intended to support record demand
for its GPS products. This problem was magnified by management's focus on the
start-up of the new Mexico facility and production delays of the Company's six
new sonar models. These problems caused an excessive build-up of raw material
and work-in process inventories that the Company could not convert to finished
goods until after the peak selling season. These factors resulted in
inventories remaining well above historical levels throughout fiscal 1997.
Management has implemented controls to better
20
<PAGE>
manage production scheduling and inventory levels. Inventory is expected to
gradually decline throughout fiscal 1998.
Management expects the sources discussed above, combined with a new
$4,000,000 term loan and up to $3,000,000 of expanded borrowings under its
existing line of credit, to satisfy the Company's current financing needs. At
July 31, 1997, there were approximately $2.3 million of 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 1997. As is consistent with prior years, management expects to be at
maximum borrowing limits through the first three quarters of fiscal 1998.
Because the line of credit will be at its maximum during this period, the
Company will be required to delay payments to vendors as it has historically
done. Management does not expect any significant long-term effect from these
delayed payments as most vendors have supplied the Company for many years.
Additionally, because of the additional financing noted above, overall lower
projected inventory levels and an expected return to profitability in fiscal
1998, the Company does not expect payment delays to the levels experienced in
fiscal 1997.
Cash flows provided by financing activities for fiscal 1997 were used to
finance capital additions (not financed by leases) of $2.7 million and to
provide funds consumed in operating activities of $2.6 million. 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.
Working Capital
- ---------------
The Company's working capital ratio was 1.6 at July 31, 1997 and 2.1 at July
31, 1996. Change in this ratio is due to the loss in fiscal 1997 and the
increased inventories at July 31, 1997, as discussed above and below.
Inventory levels at July 31, 1997 were up $7.1 million or 34% from July 31,
1996. This increase resulted from production delays related to a longer-than-
planned transition to the Company's new facility in Mexico, as well as unplanned
delays in producing the Company's new products introduced in 1997. Also,
unexpected inefficiencies in the Tulsa production facility, discussed above in
"Gross Profit", compounded the build-up in inventories. The increase in trade
payables directly relates to the increase in inventories and the delays in
payments to vendors discussed above.
Management expects that inventories will continue to decline during fiscal
1998. As the inventory level declines, management also expects payments to
vendors to continue to improve correspondingly. The Company does not expect
substantial realization problems with this inventory.
Long-Term Debt and Revolving Credit Agreement
- ---------------------------------------------
At July 31, 1997, 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 1.5% over prime with maximum
borrowings of up to $26,500,000 on the revolving line of credit.
In August 1997, the Company expanded the borrowings available under its term
and revolving credit loan agreements. This expanded the financing available by
$7 million, including an additional $4 million term loan and up to $3 million of
additional borrowings under its revolving line of credit
21
<PAGE>
secured by certain inventories and receivables located outside the United
States.
Capital Expenditures
- --------------------
Capital expenditures were $2,461,000, $3,968,000, and $3,790,000 for the
years ended July 31, 1995, 1996, and 1997, respectively. Of the fiscal 1997
total, approximately $2.7 million is related to tooling, molds, dies, and
equipment to design and manufacture the Company's products. For 1998, the
Company plans to spend approximately $1.7 million on capital expenditures with
substantially all of this amount allocated to production equipment and tooling.
Effects of Inflation
- --------------------
A significant portion of the Company's cost and expenses consist of
materials, supplies, salaries, and wages that are affected 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 a return to profitability in fiscal 1998, primarily
as the result of continuing favorable economic and market conditions, market
acceptance of the Company's 1997 product offering, full year availability of the
new 1997 product offering, lower manufacturing cost relating to a full years
production from the Company's new Mexico manufacturing facility and lower
selling and administrative cost. Management currently anticipates positive cash
flows from operations in fiscal 1998 based on attaining current projections for
net income and inventory levels. The Company is not expecting additional new
products to contribute significantly to the 1998 net sales projections. The
expectation for returned profitability based on the above factors constitutes
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company
believes that these forecasts are based on reasonable assumptions, however, no
assurances can be given that these goals will be achieved. If the Company
experiences production delays due to raw materials shortages 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 1997
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 1997
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 1997
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 1997
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, 1996 and 1997 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1995, 1996, and 1997 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1995, 1996, and 1997 F-5
Consolidated Statements of Cash Flows for the Years
Ended July 31, 1995, 1996, and 1997 F-6
Notes to Consolidated Financial Statements
for the Years Ended July 31, 1995, 1996, and 1997 F-7
Schedules for the Years Ended July 31, 1995, 1996, and 1997
II - Valuation and Qualifying Accounts F-17
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.
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.
24
<PAGE>
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.
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.
25
<PAGE>
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.
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.
26
<PAGE>
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 1996 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, previously filed as Exhibit 10.20
to the Company's 1996 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
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, previously filed
as Exhibit 10.21 to the Company's 1996 Annual Report on Form
10-K, which is incorporated herein by reference thereto.
10.22 Second Amendment to Loan and Security Agreement dated November
1, 1996, by and between the Company and Fleet Capital
Corporation (formally Shawmut Capital Corporation), filed
herewith.
10.23 Third Amendment to Loan and Security Agreement dated December
31, 1996, by and between the Company and Fleet Capital
Corporation (formally Shawmut Capital Corporation), filed
herewith.
10.24 Fourth Amendment to Loan and Security Agreement dated August
14, 1997, by and between the Company and Fleet Capital
Corporation (formally Shawmut Capital Corporation), filed
herewith.
10.25 Fifth Amendment to Loan and Security Agreement dated August
25, 1997, by and between the Company and Fleet Capital
Corporation (formally Shawmut Capital Corporation), 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:
-------------------
No reports on Form 8-K were filed for the three months ended July 31,
1997.
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, 1997 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, 1997
Officer, and Director
(Principal Executive Officer)
/s/ Mark C. Wilmoth
- ---------------------------
Mark C. Wilmoth Vice President of Finance and October 28, 1997
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Alpo F. Crane
- ---------------------------
Alpo F. Crane Director October 28, 1997
/s/ Willard P. Britton
- ---------------------------
Willard P. Britton Director October 28, 1997
/s/ Peter F. Foley, III
- ---------------------------
Peter F. Foley, III Director October 28, 1997
/s/ Ronald G. Weber
- ---------------------------
Ronald G. Weber Executive Vice President of October 28, 1997
Technology and Engineering
and Director
/s/ Robert F. Biolchini
- ---------------------------
Robert F. Biolchini Secretary and Director October 28, 1997
28
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
- ----------------------------------------------------------------------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - July 31, 1996 and 1997 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1995, 1996, and 1997 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1995, 1996, and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1995, 1996, and 1997 F-6
Notes to Consolidated Financial Statements for the Years Ended
July 31, 1995, 1996, and 1997 F-7
Supplemental Schedule
---------------------
Schedule II - Valuation and Qualifying Accounts
for the Years Ended July 31, 1995, 1996, and 1997 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, 1997
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, 1997. These 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 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997, 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 10, 1997
F-2
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
JULY 31,
------------------
1996 1997
-------- --------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalent $ 621 $ 866
Trade accounts receivable, net of reserves
of $539,000 in 1996 and $907,000 in 1997 12,821 16,346
Inventories (Note 2) 20,773 27,880
Prepaid income taxes 1,304 1,587
Prepaid expenses 631 400
Income tax refund receivable - 957
------- -------
Total current assets 36,150 48,036
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 10,043 11,209
OTHER ASSETS 915 1,106
DEFERRED INCOME TAXES - 1,015
------- -------
$47,108 $61,366
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 5,019 $ 4,149
Accounts payable 8,158 21,496
Accrued liabilities:
Compensation and benefits 2,482 2,664
Product costs 1,113 1,076
Other 869 853
------- -------
Total current liabilities 17,641 30,238
------- -------
DEFERRED INCOME TAXES 566 -
------- -------
LONG-TERM DEBT, less current maturities
(Note 3) 13,705 21,176
------- -------
Series "A" Redeemable Preferred Stock, $.50 par
value, 70,000 shares authorized and issued (Note 5) - -
STOCKHOLDERS' EQUITY, per accompanying
statements (Note 5):
Preferred stock, no par value, 230,000 shares
authorized, none issued - -
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 9,404 4,214
Foreign currency translation adjustment (143) (197)
------- -------
Total stockholders' equity 15,196 9,952
------- -------
$47,108 $61,366
======= =======
</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,
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
(in thousands, except per share amounts)
NET SALES $91,116 $94,579 $104,659
COST OF SALES 60,047 62,591 77,778
------- ------- --------
Gross profit 31,069 31,988 26,881
------- ------- --------
OPERATING EXPENSES:
Selling and administrative 22,095 23,285 26,894
Research and development 2,868 3,439 3,936
Unusual item (Note 12) 1,100 - -
------- ------- --------
Total operating expenses 26,063 26,724 30,830
------- ------- --------
Operating income (loss) 5,006 5,264 (3,949)
------- ------- --------
OTHER EXPENSES:
Interest 1,581 1,881 2,398
Other 1,364 1,184 1,530
------- ------- --------
Total other expenses 2,945 3,065 3,928
------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES 2,061 2,199 (7,877)
PROVISION (BENEFIT) FOR INCOME
TAXES (Note 7) 639 456 (2,687)
------- ------- --------
NET INCOME (LOSS) $ 1,422 $ 1,743 $ (5,190)
======= ======= ========
NET INCOME (LOSS) PER COMMON SHARE (Note 5) $ .42 $ .52 $ (1.55)
======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 5) 3,352 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, 1995, 1996, AND 1997
-------------------------------------------------
(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, 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)
Net loss - - - (5,190) -
Foreign currency
translation adjustment - - - - (54)
------ ------ ------- ------- -----
Balance -
July 31, 1997 3,352 $335 $5,600 $ 4,214 $(197)
====== ====== ======= ======= =====
</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,
--------------------------------
1995 1996 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,422 $ 1,743 $ (5,190)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation 2,480 2,561 2,632
(Gain)loss on sale of fixed assets (8) 55 (7)
Foreign currency translation adjustment 39 1 (54)
Change in operating assets and liabilities:
Increase in trade accounts
receivable (1,507) (2,156) (3,525)
Increase in inventories (5,098) (2,797) (7,107)
Decrease (increase) in
income tax refund receivable 1,066 - (957)
(Increase)decrease in prepaid expenses,
prepaid income taxes and deferred income taxes 350 (55) (1,633)
Increase in other assets (301) (467) (191)
Increase in accounts payable 1,824 664 13,338
Increase (decrease) in accrued liabilities 581 (855) 129
-------- -------- --------
Net cash provided by (used in)
operating activities 848 (1,306) (2,565)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,346) (1,942) (2,722)
Proceeds from sale of property, plant
and equipment 8 2 -
-------- -------- --------
Net cash used in investing activities (1,338) (1,940) (2,722)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit 91,257 96,406 104,213
Repayments of borrowings under lines of
credit (89,477) (92,574) (97,117)
Borrowings under term loan - 1,507 500
Principal payments on term loans and
capital lease obligations (1,623) (2,115) (2,064)
-------- -------- --------
Net cash provided by
financing activities 157 3,224 5,532
-------- -------- --------
Net increase(decrease)in cash and
cash equivalent (333) (22) 245
CASH AND CASH EQUIVALENT - beginning of year 976 643 621
-------- -------- --------
CASH AND CASH EQUIVALENT - end of year $ 643 $ 621 $ 866
======== ======== ========
</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, 1995, 1996, and 1997
--------------------------------------------------
(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 $17 million
is still in use as of July 31, 1997.
When property is 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 and 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. There are no open forward sales contracts at July
31, 1997.
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>
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Raw materials $ 5,985 $ 9,928
Work-in-process 4,998 9,327
Finished goods 10,466 9,851
Excess, obsolete, and realization reserves (676) (1,226)
------- -------
Total inventories $20,773 $27,880
======= =======
Property, Plant, and Equipment - 1996 1997
------------------------------ ------- -------
(in thousands)
Land $ 557 $ 557
Building and improvements 3,766 4,470
Machinery and equipment 20,880 23,607
Office furniture and fixtures 4,824 5,152
------- -------
30,027 33,786
Less - accumulated depreciation 19,984 22,577
------- -------
Net property, plant, and equipment $10,043 $11,209
======= =======
</TABLE>
The property, plant, and equipment accounts include the following amounts
for leased property under capitalized leases:
<TABLE>
<CAPTION>
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 7,371 $ 5,856
Office furniture and fixtures 1,661 1,086
------- -------
9,032 6,942
Less - accumulated depreciation 4,745 2,785
------- -------
Net property, plant, and equipment
under capitalized leases $ 4,287 $ 4,157
======= =======
</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>
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Revolving credit line $11,524 $18,621
Term loan 2,766 2,487
Capitalized equipment lease
obligations, payable in monthly
installments of approximately
$127,000, including interest at
rates from 7% to 11%, with final
payments ranging from November 1997
through November 2001 4,434 4,217
------- -------
18,724 25,325
Less - current maturities 5,019 4,149
------- -------
Total long-term debt $13,705 $21,176
======= =======
</TABLE>
Future maturities of the above debt obligations at July 31, 1997, are
approximately $4,149,000, $3,471,000, $738,000, $16,779,000, and $188,000
for the years ending July 31, 1998 through 2002, respectively. Future
maturities are computed using December 2000 maturity date for the revolver.
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
8.5%). Principal payments for the term loan of $500,000 were paid on May
31, 1996, and on May 31, 1997. Additionally, $500,000 was refunded on the
term loan in November 1996. 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 August 1997, the Company's financing package was amended.
Significant provisions of the amendment include: 1) the due date was
extended to December 2000, 2) an additional term loan of $4,000,000 was
funded with an $800,000 payment scheduled for May 1998 and payments of
$66,666 beginning monthly in August 1998, and the interest rate is prime
plus 1.5%, 3) up to an additional $3,000,000 in borrowings were made
available under the revolving line of credit secured by certain inventories
and receivables located outside the United States, 4) the interest rate on
the revolving line of credit was increased to prime plus 1.5%, and 5) the
total facility was increased from $30,000,000 to $33,011,000.
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, limits the ratio of total liabilities to
tangible net worth and requires the Company to maintain a minimum fixed
charge ratio. 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,
---------------------------------
1995 1996 1997
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Highest amount borrowed $14,422 $15,773 $24,095
Average amount borrowed $ 9,552 $11,850 $16,202
Weighted average interest rate 9.8% 9.2% 9.1%
</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, 1997, (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Years ending July 31:
1998 $1,499
1999 1,525
2000 841
2001 898
2002 195
------
Total minimum lease payments 4,958
Less amounts representing interest 741
------
Present value of net minimum lease payments $4,217
======
Current portion of obligations under
capital leases $1,172
Long-term portion of obligations under
capital leases $3,045
</TABLE>
F-11
<PAGE>
Operating Leases -
----------------
During 1995, 1996 and 1997, the Company recorded $733,000, $1,119,000 and
$1,765,000, respectively, of expense related to operating leases.
At July 31, 1997, future minimum rental payments for operating leases
totaled $7,183,000. 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
was accounted for as an operating lease. Payments for this facility are
approximately $46,500 per month and began November 1, 1996. Total future
minimum rental payments under operating leases for the years ending July 31,
1998 through July 31, 2002 (including the rental for the Mexican facility
assuming the purchase option is not excercised) are aproximately $1,720,000,
$1,069,000, $847,000, $614,000, and $562,000, 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:
1996 1997
------ ------
Total outstanding 75,000 75,000
Average option price $2.93 $2.93
No options were exercised in 1995,1996 or 1997. 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.
The Company adopted the disclosure-only provisions of SFAS 123 "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined consistent with the provisions
of SFAS 123, the Company's net income (loss) and earnings (loss) per share
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
NET INCOME (LOSS):
As reported $(5,190) $1,743
Pro forma (5,427) 1,694
EARNINGS (LOSS) PER SHARE:
As reported $ (1.55) $ .52
Pro forma (1.62) $ .51
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to August 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Modified Black-Scholes European option pricing model with the following
weighted average assumption: dividend yield of 0%, expected volatility of
85.84%, risk-free interest rate of 6.41% and expected life of five years.
At August 1, 1997, the Company will adopt the provisions of SFAS 128
"Earnings per Share." Management does not expect the adoption of this new
pronouncement to have a material impact on the consolidated financial
statements.
(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, 1995, 1996, and 1997 were approximately
$596,000, $586,000, and $678,000, respectively.
F-13
<PAGE>
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended July 31,
---------------------
1995 1996 1997
----- ----- -------
(in thousands)
<S> <C> <C> <C>
Current $ 505 $ 365 $ (823)
Deferred 134 91 (1,864)
----- ----- -------
Total $ 639 $ 456 $(2,687)
===== ===== =======
</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:
<TABLE>
<CAPTION>
Years Ended July 31,
---------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0)%
State income taxes 3.8 (3.8) (3.8)
Refunds of prior year taxes
and related adjustments - (8.6) -
Research & development credits (6.0) -
Other (.8) (.9) 3.7
---- ---- ------
Effective rate 31.0% 20.7% (34.1)%
==== ==== ======
</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,
1997. The Company had a NOL carryforward of $5.6 million at July 31, 1997
that expires July 31, 2012.
The tax effect of temporary differences giving rise to the Company's
consolidated deferred income taxes at July 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets -
Reserves for product costs $ 441 $ 412
Reserves for compensation and benefits 389 620
State tax credit carryforwards 281 314
Accounts receivable reserves 144 183
Other accruals 49 58
NOL carryforward - 1,961
------ ------
$1,304 $3,548
====== ======
Deferred tax liabilities -
Depreciation $ 566 $ 946
====== ======
</TABLE>
F-14
<PAGE>
(8) CONSOLIDATED STATEMENTS OF CASH FLOWS
During 1995, 1996, and 1997, the Company acquired approximately $1,081,000,
$2,026,000, and $1,068,000, 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
$1,581,000, $1,881,000, and $2,398,000 was paid during 1995, 1996, and 1997,
respectively. Income tax payments for 1995 and 1996 were $475,000, and
$541,000, respectively. No income tax payments were made in 1997 and an
income tax refund receivable of $957,000 has been recorded. An income tax
refund of $1,066,000 was received in 1995.
(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>
1995 1996 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net sales:
Domestic $69,846 $74,560 $ 79,217
Export sales 8,779 9,598 12,010
Foreign sales 12,491 10,421 13,432
------- ------- --------
Total $91,116 $94,579 $104,659
======= ======= ========
</TABLE>
The majority of export and foreign sales are concentrated in Canada,
Australia and Europe.
(10) SALES TO A MAJOR CUSTOMER
During 1995, 1996, and 1997, one customer accounted for approximately 14%,
14% and 10%, respectively, of consolidated net sales in each year. No other
customer accounted for 10% or more of consolidated net sales in 1995, 1996,
and 1997.
(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, 1997.
At July 31, 1996 and 1997, trade receivables related to these group
concentrations were:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Marine 49% 42%
Non-Marine 51% 58%
</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 was expensed in full during
fiscal 1995.
F-16
<PAGE>
LOWRANCE ELECTRONICS, INC.
--------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR THE YEARS ENDED JULY 31, 1995, 1996, and 1997
-------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------- ---------- ---------- ---------------- ----------
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
--------------------------
<S> <C> <C> <C> <C>
Year Ended July 31, 1995 $483 $ 58 $ (61) $ 480
Year Ended July 31, 1996 $480 $220 $(161) $ 539
Year Ended July 31, 1997 $539 $437 $ (69) $ 907
Excess, Obsolete, and
- ---------------------
Realizability Reserves
----------------------
Year Ended July 31, 1995 $448 $465 $(123) $ 790
Year Ended July 31, 1996 $790 $515 $(629) $ 676
Year Ended July 31, 1997 $676 $773 $(223) $1,226
</TABLE>
F-17
<PAGE>
EXHIBIT 10.22
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ("this Amendment") is
--------------
made and entered into as of the 1st day of November, 1996, to be effective for
all purposes as of the dates specified herein, by and among FLEET CAPITAL
CORPORATION, a Rhode Island corporation, successor in interest by merger to
FLEET CAPITAL CORPORATION, a Connecticut corporation, formerly known as SHAWMUT
CAPITAL CORPORATION, successor in interest by assignment to BARCLAYS BUSINESS
CREDIT, INC. ("Lender"), LOWRANCE ELECTRONICS, INC., a Delaware corporation
------
("Lowrance"), LEI EXTRAS, INC., a Delaware corporation ("LEI"), LOWRANCE
---------- ---
CONTRACTS, INC., a Delaware corporation ("Lowrance Contracts") and SEA
------------------
ELECTRONICS, INC., an Oklahoma corporation ("Sea Electronics") (Lowrance, LEI,
---------------
Lowrance Contracts and Sea Electronics are herein individually and collectively
called "Borrower").
--------
RECITALS
A. Borrower, Lowrance Australia Pty Limited ("Lowrance Australia") and Lender
------------------
have entered into that certain Loan and Security Agreement, dated December 15,
1993, as amended by that certain First Amendment to Loan and Security Agreement,
dated October 16, 1995 (as amended, the "Loan Agreement").
--------------
B. Lowrance has advised Lender that Lowrance Australia has been deregistered
and that all of its Properties were transferred to Lowrance prior to such
deregistration.
C. Borrower and Lender desire to amend the Loan Agreement and the Other
Agreements to allow and provide for certain matters as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
Amendments
----------
2.01 Amendment to Preamble of the Loan Agreement. Effective as of the date
-------------------------------------------
hereof: (i) the Preamble of the Loan Agreement is hereby amended by deleting
therefrom the words
1
<PAGE>
"SHAWMUT CAPITAL CORPORATION" and substituting in its place the words "FLEET
CAPITAL CORPORATION"; and (ii) the term Borrower is hereby amended by deleting
therefrom the reference to Lowrance Australia.
2.02 Amendment to Section 1.1; Amendment of Certain Definitions. Effective
----------------------------------------------------------
as of the date hereof, the definitions of "Bank", "Eligible Inventory",
---- ------------------
"Security Documents" and "Term Note" contained in Section 1.1 of the Loan
------------------ --------- -----------
Agreement are hereby deleted in their entirety, and the following shall be
substituted therefor:
"Bank - Fleet National Bank of Connecticut."
----
"Eligible Inventory - Inventory of Borrower consisting of raw materials
------------------
or finished goods (after deducting therefrom, (A) Inventory consisting of
packaging materials and supplies, promotional materials, samples and
display materials, and Inventory neither offered for sale nor used as a
component in the production or repair of Borrower's finished goods, (B)
all reserves established for excess, slow moving, obsolete or
unmerchantable Inventory, which reserves shall be calculated and adjusted
from time to time using the Borrower's reports with respect to the
determination of excess raw materials and finished goods, and (C) all
reserves established by Lender in its good faith credit judgment with
respect to shrinkage or spoilage of Inventory) is Eligible Inventory.
Notwithstanding the generality of the foregoing, no Inventory shall be
Eligible Inventory unless it:
(a) is raw materials or finished goods,
(b) is in good, new and saleable condition or usable in the
production or repair of Borrower's finished goods (and is not work in
progress),
(c) meets all standards imposed by any governmental agency or
authority,
(d) conforms in all respects to the warranties and representations
set forth in Section 6.1 hereof,
-----------
(e) is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien,
(f) is situated at a location in compliance with Section 4.6 hereof,
-----------
is not in-transit and is not located in Mexico, and
(g) is not consigned by any Person to Borrower or by Borrower to any
Person.
Furthermore, Lender shall have the right to increase or decrease from time
to time the amount of the deduction described in clause (B) of the first
---------
sentence of this definition of Eligible Inventory if Lender, following its
evaluation of Borrower's reserves for excess,
2
<PAGE>
slow moving, obsolete or unmerchantable Inventory (which reserves shall be
evaluated by Lender utilizing Borrower's books and records), determines in the
exercise of its good faith credit judgment that such increases or decreases
are necessary or appropriate."
"Security Documents - the Mortgage, each New Mortgage, the Stock Pledge
------------------
Agreement, the Insurance Assignment, the Patent Assignment, the Trademark
Assignment, the Fixed and Floating Equitable Charge, the Mexican Security
Documents and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations."
"Term Note - the Second Amended and Restated Secured Promissory Note to be
---------
executed by Borrower in favor of Lender on or about the date of the Second
Amendment Agreement to evidence the Term Loan, which shall be in the form of
Exhibit A-1 attached hereto."
-----------
2.03 Amendment to Section 1.1; Addition of Certain Definitions. Effective
---------------------------------------------------------
as of the date hereof, Section 1.1 of the Loan Agreement is hereby amended by
-----------
adding the following definitions thereto in alphabetical order:
"Guaranty Trust Agreement - the Guaranty Trust Agreement to be executed
------------------------
within thirty (30) days of the date of the Second Amendment Agreement by and
among Lowrance, Electronica Lowrance De Mexico S.A. De C.V., the Mexican
Trustee and such other parties as are acceptable to Lender, in form and
substance satisfactory to Lender in its sole discretion."
"Mexican Security Documents - the Guaranty Trust Agreement, and all
--------------------------
other documents, instruments and agreements referenced therein or executed in
connection therewith."
"Mexican Trustee - Banco Bilbao Vizcaya-Mexico, S.A., in its capacity
---------------
as trustee under the Guaranty Trust Agreement."
"Second Amendment Agreement - the Second Amendment to Loan and Security
--------------------------
Agreement, dated as of November 1, 1996, by and between Lender and Borrower."
2.04 Amendment to Section 2.2(A). Effective as of the date hereof, Section
--------------------------- -------
2.2(A) of the Loan Agreement is hereby deleted in its entirety, and the
- ------
following shall be substituted therefor:
(A) Term Loan. Borrower hereby represents and warrants that (i) on
---------
December 15, 1993, Lender made a term loan to Borrower in the principal
amount of $3,500,000 (the "Original Term Loan"), (ii) on the date of the
------------------
First Amendment Agreement, Lender made an additional term loan to Borrower in
the amount of $1,509,674, (iii) on the date of the First Amendment Agreement,
such additional term loan and the Original Term Loan were combined into a
single term loan in the amount of
3
<PAGE>
$3,500,000 (the "Existing Term Loan"), and (iv) the Existing Term Loan is
------------------
repayable in accordance with the terms of that certain Amended and Restated
Secured Promissory Note dated October 16, 1995, executed by Borrower and
payable to the order of Lender. Borrower further represents and warrants that
as of the date of the Second Amendment Agreement, the aggregate unpaid
principal balance of Existing Term Loan is $2,696,044, and such amount is
unconditionally owed by Borrower to Lender without offset, defense or
counterclaim of any kind, nature or description whatsoever. Subject to the
terms and conditions of the Second Amendment Agreement, Borrower and Lender
hereby agree that (i) on the date of the Second Amendment Agreement, Lender
shall make an additional term loan to Borrower in the amount of $500,000, the
proceeds of which shall be used by Borrower solely to finance its seasonal
working capital needs, and (ii) such additional term loan and the Existing
Term Loan shall be combined into a single term loan of $3,196,044 (the
"Term Loan"), which shall be repayable in accordance with the terms of the
---------
Term Note and shall be secured by the Collateral."
2.05 Amendment to Section 4. Effective as of the date hereof, the Loan
----------------------
Agreement is hereby amended by adding a new Section 4.9 thereto, which shall
-----------
read in its entirety as follows:
"4.9 Collateral Located in Mexico. Borrower shall (a) execute and
----------------------------
deliver any and all agreements, documents and instruments deemed necessary by
Lender in order for Borrower to (i) grant to Lender a first priority security
interest in any Collateral located in Mexico and any issued and outstanding
capital stock of Electronica Lowrance De Mexico S.A. De C.V. now or hereafter
owned by Borrower, and/or (ii) convey to Lender or to the Mexican Trustee, in
trust, any such stock or Collateral, (b) at Lender's request, execute and
deliver to Lender all other agreements, documents and instruments that Lender
may reasonably request during the term of this Agreement to maintain Lender's
first priority security interest referred to in clause (a) above and/or
Lender's rights and interests arising from the trust arrangement referred to
in clause (a) above, and (c) reimburse Lender for any and all reasonable
costs and expenses incurred in connection with clauses (a) and (b) above,
including, without limitation, the costs and expenses of obtaining an opinion
of Mexican counsel acceptable to Lender as to the perfection and priority of
Lender's security interest referred to clauses (a) and (b) above and/or the
enforceability of the trust arrangement referred to in clauses (a) and (b)
above."
2.06 Amendment to Section 6.1(B). Effective as of the date hereof, Section
--------------------------- -------
6.1(B) of the Loan Agreement is hereby deleted in its entirety, and the
- -----
following shall be substituted therefor:
"(B) except for Inventory in transit to Ensenada, Mexico which may from
time to time be temporarily detained and held by customs officials in Mexico,
no Inventory is now, nor shall any Inventory at any time or times hereafter
be, stored with a bailee, warehouseman or similar party without Lender's prior
written consent and, if Lender gives such consent, Borrower will concurrently
therewith cause any such bailee, warehouseman, or similar party to issue and
deliver to Lender, in form and substance acceptable to Lender, warehouse
receipts therefor in Lender's name;"
4
<PAGE>
2.07 Amendment to Sections 9.2(L) and (M). Effective as of February 28,
------------------------------------
1996, Sections 9.2(L) and (M) of the Loan Agreement are hereby deleted in their
-----------------------
entirety, and the following shall be substituted therefor:
"(L) Capital Expenditures. Make Capital Expenditures which, in the
--------------------
aggregate, as to Borrower and its Subsidiaries, exceed (i) $5,750,000 during
Borrower's fiscal year ending July 31, 1996, or (ii) $4,500,000 during each
fiscal year of Borrower thereafter.
(M) Capital Lease Obligations. Incur Capital Lease Obligations which,
-------------------------
in the aggregate, as to Borrower and its Subsidiaries exceed (i) $2,900,000
during Borrower's fiscal year ending July 31, 1996 or (ii) $2,500,000 during
each fiscal year of Borrower thereafter."
2.08 Amendment to Section 9.2(X). Effective as of the date hereof, Section
--------------------------- -------
9.2(X) of the Loan Agreement is hereby amended by deleting therefrom the
- ------
reference to the dollar amount "$800,000" and substituting in lieu thereof the
dollar amount "$1,400,000".
2.09 Other Amendments to Loan Documents. Effective as of the date hereof,
----------------------------------
all references in the Loan Documents to: (i) "Shawmut Capital Corporation" shall
be replaced with "Fleet Capital Corporation"; (ii) "Shawmut Capital Corporation,
a Connecticut corporation" shall be replaced with "Fleet Capital Corporation, a
Rhode Island corporation"; (iii) "Shawmut" shall be replaced with "Fleet"; and
(iv) "Lowrance Australia Pty Limited" or "Lowrance Australia", in its own name,
in its capacity as a Borrower or otherwise, shall be deleted and of no further
force and effect.
2.10 Exhibit A-1 - Form of Term Note. Effective as of the date hereof, all
-------------------------------
references in the Loan Agreement to Exhibit A-1, which is the form of the Term
-----------
Note, shall be deemed references to the Exhibit A-1 which is attached hereto as
-----------
Annex A.
- -------
2.11 Exhibit B - Borrower's Business Locations. Effective as of the date
-----------------------------------------
hereof, all references in the Loan Agreement to Exhibit B, which is entitled
---------
"Borrower's Business Locations", shall be deemed references to the Exhibit B
---------
which is attached hereto as Annex B.
-------
2.12 Exhibit D - Jurisdiction of Organization and Qualification. Effective
----------------------------------------------------------
as of the date hereof, all references in the Loan Agreement to Exhibit D, which
---------
is entitled "Jurisdiction of Organization and Qualification", shall be deemed
references to the Exhibit D which is attached hereto as Annex C.
--------- -------
2.13 Exhibit G - Capital Structure. Effective as of the date hereof, all
-----------------------------
references in the Loan Agreement to Exhibit G, which is entitled "Capital
---------
Structure", shall be deemed references to the Exhibit G which is attached hereto
---------
as Annex D.
-------
2.14 Exhibit J - Property Owned or Leased by Borrower. Effective as of the
------------------------------------------------
date hereof, all references in the Loan Agreement to Exhibit J, which is
---------
entitled "Property Owned or Leased by Borrower", shall be deemed references to
the Exhibit J which is attached hereto as Annex E.
--------- -------
5
<PAGE>
2.15 Exhibit L - Taxing Authorities. Effective as of the date hereof, all
------------------------------
references in the Loan Agreement to Exhibit L, which is entitled "Taxing
---------
Authorities", shall be deemed references to the Exhibit L which is attached
---------
hereto as Annex F.
-------
2.16 Exhibit O - Capitalized Leases. Effective as of the date hereof, all
------------------------------
references in the Loan Agreement to Exhibit O, which is entitled "Capitalized
---------
Leases", shall be deemed references to the Exhibit O which is attached hereto as
---------
Annex G.
- -------
2.17 Exhibit P - Operating Leases. Effective as of the date hereof, all
----------------------------
references in the Loan Agreement to Exhibit P, which is entitled "Operating
---------
Leases", shall be deemed references to the Exhibit P which is attached hereto as
---------
Annex H.
- -------
ARTICLE III
Conditions Precedent and Post-Closing Covenants
-----------------------------------------------
3.01 Conditions Precedent. The effectiveness of this Amendment is subject to
--------------------
the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
(a) Lender shall have received (i) this Amendment, duly executed by
Borrower, (ii) the Term Note, in the form of Annex A attached hereto, duly
-------
executed by Borrower, (iii) a good standing certificate for each Borrower,
issued within 15 days of the date of this Amendment by the Secretary of State or
appropriate official of the jurisdiction of its incorporation, (iv) a closing
certificate signed by the Chief Executive Officer and Chief Financial Officer of
Borrower, dated as of the date of this Amendment, stating that (A) the
representations and warranties set forth in Section 8 of the Loan Agreement are
---------
true and correct as of such date, (B) Borrower is on such date in compliance
with all the terms and provisions set forth in the Loan Agreement, as amended by
this Amendment, and (C) on such date no Default or Event of Default has occurred
and is continuing, except for such Defaults or Events of Default as have been
specifically waived in writing by Lender, (v) a company general certificate in
the form of Annex I attached hereto (hereinafter referred to as the "Company
------- -------
General Certificate") certified by the Secretary or Assistant Secretary of each
- -------------------
Borrower acknowledging (A) that such Borrower's Board of Directors has met and
has adopted, approved, consented to and ratified resolutions which authorize the
execution, delivery and performance by such Borrower of this Amendment and all
other Loan Documents to which such Borrower is or is to be a party, and (B) the
names of the officers of such Borrower authorized to sign this Amendment and
each of the other Loan Documents to which such Borrower is or is to be a party
hereunder including the certificates contemplated herein) together with specimen
signatures of such officers, (vi) copies of all filing receipts or
acknowledgments issued by any governmental authority to evidence any filing or
recordation necessary to perfect the Liens of Lender in any Inventory in-transit
to or from Mexico and evidence to Lender that such Liens constitute valid and
perfected first priority security interests and Liens, (vii) a consent and
ratification duly executed by Sea Electronics pursuant to which Sea Electronics
(A) consents to this Amendment, (B) ratifies the terms and conditions of
6
<PAGE>
the Sea Electronics Guaranty, and (C) acknowledges that the Obligations of
Borrower outstanding prior to October 16, 1995 are under the Sea Electronics
Guaranty, and (viii) such additional documents, instruments and information as
Lender or its legal counsel may request;
(b) The representations and warranties contained herein, in the Loan
Agreement and in the Other Agreements, as each is amended hereby, shall be true
and correct as of the date hereof, as if made on the date hereof, except that
any representations and warranties relating solely to Lowrance Australia shall
be of no force or effect as of the date hereof;
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been specifically waived
in writing by Lender; and
(d) All corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Lender and its legal counsel.
3.02 Post-Closing Covenants. Unless waived or extended in writing in
----------------------
Lender's sole discretion, on or before November 30, 1996, Borrower shall have:
(a) Executed and delivered to Lender, or caused to be executed and
delivered to Lender, any and all agreements, documents and instruments deemed
necessary by Lender in order for Borrower to (i) grant to Lender a first
priority security interest in any Collateral located in Mexico and/or (ii)
convey to Lender or the Mexican Trustee, in trust, (A) any Collateral located or
to be located in Mexico, (B) any leases in respect of Borrower's real property
located in Mexico and (C) the issued and outstanding capital stock of
Electronica Lowrance De Mexico S.A. De C.V. owned by Borrower; and
(b) Executed and delivered to Lender, or caused to be executed and
delivered to Lender, any and all agreements, documents, instruments and
certificates deemed necessary by Lender in order for Borrower to (i) grant to
Lender a first priority security interest in any Collateral located in Australia
(whether or not owned at any time by Lowrance Australia) and/or continue the
Lender's first priority security interest in any such Collateral, (ii) evidence
(A) the deregistration of Lowrance Australia, (B) the transfer to Lowrance of
all Properties owned by Lowrance Australia, and (C) the good standing and
authority of Lowrance to do business in Australia and to own its Properties in
Australia.
The failure of Borrower to satisfy any of the covenants set forth in
this Section 3.02 shall constitute an immediate Event of Default under the Loan
------------
Agreement, without any period of grace or other cure period.
7
<PAGE>
ARTICLE IV
Limited Waiver
--------------
Upon satisfaction of the conditions and covenants set forth in Sections
--------
3.01 and 3.02 of this Amendment, Lender hereby consents to (i) the transfer by
- ---- ----
Lowrance of certain of its Inventory and Equipment to the leased manufacturing
facility of.Electronica Lowrance De Mexico S.A. De C.V. located in Ensenado,
Mexico (the "Mexican Manufacturing Facility"), and (ii) the transfer into the
------------------------------
Guaranty Trust by Lowrance of (A) all issued and outstanding capital stock of
Electronica Lowrance De Mexico S.A. De C.V. now or hereafter owned by Lowrance
and (B) all of its Inventory, Equipment and other Collateral now or hereafter
situated at the Mexican Manufacturing Facility (collectively, the "Transfer"),
--------
(iii) consents to the deregistration of Lowrance Australia and the transfer by
Lowrance Australia of all of its Properties to Lowrance and (iv) waives any
Default or Event of Default existing under the Loan Agreement or which would
otherwise arise under the Loan Agreement solely by reason of the consummation of
the Transfer and such deregistration. Except as specifically provided in this
Article IV, nothing contained in this Amendment shall be construed as a waiver
- ----------
by Lender of any covenant or provision of the Loan Agreement, the Other
Agreements, this Amendment, or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the Other Agreements, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE V
Ratifications, Representations and Warranties
---------------------------------------------
5.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the Other Agreements, and, except as expressly modified
and superseded by this Amendment, the terms and provisions of the Loan Agreement
and the Other Agreements are ratified and confirmed and shall continue in full
force and effect. Borrower and Lender agree that the Loan Agreement and the
Other Agreements, as amended hereby, shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms.
5.02 Representations and Warranties. Borrower hereby represents and warrants
------------------------------
to Lender that (a) the execution, delivery and performance of this Amendment and
any and all Other Agreements executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the part of Borrower
and will not violate the Certificate/Articles of Incorporation or Bylaws of
Borrower; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any Other Agreement are true and correct on
and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (c) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing; (d)
Borrower is in full compliance with all covenants and agreements contained in
the Loan Agreement and the Other Agreements, as amended hereby; and (e) all
right, title and interest in and to the Property owned by Lowrance Australia has
been duly transferred and delivered to Lowrance, continues to exist in the form
transferred, and is now, and has since the date of the Original Agreement
continuously been, Collateral subject to Lender's first priority security
interest created under the Loan Documents (except with respect to such portion
of such Property as may have been sold or disposed of in the ordinary course of
Lowrance Australia's business).
8
<PAGE>
.
ARTICLE VI
Miscellaneous Provisions
------------------------
6.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Loan Agreement or any Other Agreement, including, without
limitation, any document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the Other Agreements,
and no investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Other
---------------------------
Agreements, and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Loan Agreement, as amended hereby, are hereby amended so that any
reference in the Loan Agreement and such Other Agreements to the Loan Agreement
shall mean a reference to the Loan Agreement as amended hereby.
6.03 Expenses of Lender. As provided in the Loan Agreement, Borrower agrees
to pay on demand all costs and expenses incurred by Lender in connection with
the preparation, negotiation and execution of this Amendment and the Other
Agreements executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the costs and fees of
Lender's legal counsel, and all costs and expenses incurred by Lender in
connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any Other Agreements, including, without,
limitation, the costs and fees of Lender's legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall inure
----------------------
to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
9
<PAGE>
6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender
----------------
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 Final Agreement. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS
---------------
AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
-------
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER,
KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND THE NEGOTIATION OF
AND EXECUTION OF THIS AMENDMENT.
10
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By:
------------------------------
Hance VanBeber, Vice President
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By:
------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By:
------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By:
------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By:
------------------------------
Steven L. Schneider, President
11
<PAGE>
ANNEX A
-------
EXHIBIT A-1 - FORM OF TERM NOTE
-------------------------------
(See Attached)
A-1
<PAGE>
ANNEX B
-------
EXHIBIT B - BORROWER'S BUSINESS LOCATIONS
-----------------------------------------
(See Attached)
B-1
<PAGE>
ANNEX C
-------
EXHIBIT D - JURISDICTION OF ORGANIZATION AND QUALIFICATION
----------------------------------------------------------
(See Attached)
C-1
<PAGE>
ANNEX D
-------
EXHIBIT G - CAPITAL STRUCTURE
-----------------------------
(See Attached)
D-1
<PAGE>
ANNEX E
-------
EXHIBIT J - PROPERTY OWNED OR LEASED BY BORROWER
------------------------------------------------
(See Attached)
E-1
<PAGE>
ANNEX F
-------
EXHIBIT L - TAXING AUTHORITIES
------------------------------
(See Attached)
F-1
<PAGE>
ANNEX G
-------
EXHIBIT O - CAPITALIZED LEASES
------------------------------
(See Attached)
G-1
<PAGE>
ANNEX H
-------
EXHIBIT P - OPERATING LEASES
----------------------------
(See Attached)
H-1
<PAGE>
ANNEX I
-------
FORM OF COMPANY GENERAL CERTIFICATES
------------------------------------
(See Attached)
I-1
<PAGE>
EXHIBIT 10.23
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT ("this Amendment") is
----------------
made and entered into as of the 31st day of December, 1996, by and among FLEET
CAPITAL CORPORATION, a Rhode Island corporation, successor in interest by merger
to FLEET CAPITAL CORPORATION, a Connecticut corporation, formerly known as
SHAWMUT CAPITAL CORPORATION, successor in interest by assignment to BARCLAYS
BUSINESS CREDIT, INC. ("Lender"), LOWRANCE ELECTRONICS, INC., a Delaware
--------
corporation ("Lowrance"), LEI EXTRAS, INC., a Delaware corporation ("LEI"),
-------- ---
LOWRANCE CONTRACTS, INC., a Delaware corporation ("Lowrance Contracts") and SEA
------------------
ELECTRONICS, INC., an Oklahoma corporation ("Sea Electronics") (Lowrance, LEI,
---------------
Lowrance Contracts and Sea Electronics are herein individually and collectively
called "Borrower").
--------
RECITALS
A. Borrower, Lowrance Australia Pty Limited and Lender have entered into
that certain Loan and Security Agreement, dated December 15, 1993, as amended by
that certain First Amendment to Loan and Security Agreement, dated October 16,
1995, by and among Lender and Borrower, as amended by that certain Second
Amendment to Loan and Security Agreement, dated November 1, 1996 by and among
Lender and Borrower (as amended, the "Loan Agreement").
--------------
B. Borrower has indicated that it may in the future request Revolving
Credit Loans (as defined in the Loan Agreement) which will cause the unpaid
balance of the Revolving Credit Loans to exceed the Borrowing Base (as defined
in the Loan Agreement) (the "Special Overadvance").
-------------------
C. Borrower and Lender desire to amend the Loan Agreement as hereinafter
set forth in order to, among other things, provide for the Special Overadvance.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
1
<PAGE>
ARTICLE II
Amendments
----------
2.01 Amendment to Section 1.1; Amendment of Certain Definitions. Effective
----------------------------------------------------------
as of the date hereof, the definition of "Borrowing Base" contained in Section
-------------- -------
1.1 of the Loan Agreement is hereby deleted in their entirety, and the following
- ---
shall be substituted therefor:
"Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(a) the Revolving Credit Commitment; or
(b) an amount equal to:
(i) 85% of the net amount of Eligible Accounts other than Eligible
Wal-Mart Accounts or Eligible Kmart Accounts outstanding at such date;
PLUS
(ii) 80% of the net amount of Eligible Wal-Mart Accounts and
Eligible Kmart Accounts outstanding at such date;
PLUS
(iii) the lesser of (A) the Inventory Commitment Amount or (B) the
sum of (x) 30% of the value of Raw Materials Eligible Inventory at such
date, and (y) 60% of the value of Finished Goods Eligible Inventory at
such date, all of the above as calculated on the basis of the lower of
cost or market with cost calculated on a first-in, first-out basis;
PLUS
(iv) the Permitted Overadvance Amount;
MINUS (subtract from the sum of
clauses (i), (ii), (iii) and (iv) above)
(v) an amount equal to the sum of (A) the face amount of all
Letters of Credit outstanding at such date, (B) the amount of all
reserves established by Lender on a monthly basis (and promptly
notified to Borrower) to reflect the liability of Lender and/or Bank
under or in connection with guaranties by Lender and/or Bank of all
foreign exchange contracts pursuant to Section 2.5 hereof, (C) the
-----------
amount of any mandatory prepayment paid pursuant to Section 2.2(B) and
--------------
applied by Lender to the Revolving Credit Loans outstanding, (D) any
amounts received by Lender from the Insurance Assignment and applied to
the Obligations,
2
<PAGE>
and (E) any amounts which Lender may pay (but which have not been paid
and applied to the Revolving Credit Loans outstanding) pursuant to any
of the Loan Documents for the account of Borrower other than Letters of
Credit.
For purposes hereof, the net amount of Eligible Accounts, Eligible
Wal-Mart Accounts or Eligible Kmart Accounts, as the case may be, at any
time shall be the face amount of such Eligible Accounts, Eligible Wal-Mart
Accounts or Eligible Kmart Accounts, less any and all credit memoranda or
----
credit adjustments issued for discounts (which may, at Lender's option, be
calculated on the shortest terms), credits and rebills, returns,
allowances, pricing errors or other similar items at any time outstanding
or payable in connection with such Accounts at such time."
2.02 Amendment to Section 1.1; Addition of Certain Definitions. Effective
---------------------------------------------------------
as of the date hereof, Section 1.1 of the Loan Agreement is hereby amended by
-----------
adding the following definitions thereto in alphabetical order:
"Permitted Overadvance Amount - (i) $4,000,000.00 during the period
----------------------------
from January 1, 1997 through and including January 31, 1997, (ii)
$3,000,000.00 during the period from February 1, 1997 through and including
March 13, 1997, (iii) $2,000,000.00 during the period from March 14, 1997
through and including March 20, 1997, (iv) $1,000,000.00 during the period
from March 21, 1997 through and including March 30, 1997, and (v) $0
thereafter."
"Third Amendment Agreement - the Third Amendment to Loan and Security
-------------------------
Agreement, dated as of December 30, 1996, by and between Lender and
Borrower."
ARTICLE III
Conditions Precedent and Post-Closing Covenants
-----------------------------------------------
3.01 Conditions Precedent. The effectiveness of this Amendment is subject
--------------------
to the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
(a) Lender shall have received this Amendment, duly executed by
Borrower;
(b) In consideration of the agreement by Lender to make the Permitted
Overadvance Amount to Borrower, and in addition to all interest, fees,
charges and expenses otherwise payable under the Loan Agreement with
respect to the Permitted Overadvance Amount and the other Obligations,
Borrower shall pay to Lender a special overadvance fee of $100,000.00 on
March 1, 1997;
(c) The representations and warranties contained herein, in the Loan
Agreement and in the Other Agreements, as each is amended hereby, shall be
true and correct as of the date hereof, as if made on the date hereof;
3
<PAGE>
(d) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been specifically
waived in writing by Lender; and
(e) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments
and other legal matters incident thereto shall be satisfactory to Lender
and its legal counsel.
ARTICLE IV
No Waiver
---------
Nothing contained in this Amendment shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the Other Agreements,
this Amendment, or of any other contract or instrument between Borrower and
Lender, and the failure of Lender at any time or times hereafter to require
strict performance by Borrower of any provision thereof shall not waive, affect
or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the Other Agreements, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE V
Ratifications, Representations and Warranties
---------------------------------------------
5.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the Other Agreements, and, except as expressly modified
and superseded by this Amendment, the terms and provisions of the Loan Agreement
and the Other Agreements are ratified and confirmed and shall continue in full
force and effect. Borrower and Lender agree that the Loan Agreement and the
Other Agreements, as amended hereby, shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms.
5.02 Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all Other Agreements executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Certificate/Articles of
Incorporation or Bylaws of Borrower; (b) the representations and warranties
contained in the Loan Agreement, as amended hereby, and any Other Agreement are
true and correct on and as of the date hereof and on and as of the date of
execution hereof as though made on and as of each such date; (c) no Default or
Event of Default under the Loan Agreement, as amended hereby, has occurred and
is continuing; (d) Borrower is in full compliance with all covenants and
agreements contained in the Loan Agreement and the Other Agreements, as amended
hereby; (e) the Borrower's Certificate of Incorporation and Bylaws are in full
force and effect on and as of the date hereof without modification or amendment
in any respect since November 1, 1996; (f) as of the date hereof, (i) Borrower
is in existence and in corporate and tax good standing in the State of its
organization, (ii) the Borrower is qualified to do business as a foreign
corporation and is in corporate and tax good standing in each jurisdiction where
Borrower is doing business and is required to be so qualified, (iii) Borrower
does not owe franchise taxes or other taxes required to
4
<PAGE>
maintain its corporate existence and no franchise tax reports are due, and (iv)
no proceedings are pending for forfeiture of the Company's charter or for its
dissolution either voluntarily or involuntarily; (g) the officer of Borrower
executing this Amendment has been duly elected and is, at present, qualified and
acting in the office indicated below such officer's name and is duly authorized
to execute this Amendment on behalf of Borrower.
ARTICLE VI
Miscellaneous Provisions
------------------------
6.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Loan Agreement or any Other Agreement, including, without
limitation, any document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the Other Agreements,
and no investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Other
---------------------------
Agreements, and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Loan Agreement, as amended hereby, are hereby amended so that any
reference in the Loan Agreement and such Other Agreements to the Loan Agreement
shall mean a reference to the Loan Agreement as amended hereby.
6.03 Expenses of Lender. As provided in the Loan Agreement, Borrower agrees
------------------
to pay on demand all costs and expenses incurred by Lender in connection with
the preparation, negotiation and execution of this Amendment and the Other
Agreements executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the costs and fees of
Lender's legal counsel, and all costs and expenses incurred by Lender in
connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any Other Agreements, including, without,
limitation, the costs and fees of Lender's legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall inure
----------------------
to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
5
<PAGE>
6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender
----------------
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 Final Agreement. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS
---------------
AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
-------
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER,
KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT
6
<PAGE>
OR OTHER AGREEMENTS, AND THE NEGOTIATION OF AND EXECUTION OF THIS AMENDMENT.
6.12 Permitted Overadvance Amount. The Permitted Overadvance Amount shall
----------------------------
(i) constitute Obligations that are secured by the Collateral and entitled to
all the benefits thereof, (ii) be payable on demand and bear interest at the per
annum rate applicable to the Revolving Credit Loans specified in Section 3.1(A)
--------------
of the Loan Agreement and (iii) if not sooner demanded, be payable in full on
March 31, 1997;
6.13 No Future Obligations. BORROWER IS HEREBY NOTIFIED THAT THE EXISTENCE
---------------------
AND/OR CONTINUATION OF THE PERMITTED OVERADVANCE AMOUNT IS IN THE SOLE
DISCRETION OF LENDER AND THAT LENDER RESERVES ITS RIGHT AT ANY TIME TO CEASE TO
PERMIT THE CREATION OR CONTINUED EXISTENCE OF THE PERMITTED OVERADVANCE AMOUNT
AND/OR TO DEMAND AT ANY TIME FROM BORROWER IMMEDIATE PAYMENT IN FULL OF THE
PERMITTED OVERADVANCE AMOUNT. Borrower agrees and understands that Lender's
prior willingness to make the Permitted Overadvance Amount shall in no way imply
that Lender agrees to make any future Permitted Overadvance Amount in a like or
similar manner. Borrower also agrees that Lender has no obligation to renew or
extend the Permitted Overadvance Amount, that Lender's actions hereunder shall
not constitute a waiver of any past, present or future violation or violations
of any provision of the Loan Agreement or any Other Agreement, and that Lender's
failure to exercise any right, privilege or remedy as a result of the matters
set forth above shall not directly or indirectly in any way whatsoever either:
(i) impair, prejudice or otherwise adversely affect Lender's right at any time
to exercise any right, privilege or remedy in connection with the Loan Agreement
or any Other Agreement, or (ii) amend or alter any provision of the Loan
Agreement or any Other Agreement, except as provided in this Amendment, or (iii)
constitute any course of dealing or other basis for altering any Obligation of
the Borrower or any right, privilege or remedy of Lender under the Loan
Agreement or any Other Agreement.
7
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By:
------------------------------------
Hance VanBeber, Vice President
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By:
------------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By:
------------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By:
------------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By:
------------------------------------
Steven L. Schneider, President
8
<PAGE>
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("this Amendment") is
--------------
made and entered into as of the 14th day of August, 1997, to be effective for
all purposes as of April 1, 1997 (the "Effective Date"), by and among FLEET
--------------
CAPITAL CORPORATION, a Rhode Island corporation, successor in interest by merger
to FLEET CAPITAL CORPORATION, a Connecticut corporation, formerly known as
SHAWMUT CAPITAL CORPORATION, successor in interest by assignment to BARCLAYS
BUSINESS CREDIT, INC. ("Lender"), LOWRANCE ELECTRONICS, INC., a Delaware
------
corporation ("Lowrance"), LEI EXTRAS, INC., a Delaware corporation ("LEI"),
-------- ---
LOWRANCE CONTRACTS, INC., a Delaware corporation ("Lowrance Contracts"), and SEA
------------------
ELECTRONICS, INC., an Oklahoma corporation ("Sea Electronics") (Lowrance, LEI,
---------------
Lowrance Contracts and Sea Electronics are herein individually and collectively
called "Borrower").
--------
RECITALS
A. Borrower, Lowrance Australia Pty Limited ("Lowrance Australia") and Lender
------------------
have entered into that certain Loan and Security Agreement, dated December 15,
1993, as amended by (i) that certain First Amendment to Loan and Security
Agreement, dated October 16, 1995, by and among Lender, Borrower and Lowrance
Australia, (ii) that certain Second Amendment to Loan and Security Agreement,
dated November 1, 1996 by and among Lender and Borrower and (iii) that certain
Third Amendment to Loan and Security Agreement, dated December 31, 1996 by and
among Lender and Borrower (as amended, the "Loan Agreement").
--------------
B. Borrower and Lender desire to amend the Loan Agreement as hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
1
<PAGE>
ARTICLE II
Amendments
----------
2.01 Amendment to Section 1.1; Amendment of Certain Definitions. Effective
----------------------------------------------------------
as of the Effective Date, the definition of "Eligible Inventory" contained in
------------------
Section 1.1 of the Loan Agreement is hereby amended by deleting clause (f)
- ----------- ----------
thereof in its entirety and substituting the following in lieu thereof:
"(f) is situated at a location in compliance with Section 4.6 hereof, is not
-----------
in-transit and is not located in Mexico or Australia, and"
2.02 Amendment to Section 1.1; Deletion of Certain Definitions. Effective as
---------------------------------------------------------
of the Effective Date, Section 1.1 of the Loan Agreement is hereby amended
-----------
deleting therefrom the definition for "Rate Reduction Event".
2.03 Amendment to Section 3.1(A). Effective as of the Effective Date,
---------------------------
Section 3.1(A) of the Loan Agreement is hereby deleted in its entirety and the
- --------------
following substituted in lieu thereof:
"Outstanding principal on the Loans shall bear interest, calculated daily,
at the following rates per annum (individually called, as applicable, an
"Applicable Annual Rate"): (i) the Term Loan shall bear interest at a
----------------------
fluctuating rate per annum equal to 1.50% above the Base Rate, (ii) the
Equipment Loans shall bear interest at a fluctuating rate per annum equal to
1.50% above the Base Rate and (iii) the Revolving Credit Loans shall bear
interest at a fluctuating rate per annum equal to 1.00% above the Base Rate.
Each Applicable Annual Rate shall be increased or decreased, as the case may
be, by an amount equal to any increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Base Rate becomes effective. Interest on the Loans shall be
calculated daily, based on the actual days elapsed over a 360 day year.
Further, for the purpose of computing interest, all items of payment received
by Lender shall be applied by Lender (subject to final payment of all drafts
and other items received in form other than immediately available funds)
against the Obligations on the first Business Day after receipt. The
determination of when a payment is received by Lender will be made in
accordance with Section 3.6.
-----------
Notwithstanding anything contained herein to the contrary, Lender and
Borrower agree that the Applicable Annual Rate relating to Revolving Credit
Loans shall be reduced from 1.00% above the Base Rate to 0.75% above the Base
Rate if (i) Borrower achieves a requisite percentage of its budgeted net
income for its 1998 fiscal year, as evidenced by Borrower's audited financial
statements which are to be delivered by Borrower to Lender pursuant to
Section 9.1(J)(i) hereof (such requisite percentage of net income to-be-
-----------------
determined by Lender following receipt by Lender of Borrower's Projections
for its 1998 fiscal year) and (ii) as of the date Lender determines that
Borrower has achieved such requisite percentage of its budgeted net income,
no Default or Event of Default exists hereunder."
2
<PAGE>
2.04 Amendment to Section 9.3(B). Effective as of the Effective Date,
---------------------------
Section 9.2(B) of the Loan Agreement is hereby deleted in its entirety and the
- --------------
following substituted in lieu thereof:
"(B) Maximum Leverage Ratio. Maintain, on a Consolidated basis, a ratio of (i)
----------------------
total Indebtedness to (ii) Tangible Net Worth of not more than the ratio shown
below for each month during the periods corresponding thereto:
Period Ratio
--------------------------------------- ---------
April 1, 1997 through April 30, 1997 4.75 to 1
May 1, 1997 through May 31, 1997 4.50 to 1
June 1, 1997 through June 30, 1997 4.25 to 1
July 1, 1997 through July 31, 1997 4.00 to 1
August 1, 1997 to June 30, 1998 4.00 to 1
July 1, 1998 through July 31, 1998 3.00 to 1
August 1, 1998 and thereafter 4.00 to 1"
ARTICLE III
Conditions Precedent and Post-Closing Covenants
-----------------------------------------------
3.01 Conditions Precedent. The effectiveness of this Amendment is subject to
--------------------
the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
(a) Lender shall have received this Amendment, duly executed by
Borrower;
(b) The representations and warranties contained herein, in the Loan
Agreement and in the Other Agreements, as each is amended hereby, shall be true
and correct as of the date hereof, as if made on the date hereof;
(c) After giving effect to this Amendment, no Default or Event of
Default shall have occurred and be continuing, unless such Default or Event of
Default has been specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Lender and its legal counsel.
3
<PAGE>
ARTICLE IV
No Waiver
---------
Nothing contained in this Amendment shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the Other Agreements,
this Amendment, or of any other contract or instrument between Borrower and
Lender, and the failure of Lender at any time or times hereafter to require
strict performance by Borrower of any provision thereof shall not waive, affect
or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the Other Agreements, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE V
Ratifications, Representations and Warranties
---------------------------------------------
5.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the Other Agreements, and, except as expressly modified
and superseded by this Amendment, the terms and provisions of the Loan Agreement
and the Other Agreements are ratified and confirmed and shall continue in full
force and effect. Borrower and Lender agree that the Loan Agreement and the
Other Agreements, as amended hereby, shall continue to be legal, valid, binding
and enforceable in accordance with their respective terms.
5.02 Representations and Warranties. Borrower hereby represents and warrants
to Lender that (a) the execution, delivery and performance of this Amendment and
any and all Other Agreements executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the part of Borrower
and will not violate the Certificate/Articles of Incorporation or Bylaws of
Borrower; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any Other Agreement are true and correct on
and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (c) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing; (d)
Borrower is in full compliance with all covenants and agreements contained in
the Loan Agreement and the Other Agreements, as amended hereby; (e) the
Borrower's Certificate of Incorporation and Bylaws are in full force and effect
on and as of the date hereof without modification or amendment in any respect
since November 1, 1996; (f) as of the date hereof, (i) Borrower is in existence
and in corporate and tax good standing in the State of its organization, (ii)
the Borrower is qualified to do business as a foreign corporation and is in
corporate and tax good standing in each jurisdiction where Borrower is doing
business and is required to be so qualified, (iii) Borrower does not owe
franchise taxes or other taxes required to maintain its corporate existence and
no franchise tax reports are due, and (iv) no proceedings are pending for
forfeiture of the Company's charter or for its dissolution either voluntarily or
involuntarily; and (g) the officer of Borrower executing this Amendment has been
duly elected and is, at present, qualified and acting in the office indicated
below such officer's name and is duly authorized to execute this Amendment on
behalf of Borrower.
4
<PAGE>
ARTICLE VI
Miscellaneous Provisions
------------------------
6.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Loan Agreement or any Other Agreement, including, without
limitation, any document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the Other Agreements,
and no investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the Other
---------------------------
Agreements, and any and all other agreements, documents or instruments now or
hereafter executed and delivered pursuant to the terms hereof or pursuant to the
terms of the Loan Agreement, as amended hereby, are hereby amended so that any
reference in the Loan Agreement and such Other Agreements to the Loan Agreement
shall mean a reference to the Loan Agreement as amended hereby.
6.03 Expenses of Lender. As provided in the Loan Agreement, Borrower agrees
------------------
to pay on demand all costs and expenses incurred by Lender in connection with
the preparation, negotiation and execution of this Amendment and the Other
Agreements executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the costs and fees of
Lender's legal counsel, and all costs and expenses incurred by Lender in
connection with the enforcement or preservation of any rights under the Loan
Agreement, as amended hereby, or any Other Agreements, including, without,
limitation, the costs and fees of Lender's legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall inure
----------------------
to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender
----------------
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5
<PAGE>
6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 Final Agreement. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, EACH AS
---------------
AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
-------
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER,
KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND THE NEGOTIATION OF
AND EXECUTION OF THIS AMENDMENT.
6
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By:
------------------------------------
Hance VanBeber, Vice President
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By:
------------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By:
------------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By:
------------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By:
------------------------------------
Steven L. Schneider, President
7
<PAGE>
EXHIBIT 10.25
FIFTH AMENDMENT TO
------------------
LOAN AND SECURITY AGREEMENT
----------------------------
AND CERTAIN OTHER LOAN DOCUMENTS
--------------------------------
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND CERTAIN OTHER LOAN
DOCUMENTS (the "Amendment") is made and entered into as of the 25th day of
---------
August, 1997, to be effective (unless otherwise specified herein) as of August
25, 1997 (the "Effective Date"), by and among FLEET CAPITAL CORPORATION, a Rhode
--------------
Island corporation, successor in interest by merger to FLEET CAPITAL
CORPORATION, a Connecticut corporation, formerly known as SHAWMUT CAPITAL
CORPORATION, successor in interest by assignment to BARCLAYS BUSINESS CREDIT,
INC. ("Lender"), LOWRANCE ELECTRONICS, INC., a Delaware corporation
------
("Lowrance"), LEI EXTRAS, INC., a Delaware corporation ("LEI"), LOWRANCE
-------- ---
CONTRACTS, INC., a Delaware corporation ("Lowrance Contracts"), and SEA
------------------
ELECTRONICS, INC., an Oklahoma corporation ("Sea Electronics") (Lowrance, LEI,
---------------
Lowrance Contracts and Sea Electronics are herein individually and collectively
called "Borrower").
--------
RECITALS
A. Borrower, Lowrance Australia Pty Limited ("Lowrance Australia") and
------------------
Lender have entered into that certain Loan and Security Agreement, dated
December 15, 1993, as amended by (i) that certain First Amendment to Loan and
Security Agreement, dated October 16, 1995, by and among Lender, Borrower and
Lowrance Australia, (ii) that certain Second Amendment to Loan and Security
Agreement, dated November 1, 1996 by and among Lender and Borrower, (iii) that
certain Third Amendment to Loan and Security Agreement, dated December 30, 1996,
by and among Lender and Borrower, and (iv) that certain Fourth Amendment to Loan
and Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower (as amended, the "Loan Agreement").
--------------
B. Borrower and Lender desire to amend the Loan Agreement and certain of
the other Loan Documents as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
1
<PAGE>
ARTICLE II
Amendments
----------
2.01 Amendment to Section 1.1 of the Loan Agreement; Amendment of Certain
--------------------------------------------------------------------
Definitions. Effective as of the Effective Date Section 1.1 of the Loan
- ----------- -----------
Agreement is hereby amended by adding the following definitions thereto in
alphabetical order:
"$4,000,000 Term Loan - the Loan described in Section 2.2(A-1) of this
------------------- ---------------
Agreement.
$4,000,000 Term Note - The Secured Promissory Note to be executed by
--------------------
Borrower on or about the date of execution of the Fifth Amendment Agreement in
favor of Lender to evidence the $4,000,000 Term Loan, which shall be in the form
of Annex A to the Fifth Amendment.
-------
1997 Tax Refund Amount - the amount indicated below for the periods
----------------------
indicated below:
Applicable Period 1997 Tax Refund Amount
----------------- ----------------------
(a) Date of execution of Fifth (a) $956,000.00
Amendment Agreement though the
earlier to occur of (i) November
30, 1997 or (ii) receipt by
Borrower of its federal tax
refund for the tax year of
Borrower ending July 31, 1997.
(b) Thereafter (b) $0.00
Adjusted Net Earnings From Operations - with respect to any fiscal period,
-------------------------------------
means the net earnings (or loss) after provision for income taxes for such
fiscal period of Borrower, as reflected on the financial statement of Borrower
supplied to Lender pursuant to Section 9.1(J) of this Agreement, but excluding:
--------------
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of a Borrower accrued prior to the
date it becomes a Subsidiary;
(iv) earnings of any corporation, substantially all the assets of
which have been acquired in any manner by a Borrower, realized by such
corporation prior to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary of
a Borrower) in which such Borrower has an ownership interest, unless such net
earnings shall have actually been received by Borrower in the form of cash
contributions;
2
<PAGE>
(vi) any portion of the net earnings of any Subsidiary of a Borrower
which for any reason is unavailable for payment of dividends to such Borrower;
(vii) the earnings of any Person to which any assets of a Borrower
shall have been sold, transferred or disposed of, or into which such Borrower
shall have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transactions;
(viii) any gain arising from the acquisition of any Security of a
Borrower; and
(ix) any gain arising from extraordinary or non-recurring items.
Australian Finished Goods Eligible Inventory - Inventory of Borrower
--------------------------------------------
located in Australia in compliance with Section 4.6 hereof and consisting of
-----------
finished goods (after deducting therefrom, (i) Inventory consisting of packaging
materials and supplies, promotional materials, samples and display materials,
and Inventory not offered for sale, (ii) all reserves established for excess,
slow moving, obsolete or unmerchantable Inventory, which reserves shall be
calculated and adjusted from time to time using the Borrower's reports with
respect to the determination of excess finished goods, and (iii) all reserves
established by Lender in its good faith credit judgment with respect to
shrinkage or spoilage of Inventory) is Australian Finished Goods Eligible
Inventory. Notwithstanding the generality of the foregoing, no Inventory shall
be Australian Finished Goods Eligible Inventory unless it:
(a) is finished goods;
(b) is in good, new and salable condition (and is not work in
progress);
(c) meets all standards imposed by any governmental agency or
authority;
(d) conforms in all respects to the warranties and representations set
forth in Section 6.1 hereof;
------------
(e) is at all time subject to Lender's duly perfected, first priority
security interest and no other Lien except a Permitted Lien;
(f) is situated at a location in Australia in compliance with Section
-------
4.6 hereof and is not in-transit; and
- ---
(g) is not consigned by any Person to Borrower or by Borrower to any
Person.
Furthermore, Lender shall have the right to increase or decrease from time
to time the amount of the deduction described in clause (ii) of the first
-----------
sentence of this definition of Australian Finished Goods Eligible Inventory if
Lender, following its evaluation of Borrower's reserves for excess, slow moving,
obsolete or unmerchantable Inventory (which reserves shall be evaluated by
Lender utilizing Borrower's books and records), determines, in the exercise of
its good faith credit judgment, that such increases or decreases are necessary
or appropriate. No Eligible Inventory shall be deemed to be Australian Finished
Goods Eligible Inventory.
3
<PAGE>
Fifth Amendment Agreement - the Fifth Amendment to Loan and Security
-------------------------
Agreement and Certain Other Loan Documents, dated as of August 25, 1997, by and
between Lender and Borrower.
Fixed Charge Ratio - for Borrower for any period means the ratio of (i) (a)
------------------
the sum of (x) Adjusted Net Earnings from Operations during such period, (y)
- ----------
Interest Expense during such period, and (z) depreciation, amortization and
other non-cash charges during such period (to the extent the same were deducted
in determining Adjusted Net Earnings from Operations for such period), minus (b)
-----
the aggregate amount of extraordinary charges during such period, to (ii) the
---
sum of (a) Interest Expense during such period, (b) Unfinanced Capital
- ------
Expenditures during such period, and (c) scheduled principal payments on
Borrower's long-term Indebtedness (including, without limitation, scheduled
principal amortization on Capitalized Lease Obligations) during such period.
Guarantor - any Person who now or may hereafter guarantee payment or
---------
performance of the whole or any part of the Obligations, including, without
limitation, Darrell J. Lowrance.
Guaranty Agreements - collectively, any and all of the Unconditional
-------------------
Guarantees which are to be executed by a Guarantor in form and substance
satisfactory to Lender, including, without limitation, (i) that certain
Unconditional Guaranty, executed and delivered as of October 16, 1995, executed
by Sea Electronics, and (ii) that certain Unconditional Guaranty, executed and
delivered in connection with the Fifth Amendment Agreement, executed by Darrell
J. Lowrance.
Interest Expense - for any period, the interest charges paid or accrued
----------------
during such period (including inputed interest on Capitalized Lease Obligations)
on the Indebtedness of Borrower.
Mexican Raw Materials Eligible Inventory - Inventory of Borrower located
----------------------------------------
in Mexico in compliance with Section 4.6 hereof and consisting of raw materials
-----------
(after deducting therefrom, (i) Inventory consisting of packaging materials and
supplies, promotional materials, samples and display materials, and Inventory
not offered for sale, (ii) all reserves established for excess, slow moving,
obsolete or unmerchantable Inventory, which reserves shall be calculated and
adjusted from time to time using the Borrower's reports with respect to the
determination of excess raw materials, and (iii) all reserves established by
Lender, in its good faith credit judgment, with respect to shrinkage or spoilage
of Inventory) is Mexican Raw Materials Eligible Inventory. Notwithstanding the
generality of the foregoing, no Inventory shall be Mexican Raw Materials
Eligible Inventory unless it:
(a) is raw materials;
(b) is in good, new and salable condition (and is not work in
progress);
(c) meets all standards imposed by any governmental agency or
authority;
(d) conforms in all respects to the warranties and representations set
forth in Section 6.1 hereof;
------------
4
<PAGE>
(e) is at all time subject to Lender's duly perfected, first priority
security interest and no other Lien except a Permitted Lien;
(f) is situated at a location in Mexico in compliance with Section 4.6
-----------
hereof and is not in-transit; and
(g) is not consigned by any Person to Borrower or by Borrower to any
Person.
Furthermore, Lender shall have the right to increase or decrease from time
to time the amount of the deduction described in clause(ii) of the first
----------
sentence of this definition of Mexican Raw Materials Eligible Inventory if
Lender, following its evaluation of Borrower's reserves for excess, slow moving,
obsolete or unmerchantable Inventory (which reserves shall be evaluated by
Lender utilizing Borrower's books and records), determines in the exercise of
its good faith credit judgment that such increases or decreases are necessary or
appropriate. No Eligible Inventory shall be deemed to be Mexican Raw Materials
Eligible Inventory.
Net Cash Flow - for any fiscal period of Borrower, means the amount
-------------
calculated as follows: (i) the Adjusted Net Earnings From Operations for such
period, plus (ii) depreciation, amortization and other non-cash charges for such
----
period (to the extent the same were deducted in determining Adjusted Net
Earnings From Operations for such period) minus (iii) scheduled principal
-----
payments on Borrower's long-term Indebtedness (including, without limitation,
scheduled principal amortization on Capitalized Lease Obligations) during such
period, minus (iv) Unfinanced Capital Expenditures during such period.
-----
Term Loans - the Term Loan and the $4,000,000 Term Loan.
----------
Unfinanced Capital Expenditures - Capital Expenditures and payments on
-------------------------------
Capitalized Lease Obligations of Borrower to the extent not financed pursuant to
long-term Indebtedness of Borrower (other than the Loans)."
2.02 Amendment to Section 1.1 of the Term Loan Agreement; Deletion of
----------------------------------------------------------------
Definition of "Permitted Overadvance Amount". Effective as of the Effective
- --------------------------------------------
Date, Section 1.1 of the Loan Agreement is hereby amended by deleting therefrom
-----------
the definition of "Permitted Overadvance Amount".
2.03 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Bank". Effective as of April 30, 1996, the definition of "Bank"
- --------------------
is hereby deleted in its entirety and the following shall be substituted
therefor:
"Bank - Fleet National Bank and its successors and assigns."
----
2.04 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Borrowing Base". Effective as of the Effective Date, the
- ------------------------------
definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement is
-----------
hereby deleted in its entirety, and the following shall be substituted therefor:
5
<PAGE>
"Borrowing Base - as at any date of determination thereof, an amount equal
--------------
to the lesser of:
(a) (i) the Revolving Credit Commitment, minus (ii) the face amount of all
-----
Letters of Credit outstanding at such date, minus (iii) the aggregate unpaid
-----
principal balance of all Equipment Loans at such date; or
(b) an amount equal to:
------------------
(i) 85% of the net amount of Eligible Accounts, other than Eligible
Wal-Mart Accounts or Eligible Kmart Accounts, outstanding at such date;
PLUS
(ii) 80% of the net amount of Eligible Wal-Mart Accounts and Eligible
Kmart Accounts outstanding at such date;
PLUS
(iii) the lesser of (a) the Inventory Commitment Amount or (b) the sum
------------- -------
of (w) 30% of the value of Raw Materials Eligible Inventory at such date, (x)
--
30% of the value of Mexican Raw Materials Eligible Inventory at such date, (y)
60% of the value of Finished Goods Eligible Inventory at such date and (z) 60%
of the value of Australian Finished Goods Eligible Inventory at such date, all
of the above as calculated on the basis of the lower of cost or market, with
cost calculated on a first-in, first-out basis;
PLUS
(iv) the 1997 Tax Refund Amount;
MINUS (subtract from the sum of clauses (i), (ii), (iii) and (iv) above)
---------- -- --- --
(v) an amount equal to the sum of (a) the face amount of all Letters of
Credit outstanding at such date, (b) the amount of all reserves established by
Lender on a monthly basis (and promptly notified to Borrower) to reflect the
liability of Lender and/or Bank under or in connection with guaranties by Lender
and/or Bank of all foreign exchange contracts pursuant to Section 2.5 hereof,
-----------
(c) the amount of any mandatory prepayment paid pursuant to Section 2.2(C) and
--------------
applied by Lender to the Revolving Credit Loans outstanding, (d) any amounts
received by Lender from the Insurance Assignment and applied to the Obligations,
and (e) any amounts which Lender may pay (but which have not been paid and
applied to the Revolving Credit Loans outstanding) pursuant to any of the Loan
Documents for the account of Borrower other than Letters of Credit.
For purposes hereof, the net amount of Eligible Accounts, Eligible Wal-Mart
Accounts or Eligible Kmart Accounts, as the case may be, at any time shall be
the face amount of such Eligible Accounts, Eligible Wal-Mart Accounts or
Eligible Kmart Accounts, less any and all credit memoranda or credit adjustments
----
issued for discounts (which may, at Lender's option, be
6
<PAGE>
calculated on the shortest terms), credit and rebills, returns, allowances,
pricing errors or other similar items at any time outstanding or payable in
connection with such Accounts at such time."
2.05 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Eligible Account. Effective as of the Effective Date, the
- -------------------------------
definition of "Eligible Account" contained in Section 1.1 of the Loan Agreement
-----------
is hereby deleted in its entirety, and the following shall be substituted
therefor:
"Eligible Account - an Account arising in the ordinary course of Borrower's
----------------
business from the sale of goods or rendition of services is an Eligible Account.
Notwithstanding the generality of the foregoing, no Account shall be an Eligible
Account if:
(a) it arises out of a sale made by Borrower to (i) a Subsidiary of
Borrower, (ii) an Affiliate of Borrower, (iii) a Person controlled by an
Affiliate of Borrower, or (iv) an officer, director, employee or agent of
Borrower, a Subsidiary of Borrower or an Affiliate of Borrower; or
(b) with respect to accounts owing by Account Debtors, other than Wal-
Mart and Kmart, for which Borrower in the ordinary course of business allows
payment terms in excess of 60 days after the original invoice date, such
Accounts are unpaid for more than 60 days after the original due date shown on
the invoice; provided, however, that no Account shall be deemed an Eligible
-----------------
Account if it is unpaid more than 210 days from the original invoice date; or
(c) with respect to Accounts for which Borrower in the ordinary course
of business allows payment terms of 60 days or less after the original invoice
date, such Accounts are unpaid more than 90 days after the original invoice
date; or
(d) 20% or more of the Accounts from the Account Debtor are not deemed
Eligible Accounts hereunder, to the extent of all Accounts owing by such Account
Debtor; or
(e) the total unpaid Accounts of the Account Debtor (other than Wal-
Mart or Kmart) exceed 10% of the net amount of all Accounts, to the extent of
such excess, if Lender in the exercise of its good faith credit judgment
determines that the collection of the Account from the Account Debtor is
insecure or that payment thereof is doubtful; or
(f) any material covenant, representation or warranty contained in
this Agreement with respect to such Account has been breached; or
(g) the Account Debtor is also Borrower's creditor or supplier, or has
disputed liability with respect to such Account, or has made any claim with
respect to any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by the Account
Debtor (including any right of setoff arising from cooperative advertising
arrangements, rebate allowances, and other advertising credits between Borrower
and the Account Debtor), in an amount equal to the extent of any offset, dispute
or claim; or
7
<PAGE>
(h) the Account Debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
Account Debtor in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the Account
Debtor, or if the Account Debtor has failed, suspended business, ceased to be
Solvent, or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of its
assets or affairs; or
(i) it arises from a sale to an Account Debtor outside the United
States (other than Canada), unless either (i) the sale is on letter of credit,
guaranty, or acceptance terms, in each case acceptable to Lender or such Account
is covered by FCIA insurance, or (ii) the sale is to an Account Debtor of
Lowrance located in Australia and the Account is not unpaid more than 90 days
after the original invoice date, or (iii) the sale is to an Account Debtor
located outside of the United States (other than Canada or Australia), the
Account is not unpaid more than 90 days after the original invoice date thereof,
and the sale is not on letter of credit, guaranty or acceptance terms acceptable
to Lender or such Account is not covered by FCIA insurance; provided, however,
-----------------
the aggregate amount of all Revolving Credit Loans advanced against the Accounts
described in this sub-clause (iii) shall not exceed $1,000,000 at any time and
----------------
the aggregate amount of Revolving Credit Loans advanced against all the Accounts
described in this sub-clause (iii) from any specific Account Debtor shall not
-----------------
exceed $200,000 at any time; or
(j) it arises from a sale to the Account Debtor on a bill-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or any other
repurchase or return basis and has not been disclosed to Lender on Exhibit T
---------
attached hereto; or
(k) Lender in the exercise of its good faith credit judgment believes
that collection of such Account is insecure or that payment thereof is doubtful
or will be delayed by reason of the Account Debtor's financial condition; or
(l) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower assigns its right
to payment of such Account to Lender, in form and substance satisfactory to
Lender, so as to comply with the Assignment of Claims Act of 1940, as amended
(31 U.S.C. Sub-Section 203 et seq.); or
------
(m) the Account Debtor is located in the States of New Jersey, West
Virginia, Minnesota or Indiana, unless Borrower has filed a Notice of Business
Activities Report with the appropriate officials in each applicable state for
the then current year; or
(n) the Account is subject to a Lien other than a Permitted Lien; or
(o) the goods giving rise to such Account have not been delivered to a
common carrier or the services giving rise to such Account have not been
performed by Borrower and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or
8
<PAGE>
(p) the Account arises from a progress billing or an invoice for
deposit; or
(q) the Account arises from a sale which is an installment sale or
lease or is otherwise a sale on an extended payment basis, except to the extent
permitted pursuant to clauses (b) and (c) above; or
----------- ---
(r) the Account is evidenced by chattel paper or an instrument of any
kind, or has been reduced to judgment; or
(s) Borrower has made any agreement with the Account Debtor for any
deduction therefrom, except for (i) discounts or allowances which are made in
the ordinary course of business for prompt payment and which discounts or
allowances are reflected in the calculation of the face value of each invoice
related to such Account, and (ii) other discounts and allowances of the type
granted by Borrower to Account Debtors in the ordinary course of business on the
Closing Date; or
(t) Borrower has made an agreement with the Account Debtor to extend
the time of payment thereof, except to the extent permitted pursuant to clauses
-------
(b) and (c) above; or
- --- ---
(u) the Account arises from a retail sale of goods to a Person who is
purchasing same primarily for personal, family or household purposes; or
(v) the Account includes any sales, excise or other taxes of any
nature at any time outstanding or payable in connection with such Account, to
the extent of the amount of such taxes included in such Account; or
(w) the Account includes any interest, late fees, and services charges
that may have accrued on such Account by reason of the Account Debtor not having
paid the Account as it became due, to the extent of the amount of such interest,
late fees, and services charges included in such Account."
2.06 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Eligible Inventory". Effective as of the Effective Date hereof,
- ---------------------------------
the definition of "Eligible Inventory" contained in Section 1.1 of the Loan
-----------
Agreement is hereby deleted in its entirety and the following shall be
substituted therefor:
"Eligible Inventory - Inventory of Borrower consisting of raw materials or
------------------
finished goods (after deducting therefrom, (i) Inventory consisting of packaging
materials and supplies, promotional materials, samples and display materials,
and Inventory not offered for sale, (ii) all reserves established for excess,
slow moving, obsolete or unmerchantable Inventory, which reserves shall be
calculated and adjusted from time to time using the Borrower's reports with
respect to the determination of excess raw materials, and (iii) all reserves
established by Lender in its good faith credit judgment with respect to
shrinkage or spoilage of Inventory) is Eligible Inventory. Notwithstanding the
generality of the foregoing, no Inventory shall be Eligible Inventory unless it:
9
<PAGE>
(a) is raw materials or finished goods;
(b) is in good, new and salable condition or usable in the production or
repair of Borrower's finished goods (and is not work in progress);
(c) meets all standards imposed by any governmental agency or authority;
(d) conforms in all respects to the warranties and representations set
forth in Section 6.1 hereof;
-----------
(e) is at all time subject to Lender's duly perfected, first priority
security interest and no other Lien except a Permitted Lien;
(f) is situated at a location in compliance with Section 4.6 hereof and is
-----------
not located in Mexico or Australia and is not in transit; and
(g) is not consigned by any Person to Borrower or by Borrower to any
Person.
Furthermore, Lender shall have the right to increase or decrease from time to
time the amount of the deduction described in clause(ii) of the first sentence
-----------
of this definition of Eligible Inventory if Lender, following its evaluation of
Borrower's reserves for excess, slow moving, obsolete or unmerchantable
Inventory (which reserves shall be evaluated by Lender utilizing Borrower's
books and records), determines in the exercise of its good faith credit judgment
that such increases or decreases are necessary or appropriate. No Mexican Raw
Materials Eligible Inventory or Australian Finished Goods Eligible Inventory
shall be deemed to be Eligible Inventory."
2.07 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Inventory Commitment Amount". Effective as of the Effective
- ------------------------------------------
Date, the definition of "Inventory Commitment Amount" contained in Section 1.1
-----------
of the Loan Agreement is hereby deleted in its entirety and the following shall
be substituted therefor:
"Inventory Commitment Amount - the amount indicated below for the periods
---------------------------
indicated below:
INVENTORY
APPLICABLE PERIOD COMMITMENT AMOUNT
----------------- -----------------
(a) May 1 through October 31 $10,000,000
(b) November 1 through November 30 $11,000,000
(c) December 1 through March 31 $13,000,000
(d) April 1 through April 30 $11,000,000"
2.08 Amendment to Section 1.1 of the Loan Agreement; Amendment to Definition
-----------------------------------------------------------------------
of "Loans". Effective as of the Effective Date, the definition of "Loans" is
- ---------
hereby deleted it its entirety and the following shall be substituted therefor:
10
<PAGE>
"Loans - all loans and advances made by Lender pursuant to this Agreement,
-----
including without limitation, all Revolving Credit Loans, the Term Loan, the
- ----------------------------
$4,000,000 Term Loan, the Equipment Loans, each payment made pursuant to a
guaranty of a foreign currency purchase contract and each payment made pursuant
to a Letter of Credit."
2.09 Amendment to Section 1.1 of the Loan Agreement; Amendment to
------------------------------------------------------------
Definition of "Notes". Effective as of the Effective Date, the definition of
- ---------------------
"Notes" is hereby deleted in its entirety and the following shall be substituted
therefor:
"Notes - the Term Note, the $4,000,000 Term Note, the Equipment Notes and
-----
the Revolving Credit Notes."
2.10 Amendment to Section 1.1 of the Loan Agreement; Amendment to
------------------------------------------------------------
Definition of "Other Agreements". Effective as of the Effective Date, the
- --------------------------------
definition of "Other Agreements" is hereby amended by deleting therefrom the
reference to the words "Term Note" and substituting therefor the words "Term
Notes".
2.11 Amendment to Section 1.1 of the Loan Agreement; Amendment to
------------------------------------------------------------
Definition of "Permitted Raw Materials Loan Amount". Effective as of the
- --------------------------------------------------
Effective Date, the definition of "Permitted Raw Materials Loan Amount" is
hereby deleted in its entirety and the following shall be substituted therefor:
"Permitted Raw Materials Loan Amount - $3,750,000."
-----------------------------------
2.11 Amendment to Section 1.1 of the Loan Agreement; Amendment of
------------------------------------------------------------
Definition of "Seasonal Dating Accounts Loan Amount". Effective as of the
- ---------------------------------------------------
Effective Date, the definition of "Seasonal Dating Accounts Loan Amount" is
hereby deleted in its entirety and the following shall be substituted therefor:
"Seasonal Dating Accounts Loan Amount - the amount indicated below for the
------------------------------------
periods indicated below:
SEASONAL DATING
APPLICABLE PERIOD ACCOUNTS LOAN AMOUNT
-------------------------- --------------------
January 1 through April 30 $5,000,000.00
May 1 through December 31 $0.00"
2.13 Amendment to Section 1.1 of the Loan Agreement; Amendment to
------------------------------------------------------------
Definition of "Security Agreements". (i) Effective as of the Effective Date, the
- -----------------------------------
definition of "Security Agreements" shall include the Guaranty Agreements, and
(ii) effective as of May 6, 1996, the definition of "Security Agreements" shall
include that certain Copyright Security Agreement, dated as of May 6, 1996,
executed by Lowrance, in favor of Lender (the "Copyright Assignment").
---------------------
11
<PAGE>
2.14 Amendment to Section 2 of the Loan Agreement; Amendment to Maximum
------------------------------------------------------------------
Amount of Total Credit Facility. Effective as of the Effective Date, the
- -------------------------------
reference to the dollar amount $30,000,000" contained in the fourth line of
Section 2 Credit Facility is hereby deleted and substituted therefore is the
- -------------------------
dollar amount $33,011,000.
2.15 Amendment to Section 2.1(B) of the Loan Agreement. Effective as of
-------------------------------------------------
the Effective Date, Section 2.1(B) of the Loan Agreement is hereby deleted in
-------------
its entirety and the following shall be substituted therefor:
"(B) Notwithstanding the foregoing provisions of Section 2.1(A), it is
-------------
expressly agreed and understood that (i) the aggregate outstanding amount of all
Revolving Loans advanced against Eligible Accounts and Eligible Inventory of
LEI, Lowrance Contracts and Sea Electronics shall not exceed $500,000 at any
time; (ii) the aggregate outstanding amount of Revolving Loans advanced against
Eligible Accounts of Lowrance arising from sales to Account Debtors located in
Australia and Australian Finished Goods Eligible Inventory shall not exceed
$1,000,000 at any time; (iii) the aggregate outstanding amount of all Revolving
Loans advanced against Raw Materials Eligible Inventory shall not exceed the
Permitted Raw Materials Loan Amount at any time; (iv) the aggregate outstanding
amount of all Revolving Loans advanced against Seasonal Dating Accounts shall
not exceed the Seasonal Dating Accounts Loan Amount; and (v) the aggregate
outstanding amount of all Revolving Loans advanced against Mexican Raw Materials
Eligible Inventory shall not exceed $1,000,000 at any time."
2.16 Amendment to Section 2.2 of the Loan Agreement; Addition of New
---------------------------------------------------------------
Section 2.2(A-1). Effective as of the Effective Date, a new Section 2.2(A-1)
- ---------------- ---------------
$4,000,000 Term Loan is hereby added to the Loan Agreement to read in its
- --------------------
entirety as follows:
"(A-1) $4,000,000 Term Loan. Subject to the terms and conditions of this
--------------------
Agreement (including, without limitation, the terms, conditions and conditions
precedent of the Fifth Amendment Agreement), Lender agrees to make a term loan
to Borrower in connection with the Fifth Amendment Agreement in the principal
amount of $4,000,000 (the '$4,000,000 Term Loan'), which shall be repayable in
--------------------
accordance with the terms of the $4,000,000 Term Note and shall be secured by
the Collateral. The $4,000,000 shall be funded upon the satisfaction of the
conditions precedent specified in the Fifth Amendment Agreement in a manner
satisfactory to Lender. The proceeds of the $4,000,000 Term Loan shall be used
by Borrower solely for purposes for which the proceeds of the Revolving Credit
Loans are authorized to be used."
2.17 Amendment to Section 2.2(C) of the Loan Agreement. Effective as of
--------------------------------------------------
the Effective Date, Section 2.2(C) of the Loan Agreement is amended by deleting
-------------
therefrom the words "Term Loan" and substituting therefor the words "Term Loans
in such order and such manner as Lender shall determine".
2.18 Amendment to Section 2.3(A) of the Loan Agreement. Effective as of
-------------------------------------------------
the Effective Date, Section 2.3(A) of the Loan Agreement is hereby deleted in
--------------
its entirety and the following shall be substituted therefor:
12
<PAGE>
"(A) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower may give Lender notice
of its intention to borrow, in which notice Borrower shall specify the amount of
the proposed borrowing and the proposed borrowing date; (ii) the becoming due of
any amount required to be paid under this Agreement or the Term Note or the
$4,000,000 Term Note or any Equipment Note as interest shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in the
amount required to pay such interest; and (iii) the becoming due of any other
Obligations shall be deemed irrevocably to be a request for a Revolving Credit
Loan on the due date in the amount then so due. As an accommodation to
Borrower, Lender may permit telephonic requests for Loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender by
Borrower. Unless Borrower specifically directs Lender in writing not to accept
or act upon telephonic or electronic communications from Borrower, Lender shall
have no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to Lender
telephonically or electronically and purporting to have been sent to Lender by
any individual from time to time designated by Borrower as an authorized officer
and Lender shall have no duty to verify the origin or authenticity of any such
communication;".
2.19 Amendment to Section 3.1(A) of the Loan Agreement. Effective as of
-------------------------------------------------
the Effective Date, Section 3.1(A) of the Loan Agreement is hereby deleted in
---------------
its entirety and the following substituted in lieu thereof:
"Outstanding principal on the Loans shall bear interest, calculated daily,
at the following rates per annum (individually called, as applicable, an
'Applicable Annual Rate'): (i) the Term Loans shall bear interest at a
- ------------------------
fluctuating rate per annum equal to 1.50% above the Base Rate, (ii) the
Equipment Loans shall bear interest at a fluctuating rate per annum equal to
1.50% above the Base Rate and (iii) the Revolving Credit Loans shall bear
interest at a fluctuating rate per annum equal to 1.50% above the Base Rate.
Each Applicable Annual Rate shall be increased or decreased, as the case may be,
by an amount equal to any increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Base Rate becomes effective. Interest on the Loans shall be
calculated daily, based on the actual days elapsed over a 360 day year.
Further, for the purpose of computing interest, all items of payment received by
Lender shall be applied by Lender (subject to final payment of all drafts and
other items received in form other than immediately available funds) against the
Obligations on the first Business Day after receipt. The determination of when
a payment is received by Lender will be made in accordance with Section 3.6.
-----------
Notwithstanding anything contained herein to the contrary, Lender and
Borrower agree that the Applicable Annual Rate relating to Revolving Credit
Loans shall be reduced from 1.50% above the Base Rate to 0.75% above the Base
Rate if (i) Borrower achieves positive Net Cash Flow for its fiscal year ending
July 31, 1998, evidenced by Borrower's audited financial statements which are to
be delivered by Borrower to Lender pursuant to Section 9.1(J)(i) hereof, and
------------------
(ii) as of the date Lender determines that Borrower has achieved such positive
Net Cash Flow, no Default or Event of Default exists hereunder."
13
<PAGE>
2.20 Amendment to Section 3.2 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, Section 3.2 of the Loan Agreement is amended as follows:
-----------
(i) The reference to the date "December 31, 1998" is deleted and
substituted therefor is the date "December 31, 2000."
(ii) The reference to the date "December 31, 1999" is deleted and
substituted therefor is the date "December 31, 2001."
2.21 Amendment to Section 3.3(A) of the Loan Agreement. Effective as of the
-------------------------------------------------
Effective Date, Section 3.3(A) of the Loan Agreement is amended as follows:
---------------
(i) Each reference in Section 3.3(A) to the words "Term Loan" is
---------------
deleted and substituted for each such reference are the words "Term Loans".
(ii) The last sentence of Section 3.3(A) is deleted and substituted
---------------
therefor is the following sentence:
"At the effective date of any such termination of the Revolving Credit
Commitment and this Agreement, Borrower shall pay to Lender (in addition to the
then outstanding principal, accrued interest and other charges owing under the
terms of this Agreement and any of the other Loan Documents), as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to (i)
1.0% of the Termination Amount if such termination occurs during the period from
the date of execution of the Fifth Amendment Agreement through December 31,
1998; and (ii) 0.666% of the Termination Amount if such termination occurs
during the period from January 1, 1999 through December 31, 1999. If
termination occurs after December 31, 1999, no termination charge shall be
payable."
2.22 Amendment to Section 3.5 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, the first sentence of Section 3.5 of the Loan Agreement is
-----------
deleted and substituted therefor is the following sentence:
"Principal and interest (i) on the Term Loan shall be payable as provided
in the Term Note, (ii) on the $4,000,000 Term Loan shall be payable as provided
in the $4,000,000 Term Note, and (iii) on any Equipment Loan shall be payable as
provided in the Equipment Note relating thereto."
2.23 Amendment to Section 4.7 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, Section 4.7 of the Loan Agreement is amended by deleting
-----------
therefrom the words "Term Loan" and substituting therefor the words "Term
Loans".
2.24 Amendment to Section 5.5 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, Section 5.5 of the Loan Agreement is amended by deleting
-----------
therefrom the phrase "(except for such Accounts owing from Account Debtors
located in Australia)".
14
<PAGE>
2.25 Amendment to Section 6.1 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, Section 6.1 of the Loan Agreement is amended by deleting
-----------
therefrom the phrase "With respect to Inventory, Borrower represents and
warrants to Lender that Lender may rely, in determining which items of Inventory
constitute Eligible Inventory" and substituting therefor the phrase "With
respect to Inventory, Borrower represents and warrants to Lender that Lender may
rely in determining which items of Inventory constitute respectively Eligible
Inventory, Mexican Raw Materials Eligible Inventory or Australian Finished Goods
Eligible Inventory".
2.26 Amendment to Section 8.11(A) of the Loan Agreement. Effective as of
--------------------------------------------------
the Effective Date, Section 8.1(A) of the Loan Agreement is amended by adding
---------------
thereto a new Section to be inserted at the end of such Section 8.1(A) to read
--------------
in its entirety as follows:
"Lowrance is in good standing, duly registered as a foreign corporation and
authorized to do business in Australia."
2.27 Amendment to Section 8.1(M) of the Loan Agreement. Effective as of
-------------------------------------------------
the Effective Date, Section 8.1(M) of the Loan Agreement is amended by adding
--------------
thereto two new sentences to be inserted at the end of such Section 8.1(M) to
--------------
read in their entirety as follows:
"Lowrance has been transferred, and presently has good title to, all the
Property in Australia previously owned by Lowrance Australia, and Lender has a
first priority Lien in such Property in Australia and in all other Property of
Borrower in Australia, subject only to Permitted Liens. Lender also has a first
priority Lien in all Property of Borrower located in Mexico (either by direct
grant to Lender of a first priority security interest or through the conveyance
to the Mexican Trustee as described in Section 4.9 hereof), subject only to
-----------
Permitted Liens."
2.28 Amendment to Section 9.3 of the Loan Agreement. Effective as of the
----------------------------------------------
Effective Date, Section 9.3 of the Loan Agreement is deleted in its entirety and
-----------
the following is substituted therefor:
"9.3 Specific Financial Covenants. During the term of this Agreement, and
----------------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
(A) Minimum Tangible Net Worth. Maintain a Consolidated Tangible Net
--------------------------
Worth of not less than the amount indicated below of the last day of each
calendar month during the period corresponding thereto:
PERIOD AMOUNT
------ -----------
(a) Date of execution of Fifth Amendment (a) $ 9,000,000
Agreement through August 31, 1997
(b) September 1, 1997 through October (b) $ 8,600,000
31, 1997.
15
<PAGE>
(c) November 1, 1997 through December (c) $ 8,300,000
31, 1997.
(d) January 1, 1998 through January (d) $ 8,800,000
31, 1998.
(e) February 1, 1998 through February (e) $ 8,300,000
28, 1998.
(f) March 1, 1998 through March 31, (f) $10,000,000
1998.
(g) April 1, 1998 through April 30, (g) $10,600,000
1998.
(h) May 1, 1998 through May 31, 1998. (h) $11,100,000
(i) June 1, 1998 and thereafter. (i) $11,500,000
(B) Maximum Leverage Ratio. Maintain, on a Consolidated basis, a
----------------------
ratio of (i) total Indebtedness to (ii) Tangible Net Worth of not more than the
ratio shown below as of the last day of each calendar month during the period
corresponding thereto.
PERIOD RATIO
------ -----
(a) Date of execution of Fifth (a) 5.4 to 1.0
Amendment Agreement through August 31,
1997.
(b) September 1, 1997 through (b) 5.2 to 1.0
September 30, 1997.
(c) October 1, 1997 through October (c) 5.1 to 1.0
31, 1997.
(d) November 1, 1997 through November (d) 5.0 to 1.0
30, 1997.
(e) December 1, 1997 through December (e) 4.9 to 1.0
31, 1997.
(f) January 1, 1998 through January (f) 5.0 to 1.0
31, 1998.
(g) February 1, 1998 through February (g) 5.1 to 1.0
28, 1998.
(h) March 1, 1998 through March 31, (h) 4.7 to 1.0
1998.
(i) April 1, 1998 through April 30, (i) 4.5 to 1.0
1998.
(j) May 1, 1998 through July 31, 1998. (j) 3.5 to 1.0
(k) Each thereafter occurring nine (k) 4.5 to 1.0
calendar months beginning with August
1 of a calendar year and continuing
through April 30 of the following
calendar year (the first such nine
calendar month period being August 1,
1998 through April 30, 1999).
16
<PAGE>
(l) Each thereafter occurring three (k) 3.5 to 1.0
calendar months beginning with May 1
of a calendar year and continuing
through July 31 of such calendar year
(the first such three calendar month
period being May 1, 1999 through July
31, 1999.
(C) Fixed Charge Ratio. Maintain, on a Consolidated basis, a Fixed
------------------
Charge Ratio of not less than the ratio shown below for the periods
corresponding thereto.
PERIOD RATIO
------ -----
(a) Three calendar month period ending (a) 0.34 to 1.0
on October 31, 1997.
(b) Six calendar month period ending (b) 0.56 to 1.0
on January 31, 1998.
(c) Nine calendar month period ending (c) 1.0 to 1.0
on April 30, 1998.
(d) Twelve calendar month period (d) 1.0 to 1.0
ending on July 31, 1998.
(e) Twelve calendar month period (e) 1.0 to 1.0
ending on October 31, 1998.
(f) Twelve calendar month period (f) 1.0 to 1.0
ending on January 31, 1999.
(g) Twelve calendar month period (g) 1.0 to 1.0
ending on April 30, 1999.
(h) Twelve calendar month period (h) 1.0 to 1.0
ending on July 31, 1999.
(i) Twelve calendar month period (i) 1.0 to 1.0
ending on the last day of each
thereafter occurring October, January,
April and July.
2.29 Amendment to Section 11.1(A) of the Loan Agreement. Effective as of
--------------------------------------------------
the Effective Date, Section 11.1(A) of the Loan Agreement is amended by deleting
----------------
therefrom the phrase "the Term Note or the Revolving Credit Notes" and
substituting therefor the phrase "any Note".
2.30 Amendment to Section 11.1(B) of the Loan Agreement. Effective as of
--------------------------------------------------
the Effective Date, Section 11.1(B) of the Loan Agreement is amended by deleting
----------------
therefrom the phrase "the Term Note or the Revolving Credit Notes" and
substituting therefor the phrase "a Note".
17
<PAGE>
2.31 Cure Period for Violation of Section 9.3(C) of the Loan Agreement.
-----------------------------------------------------------------
Notwithstanding the provisions of Section 11.1(D)(i) of the Loan Agreement, if
-----------------
Borrower violates for any period the Fixed Charge Ratio for such period
specified in Section 9.3(C) of the Loan Agreement, Borrower shall have the right
-------------
to cure such Default in the manner detailed in the succeeding sentence such
Default within fifteen (15) days after Borrower's receipt of notice of such
Default by Lender. Such cure by Borrower may only be effectuated by a new cash
equity infusion being made into Lowrance in the amount necessary such that when
such amount is added to the numerator of the Fixed Charge Ratio (i.e., the
amount calculated pursuant to clause (i) of the definition of Fixed Charge
---------
Ratio) for such fiscal period, Borrower is in compliance with the Fixed Charge
Ratio for such fiscal period specified in Section 9.3(C) of the Loan Agreement.
-------------
2.32 Amendment to Section 11.1(I) of the Loan Agreement. Effective as of
--------------------------------------------------
the Effective Date, Section 11.1(I) of the Loan Agreement is amended by
----------------
inserting after each reference thereto to "Lowrance" or "Borrower" the words "or
any Guarantor".
2.33 Amendment to Section 11.1 of the Loan Agreement; Addition of New
----------------------------------------------------------------
Section 11.1(P). Effective as of the Effective Date, a new Section 11.1(P)
- --------------- ---------------
Repudiation of or Default under Guaranty Agreement is added to the Loan
- --------------------------------------------------
Agreement to read in its entirety as follows:
"(P) Repudiation of or Default Under Guaranty Agreement. Any
--------------------------------------------------
Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by
such Guarantor, or shall repudiate such Guarantor's liability thereunder or
shall be in default under the terms thereof."
2.34 Amendment to Section 12.10 of the Loan Agreement. Effective as of the
------------------------------------------------
Effective Date, Section 12.10 of the Loan Agreement is amended such that (i) any
-------------
notice to Lender shall hereafter be addressed as follows:
"(A) If to Lender: Fleet Capital Corporation
2711 North Haskell Avenue
Suite 2100
Dallas, Texas 75204
Attn: Loan Administration Manager
with a copy to: Patton Boggs, L.L.P.
2626 Cole Avenue
Suite 300
Dallas, Texas 75204
Attn: Larry A. Makel, Esq."
and (ii) any notice to Borrower shall hereafter be addressed as follows:
"(B) if to Borrower: Lowrance Electronics, Inc.
12000 East Skelly Drive
Tulsa, Oklahoma 74128
Attn: Mark C. Wilmoth
18
<PAGE>
with a copy to: Stuart, Biolchini, Turner & Givray
3300 First Place Tower
Fifteen East Fifth Street
Tulsa, Oklahoma 74103-4340
Attn: Robert F. Biolchini, Esq."
2.35 Amendment to Term Note. Effective as of the Effective Date, the Term
----------------------
Note is amended by deleting from the second page of the Term Note the phrase
"and May 31, 1998, in installments of $500,000.00 each" and substituting
therefor the phrase "an installment of $500,000.00".
2.36 Amendment to Revolving Credit Notes. Effective as of the Effective
-----------------------------------
Date, each Revolving Credit Note is amended by deleting therefrom the date
"December 31, 1998" and substituting therefor the date "December 31, 2000".
2.37 Restructuring Fee. In consideration for the agreements of Lender
-----------------
contained herein, including, without limitation, extending the Original Term,
committing to make the $4,000,000 Term Loan, and revising the definition of
"Borrowing Base", but subject to Section 3.1(D) of the Loan Agreement, Borrower
-------------
agrees to pay Lender a fee of $50,000. Such fee shall be fully earned, and due
and payable, on the date of execution of this Amendment. Borrower hereby
irrevocably authorizes Lender, in Lender's sole discretion, to advance to
Borrower, and to charge on the date of execution of this Amendment to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay in
full this restructuring fee.
ARTICLE III
Conditions Precedent and Post-Closing Covenants
-----------------------------------------------
3.01 Conditions Precedent. The effectiveness of this Amendment is subject
--------------------
to the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
(a) Lender shall have received each of the following, each in form and
substance satisfactory to Lender: (i) this Amendment, duly executed by Borrower;
(ii) the $4,000,000 Term Note, in the form of Annex A attached hereto, duly
-------
executed by Borrower, (iii) an Unconditional Guaranty, in the form of Annex C
-------
attached hereto, duly executed by Darrell J. Lowrance, whereby Darrell J.
Lowrance unconditionally guarantees payment of the Obligations, (iv) Third
Amendment to Mortgage, Security Agreement, Financing Statement and Assignment of
Rents, duly executed by Lowrance regarding the existing Mortgage in favor of
Lender covering Lowrance's Tulsa, Oklahoma real Property; (v) Assignment of
Business Interruption Insurance Policy regarding all business interruption
insurance policies of Borrower, duly executed by Borrower, in favor of Lender
and Assignment of Political Risk Insurance Policy regarding all political risk
insurance policies of Borrower, duly executed by Borrower, in favor of Lender;
(vi) a good standing certificate for each Borrower, issued within 15 days of the
19
<PAGE>
date of this Amendment by the Secretary of State or appropriate official of the
jurisdiction of its incorporation, (vii) a closing certificate signed by the
Chief Executive Officer and Chief Financial Officer of Borrower, dated as of the
date of this Amendment, stating that (a) the representations and warranties set
forth in Section 8 of the Loan Agreement are true and correct as of such date,
---------
(b) Borrower is on such date in compliance with all the terms and provisions set
forth in the Loan Agreement, as amended by this Amendment, and (c) on such date
no Default or Event of Default has occurred and is continuing, except for such
Defaults or Events of Default as have been specifically waived in writing by
Lender, (viii) a company general certificate in the form of Annex B attached
-------
hereto (hereinafter referred to as the "Company General Certificate"), certified
---------------------------
by the Secretary or Assistant Secretary of each Borrower acknowledging (a) that
such Borrower's Board of Directors has met and has adopted, approved, consented
to and ratified resolutions which authorize the executio n, delivery and
performance by such Borrower of this Amendment and all other Loan Documents to
which such Borrower is to be a party, and (b) the names of the officers of such
Borrower authorized to sign this Amendment and each of the other Loan Documents
to which such Borrower is or is to be a party hereunder including certificates
contemplated herein), together with specimen signatures of such officers; (ix)
copies of all filing receipts or acknowledgments issued by any governmental
authority to evidence any filing or recordation necessary to perfect the Liens
of Lender in any Property of Borrower located in Australia and evidence
satisfactory in formal substance to Lender that such Liens constitute valid and
perfected first priority Liens, subject only to Permitted Liens; and (x) such
additional documents, instruments and information as Lender or its legal counsel
may request;
(b) The representations and warranties contained herein, in the Loan
Agreement and in the other Loan Documents, as each is amended hereby, shall be
true and correct as of the date hereof, as if made on the date hereof;
(c) Lender shall have received, in immediately available funds, payment of
the $50,000 restructuring fee described in Section 2.37 of this Amendment;
------------
(d) After giving effect to this Amendment, no Default or Event of Default
shall have occurred and be continuing, unless such Default or Event of Default
has been specifically waived in writing by Lender; and
(e) All corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Lender and its legal counsel.
3.02 Post-Closing Covenants. (i) Unless waived or extended in writing in
----------------------
Lender's sole discretion, on or before sixty days after the date of execution of
this Amendment, Borrower shall have:
(a) Delivered to Lender a business valuation study of Borrower prepared by
Houlihan, Locke or prepared by another Person with comparable experience,
reputation, qualification and expertise comparable to Houlihan, Locke selected
by Borrower and acceptable to Lender, the cost of which business valuation study
shall be the sole responsibility of Borrower.
20
<PAGE>
Lender agrees to treat the information contained in such business valuation
study (hereinafter, the "Information") as confidential and to reveal the
-----------
Information to only such of Lender's employees, regulatory authorities, hired
consultants, attorneys, accountants and auditors as Lender determines, in its
credit judgment, need to know such Information. Notwithstanding the foregoing,
the term "Information" shall not include any information that (i) is or becomes
generally known, (ii) is or becomes available to Lender on a nonconfidential
basis from a source that Lender in good faith believes may disclose such
information without violating any confidentiality agreement with Borrower or
(iii) is in the public domain. In addition, nothing herein shall prevent Lender
from disclosing Information (i) which is required to be made in a judicial,
administrative or governmental proceeding, (ii) required by any applicable law
or regulation, (iii) made to any governmental agency or regulatory body having
or claiming authority over any aspect of Lender's business in connection with
the exercise of such authority or claimed authority, (iv) which is required
pursuant to a subpoena, or (v) in connection with the exercise by Lender of any
of its rights under the Loan Agreement or any other Loan Document after the
occurrence of an Event of Default; and
(b) Delivered to Lender, each in form and substance satisfactory to Lender
and duly executed by Borrower, amendments to the Trademark Assignment, the
Patent Assignment, and the Copyright Assignment and such other documents as
shall be deemed necessary by Lender in order for Lender to have a valid first
priority Lien on all intellectual property of Borrower; and
(c) Delivered to Lender, each in form and substance satisfactory to Lender
and duly executed by each Person a party thereto, such amendments to the Mexican
Security Documents as shall be deemed necessary by Lender to reflect the
transactions contemplated by this Amendment.
(ii) Unless waived or extended in writing in Lender's sole discretion, on or
before fifteen days after the date of execution of this Amendment, Borrower
shall have delivered to Lender the relevant insurer's acknowledgment to each of
the Assignment of Business Interruption Insurance Policy and Assignment of
Political Risk Insurance Policy.
(iii) The failure of Borrower to satisfy any of the covenants set forth in
this Section 3.02 shall constitute an immediate Event of Default under the Loan
------------
Agreement, without any period of grace or other cure period.
ARTICLE IV
Limited Waiver
--------------
Upon satisfaction of the conditions and covenants set forth in Section 3.01
------------
of this Amendment, Lender hereby waives any Default or Event of Default which
occurred solely from the Borrower failing to maintain, on a Consolidated basis,
a ratio of (i) total Indebtedness, to (ii) Tangible Net Worth of not more than
the ratio specified in Section 9.3(B) of the Loan Agreement for the period of
---------------
April 30, 1997 through July 31, 1997, each of which is a violation of Section
-------
9.3(B) of the Loan Agreement. Except as otherwise specifically provided for in
- -------
this
21
<PAGE>
Amendment, nothing contained in this Amendment shall be construed as a waiver by
Lender of any covenant or provision of the Loan Agreement, the other Loan
Documents, this Amendment, or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
ARTICLE V
Ratifications, Representations and Warranties
---------------------------------------------
5.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the other Loan Documents are ratified and confirmed and shall
continue in full force and effect. Borrower and Lender agree that the Loan
Agreement and the other Loan Documents, as amended hereby, shall continue to be
legal, valid, binding and enforceable in accordance with their respective terms.
5.02 Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Certificate of Incorporation or
Bylaws of Borrower; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any other Loan Documents are true and correct
on and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (c) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing; (d)
Borrower is in full compliance with all covenants and agreements contained in
the Loan Agreement and the other Loan Documents, as amended hereby; (e) the
Borrower's Certificate of Incorporation and Bylaws are in full force and effect
on and as of the date hereof without modification or amendment in any respect
since November 1, 1996; (f) as of the date hereof, (i) Borrower is in existence
and in corporate and tax good standing in the State of its organization, (ii)
the Borrower is qualified to do business as a foreign corporation and is in
corporate and tax good standing in each jurisdiction where Borrower is doing
business and is required to be so qualified, (iii) Borrower does not owe
franchise taxes or other taxes required to maintain its corporate existence and
no franchise tax reports are due, and (iv) no proceedings are pending for
forfeiture of the Borrower's charter or for its dissolution either voluntarily
or involuntarily; and (g) the officer of Borrower executing this Amendment has
been duly elected and is, at present, qualified and acting in the office
indicated below such officer's name and is duly authorized to execute this
Amendment on behalf of Borrower.
22
<PAGE>
ARTICLE VI
Miscellaneous Provisions
------------------------
6.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Loan Agreement or any other Loan Document, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the other
---------------------------
Loan Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Loan Agreement, as amended hereby, are hereby amended so that
any reference in the Loan Agreement and such other Loan Documents to the Loan
Agreement shall mean a reference to the Loan Agreement, as amended hereby.
6.03 Expenses of Lender. As provided in the Loan Agreement, Borrower
------------------
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the costs
and fees of Lender's legal counsel, and all costs and expenses incurred by
Lender in connection with the enforcement or preservation of any rights under
the Loan Agreement, as amended hereby, or any other Loan Documents, including,
without, limitation, the costs and fees of Lender's legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall
----------------------
inure to the benefit of Lender and Borrower and their respective successors and
assigns, except that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 Counterparts. This Amendment may be executed in one or more counterparts,
------------
each of which when so executed shall be deemed to be an original, but all of
which when taken together shall constitute one and the same instrument.
6.07 Effect of Waiver. No consent or waiver, express or implied, by Lender
----------------
to or for any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
23
<PAGE>
6.09 Applicable Law. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 Final Agreement. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
---------------
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND
LENDER.
6.11 Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
-------
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF
ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER,
KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR
HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH
CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND THE NEGOTIATION
OF AND EXECUTION OF THIS AMENDMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By:
-------------------------------------
Hance VanBeber, Vice President
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By:
-------------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By:
-------------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By:
-------------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By:
-------------------------------------
Steven L. Schneider, President
25
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<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUL-31-1996 JUL-31-1997
<PERIOD-START> AUG-01-1995 AUG-01-1996
<PERIOD-END> JUL-31-1996 JUL-31-1997
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<ALLOWANCES> (539) (907)
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0 0
0 0
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