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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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 [NO FEE REQUIRED] EXCHANGE
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
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(State of incorporation) (I.R.S. Employer Identification No.)
12000 East Skelly Drive
Tulsa, Oklahoma 74128
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(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 November 11, 1998 - $3,719,029
Number of Shares of Common Stock
Outstanding on November 11, 1998 - 3,768,796
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held
December 8, 1998 - Part III
<PAGE>
FORM 10-K
Annual Report for Fiscal Year Ended July 31, 1998
LOWRANCE ELECTRONICS, INC.
Page
----
Table of Contents
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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............................... 12
Item 6. Selected Financial Data........................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 14
Item 8. Financial Statements and Supplementary Data....... 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 24
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation............................ 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 25
Item 13. Certain Relationships and Related Transactions.... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................... 25
and F-1 to F-18
Signatures .................................................. 30
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LOWRANCE ELECTRONICS, INC.
Annual Report
For the Year Ended July 31, 1998
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 sixty-five foreign countries.
The Company was formed in 1957, incorporated in 1958, and re-organized as a
Delaware corporation in 1986. As used herein, the term "Company" refers to
Lowrance Electronics, Inc., (including its subsidiaries) and its predecessors,
unless the context indicates otherwise.
The Company's principal executive offices are located at 12000 East Skelly
Drive, Tulsa, Oklahoma, 74128, and its telephone number is (918) 437-6881.
Products
The Company's products consist of sonars and related equipment, such as
water temperature gauges, and Global Positioning System (GPS) navigational
products.
Sonars
Each sonar consists of a transmitter, receiver, display, and
transducer. The transmitter, receiver, and display are normally combined in
one housing connected by a cable to the transducer. The housing containing
the transmitter, receiver, and display is normally mounted where it may be
viewed by the boat operator, and the transducer is mounted under or in the
hull of a boat. The transmitter takes electrical energy and sends it
through the cable to the transducer, which converts the electrical energy
to sound pulses. These sound pulses travel through the water until they hit
the bottom or an object such as fish or a shipwreck and then bounce back as
an echo. The transducer converts the echoes back to electrical impulses
which are sent to the receiver. The receiver processes the impulses and
transmits the information to the display for use by the boater.
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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 eighteen 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. Ten 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.
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 two LCD mapping models. The combination sonar/GPS models (module
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included) usually retail from $700 to $1000, and the stand-alone, gimbal-mounted
GPS mapping model (module included) retail from $600 to $900.
The Company's gimbal mount Global Map 2000 product displays 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 with contain
over 7,000 highly detailed nautical charts. The Global Map 2000 retails for
approximately $899 including the GPS module and cartridge reader. This unit is
also sonar capable with the purchase of a sonar access module. During the fourth
quarter of fiscal 1998 the Company introduced four new gimbal mount GPS products
at breakthrough retail prices ranging from $549 to $699. These products each
contain detailed built-in mapping capabilities plus unique software which allows
the user to upload up to 2 megabytes of additional customized mapping detail
from the Company's proprietary IMS MapCreate CD ROM database which is included
free. The IMS MapCreate CD ROM includes all of Lowrance's acclaimed IMS
SmartMaps, IMS WorldMaps, U.S. Navigation Aids, U.S. Wrecks and Obstructions,
plus U.S. Rural Roads and more.
In addition to the Company's gimbal-mounted GPS products, it offers an
extensive 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. 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. Also during fiscal
1996, the Company manufactured and sold its first portable GPS receivers
specifically designed for use by commercial and private pilots. In fiscal 1997,
the Company began shipping its breakthrough 12-channel GPS receivers. Currently,
the Company has upgraded all of its hand-held GPS models to include 12 parallel-
channel receivers. All of the Company's hand-held GPS products feature high
resolution displays, detailed plotting and/or mapping functions, easy zoom-
in/zoom-out operation and enhanced software which includes a unique "initialize
from map" feature, sunrise/sunset and lunar phase information, position
averaging, and emergency nearest waypoint feature. The AirMap 100 and AirMap 300
also offer 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, obstructions and aviation services available.
Accessories
The Company also has a line of accessories consisting of water temperature
gauges, cables, portable power packs, map data cartridges, map data CD ROMS, and
various mounting brackets, which are used primarily in conjunction with the
Company's sonars and GPS products.
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Product Sales
The following table sets forth the percentage of total sales of LCD and
other sonars and accessories, including GPS navigational products, sold by the
Company in the past three fiscal years.
Percent of Total Product Sales
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1996 1997 1998
---- ---- ----
Type of Sonar Displays -
LCD's, including combination
navigation units 62.8% 51.4% 54.5%
Other sonars 4.0 4.0 3.7
GPS, including stand-alone units
and modules 23.7 35.8 31.1
Accessories 9.5 8.8 10.7
----- ----- -----
Total 100.0% 100.0% 100.0%
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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 50% in 1996, 54% in 1997, and 47% in 1998.
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. As of July 31, 1998,
the Company had approximately 2,200 wholesalers and retailers purchasing
products in the Lowrance line. A sonar installation subsidy is offered to
authorized dealers that sell and install Lowrance products as a means of sharing
the costs of the installation. The Company believes that, over the past three
years, the Lowrance line has been sold primarily through dealers having the
requisite level of knowledge to sell, install, and properly instruct the
fisherman and boat owner as to the product's use. Terms of payment for products
in the Lowrance line vary based on the time of the season with the longest
dating terms of 120 days being offered for shipments during the first quarter of
the fiscal year.
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
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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 1998 sales.
The Company's products are sold in all fifty states and sixty-five
countries internationally. The Company's international sales totaled $20,000,000
in fiscal 1996, $25,000,000 in fiscal 1997, and $22,000,000 in fiscal 1998,
representing approximately , 21%, 24%, 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% and 10% of the Company's
net sales in fiscal years 1996 and 1997, respectively. No customers accounted
for 10% or more of net sales in fiscal 1998. The top ten customers, including
Wal-Mart Stores, Inc., accounted for approximately 34%, 34%, and 32% in 1996,
1997 and 1998, 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 November 11, 1998, the Company's backlog of orders exceeded $9.6
million, including orders for new products which represented 34% of the backlog.
The backlog one year ago at this time was $9.8 million. Backlog is not
necessarily comparable from year to year because of the significant impact on
backlog resulting from the timing and pent-up demand for the introduction of the
Company's new products each year. While the Company believes that the present
backlog of orders is firm, the orders for its products are subject to
cancellation without further obligation by the customer at any time prior to
shipment.
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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 seventeen full-
time employees to promote its products worldwide. Additionally, the Company
employs six manufacturer's representative groups to augment in sales force in
various parts of the United States. The sales personnel employed by the Company
and the manufacturer's representatives have the knowledge and time necessary to
educate wholesalers, dealers, fishermen, and boat owners on sonar and GPS
products and demonstrate the practical benefits of these technologies. The
sales personnel train wholesalers and dealers to sell the Company's products,
give demonstrations at outdoor recreation 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. The
Company, through its Eagle brand, became 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 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.
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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 March 1998, the Company together with
this competitor currently account for over 80% of sonar sales within this market
segment in the United States. In this 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 several years and
the Company expects this trend to continue. Target markets for these products
include, but are not limited to boating, sportfishing, hunting, hiking, off-road
vehicles, and aviation. According to independent marketing research
commissioned by the Company and issued in March 1998, the market segment that
the Company operates in approximates the size of the sonar market. According to
this same study, the Company's market share was found to be less than 20%. 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 65% 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 were the first to market hand-held GPS products into the recreational
market. 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. In 1997, one of these competitors introduced a combined
GPS and sonar model and a sonar-only model. Recently the same competitor has
introduced two new sonar-only models. The Company does not anticipate that
these models will have a significant adverse impact on its own extensive lines
of sonar products during fiscal 1999 because neither product has begun shipping
and their distribution base is limited.
Currently, the Company offers five Eagle and seven Lowrance hand-held
products, which retail at prices between $169 and $799. The Company began
shipping its Lowrance Global Map 100 and Eagle MapGuide Pro hand-held GPS
products with its proprietary IMS MapCreate CD ROM database included during the
fourth quarter of fiscal 1998. These two models have exclusive features which
will allow the user to supplement the unit's built-in mapping data with up to 2
megabytes of customized maps created from the CD ROM database. All of the
Company's GPS products feature 12 parallel-channel receivers, high resolution
displays, and internal battery back-up for stored information. All
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of the Company's handheld GPS's also utilize rechargeable batteries that retail
for as little as $49.
The Company's expanded line of hand-held GPS products has helped the
Company expand its presence in multiple non-marine retail markets and outlets.
These products, combined with an extensive advertising and promotion campaign in
1997, 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, digitized and CD ROM 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 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, retailed 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
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product, which retailed 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
introduced two new sonar products with enhanced display screen resolution and
newly designed cases, as well as enhanced operating software in several of its
sonar and GPS products. Additionally, the Company delivered four new hand-held
GPS products, each utilizing new 12 parallel-channel receiver technology and
three of which offered exclusive technology which allows the user to upload
detailed customized maps from a CD ROM into the units memory. Two new gimbal-
mount products, one a GPS/mapping only product and the other a GPS/mapping/sonar
combo model, also offered this unique CD ROM capability, and began shipping
during the fourth quarter of fiscal 1998.
Research and development expenditures of the Company were $3,439,000 in
fiscal 1996, $3,936,000 in fiscal 1997, and $2,650,000 in fiscal 1998. 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 all of its products in the Mexico facility. The transfer of the
final assembly and liquid crystal display assembly operations from the
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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.
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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 and GPS products by purchasing an extended
warranty package. Warranty expenses have averaged approximately 2.2% 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. Warranty and non-warranty repairs are available from the
Company's plant in Tulsa, Oklahoma, and from dealers and distributors in sixty-
five foreign countries.
Patents and Trademarks
Since 1970, the Company has obtained thirty-seven patents expiring at
various dates from 1987 through 2015. Since 1970, thirteen 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-eight 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, 1998, the Company employed 1,051 persons on a full-time
basis of whom approximately 871 were involved in manufacturing and materials. Of
the 871 full time employees involved in manufacturing and materials, 257
employees are located in the Company's headquarters in Tulsa and 614 are located
in the Company's leased manufacturing facility in Ensenada, Mexico. The
remaining 180 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, 1998,
approximately 20 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.
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<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 25,000 square feet are used for manufacturing operations,
46,000 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
See footnote number 12 to the Consolidated Financial Statements
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of November 11, 1998, 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.
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<PAGE>
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.
1997 1998
-------------- ---------------
High Low High Low
$ $ $ $
------ ------ ------ -------
1st Quarter 8 1/4 5 6 1/2 4 7/32
2nd Quarter 11 6 1/2 7 1/4 5
3rd Quarter 10 7 1/2 8 1/2 5 1/2
4th Quarter 8 5/8 5 7 1/8 3 7/16
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.
Years Ended July 31,
-------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- -------
(in thousands, except per share amounts)
Operating Data:
Net sales $81,250 $91,116 $94,579 $104,659 $91,706
Gross profit $25,330 $31,069 $31,988 $ 26,881 $25,645
Income (loss) before
income taxes and
extraordinary credit $(1,663) $ 2,061 $ 2,199 $ (7,877) $(3,166)
Net income (loss) $ (672) $ 1,422 $ 1,743 $ (5,190) $(3,995)
Per Share Data:
Weighted average number
of shares outstanding
Basic 3,350 3,352 3,352 3,352 3,608
Diluted 3,350 3,396 3,387 3,352 3,608
Net income (loss)
Basic $ (.20) $ .42 $ .52 $ (1.55) $ (1.11)
Diluted $ (.20) $ .42 $ .51 $ (1.55) $ (1.11)
Balance Sheet Data:
Working capital $12,872 $14,777 $18,509 $ 17,798 $19,633
Total assets $35,028 $40,228 $47,108 $ 61,366 $52,247
Long term debt, less
current maturities $ 9,379 $ 9,975 $13,705 $ 21,176 $23,038
Stockholders' equity $11,991 $13,452 $15,196 $ 9,952 $ 7,172
13
<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:
Years Ended July 31,
----------------------------
1996 1997 1998
------ ------ ------
(percent of net sales)
Net sales 100.0% 100.0% 100.0%
Cost of sales 66.2 74.3 72.0
----- ----- -----
Gross profit 33.8 25.7 28.0
Operating expenses:
Selling and administrative 24.6 25.7 23.1
Research and development 3.6 3.8 2.9
----- ----- -----
Operating income (loss) 5.6 (3.8) 2.0
Interest expense (2.0) (2.3) (3.8)
Other, net (1.3) (1.4) (1.6)
----- ----- -----
Income (loss) before income
taxes 2.3 (7.5) (3.4)
Provision (benefit) for
income taxes .5 (2.6) 1.0
----- ----- -----
Net income (loss) 1.8 (4.9) (4.4)
===== ===== =====
Demand for the Company's products is seasonal with approximately 30% 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.
14
<PAGE>
The following table sets forth the quarterly results for the past three
fiscal years:
Years Ended July 31 Sales Net Income (Loss)
- -------------------------- ----------------- ------------------
(dollars in thousands)
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)%
======== ===== ======= =======
1998
----
First Quarter (Aug.-Oct.) $ 20,039 21.8% $ (838) (21.0)%
Second Quarter (Nov.-Jan.) 20,324 22.2 (337) (8.4)
Third Quarter (Feb.-Apr.) 28,354 30.9 619 15.5
Fourth Quarter (May-July) 22,989 25.1 (3,439) (86.1)
-------- ----- ------- -------
Total for Year $ 91,706 100.0% $(3,995) (100.0)%
======== ===== ======= =======
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 10% 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 1998 decreased from 1997 by $3.1 million (12%). Canadian and
Australian sales were down 9%, and all other International sales decreased 16%,
primarily because of the strengthening of the U.S. dollar and the general
softness in demand. The total market for GPS products, both domestic and
international, is expected to continue to expand. The Company's future success
in GPS is heavily dependent upon keeping pace with competitors who are rapidly
introducing new products and new pricing strategies in the increasingly
competitive marketplace. Accordingly, the Company's future sales could be
adversely affected by a reduction in consumer spending, a decline in
recreational boating and sport fishing resulting from
15
<PAGE>
significant increases in oil prices, or new product introductions by
competitors.
Sales of sonar products including combination sonar/GPS units were down
$3.4 million (5.4%) from fiscal 1997 to 1998, following a decrease of
approximately $5.9 million (9.5%) from fiscal 1996 to 1997. The decline in sonar
sales when comparing 1997 to 1998 results from a generally poor retail selling
season due to adverse weather conditions, as well as the Company's significantly
reduced advertising expenditures and reduced tradeshow activity, and the effects
of price increases on certain of the Company's sonar products. Sales of GPS
products decreased approximately $9.6 million (23%) from fiscal 1997 to 1998 and
increased approximately $15.1 million (84%) from fiscal 1996 to 1997. The 1997
increase is primarily attributable to the introduction of the low-cost gimbal-
mount and hand-held GPS products. The decrease in GPS sales for 1998 relates to
increased competition at lower price points, significantly reduced advertising
expenses and the effects of price increases on certain of the Company's 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, cash outlays required to
purchase tooling to manufacture new products, together with extended payment
terms of up to 150 days offered by the Company which historically result 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
1996 through 1998. Reference should also be made to the
16
<PAGE>
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
Results of Operations
Net Sales
Net sales for fiscal 1998 decreased 12.4% from fiscal 1997. Unit sales,
which includes sonar units, combination sonar/navigation units, and stand alone
navigation units decreased 16.3% and the average price per unit increased 1.2%.
The decrease in unit sales resulted from a 28.4% reduction in the sales of
the Company's navigation products coupled with a 7.6% reduction in sales of
sonar products. Reduced sales of the Company's low and mid cost navigation
products (43% decrease in units) was offset by increases in the unit sales of
portable mapping, aviation and high-end gimble units (28% increase in units).
Sales of the Lowrance sonar products increased 2.3%, offset by a decrease of
19.2% in the sales of Eagle sonar products. The decreases in navigation sales
resulted from a significant reduction in advertising expenditures, price
increases in certain low cost models, and increased competition at the lower
price points. The decreases in Eagle sonar sales resulted from generally weak
market conditions during the spring selling season caused by adverse weather
conditions in certain of the Company's key markets in North America. The
Company believes that the Eagle products are generally purchased by the less
serious fisherman which are more likely to be influenced by poor weather
conditions. Additionally, reduced advertising and consumer outdoor show
exposure along with price increases on certain models had a negative impact in
Eagle sonar sales.
Net sales for fiscal 1997 increased 10.7% over fiscal 1996. Unit sales
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
17
<PAGE>
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.
Gross Profit
The gross margin percentage increased from 25.7% to 28.0% from fiscal 1997
to fiscal 1998, due primarily to, (1) the shift in mix of units sold away from
the Company's low and mid-priced GPS units which generally have a
correspondingly low profit margin, (2) a continuing shift of manufacturing
operations to the Company's Mexico facility in fiscal 1998, (3) more efficient
operations offset by lower total volumes in fiscal 1998 versus 1997, and (4)
price increases on certain GPS and sonar models.
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 decreased to 26.0% versus
29.5% in 1997. Total costs decreased by $6,960,000. The major factors
contributing to this decrease were (1) a reduction of approximately $5.6
million in advertising, selling and marketing expenditures and (2) reduced
research and development expenditures and general and administrative costs,
offset by increases in other variable operating expenses, namely, product
returns costs.
Operating expenses, as a percentage of net sales increased from 28.3% in
fiscal 1996 to 29.5% in 1997. Total cost increased $4,106,000. The major
factors contributing to this increase were 1) $3,400,000 additional
18
<PAGE>
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 1998 increased by $1.1 million due to (1) increased
average borrowing levels related to the Company's revolving credit line as well
as new term loan borrowings of $5,000,000, (2) a .75% increase in the interest
rate under the revolving credit line and (3) an increase in interest charged by
the Company's suppliers due to the Company's continuing inability to pay within
stated terms.
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 1996, 1997 and 1998 was 20.7% (34.1)% and
26.2%, respectively. For Fiscal 1996, the effective tax rate is less than the
statutory federal tax rate of 34% due primarily to increases in state income tax
credits and refunds of prior years income taxes and related adjustments. For
fiscal 1998, the Company established a valuation allowance of $2 million against
the net deferred tax asset which resulted in a 26.2% effective income tax
expense.
Income/(Loss)
Net income (loss) as a percentage of net sales was (4.4%) in fiscal 1998,
(4.9%) in fiscal 1997, and 1.8% in fiscal 1996.
19
<PAGE>
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, lease financing as well as
financing provided by the Company's vendors. 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 during the fiscal year. These factors resulted in inventories remaining
well above historical levels throughout fiscal 1997. Management implemented
controls to better manage production scheduling and inventory levels. During
fiscal 1998, first and second quarter sales exceeded 1997 levels for the same
periods, however, sales unexpectedly declined during the third and fourth
quarters. The timing of the sales decline did not allow for reductions of
shipments of raw materials from vendors based on the long lead times for certain
component parts. As result, inventory levels during 1998 continued to be higher
than historical levels. Inventory is expected to gradually decline throughout
fiscal 1999.
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
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<PAGE>
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.
Cash flows provided by financing activities were used to finance the net
capital additions for fiscal 1998 and net cash used in operating activities.
The Company's financing package was amended in August and December 1997, which
gave the Company $5,000,000 in additional term loan financing ($1.8 million was
repaid during fiscal 1998). The amendments also gave the Company an additional
$3 million in borrowing capacity secured by certain inventories and receivables
located outside of the United States. The interest rate under the revolving
line of credit was increased to prime plus 1.5% from prime plus .75%.
In November 1998, the Company's financing package was amended, giving the
Company additional term borrowings of $1.8 million under an existing term loan
and deferring principal payments until March 1, 1999 on an aggregate total term
loan of $4.8 million (including the additional $1.8 million borrowing). This
amended term loan contains two payment options; 1) repay the $1.8 million
advance in February 1999, then make monthly principal payments of $80,000
beginning March 1, 1999 or 2.) amortize the entire $4.8 million term loan with
monthly principal payments of $80,000 beginning March 1, 1999.
Management expects the sources discussed above to satisfy the Company's
current financing needs. At July 31, 1998, there were approximately $1.3
million of borrowings available under the Company's revolving line of credit.
This additional availability was related solely to outstanding checks for
payments to vendors and was depleted in early August 1998. Management expects
to be at maximum borrowing limits throughout fiscal 1999. 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 1999, the Company expects its
level of past due payments to remain below the levels experienced in either
fiscal 1997 or 1998.
Working Capital
The Company's working capital ratio was 1.9 at July 31, 1998 and 1.6 at
July 31, 1997. The change in this ratio is due to the lower level of working
capital at July 31, 1998, as discussed above and below.
Inventory levels at July 31, 1998 were down $2.6 million or 9.5% from July
31, 1997. This decrease resulted from lower sales levels during the third and
fourth quarters of 1998 versus 1997. The decrease in trade payables directly
relates to the decrease in inventories and the additional borrowings discussed
above.
Management expects that inventories will continue to decline during fiscal
1999. As the inventory level declines, management also expects payments to
vendors to improve correspondingly. The Company does not expect substantial
realization problems with this inventory.
Long-Term Debt and Revolving Credit Agreement
At July 31, 1998, the Company's term and revolving credit loan agreement,
which is more fully described in Note 3 to the Consolidated
21
<PAGE>
Financial Statements, provided for interest at a rate of to 1.5% over prime with
maximum borrowings of up to $26,500,000 on the revolving line of credit.
In August and December 1997, the Company expanded the borrowings available
under its term and revolving credit loan agreements. This amended financing
package included an additional $5 million of term loans and up to $3 million of
additional borrowings under its revolving line of credit secured by certain
inventories and receivables located outside the United States. Of the
additional $5 million of term loans, $1.8 million was repaid during fiscal
1998.
In November 1998, the Company's financing package was amended to allow for
additional term loan of $1.8 million. As discussed above, the Company has two
options for repayment of this additional advance; 1) repayment of the entire
$1.8 million advance in February 1999 with monthly payments of $80,000 beginning
in March 1999, or 2) amortize entire $4.8 million (including the additional
advance of $1.8 million) term loan with principal payments of $80,000 in March
1999.
Capital Expenditures
Capital expenditures were $3,968,000, $3,790,000, and $1,304,000 for the
years ended July 31, 1996, 1997, and 1998, respectively. Of the fiscal 1998
total, substantially all of this amount was related to production equipment and
tooling.
Effects of Inflation
A significant portion of the Company's costs 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.
Recently-Issued Accounting Principles
The Company adopted the provision of SFAS No. 128, Earnings Per Share,
effective for the year ended July 31, 1998. This Statement establishes new
standards for computing and presenting earnings per share and requires
restatement for all prior period earnings per share data. The adoption of this
Statement resulted in the dual presentation of basic and diluted earnings per
share on the Company's income statement. In accordance with this statement, the
Company has applied these provisions on a retroactive basis.
The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended July 31, 1998.
This Statement consolidates existing pronouncements on required disclosures
about a company's capital structure including a brief discussion of rights and
privileges for securities outstanding. The adoption of this Statement has no
material effect of the Company's consolidated financial statements.
22
<PAGE>
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective
for financial statement periods beginning after December 15, 1997. Management
does not anticipate that is Statement will have a significant effect on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, however,
companies may implement the statement as of the beginning of any fiscal quarter
beginning June 16, 1998. SFAS No. 133 cannot be applied retroactively and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998). The Company has not yet quantified the impact of adopting SFAS No.
133 on its financial statements and has not determined the timing of or method
of the adoption of SFAS No. 133. However, as of July 31, 1998, the Company had
no outstanding derivative instruments.
Year 2000 Compliance
The Company is taking appropriate steps to ensure that its computer systems
will properly recognize date sensitive information when the year changes to 2000
or "00". Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is in the process of
evaluating its computer systems to identify those that could be effected by this
issue. All significant systems have been tested and an implementation plan is
in place to address and resolve any issues by August 1999. The Company is also
communicating with key suppliers and vendors to coordinate year 2000 compliance.
The costs associated with ensuring that the Company's systems are year 2000
compliant are expected to approximate $500,000 and will be incurred during the
fiscal year 1999. The Company believes that the year 2000 issue will not pose
significant operational problems for the Company's computer systems, and
therefore, will not have a significant impact on the operations of the Company.
23
<PAGE>
The highest risk area for the Company related to the year 2000 issues is
noncompliance by third parties. At this time, the most reasonably likely worst
case scenario would be year 2000 noncompliance by third parties that comprised a
significant level of business conducted with the Company. Depending upon the
level of noncompliance, the Company could be adversely impacted by such things
as communication problems with third parties, including order processing,
purchase order placement and/or scheduling problems related to the manufacturing
of the Company's products. The major risk areas associated with third party
noncompliance have been identified. As the year 2000 compliance process
continues, the Company will develop contingency plans that it deems necessary
based on its evaluations of third party readiness. No such contingency plans
have been developed to date. Based upon its assessment of third party
assurances at this time, the Company does not anticipate any material
disruptions in its business activities as a result of third party year 2000
noncompliance, although it cannot be certain that such disruptions will not
occur.
Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to cash flow and interest rate risk due to changes
in interest rates with respect to its long-term debt. See note 3 to the
consolidated financial statements for details on the Company's long-term debt.
Outlook
The Company anticipates a return to profitability in fiscal 1999, primarily
as the result of addressing operational issues which have plagued the Company in
1997 and 1998, continuing favorable economic and favorable market conditions,
market acceptance of the Company's new, less restrictive distribution programs
and its 1999 product offering, and lower manufacturing cost related to
continuing efficiencies from the Company's Mexico manufacturing facility.
Management currently anticipates positive cash flows from operations in fiscal
1999 based on attaining current projections for net income and inventory levels.
The Company is expecting additional new products to contribute significantly to
the 1999 net sales projections. All of these models are currently in
production. 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.
24
<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 1998
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 1998
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 1998
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 1998
annual meeting.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) Financial Statements and Exhibits:
Page
----
1. Consolidated Financial Statements:
Index to Consolidated Financial Statements F-1
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - July 31, 1997 and 1998 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1996, 1997, and 1998 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1996, 1997, and 1998 F-5
Consolidated Statements of Cash Flows for the Years
Ended July 31, 1996, 1997, and 1998 F-6
Notes to Consolidated Financial Statements
for the Years Ended July 31, 1996, 1997, and 1998 F-7
2. Exhibits:
3.1 Certificate of Incorporation of Lowrance Electronics,
Inc., previously filed as Exhibit 3.1 to the Company's
25
<PAGE>
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.
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.
26
<PAGE>
10.7 1989 Stock Option Plan of the Company previously filed as
Appendix A to the Company's Proxy Statement for its Annual
Meeting of Stockholders held on December 12, 1989, which is
incorporated herein by reference thereto.
10.8 First, Second, and Third Amendments to Credit Agreement
dated April 27, 1989, by and between the Company and
Norwest Business Credit, Inc., previously filed as Exhibit
10.8 to the Company's 1990 Annual Report on Form 10-K,
which is incorporated herein by reference thereto.
10.9 Fourth and Fifth Amendments to Credit Agreement dated April
27, 1989, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.9 to the
Company's 1992 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.10 Sixth Amendment to Credit Agreement dated March 17, 1993,
by and between the Company and Norwest Business Credit,
Inc., which is incorporated herein by reference thereto.
10.11 Seventh Amendment to Credit Agreement dated October 21,
1993, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.11 to the
Company's 1993 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.12 Eighth Amendment to Credit Agreement dated September 29,
1993, by and between the Company and Norwest Business
Credit, Inc., previously filed as Exhibit 10.12 to the
Company's 1993 Annual Report on Form 10-K, which is
incorporated herein by reference thereto.
10.13 Loan and Security Agreement dated December 15, 1993, by the
Company in favor of Barclays Business Credit, Inc., which
is incorporated herein by reference thereto.
10.14 Amended and Restated Secured Promissory Note dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.),
which is incorporated herein by reference thereto.
10.15 Amended and Restated Revolving Credit Notes dated October
16, 1995, by and between the Company and Shawmut Capital
Corporation (formally Barclays Business Credit, Inc.),
which is incorporated herein by reference thereto.
10.16 First Amendment to Loan and Security Agreement dated
October 16, 1995, by and between the Company and Shawmut
Capital Corporation (formally Barclays Business Credit,
Inc.), which is incorporated herein by reference thereto.
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,
27
<PAGE>
Inc.), which is incorporated herein by reference thereto.
10.18 Unconditional Guaranty dated October 16, 1995, by and
between Sea Electronics, Inc. and Shawmut Capital
Corporation, which is incorporated herein by reference
thereto.
10.19 First Amendment to Mortgage, Security Agreement, Financing
Statement and Assignment of Rents dated October 16, 1995,
by and between the Company and Shawmut Capital Corporation
(formally Barclays Business Credit, Inc.) previously filed
as Exhibit 10.19 to the Company's 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),
which is incorporated herein by reference thereto.
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),
which is incorporated herein by reference thereto.
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),
which is incorporated herein by reference thereto.
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),
which is incorporated herein by reference thereto.
10.26 Sixth Amendment to Loan and Security Agreement dated August
28, 1997, by and between the Company and Fleet Capital
Corporation (formally Shawmut Capital Corporation), filed
herewith.
10.27 Seventh Amendment to Loan and Security Agreement dated
November 6, 1997, by and between the Company and Fleet
Capital Corporation (formally Shawmut Capital Corporation),
filed herewith.
28
<PAGE>
10.28 Eighth Amendment to Loan and Security Agreement dated
December 9, 1997, by and between the Company and Fleet
Capital Corporation (formally Shawmut Capital Corporation),
filed herewith.
10.29 Ninth Amendment to Loan and Security Agreement dated
September 14, 1998, by and between the Company and Fleet
Capital Corporation (formally Shawmut Capital Corporation),
filed herewith.
10.30 Tenth Amendment to Loan and Security Agreement dated
November 12, 1998, 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,
1998.
29
<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: November 12, 1998 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 President, Chief Executive November 12, 1998
- --------------------------- Officer, and Director
Darrell J. Lowrance (Principal Executive Officer)
/s/ Mark C. Wilmoth Vice President of Finance and November 12, 1998
- --------------------------- Chief Financial Officer
Mark C. Wilmoth (Principal Financial Officer and
Principal Accounting Officer)
/s/ Alpo F. Crane Director November 12, 1998
- ---------------------------
Alpo F. Crane
/s/ Willard P. Britton Director November 12, 1998
- ---------------------------
Willard P. Britton
/s/ Peter F. Foley, III Director November 12, 1998
- ---------------------------
Peter F. Foley, III
/s/ Ronald G. Weber Executive Vice President of November 12, 1998
- --------------------------- Technology and Engineering
Ronald G. Weber and Director
/s/ Robert F. Biolchini Secretary and Director November 12, 1998
- ---------------------------
Robert F. Biolchini
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
- ---------------------------------------------------------------------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - July 31, 1997 and 1998 F-3
Consolidated Statements of Income (Loss) for the Years
Ended July 31, 1996, 1997, and 1998 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended July 31, 1996, 1997, and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1996, 1997, and 1998 F-6
Notes to Consolidated Financial Statements for the Years Ended
July 31, 1996, 1997, and 1998 F-7
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, 1998
and 1997, 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, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lowrance Electronics, Inc., and
subsidiaries as of July 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
October 9, 1998
F-2
<PAGE>
LOWRANCE ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
JULY 31,
----------------
1997 1998
---- ----
(in thousands)
CURRENT ASSETS:
Cash and cash equivalent $ 866 $ 637
Trade accounts receivable, net of reserves
of $907,000 in 1997 and $683,000 in 1998 16,346 13,742
Inventories (Note 2) 27,880 25,224
Current deferred income taxes 1,587 1,457
Prepaid expenses 400 610
Income tax refund receivable 957 -
------- -------
Total current assets 48,036 41,670
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2) 11,209 9,891
OTHER ASSETS 1,106 277
DEFERRED INCOME TAXES 1,015 409
------- -------
$61,366 $52,247
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,149 $ 3,498
Accounts payable 21,496 15,026
Accrued liabilities:
Compensation and benefits 2,664 1,729
Product costs 1,076 1,130
Other 853 654
------- -------
Total current liabilities 30,238 22,037
------- -------
LONG-TERM DEBT, less current maturities
(Note 3) 21,176 23,038
------- -------
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 in 1997 and 3,768,796 shares
issued in 1998 335 377
Paid-in capital 5,600 7,073
Retained earnings 4,214 219
Foreign currency translation adjustment (197) (497)
------- -------
Total stockholders' equity 9,952 7,172
------- -------
$61,366 $52,247
======= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
LOWRANCE ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED JULY 31,
-------------------------------------
1996 1997 1998
------- -------- -------
(in thousands, except per share amounts)
NET SALES $94,579 $104,659 $91,706
COST OF SALES 62,591 77,778 66,061
------- -------- -------
Gross profit 31,988 26,881 25,645
------- -------- -------
OPERATING EXPENSES:
Selling and administrative 23,285 26,894 21,220
Research and development 3,439 3,936 2,650
------- -------- -------
Total operating expenses 26,724 30,830 23,870
------- -------- -------
Operating income (loss) 5,264 (3,949) 1,775
------- -------- -------
OTHER EXPENSES:
Interest 1,881 2,398 3,509
Other 1,184 1,530 1,432
------- -------- -------
Total other expenses 3,065 3,928 4,941
------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES 2,199 (7,877) (3,166)
PROVISION (BENEFIT) FOR INCOME
TAXES (Note 7) 456 (2,687) 829
------- -------- -------
NET INCOME (LOSS) $ 1,743 $ (5,190) $(3,995)
======= ======== =======
NET INCOME (LOSS) PER COMMON SHARE
(Note 5)
Basic $ .52 $ (1.55) $ (1.11)
======= ======== =======
Diluted $ .51 $ (1.55) $ (1.11)
======= ======== =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 5)
Basic 3,352 3,352 3,608
======= ======== =======
Diluted 3,387 3,352 3,608
======= ======== =======
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, 1996, 1997, AND 1998
(NOTE 5)
Foreign
Common Stock Currency
-------------- Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment
------ ------ ------- --------- ------------
(in thousands)
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)
Net loss - - - (3,995) -
Exercise of common stock
options 75 7 196 - -
Issuance of common stock 341 35 1,277 - -
Foreign currency
translation adjustment - - - - (300)
------ ------ ------- ------- -----
Balance -
July 31, 1998 3,768 $377 $7,073 $ 219 $(497)
====== ====== ======= ======= =====
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LOWRANCE ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 8)
FOR THE YEARS ENDED JULY 31,
-------------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,743 $ (5,190) $ (3,995)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,561 2,837 2,897
(Gain)loss on sale of fixed assets 55 (7) (2)
Foreign currency translation adjustment 1 (54) (300)
Change in operating assets and liabilities:
(Increase)decrease in trade accounts
receivable (2,156) (3,525) 2,604
(Increase)decrease in inventories (2,797) (7,107) 2,656
Decrease (increase) in
income tax refund receivable - (957) 957
(Increase)decrease in prepaid expenses
and deferred income taxes (55) (1,633) 526
(Increase)decrease in other assets (467) (396) 555
Increase(decrease) in accounts payable 664 13,338 (6,470)
Increase(decrease) in accrued liabilities (855) 129 (1,080)
-------- -------- --------
Net cash used in operating activities (1,306) (2,565) (1,652)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,942) (2,722) (583)
Proceeds from sale of property, plant
and equipment 2 - -
-------- -------- --------
Net cash used in investing activities (1,940) (2,722) (583)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 96,406 104,213 93,397
Repayments of borrowings under line of
credit (92,574) (97,117) (94,613)
Borrowings under term loan 1,507 500 5,000
Principal payments on term loan and
capital lease obligations (2,115) (2,064) (3,293)
Proceeds from issuance of common stock - - 1,515
-------- -------- --------
Net cash provided by
financing activities 3,224 5,532 2,006
-------- -------- --------
Net increase(decrease)in cash and
cash equivalent (22) 245 (229)
CASH AND CASH EQUIVALENT - beginning of year 643 621 866
-------- -------- --------
CASH AND CASH EQUIVALENT - end of year $ 621 $ 866 $ 637
======== ======== ========
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, 1996, 1997, AND 1998
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -
Lowrance Electronics, Inc., and subsidiaries (the Company) design,
manufacture, market and distribute sonars (also known as depth-sounders and
fish-finders), global positioning system (GPS) navigational equipment and
other marine electronic products and various related accessories. 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 GPS receivers are used in a variety of marine and
non-marine applications, including aviation, hunting, hiking and
backpacking.
During fiscal 1997 and 1998, the Company incurred significant operating
losses and for the last three fiscal years has had net cash outflows from
operations. In response to the operating results, the Company has addressed
operational problems related to the start-up of it's Mexico manufacturing
facility and related manufacturing operations which are still located in
Tulsa, Oklahoma. The Company has refocused its sales and marketing efforts
to, 1) minimize restrictions on the distribution of some of its more
popular products under the Lowrance brand name, and 2) increase
expenditures for print advertising and boat show attendance which had
decreased significantly in fiscal 1998. In addition, as discussed in Note
3, the Company and its primary lender amended the credit agreement to
provide for an additional $1.8 million advance under an existing loan to
meet short-term vendor requirements related to past due payables.
Management believes that cash provided by operations and borrowings
available under the amended credit agreement will provide the Company with
adequate cash flow to meet its obligations. However, no assurances can be
given that the operating goals will be achieved.
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 $16 million
is still in use as of July 31, 1998.
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.
F-7
<PAGE>
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.
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, 1998.
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>
Advertising -
Advertising costs are expensed as incurred. The Company expensed
approximately $2,500,000, $4,200,000 and $2,700,000 during the years 1996,
1997 and 1998, respectively, for advertising.
Fair Value of Financial Instruments -
Cash and cash equivalents, accounts receivable and accounts payable - The
carrying amount of these assets and liabilities approximates fair value
because of the short maturity of these instruments.
Long-Term Debt and Revolving Credit Line - The amounts outstanding under
the Company's term loan and revolving credit line bear interest at current
market rates, thus their carrying amounts approximate fair market value.
Interest rates underlying capitalized equipment leases approximate current
market rates.
Recently Issued Accounting Principles
The Company adopted the provision of SFAS No. 128, Earnings Per Share,
effective for the year ended July 31, 1998. This Statement establishes new
standards for computing and presenting earnings per share and requires
restatement for all prior period earnings per share data. The adoption of
this Statement resulted in the dual presentation of basic and diluted
earnings per share on the Company's income statement. In accordance with
this statement, the Company has applied these provisions on a retroactive
basis. The adoption of this Statement did not cause a material difference
between previously reported and restated earnings (loss) per share
information for the years ended July 31, 1996 and 1997.
The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended July 31,
1998. This Statement consolidates existing pronouncements on required
disclosures about a company's capital structure including a brief
discussion of rights and privileges for securities outstanding. The
adoption of this Statement had no material effect on the Company's
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This Statement requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 is
effective for financial statement periods beginning after December 15,
1997. Management does not anticipate that this Statement will have a
significant effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement established standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. Management
does not anticipate that this Statement will have a significant effect on
the Company's consolidated financial statements.
F-9
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. Companies must formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, however, companies may implement the
statement as of the beginning of any fiscal quarter beginning June 16,
1998. SFAS No. 133 cannot be applied retroactively and must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998). The Company has not yet quantified the impact of adopting SFAS No.
133 on its financial statements and has not determined the timing of or
method of the adoption of SFAS No. 133. However, as of July 31, 1998, the
Company had no outstanding derivative instruments.
Reclassifications -
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.
(2) BALANCE SHEET DETAIL
Inventories -
Inventories are priced at the lower of cost (first-in, first-out) or
market and consist of the following:
1997 1998
------- -------
(in thousands)
Raw materials $ 9,928 $ 6,127
Work-in-process 9,327 4,820
Finished goods 9,851 15,887
Excess, obsolete, and realization reserves (1,226) (1,610)
------- -------
Total inventories $27,880 $25,224
======= =======
Property, Plant, and Equipment - 1997 1998
------- -------
(in thousands)
Land $ 557 $ 557
Building and improvements 4,470 4,354
Machinery and equipment 23,607 24,990
Office furniture and fixtures 5,152 5,141
------- -------
33,786 35,042
Less - accumulated depreciation 22,577 25,151
------- -------
Net property, plant, and equipment $11,209 $ 9,891
======= =======
F-10
<PAGE>
The property, plant, and equipment accounts include the following amounts
for leased property under capitalized leases:
1997 1998
------- -------
(in thousands)
Machinery and equipment $ 5,856 $ 5,438
Office furniture and fixtures 1,086 1,007
------- -------
6,942 6,445
Less - accumulated depreciation 2,785 3,234
------- -------
Net property, plant, and equipment
under capitalized leases $ 4,157 $ 3,211
======= =======
Reserve for Doubtful Accounts and Sales 1997 1998
------- -------
Returns (in thousands)
Balance, beginning of period $ 539 $ 907
Charged to expense 437 329
Net (write-offs) recoveries (69) (553)
------- -------
Balance, end of period $ 907 $ 683
======= =======
Excess, Obsolete, and Realization Reserve
Balance, beginning of period $ 676 $ 1,226
Charged to expense 773 1,190
Net (write-offs) recoveries (223) (806)
------- -------
Balance, end of period $ 1,226 $ 1,610
======= =======
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE
Long-term debt and the revolving credit line are summarized below:
1997 1998
------- -------
(in thousands)
Revolving credit line $18,621 $17,404
Term loans 2,487 5,410
Capitalized equipment lease
obligations, payable in monthly
installments of approximately
$135,000, including interest at
rates from 7% to 11%, with final
payments ranging from August 1998
through November 2001 4,217 3,722
------- -------
25,325 26,536
Less - current maturities 4,149 3,498
------- -------
Total long-term debt $21,176 $23,038
======= =======
Future maturities of the above debt obligations at July 31, 1998, are
approximately $3,498,000, $1,949,000, $20,897,000, and $192,000 for the
years ending July 31, 1999 through 2002, respectively.
At July 31, 1997, the Company had a $30 million financing package which
consisted of a $3.5 million term loan together with a $26.5 million
revolving credit line. The revolving credit line provided for borrowings up
to $26.5 million based on varying percentages of qualifying categories
F-11
<PAGE>
of receivables and inventories and carried an interest rate of prime plus
.75%. Borrowing against inventories was limited to $12 million in total.
During August and December 1997, and September and November 1998, the
Company's financing package was amended. Significant provisions of the
amendments included: 1) the due date was extended to December 2000, 2) an
additional term loan of $4,000,000 was funded with a required $800,000
principal payment which was made in May 1998 and additional principal
payments of $66,666 beginning monthly in August 1998, with an interest rate
of prime plus 1.5%. Total monthly principle payments on the term loans are
now $89,833, 3) an additional $1,000,000 was funded on the term loan which
was subsequently repaid in July 1998, 4) 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, 5)
the interest rate on the revolving line of credit was increased to prime
plus 1.5% from prime plus .75%, 6) the total facility was increased from
$30,000,000 to $33,911,000, and 7)in November 1998, an additional advance of
$1.8 million on an existing term loan was funded. The Company has two
repayment options; (A) repayment of the $1.8 million advance in February
1999, or (B) amortize the entire $4.8 million term loan (including the $1.8
million advance) over 60 months beginning in March 1999 with a due date of
December 2000. Under either option, principal payments of $80,000 per month
are required beginning in March 1999.
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 the level of operating
leases, and 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 agreement also contains a provision that in the event of a defined
change of ownership, the agreement may be terminated.
The Company's indebtedness is collateralized by substantially all of the
Company's assets. The Company had unfunded outstanding checks at July 31,
1997 and 1998 of $1.6 million and 1.3 million, respectively. These
outstanding checks are included in accounts payable.
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.
Years Ended July 31,
-----------------------------
1996 1997 1998
------- ------- -------
(in thousands)
Highest amount borrowed $15,773 $24,095 $20,872
Average amount borrowed $11,850 $16,202 $18,025
Weighted average interest rate 9.2% 9.1% 10.4%
F-12
<PAGE>
(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, 1998, (in thousands):
Years ending July 31:
1999 $1,730
2000 1,031
2001 1,297
2002 195
------
Total minimum lease payments 4,253
Less amounts representing interest 531
------
Present value of net minimum lease payments $3,722
======
Current portion of obligations under
capital leases $1,424
Long-term portion of obligations under
capital leases $2,298
Operating Leases -
During 1996, 1997 and 1998, the Company recorded $1,119,000, $1,765,000 and
$1,889,000, respectively, of expense related to operating leases.
At July 31, 1998, 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. The lease also
includes rent escalations of 3% per year beginning in October 1998. Total
future minimum rental payments under operating leases for the years ending
July 31, 1999 through July 31, 2003 (including the rental for the Mexican
facility assuming the purchase option is not exercised) are approximately
$1,622,000, $1,228,000, $813,000, $709,000, and $644,000, respectively, and
$2,167,000 thereafter.
(5) STOCKHOLDERS' EQUITY AND RELATED ITEMS
The Company's 1989 Stock Option Plan provides for a maximum of 400,000
common shares available for issue. Options and stock appreciation rights
granted cannot have terms greater than ten years. The Plan provides 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.
F-13
<PAGE>
Following is a summary of outstanding and exercisable options under the
Plan as of July 31 for the respective years set forth below:
1996 1997
------ ------
Total outstanding 75,000 75,000
Average option price $2.71 $2.71
In 1998, all 75,000 outstanding common stock options were exercised at a
weighted average price of $2.71 per share. No additional options were
granted.
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 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.
During fiscal 1998, members of the Company's Board of Directors purchased
341,338 shares of newly issued, unregistered and restricted common stock in
a private placement for $1,310,738 in cash.
F-14
<PAGE>
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:
1996 1997 1998
------ -------- --------
NET INCOME (LOSS):
As reported $1,743 $(5,190) $(3,995)
Pro forma 1,711 (5,344) (4,144)
EARNINGS (LOSS) PER SHARE:
Basic-as reported $ .52 $ (1.55) $ (1.11)
Diluted-as reported .51 (1.55) (1.11)
Pro forma-Basic .51 (1.59) (1.15)
Pro forma-Diluted .51 (1.59) (1.15)
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.
(6) RETIREMENT PLANS
Substantially all U.S. 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, 1996, 1997, and 1998 were approximately
$586,000, $678,000, and $462,000, respectively.
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
Years Ended July 31,
----------------------
1996 1997 1998
----- ----- -----
(in thousands)
Current $ 365 $ (823) $ 93
Deferred 91 (1,864) 736
----- ------- -----
Total $ 456 $(2,687) $ 829
===== ======= =====
F-15
<PAGE>
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:
Years Ended July 31,
------------------------
1996 1997 1998
------ -------- ------
Statutory rate 34.0% (34.0)% (34.0)%
Change in valuation allowance - - 63.2
Foreign income taxes - .9 2.8
State income taxes (3.8) (.9) (2.3)
Refunds of prior year taxes
and related adjustments (8.6) - -
Research & development credits - - (1.4)
Other (.9) (.1) (2.1)
------ -------- ------
Effective rate 20.7% (34.1)% 26.2%
====== ======== =======
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 had a net operating loss carryforward of approximately $5.6 million
and $9.3 million at July 31, 1997 and July 31, 1998, which expires July 31,
2012 and July 31, 2013. After the completion of the fourth quarter of fiscal
1998, the Company determined that a valuation allowance of $2,000,000
against the net operating loss carryforward was necessary as of July 31,
1998. Statement No. 109 requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all
of the deferred tax asset will not be realized.
The tax effect of temporary differences giving rise to the Company's
consolidated deferred income taxes at July 31 are as follows:
1997 1998
------ --------
(in thousands)
Deferred tax assets -
Reserves for product costs $ 412 $ 466
Reserves for compensation and benefits 620 499
State tax credit carryforwards 314 286
Accounts receivable reserves 183 142
Other accruals 58 64
NOL carryforward 1,961 3,457
------ -------
$3,548 $ 4,914
Less: valuation allowance - (2,000)
------ -------
Net deferred tax asset 3,548 2,914
====== =======
Deferred tax liabilities -
Depreciation $ 946 $ 1,048
====== =======
F-16
<PAGE>
(8) CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company acquired approximately $2,026,000, $1,068,000 and $721,000 in
equipment under capital lease obligations during 1996, 1997, and 1998.
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 $1,881,000, $2,398,000 and
$3,422,000 was paid during 1996, 1997, and 1998, respectively. Income tax
payments for 1996 were $541,000. No income tax payments were made in 1997
or 1998. An income tax refund of $957,000 was received in 1998.
(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 operations. The following table presents a summary of
domestic, export, and foreign sales:
1996 1997 1998
------- -------- -------
(in thousands)
Net sales:
Domestic $74,560 $ 79,217 $69,376
Export sales 9,598 12,010 10,116
Foreign sales 10,421 13,432 12,214
------- -------- -------
Total $94,579 $104,659 $91,706
======= ======== =======
The majority of export and foreign sales are concentrated in Canada,
Australia and Europe.
(10) SALES TO A MAJOR CUSTOMER
During 1996 and 1997, one customer accounted for approximately 14% and 10%,
respectively, of consolidated net sales in each year. No other customer
accounted for 10% or more of consolidated net sales in 1996, 1997, or 1998.
(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, 1998.
F-17
<PAGE>
At July 31, 1997 and 1998, trade receivables related to these group
concentrations were:
1997 1998
---- ----
Marine 42% 45%
Non-Marine 58% 55%
F-18
<PAGE>
EXHIBIT 10.26
SIXTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
AND CERTAIN OTHER LOAN DOCUMENTS
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND CERTAIN OTHER LOAN
DOCUMENTS (the "Amendment") is made and entered into as of the 28th day of
August, 1997, to be effective (unless otherwise specified herein) as of August
28, 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, (iv) that certain Fourth Amendment to Loan and
Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower, and (v) that certain Fifth Amendment to Loan and Security
Agreement, entered into effective as of August 25, 1997, by and between 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 Addition of New Section 12.21(A) to the Loan Agreement.
Effective as of the Effective Date, a new Section 12.21(A), Further Security
Interest in Australian Property is hereby added to of the Loan Agreement to read
in its entirety as follows:
"12.21A. Further Security Interest in Australian Property.
Notwithstanding any other provision of this Agreement, nothing
contained herein shall create a security interest in, or
constitute an assignment of, any Property of the Borrower which
is located in the Australian states of Queensland, Western
Australia, South Australia and Tasmania."
ARTICLE III
Conditions Precedent
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; and (ii) 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) 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.
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 Loan
Documents, this Amendment, or of
2
<PAGE>
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.
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
3
<PAGE>
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.
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.
4
<PAGE>
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]
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ Hance VanBeber
-------------------------------------
Name: Hance VanBeber
-----------------------------------
Title: Vice President
----------------------------------
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By: /s/ Darrell J. Lowrance
-------------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By: /s/ Steven L. Schneider
-------------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By: /s/ Terry R. Nimmo
-------------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By: /s/ Steven L. Schneider
-------------------------------------
Steven L. Schneider, President
6
<PAGE>
EXHIBIT 10.27
SEVENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the
"Amendment") is made and entered into as of the 6th day of November, 1997, to be
effective (unless otherwise specified herein) as of November 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, (iii) that
certain Third Amendment to Loan and Security Agreement, dated December 30, 1996,
by and among Lender and Borrower, (iv) that certain Fourth Amendment to Loan and
Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower, and (v) that certain Fifth Amendment to Loan and Security
Agreement, entered into effective as of August 25, 1997, by and between Lender
and Borrower, and (vi) that certain Sixth Amendment to Loan and Security
Agreement and Certain Other Loan Documents, entered into effective as of August
28, 1997, by and between 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
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:
APPLICABLE PERIOD SEASONAL DATING
----------------- ACCOUNTS LOAN AMOUNT
--------------------
November 1, 1997 through April 30, 1998 $10,000,000.00
May 1, 1998 and thereafter $5,000,000.00"
ARTICLE III
Conditions Precedent
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 Consent, Ratification and Release related to this Amendment,
duly executed by Darrell J. Lowrance and (iii) 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) 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.
2
<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 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.
3
<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.
4
<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]
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ Hance VanBeber
----------------------------------
Name: Hance VanBeber
--------------------------------
Title: Vice President
-------------------------------
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By: /s/ Darrell J. Lowrance
----------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By: /s/ Terry R. Nimmo
----------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
6
<PAGE>
CONSENT, RATIFICATION AND RELEASE
The undersigned hereby consents to the terms of the within and
foregoing Seventh Amendment to Loan and Security Agreement, confirms and
ratifies the terms of his unconditional guaranty and acknowledges that his
unconditional guaranty is in full force and effect on the date executed, that he
has no defense, counterclaim, set-off or any other claim to diminish his
liability under such document, that his consent is not required to the
effectiveness of the within and foregoing document, and that no consent by him
is required for the effectiveness of any future amendment, modification,
forbearance or other action with respect to the Loans, the Collateral, or any
Loan Documents. THE UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND
FOREVER DISCHARGES LENDER, ITS PREDECESSORS, 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 UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST
LENDER, ITS PREDECESSORS, 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 ANY OF THE OTHER
LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
/s/ Darrell J. Lowrance
----------------------------------
Darrell J. Lowrance
7
<PAGE>
EXHIBIT 10.28
EIGHTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment")
is made and entered into as of the 9th day of December, 1997, to be effective
(unless otherwise specified herein) as of December 9, 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, (iv) that certain Fourth Amendment to Loan and
Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower, (v) that certain Fifth Amendment to Loan and Security
Agreement, entered into effective as of August 25, 1997, by and between Lender
and Borrower, (vi) that certain Sixth Amendment to Loan and Security Agreement
and Certain Other Loan Documents, entered into effective as of August 28, 1997,
by and between Lender and Borrower, and (vii) that certain Seventh Amendment to
Loan and Security Agreement, entered into effective as of November 1, 1996, by
and between 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:
1
<PAGE>
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 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:
"$1,000,000 Term Loan - the Loan described in Section 2.2(A-2) of
this Agreement.
$1,000,000 Term Note - the Secured Promissory Note to be executed
by Borrower on or about the date of execution of the Eighth Amendment
Agreement in favor of Lender to evidence the $1,000,000 Term Loan, which
shall be in the form of Annex A to the Eighth Amendment.
Eighth Amendment Agreement - the Eighth Amendment to Loan and
Security Agreement, executed in December of 1997, by Lender and Borrower."
2.02 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:
"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 $1,000,000 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."
2.03 Amendment to Section 1.1 of the Loan Agreement; Amendment to
Definition of "Term Loans". Effective as of the Effective Date, the definition
of "Term Loans" is hereby deleted in its entirety, and the following shall be
substituted therefor:
"Term Loans - the Term Loan, the $1,000,000 Term Loan and the $4,000,000
Term Loan."
2.04 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:
2
<PAGE>
"Notes - the Term Note, the $4,000,000 Term Note, the $1,000,000
Term Note, the Equipment Notes and the Revolving Credit Notes."
2.05 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 "$33,011,000" contained in the fourth line of
Section 2 Credit Facility is hereby deleted and substituted therefore is the
dollar amount "$33,911,000."
2.06 Amendment to Section 2.2 of the Loan Agreement; Addition of New
Section 2.2(A-2). Effective as of the Effective Date, a new Section 2.2(A-2)
$1,000,000 Term Loan is hereby added to the Loan Agreement to read in its
entirety as follows:
"(A-2) $1,000,000 Term Loan. Subject to the terms and conditions of
this Agreement (including, without limitation, the terms, conditions and
conditions precedent of the Eighth Amendment Agreement), Lender agrees to
make a term loan to Borrower in connection with the Eighth Amendment
Agreement in the principal amount of $1,000,000 (the '$1,000,000 Term
Loan'), which shall be repayable in accordance with the terms of the
$1,000,000 Term Note and shall be secured by the Collateral. The $1,000,000
shall be funded upon the satisfaction of the conditions precedent specified
in the Eighth Amendment Agreement in a manner satisfactory to Lender. The
proceeds of the $1,000,000 Term Loan shall be used by Borrower solely for
purposes for which the proceeds of the Revolving Credit Loans are
authorized to be used."
2.07 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 amended by adding
after the phrase "or any Equipment Note" the phrase "or the $1,000,000 Term
Note."
2.08 Amendment to Section 3.1(C) of the Loan Agreement. Effective as
of the date of execution of this Amendment, Section 3.1(C) of the Loan Agreement
is amended by deleting therefrom the reference to the phrase "Tex. Rev. Civ.
Stat. art. 5069-1.04(c)(Vernon 1987)" and substituting therefor the phrase
"Texas Revised Civil Statutes Annotated, Title 4 of the Texas Finance Code,
Chapter 303, as amended".
2.09 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, (iii) on any Equipment
Loan shall be payable as provided in the Equipment Note relating thereto,
and (iv) on the $1,000,000 Term Loan shall be payable as provided in the
$1,000,000 Term Note."
3
<PAGE>
2.10 Amendment to Section 12.19 of the Loan Agreement. Effective as
of the date of execution of this Amendment, Section 12.19 of the Loan Agreement
is amended and restated to read in its entirety as follows:
"12.19 Nonapplicability of Chapter 303 of Texas Finance Code.
Borrower and Lender hereby agree that the provisions of Texas Revised Civil
Statutes Annotated Title 4 of the Texas Finance Code, Chapter 346 (which
regulates certain revolving loan accounts and revolving triparty accounts)
shall not apply to this Agreement or any of the other Loan Documents."
2.11 Restructuring Fee. In consideration for the agreements of
Lender contained herein, including, without limitation, committing to make the
$1,000,000 Term Loan, 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
on the date of execution of this Amendment. Such fee shall be due and payable
upon the earlier to occur of (i) July 31, 1998 or (i) termination of the Loan
Agreement. Borrower hereby irrevocably authorizes Lender, in Lender's sole
discretion, to advance to Borrower, and to charge on the earlier to occur of (i)
July 31, 1998 or (ii) termination of the Loan Agreement, to Borrower's Loan
Account hereunder as a Revolving Credit Loan, a sum sufficient to pay in full
this restructuring fee.
2.12 Impact on Financial Covenants of Eighth Amendment Equity
Infusion. Lender and Borrower hereby agree that the amount of the Eighth
Amendment Equity Infusion (as hereinafter defined) shall be:
(a) considered to be part of the Consolidated Tangible Net Worth
of Borrower for the purpose of the calculation of the financial covenant
specified at Section 9.3(A) of the Loan Agreement for the following periods
(but only for the following periods):
(i) November 1, 1997 through December 31, 1997;
(ii) January 1, 1998 through January 31, 1998;
(iii) February 1, 1998 through February 28, 1998;
(iv) March 1, 1998 through March 31, 1998;
(v) April 1, 1998 through April 30, 1998;
(vi) May 1, 1998 through May 31, 1998; and
(vii) June 1, 1998 through June 30, 1998.
(b) considered to be part of the Tangible Net Worth of Borrower
for the purpose of the calculation of the financial covenant specified at
Section 9.3(B) of the Loan Agreement for the following periods (but only
for the following periods):
(i) December 1, 1997 through December 31, 1997;
(ii) January 1, 1998 through January 31, 1998;
(iii) February 1, 1998 through February 28, 1998;
(iv) March 1, 1998 through March 31, 1998;
(v) April 1, 1998 through April 30, 1998; and
4
<PAGE>
(vi) May 1, 1998 through June 30, 1998.
(c) added to the numerator of the Fixed Charge Ratio for the
purpose of the calculation of the financial covenant specified at Section
9.3(C) of the Loan Agreement for the following periods (but only for the
following periods):
(i) six calendar month period ending on January 31, 1998;
and
(ii) nine calendar month period ending on April
30, 1998.
ARTICLE III
Conditions Precedent
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 Consent, Ratification and Release related to this Amendment,
duly executed by Darrell J. Lowrance; (iii) the $1,000,000 Term Note, in the
form of Annex A attached hereto, duly executed by Borrower; (iv) an Amended and
Restated Unconditional Guaranty, in the form of Annex B attached hereto, duly
executed by Darrell J. Lowrance; (v) Fourth 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; and (vi) such additional documents, instruments
and information as Lender or its legal counsel may request;
(b) Lender shall have received evidence satisfactory to Lender, in
Lender's sole discretion, that Borrower has received a new equity infusion of at
least $1,500,000 (the "Eighth Amendment Equity Infusion"), in the form of (i)
the purchase by certain officers of the Borrower of 68,500 shares of common
stock of Lowrance pursuant to the exercise of existing options held by such
officers, for a purchase price of $189,305.00, and (ii) the purchase by the
Board of Directors of Lowrance of approximately 342,000 shares of restricted
common stock of Lowrance at a purchase price per share of approximately $3.84,
for a total consideration of no less than $1,310,695.00;
(c) 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;
(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
5
<PAGE>
(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 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
6
<PAGE>
(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.
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.
7
<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 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
8
<PAGE>
OR OTHER LOAN DOCUMENTS, AND THE NEGOTIATION OF AND EXECUTION OF THIS AMENDMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ Hance VanBeber
----------------------------------
Name: Hance VanBeber
--------------------------------
Title: Vice President
-------------------------------
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By: /s/ Darrell J. Lowrance
----------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By: /s/ Terry R. Nimmo
----------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
10
<PAGE>
CONSENT, RATIFICATION AND RELEASE
The undersigned hereby consents to the terms of the within and foregoing
Eighth Amendment to Loan and Security Agreement, confirms and ratifies the terms
of his unconditional guaranty and acknowledges that his unconditional guaranty
is in full force and effect on the date executed, that he has no defense,
counterclaim, set-off or any other claim to diminish his liability under such
document, that his consent is not required to the effectiveness of the within
and foregoing document, and that no consent by him is required for the
effectiveness of any future amendment, modification, forbearance or other action
with respect to the Loans, the Collateral, or any Loan Documents. THE
UNDERSIGNED HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES
LENDER, ITS PREDECESSORS, 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 UNDERSIGNED MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS
PREDECESSORS, 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 ANY OF THE OTHER
LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
/s/ Darrell J. Lowrance
---------------------------------
Darrell J. Lowrance
11
<PAGE>
EXHIBIT 10.29
NINTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment")
is made and entered into as of the 14th day of September, 1998, to be effective
(unless otherwise specified herein) as of September 14, 1998 (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, (iv) that certain Fourth Amendment to Loan and
Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower, (v) that certain Fifth Amendment to Loan and Security
Agreement, entered into effective as of August 25, 1997, by and between Lender
and Borrower ("Fifth Amendment"), (vi) that certain Sixth Amendment to Loan and
Security Agreement and Certain Other Loan Documents, entered into effective as
of August 28, 1997, by and between Lender and Borrower, (vii) that certain
Seventh Amendment to Loan and Security Agreement, entered into effective as of
November 1, 1996, by and between Lender and Borrower, and (viii) that certain
Eighth Amendment to Loan and Security Agreement, made and entered into as of
December 9, 1997, by and between 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.
ARTICLE II
1
<PAGE>
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:
"Ninth Amendment Agreement - the Ninth Amendment to Loan and Security
Agreement, executed in September of 1998, by Lender and Borrower."
2.02 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 on the last day
of each calendar month during the period corresponding thereto:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C> <C>
(a) August 1, 1998 through August 31, 1998 (a) $ 8,788,000
(b) September 1, 1998 through September 30, 1998 (b) $ 8,432.000
(c) October 1, 1998 through October 31, 1998 (c) $ 8,263,000
(d) November 1, 1998 through November 30, 1998 (d) $ 8,099,000
(e) December 1, 1998 through December 31, 1998 (e) $ 7,961,000
(f) January 1, 1999 through January 31, 1999 (f) $ 7,918,000
(g) February 1, 1999 through February 28, 1999 (g) $ 8,530,000
(h) March 1, 1999 through March 31, 1999 (h) $ 9,128,000
(i) April 1, 1999 through April 30, 1999 (i) $ 9,743,000
(j) May 1, 1999 through May 31, 1999 (j) $10,053,000
(k) June 1, 1999 through June 30, 1999 (k) $10,185,000
(l) July 1, 1999 and thereafter (l) $10,262,000
</TABLE>
(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:
2
<PAGE>
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C> <C>
(a) August 1, 1998 through August 31, 1998 (a) 5.4 to 1.0
(b) September 1, 1998 through September 30, 1998 (b) 5.6 to 1.0
(c) October 1, 1998 through October 31, 1998 (c) 5.4 to 1.0
(d) November 1, 1998 through November 30, 1998 (d) 5.5 to 1.0
(e) December 1, 1998 through December 31, 1998 (e) 5.6 to 1.0
(f) January 1, 1999 through January 31, 1999 (f) 5.9 to 1.0
(g) February 1, 1999 through February 28, 1999 (g) 5.7 to 1.0
(h) March 1, 1999 through March 31, 1999 (h) 5.3 to 1.0
(i) April 1, 1999 through April 30, 1999 (i) 4.5 to 1l.0
(j) May 1, 1999 through May 31, 1999 (j) 4.0 to 1.0
(k) June 1, 1999 through June 30, 1999 (k) 3.4 to 1.0
(l) July 1, 1999 through April 30, 2000 (l) 3.5 to 1.0
(m) May 1, 2000 through July 31, 2000 (m) 4.5 to 1.0
(n) August 1, 2000 through April 30, 2001 (n) 3.5 to 1.0
(o) May 1, 2001 through July 31, 2001 (o) 4.5 to 1.0
(p) August 1, 2001 through December 31, 2001 (p) 3.5 to 1.0
</TABLE>
(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.
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C> <C>
(a) Three calendar month period ending on (a) 0.3 to 1.0
October 31, 1998
(b) Six calendar month period ending on January (b) 0.4 to 1.0
31, 1999
(c) Nine calendar month period ending on April (c) 0.9 to 1.0
30, 1999
(d) Twelve calendar month period ending on July (d) 1.0 to 1.0
31, 1999
(e) Twelve calendar month period ending on the (e) 1.0 to 1.0
last day of each thereafter occurring
October, January, April and July
</TABLE>
2.03 Deletion of Cure Period for Violation of Section 9.3(C) of the Loan
Agreement. Effective as of the date of execution of this Amendment, the cure
period for a violation of Section 9.3(C) of the Loan Agreement set forth in
Section 2.31 of the Fifth Amendment is hereby deleted.
2.04 Amendment to Section 11.1 of the Loan Agreement; Addition of New
Section 11.1(Q). Effective as of the Effective Date, a new Section 11.1(Q),
Additional $3,000,000 in Cash Equity by November 30, 1998, is added to the Loan
Agreement to read in its entirety as follows:
3
<PAGE>
"(Q) Additional $3,000,000 in Cash Equity by November 30, 1998.
Borrower fails by November 30, 1998 to supply evidence satisfactory to
Lender, in Lender's sole discretion, that Lowrance Electronics, Inc. has
received after the date of execution of the Ninth Amendment an additional
$3,000,000 in cash in the form of either additional equity or new
Subordinated Debt, such additional equity and Subordinated Debt to be upon
terms and conditions and pursuant to documentation satisfactory to Lender,
in Lender's sole discretion."
ARTICLE III
Conditions Precedent
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; and (ii) 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) 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.
ARTICLE IV
No 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 due to the violation by Borrower of the following covenants in
the Loan Agreement:
(a) Borrower respectively failed for the period beginning on June 1,
1998 and continuing through June 30, 1998, and the period beginning on July 1,
1998 and continuing through July 31, 1998, to maintain a Consolidated Tangible
Net Worth of not less than the amount set forth in Section 9.3(A) of the Loan
Agreement, each of which is a violation of Section 9.3(A) of the Loan Agreement;
(b) Borrower respectively failed for the period beginning on June 1,
1998, and continuing through June 30, 1998, and the period beginning on July 1,
1998, and continuing through July 31, 1998, to maintain a ratio of total
Indebtedness to Tangible Net Worth of not more than the ratio set forth in
Section 9.3(B) of the Loan Agreement, each of which is a violation of Section
9.3(B) of the Loan Agreement; and
4
<PAGE>
(c) Borrower failed to maintain for the twelve calendar month period
ending on July 31, 1998, a Fixed Charge Ratio of not less than the ratio set
forth in Section 9.3(C) of the Loan Agreement, which is a violation of Section
9.3(C) of the Loan Agreement.
Except as otherwise specifically provided for in this 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.
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
5
<PAGE>
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.
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
6
<PAGE>
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]
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: /s/ Hance VanBeber
----------------------------------
Name: Hance VanBeber
--------------------------------
Title: Vice President
-------------------------------
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By: /s/ Darrell J. Lowrance
----------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By: /s/ Terry R. Nimmo
----------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By: /s/ Steven L. Schneider
----------------------------------
Steven L. Schneider, President
8
<PAGE>
EXHIBIT 10.30
TENTH AMENDMENT TO
------------------
LOAN AND SECURITY AGREEMENT
----------------------------
AND AMENDMENT TO CERTAIN OTHER LOAN DOCUMENTS
---------------------------------------------
THIS TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND AMENDMENT TO
CERTAIN OTHER LOAN DOCUMENTS (the "Amendment") is made and entered into on this
12 day of November, 1998, to be effective (unless otherwise specified herein)
as of the date of execution of this Amendment, 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, (iv) that certain Fourth Amendment to Loan and
Security Agreement, entered into effective as of April 1, 1997, by and among
Lender and Borrower, (v) that certain Fifth Amendment to Loan and Security
Agreement, entered into effective as of August 25, 1997, by and between Lender
and Borrower ("Fifth Amendment"), (vi) that certain Sixth Amendment to Loan and
Security Agreement and Certain Other Loan Documents, entered into effective as
of August 28, 1997, by and between Lender and Borrower, (vii) that certain
Seventh Amendment to Loan and Security Agreement, entered into effective as of
November 1, 1996, by and between Lender and Borrower, (viii) that certain Eighth
Amendment to Loan and Security Agreement, made and entered into as of December
9, 1997, by and between Lender and Borrower, and (ix) that certain Ninth
Amendment to Loan and Security Agreement made and entered into as of September
14, 1998, by and between 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; Addition of
Certain Definitions. Effective as of the date of execution of this Amendment,
Section 1.1 of the Loan Agreement is hereby amended by adding the following
definitions thereto in alphabetical order:
"$4,800,000.02 Term Loan - the Loan described in Section 2.2(A-1) of
this Agreement.
$4,800,000.02 Term Note - that certain $4,000,000 Secured Promissory
Note, dated August 25, 1997, executed by Borrower, in favor of Lender, as
modified by the Tenth Amendment Agreement (which Tenth Amendment Agreement,
among other things, increased the face principal amount of such promissory
note to $4,800,000.02), as the same may be renewed, extended, modified and
restated from time to time, together with promissory notes given in
substitution therefore.
Tenth Amendment Agreement - the Tenth Amendment to Loan and Security
Agreement, executed in November of 1998 by Lender and Borrower."
2.02 Amendment to Section 1.1 of the Loan Agreement; Deletion of Certain
Definitions. Effective as of the date of execution of this Amendment, Section
1.1 of the Loan Agreement is hereby amended by deleting therefrom the
definitions of "$4,000,0000 Term Loan" and "$4,000,000 Term Note."
2.03 Deleting References to "$4,000,000 Term Loan" in the Loan Agreement
and Substitution therefor of References to "$4,800,000.02 Term Loan." Effective
as of the date of execution of this Amendment, all references in the Loan
Agreement to the term "$4,000,000 Term Loan" are hereby deleted and substituted
therefor are references to the term "$4,800,000.02 Term Loan."
2.04 Deletion of References to "$4,000,000 Term Note" in Loan Agreement
and Substitution therefor of References to "$4,800,000.02 Term Note". Effective
as of the date of execution of this Amendment, all references in the Loan
Agreement to the term "$4,000,000 Term Note" are hereby deleted and substituted
therefor are references to the term "$4,800,000.02 Term Note."
2.05 Amendment to Section 2.2 (A-1) of the Loan Agreement. Effective
as of the date of execution of this Amendment, Section 2.2(A-1) of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
"(A-1) $4,800,000.02 Term Loan. The parties hereto agree that
effective as of August 25, 1997, Lender made to Borrower that certain term
loan in the original principal amount of $4,000,000, evidenced by that
certain $4,000,000 Secured Promissory Note, dated August 25, 1997, in the
original principal amount of $4,000,000, executed by Borrower and payable
to the order of Lender. Borrower further agrees, represents and warrants
that as of the date of execution of the Tenth Amendment Agreement, the
unpaid principal amount of such term loan is $3,000,000.02, and that there
are no claims or offsets against, or defenses or counterclaims to, payment
of such amount to Lender. Borrower further agrees, represents and warrants
that it has requested that Lender make on the date of execution of the
Tenth Amendment Agreement an additional $1,800,000 term loan to Borrower,
the proceeds of which shall be used by
2
<PAGE>
Borrower solely for purposes for which the proceeds of the Revolving Credit
Loans are authorized to be used, and that such additional $1,800,000 term
loan be combined and consolidated with the above-described existing term
loan, such that the combined and consolidated term loan shall be in the
aggregate principal amount of $4,800,000.02 (the `$4,800,000.02 Term Loan')
which shall be repayable in accordance with the terms of the $4,800,000.02
Term Note and shall be secured by the Collateral. Subject to the terms and
conditions of this Agreement and the conditions precedent specified in the
Tenth Amendment Agreement, Lender agrees to advance such additional
$1,800,000 to Borrower on the date of execution of the Tenth Amendment
Agreement."
2.06 Amendment to Section 9.2(X) of the Loan Agreement. Effective as
of the date of execution of this Amendment, Section 9.2(X) of the Loan Agreement
is amended and restated to read in its entirety as follows:
"(X) Leases. Become a lessee under any operating lease (other
than a lease under which Borrower is a lessor) of Property if the aggregate
Rentals payable during any fiscal year of Borrower, beginning with fiscal
year 1999, under the lease in question and all other leases under which the
Borrower is then lessee would exceed $1,900,000.00. The term `Rentals'
means, as of the date of determination, all payments which the lessee is
required to make by the terms of any lease."
2.07 Amendment to Section 9.3 of the Loan Agreement. Effective as of the
date of execution of this Amendment, Section 9.3 of the Loan Agreement is
amended and restated to read in its entirety as follows:
"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 on
the last day of each calendar month during the period corresponding
thereto:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C> <C> <C>
(a) November 1, 1998 through November 30, 1998 (a) $4,564,000
(b) December 1, 1998 through December 31, 1998 (b) $4,477,000
(c) January 1, 1999 through January 31, 1999 (c) $4,499,000
(d) February 1, 1999 through February 28, 1999 (d) $5,201,000
(e) March 1, 1999 through March 31, 1999 (e) $5,834,000
(f) April 1, 1999 through April 30, 1999 (f) $6,420,000
(g) May 1, 1999 through May 31, 1999 (g) $6,698,000
(h) June 1, 1999 through June 30, 1999 (h) $6,833,000
(i) July 1, 1999 through July 31, 1999 (i) $6,890,000
(j) Thereafter (j) $7,000,000
</TABLE>
(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:
3
<PAGE>
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C> <C> <C>
(a) November 1, 1998 through November 30, 1998 (a) 8.9 to 1.0
(b) December 1, 1998 through December 31, 1998 (b) 9.1 to 1.0
(c) January 1, 1999 through January 31, 1999 (c) 9.6 to 1.0
(d) February 1, 1999 through February 28, 1999 (d) 8.8 to 1.0
(e) March 1, 1999 through March 31, 1999 (e) 8.0 to 1.0
(f) April 1, 1999 through April 30, 1999 (f) 6.7 to 1.0
(g) May 1, 1999 through May 31, 1999 (g) 6.3 to 1.0
(h) June 1, 1999 through June 30, 1999 (h) 5.7 to 1.0
(i) July 1, 1999 and thereafter (i) 5.3 to 1.0
</TABLE>
(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.
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
(a) Six calendar month period ending on January 31, (a) 0.4 to 1.0
1999
(b) Nine calendar month period ending on April 30, (b) 0.9 to 1.0
1999
(c) Twelve calendar month period ending on July 31, (c) 1.0 to 1.0
1999
(d) Twelve calendar month period ending on the last (d) 1.0 to 1.0
day of each thereafter occurring October,
January, April and July"
</TABLE>
2.08 Amendment to Section 11.1(K) of the Loan Agreement. Effective as of
the date of execution of this Amendment, Section 11.1(K) of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"(K) Change of Ownership. Darrell J. Lowrance, or his estate in
the case of his death, shall cease to own and control, beneficially and of
record, at least 50.6% of the issued and outstanding capital stock of
Borrower."
2.09 Amendment to Section 11.1 of the Loan Agreement; Deletion of Section
11.1(Q). Effective as of the date of execution of this Amendment, Section
11.1(Q), Additional $3,000,000 in Cash Equity by November 30, 1998, of the Loan
Agreement is hereby deleted.
2.10 Amendment of $4,000,000 Secured Promissory Note. Effective as of the
date of execution of this Amendment, that certain $4,000,000 Secured Promissory
Note, dated August 25, 1997, in the original principal amount of $4,000,000,
payable to the order of Lender and executed by Borrower, is amended as follows:
(i) Each reference to the dollar amount "$4,000,000" is hereby
deleted and substituted therefor is the dollar amount "$4,800,000.02".
4
<PAGE>
(ii) Reference to the phrase "FOUR MILLION AND NO/100 DOLLARS" is
hereby deleted and substituted therefor is the phrase "FOUR MILLION EIGHT
HUNDRED THOUSAND AND 02/100 DOLLARS".
(iii) Each reference to the phrase "$4,000,000 Term Loan" is
deleted and substituted therefor is the phrase "$4,800,000.02 Term Loan".
(iv) The last paragraph on page one and the carryover paragraph
on page two, which describes when and in what amount the principal amount
and accrued interest on such promissory note shall be due and payable, is
amended and restated to read in its entirety as follows:
"The principal amount of and accrued interest on this Note
shall be due and payable on the dates and in the manner hereinafter
set forth:
(a) interest shall be due and payable monthly, in
arrears, on the first day of each month, commencing on
December 1, 1998, and continuing until such time as the full
principal balance, together with all other amounts owing
hereunder, shall have been paid in full; and
(b) principal shall be due and payable as follows:
(i) on the first day of each month, commencing
on March 1, 1999, and continuing thereafter on the
first day of each thereafter occurring month, in
monthly installments of $80,000.00 each; and
(ii) with the remaining principal being due and
payable in full on the last day of the Original Term
(or the last day of the Renewal Term if the Loan
Agreement is extended as provided in Section 3.2
thereof); or on any earlier termination of the Loan
Agreement by Lender or Borrower pursuant to Section 3.2
or Section 3.3 thereof."
2.11 Restructuring Fee. In consideration for the agreements of Lender
contained herein, including, without limitation, the advancing to Borrower of an
additional $1,800,000 on the date hereof, 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 as of the date hereof, and shall be payable upon the earlier to
occur of (i) March 1, 1999, (ii) termination of the Loan Agreement, or (iii)
payment in full of the Loans. Borrower hereby irrevocably authorizes Lender, in
Lender's sole discretion, to advance to Borrower, and to charge on the earlier
to occur of (i) March 1, 1999, (ii) termination of the Loan Agreement, or (iii)
payment in full of the Loans, to Borrower's Loan Account hereunder as a
Revolving Credit Loan, a sum sufficient to pay in full this restructuring fee.
Notwithstanding the foregoing, payment of such $50,000 fee shall be waived by
Lender if, prior to March 1, 1999, Borrower shall have paid off in full, in
immediately available funds, the $1,800,000 loan advanced by Lender to Borrower
on the date hereof.
5
<PAGE>
ARTICLE III
Conditions Precedent
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; and (ii) 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) 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.
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 due to the violation by Borrower of the following covenants in the Loan
Agreement:
(a) The aggregate Rentals paid by Borrower as lessee under
operating leases for fiscal year 1998, exceeded the maximum amount
specified in Section 9.2(X) of the Loan Agreement, which is a violation of
Section 9.2(X) of the Loan Agreement;
(b) Borrower respectively failed for the period beginning on
August 1, 1998 and continuing through August 31, 1998, and the period
beginning on September 1, 1998 and continuing through September 30, 1998,
and the period beginning October 1, 1998 and continuing through October 31,
1998, to maintain a Consolidated Tangible Net Worth of not less than the
amount set forth in Section 9.3(A) of the Loan Agreement, each of which is
a violation of Section 9.3(A) of the Loan Agreement;
(c) Borrower respectively failed for the period beginning on
August 1, 1998, and continuing through August 31, 1998, and the period
beginning on September 1, 1998, and continuing through September 30, 1998
and the period beginning October 1, 1998 and continuing through October 31,
1998, to maintain a ratio of total Indebtedness to Tangible Net Worth of
not more than the ratio set forth in Section 9.3(B) of the Loan Agreement,
each of which is a violation of Section 9.3(B) of the Loan Agreement; and
(d) Borrower failed to maintain for the three calendar month
period ending on October 31, 1998, a Fixed Charge Ratio of not less than
the ratio set forth in Section 9.3(C) of the Loan Agreement, which is a
violation of Section 9.3(C) of the Loan Agreement.
6
<PAGE>
Except as otherwise specifically provided for in this 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.
7
<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.
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
8
<PAGE>
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]
9
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ Hance VanBeber
----------------------------------------
Name: Hance VanBeber
--------------------------------------
Title: Vice President
-------------------------------------
"BORROWER"
LOWRANCE ELECTRONICS, INC.
By: /s/ Darrell J. Lowrance
----------------------------------------
Darrell J. Lowrance, President
LEI EXTRAS, INC.
By: /s/ Steven L. Schneider
----------------------------------------
Steven L. Schneider, President
LOWRANCE CONTRACTS, INC.
By: /s/ Terry R. Nimmo
----------------------------------------
Terry R. Nimmo, Vice President
SEA ELECTRONICS, INC.
By: /s/ Steven L. Schneider
----------------------------------------
Steven L. Schneider, President
10
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