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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
Lowrance Electronics, Inc.
(Name of Subject Company)
Lowrance Electronics, Inc.
(Name of Person Filing Statement)
Common Stock, par value $0.10 per share
(Title of Class of Securities)
54890010
(CUSIP Number of Class of Securities)
Darrell J. Lowrance
President and Chief Executive Officer
Lowrance Electronics, Inc.
12000 East Skelly Drive
Tulsa, Oklahoma 74128
(918) 437-6881
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
COPIES TO:
Marcus A. Watts
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
(713) 226-1200
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is Lowrance Electronics, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 12000 East Skelly Drive, Tulsa, Oklahoma 74128, and the
telephone number of the Company at that address is (918) 437-6881.
The title of the class of equity securities to which this
Solicitation/Recommendation on Schedule 14D-9 (this "Statement") relates is
the common stock, par value $0.10 per share, of the Company (the "Shares"). As
of January 3, 2001, there were 3,768,796 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The name, business address and business telephone number of the Company,
which is the subject company and the entity filing this Statement, are set
forth in Item 1 above.
This Statement relates to a tender offer (the "Offer") described in the
Tender Offer Statement on Schedule TO, dated January 16, 2001 (as amended or
supplemented, the "Schedule TO"), filed by Cobra Electronics Corporation, a
Delaware corporation ("Parent"), and its wholly owned subsidiary Blue Marlin,
Inc., a Delaware corporation ("Sub"), with the Securities and Exchange
Commission (the "Commission"), relating to an offer by Sub to purchase all of
the issued and outstanding Shares of the Company at a price of $8.25 per
Share, net to the seller in cash, without interest thereon (the "Offer
Price"), upon the terms and subject to the conditions set forth in the
Parent's Offer to Purchase, dated January 16, 2001, and the related Letter of
Transmittal (as amended or supplemented, the "Offer Documents").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of January 4, 2001 (the "Merger Agreement"), among the Company, Parent and
Sub, a copy of which is filed as Exhibit (e)(1) hereto, and is incorporated
herein by reference in its entirety. The Merger Agreement provides, among
other things, for the making of the Offer by Sub, and further provides that,
following the completion of the Offer, upon the terms and subject to the
conditions of the Merger Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Sub will be merged with and into the
Company (the "Merger"). Following the effective time of the Merger (the
"Effective Time"), the Company will continue as the surviving corporation (the
"Surviving Corporation") and become a wholly owned subsidiary of Parent.
At the Effective Time, each Share issued and outstanding immediately prior
to the Effective Time (other than Shares held by the Company or owned by
Parent, Sub or any other subsidiary of Parent or the Company, which shall be
canceled, and other than Shares, if any (collectively, "Dissenting Shares"),
held by stockholders who have properly exercised appraisal rights under
Section 262 of the DGCL) will, by virtue of the Merger and without any action
on the part of the holders of the Shares be converted into the right to
receive in cash the Offer Price, payable to the holder thereof, upon surrender
of the certificate formerly representing such Share, less any required
withholding taxes.
The Schedule TO indicates that the principal executive offices of the
Parent are located at 6500 West Cortland Street, Chicago, Illinois 60707, and
the principal executive offices of Sub are located at 6500 West Cortland
Street, Chicago, Illinois 60707.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as described below or incorporated by reference herein, to the
knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements, understandings or any actual or potential
conflicts of interest between the Company or its affiliates and (i) the
Company, its officers, directors or affiliates, or (ii) Parent, Sub, or their
executive officers, directors or affiliates.
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The following summaries of the Merger Agreement, the Stockholder Agreements
and the Confidentiality Agreement, as well as the other agreements described
or referred to in Annex I, are qualified in their entirety by reference to the
copies thereof filed as exhibits to this Statement.
The Merger Agreement
The Merger Agreement, a copy of which is being provided to stockholders
with this Statement, should be read in its entirety for a more complete
description of the terms and provisions of the Merger Agreement. The following
is a summary of certain portions of the Merger Agreement which relate to
arrangements among the Company, Parent, Sub and the Company's executive
officers and directors.
The Offer. The Merger Agreement provides for the commencement of the Offer
by Sub. The obligation of Sub to accept for payment and pay for Shares validly
tendered pursuant to the Offer is subject to the prior satisfaction or waiver
by Sub of the conditions to the Offer set forth in Section 14 the Offer
Documents. The Merger Agreement provides that, without the prior written
consent of the Company, Sub will not (a) reduce the number of Shares subject
to the Offer, (b) reduce the Offer Price, (c) impose additional conditions to
the Offer other than the conditions set forth in Section 14 the Offer
Documents or modify the conditions to the Offer (other than to waive any
condition of the Offer to the extent permitted by the Merger Agreement), (d)
except as described in the following paragraph, extend the Offer, (e) change
the form of consideration payable in the Offer or (f) amend any other term of
the Offer in a manner which is materially adverse to the holders of Shares.
Parent has agreed with the Company that it will not extend the Offer
without the consent of the Company; provided, however, that without the
consent of the Company, Parent may extend the Offer (a) if, at the scheduled
or extended expiration date of the Offer any of the conditions to Sub's
obligation to accept Shares for payment are not satisfied or waived, until
such time as such conditions are satisfied or waived, (b) for any period
required by any rule, regulation, interpretation or position of the Commission
or the staff thereof applicable to the Offer and (c) for any reason on one or
more occasions for an aggregate period of not more than fifteen business days
beyond the latest expiration date that would otherwise be permitted under the
terms of the Merger Agreement if there shall not have been tendered a
sufficient number of Shares to enable the Merger to be effected in accordance
with Section 253 of the DGCL, in each case subject to the right of Parent, Sub
or the Company to terminate the Merger Agreement pursuant to its terms.
The Merger. The Merger Agreement provides that the Sub will be merged with
and into the Company following the satisfaction or waiver of the conditions to
the Merger contained in the Merger Agreement. As a result of the Merger, the
separate corporate existence of Sub will cease and the Company will continue
as the Surviving Corporation.
At the Effective Time, the Certificate of Incorporation and Bylaws of the
Company shall be the Certificate of Incorporation and Bylaws of the Surviving
Corporation; the directors of Sub shall become the directors of the Surviving
Corporation and the officers of the Company shall become the officers of the
Surviving Corporation.
The Company has agreed in the Merger Agreement that it will, at Parent's
request, as soon as practicable following the purchase of Shares pursuant to
the Offer, (a) prepare and file with the Commission a preliminary proxy
statement relating to the Merger Agreement and use its reasonable best efforts
to respond to any comments of the Commission and its staff and to cause the
proxy statement to be mailed to its stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the staff and (b)
convene a special meeting of its stockholders for the purpose of considering
the adoption of the Merger Agreement. The Merger Agreement provides that if
Sub or any other direct or indirect subsidiary of Parent owns at least 90% of
the outstanding Shares, Parent, Sub and the Company shall take all necessary
and appropriate action to cause the Merger to become effective as soon as
practicable after expiration of the Offer without a meeting of the
stockholders of the Company, in accordance with Section 253 of the DGCL.
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Conversion of Securities. As of the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the holders of any
securities of Sub or the Company, each Share (other than Shares held in the
treasury of the Company or by any wholly owned subsidiary of the Company,
Shares owned by Parent or any wholly owned subsidiary of Parent and Shares
owned by stockholders, if any, who are entitled to and who properly exercise
dissenter's rights under the DGCL) shall be converted into the right to
receive from the Surviving Corporation the Offer Price, in cash, without
interest. Each share of stock of Sub issued and outstanding immediately prior
to the Effective Time shall, at the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any shares of stock of
Sub, be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
The Merger Agreement provides that Parent or the designated paying agent
will be entitled to deduct and withhold from the consideration otherwise
payable pursuant to the Merger Agreement to any holder of Shares such amounts
as Parent or such paying agent is required to deduct and withhold with respect
to the making of such payment under the Internal Revenue Code or the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Sub. The
representations and warranties of the Company relate, among other things, to
its organization, good standing and corporate power; capital structure;
authority to enter into the Merger Agreement and to consummate the
transactions contemplated thereby; required consents and approvals and no
violations; filings made by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including financial
statements included in the documents filed by the Company under these acts);
information supplied by the Company; the absence of certain events since July
31, 2000; permits and compliance with laws; tax matters; actions and
proceedings; certain agreements; benefit plans and employees and employment
practices; liabilities; certain labor matters; intellectual property matters;
title to assets; inventories; environmental matters; state takeover statutes;
required votes; transactions with affiliates; and brokers.
Sub and Parent have also made customary representations and warranties to
the Company. Representations and warranties of Sub and Parent relate, among
other things, to: their organization, good standing and authority to enter
into the Merger Agreement and to consummate the transactions contemplated
thereby; required consents and approvals and no violations; information
supplied; operations of Sub; brokers; and financing.
Covenants Relating to the Conduct of Business. During the period from the
date of the Merger Agreement through the Effective Time, the Company has
agreed as to itself and its subsidiaries that, except as otherwise expressly
contemplated or permitted by the Merger Agreement or except to the extent
Parent shall otherwise consent in writing:
(a) The Company shall in all material respects carry on its business in the
ordinary course as currently conducted and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its current
business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall be unimpaired at the Effective
Time;
(b) The Company shall not (i) declare, set aside or pay any dividends on,
or make any other actual, constructive or deemed distributions in
respect of, any of its capital stock, or otherwise make any payments to
its stockholders in their capacity as such, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(c) The Company shall not issue, deliver, sell, pledge, grant, dispose of
or otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible into, or
any rights, warrants or options (including options under the Company
Option Plans (as defined in
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the Merger Agreement)) to acquire any such shares, voting securities,
equity equivalent or convertible securities;
(d) The Company shall not amend its charter or by-laws or equivalent
organizational documents;
(e) The Company shall not acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of or equity in, or by any other manner, any business or any
corporation, limited liability company, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets;
(f) The Company shall not sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets with a fair
market value in excess of $100,000, other than sales of inventory that
are in the ordinary course of business consistent with past practice;
(g) The Company shall not incur any indebtedness for borrowed money,
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other person, other than
(i) in the ordinary course of business consistent with past practices
and, in the case of indebtedness and guarantees, in an amount not to
exceed $100,000 and (ii) indebtedness, loans, advances, capital
contributions and investments between the Company and any of its
subsidiaries in the ordinary course of business consistent with past
practices;
(h) The Company shall not alter (through merger, liquidation,
reorganization, restructuring or in any other fashion) the corporate
structure or ownership of the Company or any of its subsidiaries;
(i) Except required by applicable law, the Company shall not enter into or
adopt any, or amend any existing, severance plan, agreement or
arrangement or enter into or amend any Company Plan (as defined in the
Merger Agreement) or employment or consulting agreement or fail to
maintain in effect each key-man insurance policy currently in effect
with respect to any employee of the Company or any of its subsidiaries;
(j) The Company shall not increase the compensation payable or to become
payable to its directors, officers or employees (except for increases
in the ordinary course of business consistent with past practice in
salaries or wages of employees of the Company or any of its
subsidiaries who are not officers of the Company or any of its
subsidiaries) or grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director or
officer of the Company or any of its subsidiaries, or grant or
otherwise award to any person any option or stock appreciation right or
other right or benefit under the Company Option Plans or establish,
adopt, enter into, or, except as may be required to comply with
applicable law, amend or take action to enhance or accelerate any
rights or benefits under, any labor, collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
(k) The Company shall not knowingly violate or knowingly fail to perform
any obligation or duty imposed upon it or any subsidiary by any
applicable material federal, state or local law, rule, regulation,
guideline or ordinance;
(l) The Company shall not make any change to accounting policies or
procedures (other than actions required to be taken by generally
accepted accounting principles);
(m) The Company shall not prepare or file any tax return inconsistent with
past practice or, on any such tax return, take any position, make any
election, or adopt any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing similar
tax returns in prior periods;
(n) The Company shall not settle or compromise any tax liability or any
claims or litigation in excess of $50,000 or commence any litigation or
proceedings;
(o) The Company shall not enter into or amend any agreement or contract (i)
having a term in excess of 12 months and which is not terminable by the
Company without penalty or premium by notice of 60 days or less or (ii)
outside the ordinary course of business consistent with past practice,
which involves
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or is expected to involve payments of $100,000 or more during the term
thereof (provided that in the case of agreements or contracts with any
customer, the margins anticipated from any such agreement or contract
shall be consistent in all material respects with historical margins);
(iii) enter into, amend or terminate any other agreement or contract
material to the Company and its subsidiaries; or (iv) purchase any real
property, or make or agree to make any new capital expenditure or
expenditures (other than the purchase of real property) which in the
aggregate are in excess of $100,000;
(p) The Company shall not pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction of any
such claims, liabilities or obligations, in the ordinary course of
business consistent with past practice or in accordance with their
terms; and
(q) The Company shall not authorize, recommend, propose or announce an
intention to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
No Solicitation. The Company shall not, nor shall it permit any of its
subsidiaries to, nor shall it authorize or permit any officer, director or
employee of or any financial advisor, attorney or other advisor or
representative of the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of, any Takeover
Proposal (as defined below), (ii) enter into any agreement with respect to or
approve or recommend any Takeover Proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to the Company or any of its subsidiaries in
connection with, or take any other action to cooperate in any way with respect
to, or assist in or facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; provided, however, that neither the Company nor its directors shall
be prohibited from (x) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer or (y) referring a
third party to the section of the Merger Agreement described in this paragraph
or making a copy of such section available to any third party; and provider,
further, that prior to the acceptance for payment of Shares pursuant to the
Offer, if the Company Board of Directors (the"Board") reasonably determines
that a Takeover Proposal constitutes a Superior Proposal (as defined below),
then, to the extent required by the fiduciary obligations of the Company
Board, as determined in good faith by a majority thereof after consultation
with independent counsel (who may be the Company's regularly engaged
independent counsel), the Company may, in response to an unsolicited request
therefor, furnish information with respect to the Company and its subsidiaries
to any person pursuant to a confidentiality agreement, in customary form and
in any event containing terms, taken as a whole, at least as stringent as
those contained in the confidentiality agreement entered into between the
Company and Parent, and participate in discussions or negotiations with such
person. For purposes of the Merger Agreement, "Takeover Proposal" means any
proposal for (i) a merger or other business combination involving the Company
or any of its subsidiaries, (ii) any proposal or offer to acquire in any
manner, directly or indirectly, an equity interest in or any voting securities
of the Company representing 15% or more of the Shares or of the total voting
securities of the Company outstanding or (iii) an offer to acquire in any
manner, directly or indirectly, a substantial portion of the assets of the
Company or any of its subsidiaries, other than the transactions contemplated
by the Merger Agreement, and "Superior Proposal" means a bona fide written
proposal made by a third party to acquire the Company pursuant to a tender or
exchange offer, a merger, a sale of all or substantially all of the assets of
the Company or otherwise on terms which a majority of the Company Board
determines in its reasonable good faith judgment to be more favorable to the
Company's stockholders than the Merger (based on the advice from the Company's
independent financial advisor that the value of the consideration provided for
in such proposal exceeds the value of the consideration provided for in the
Merger) and for which financing, to the extent required, is then committed or
which, in the reasonable good faith judgment of a majority of the members of
the Company Board (based on the advice of the Company's independent financial
advisor), is reasonably capable of being obtained by such third party.
The Merger Agreement provides further that the Company must advise Parent
orally and in writing of (i) any Takeover Proposal or any inquiry with respect
to or which could lead to any Takeover Proposal received by
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any officer or director of the Company or, to the knowledge of the Company,
any financial advisor, attorney or other advisor or representative of the
Company, (ii) the material terms of such Takeover Proposal (including a copy
of any written proposal), and (iii) the identity of the person making any such
Takeover Proposal or inquiry. The Company shall so advise Parent no later than
24 hours following receipt of such Takeover Proposal or inquiry. If the
Company intends to furnish any person with any information with respect to any
Takeover Proposal, the Company is required to advise Parent orally and in
writing of such intention not less than two business days in advance of
providing such information. The Company is further required to keep Parent
fully informed of the status and material terms of any such Takeover Proposal
or inquiry.
Third Party Standstill Agreements. During the period from the date of the
Merger Agreement through the Effective Time, the Company has agreed not to
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its subsidiaries is a
party (other than any confidentiality or standstill agreement involving
Parent) and to enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreements, including obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States or any state thereof
having jurisdiction.
Indemnification. Pursuant to the Merger Agreement, from and after the
Effective Time, Parent will cause the Surviving Corporation to indemnify and
hold harmless all past and present officers and directors of the Company and
its subsidiaries to the same extent and in the same manner such persons are
indemnified as of the date of the Merger Agreement by the Company pursuant to
the DGCL, the Company's Certificate of Incorporation or the Company's Bylaws
for acts or omissions occurring at or prior to the Effective Time and shall
advance reasonable litigation expenses incurred by such officers and directors
in connection with defending any action arising out of such acts or omissions.
Board Representation. The Merger Agreement provides that promptly after
such time as Sub acquires Shares pursuant to the Offer, Sub will be entitled
to designate at its option up to that number of directors of the Company
Board, subject to compliance with Section 14(f) of the Exchange Act, as will
make the percentage of the Company's directors designated by Sub equal to the
percentage of the aggregate voting power of the Shares held by Parent or any
of its subsidiaries; provided, however, that in the event that Sub's designees
are elected to the Company Board, until the Effective Time, the Company Board
shall have at least two directors who were directors of the Company on the
date of the Merger Agreement and who are not officers of the Company (the
"Independent Directors"). If the number of Independent Directors shall be
reduced below two for any reason whatsoever, the Independent Director shall
designate an Independent Director for purposes of the Merger Agreement or, if
no Independent Directors then remain, the other directors of the Company shall
designate two persons to fill such vacancies who shall not be officers or
affiliates of the Company or any of its subsidiaries, or officers or
affiliates of Parent or any of its subsidiaries, and such persons shall be
deemed to be Independent Directors for purposes of the Merger Agreement.
Following the election or appointment of Sub's designees to the Company Board
and prior to the Effective Time, any amendment, or waiver of any term or
condition, of the Merger Agreement or the Company's Certificate of
Incorporation or Bylaws, any termination of the Merger Agreement by the
Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Sub or waiver or assertion of any of the
Company's rights under the Merger Agreement, and any other consent or action
by the Company Board with respect to the Merger Agreement, will require the
concurrence of a majority of the Independent Directors and no other action by
the Company, including any action by any other director of the Company, shall
be required for purposes of the Merger Agreement. In connection with the
foregoing, the Company will promptly, at the option of Parent, either increase
the size of the Company Board and/or obtain the resignation of such number of
its current directors as is necessary to enable Sub's designees to be elected
or appointed to the Company Board as provided above to the fullest extent
permitted by law.
Employment Agreements. Prior to February 12, 2001, the Company shall enter
into employment agreements with Darrell J. Lowrance, President and Chief
Executive Officer of the Company, and Ronald G. Weber, the Company's Executive
Vice President of Engineering and Manufacturing, each in a form
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satisfactory to Parent. In the case of the employment agreement of Ronald G.
Weber, such agreement shall be for a term of five years and shall provide for
salary no less favorable in the aggregate than currently provided to Mr. Weber
by the Company and benefits at the same level as similary situated officers of
Parent. The employment agreements shall become effective upon consummation of
the Offer.
Conditions Precedent. The respective obligations of each party to effect
the Merger are subject to the fulfillment at or prior to the Effective Time of
the following conditions: (i) the Merger Agreement shall have been approved
and adopted by the affirmative vote of the stockholders of the Company (unless
the vote of stockholders is not required under the DGCL) as required by the
DGCL and the Company's Certificate of Incorporation; (ii) Sub shall have
previously accepted for payment and paid for Shares pursuant to the Offer,
except that this condition shall not apply if Sub shall have failed to
purchase Shares pursuant to the Offer in breach of its obligations under the
Merger Agreement; and (iii) no court or other Governmental Entity (as defined
in the Merger Agreement) having jurisdiction over the Company or Parent or any
of their respective subsidiaries shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is then in effect and has the effect of making the Merger illegal.
Termination. The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time, whether before or after approval of the
Merger Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company: (i) if (x) as a result of the failure
of any of the conditions to the Offer as set forth in Section 14 of the
Offer Documents shall have terminated or expired in accordance with its
terms without Sub having accepted for payment any Shares pursuant to
the Offer or (y) Sub shall not have accepted for payment any Shares
pursuant to the Offer prior to May 4, 2001 (provided that the right to
terminate the Merger Agreement pursuant to this clause (b)(i) shall not
be available to any party whose failure to perform any of its
obligations under the Merger Agreement results in the failure of any
such condition or if the failure of such condition results from facts
or circumstances that constitute a breach of any representation or
warranty under the Merger Agreement by such party), or (ii) if any
Governmental Entity (as defined in the Merger Agreements) shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the acceptance for
payment of, or payment for, Shares pursuant to the Offer and such
order, decree or ruling or other action shall have become final and
nonappealable;
(c) by Parent or Sub prior to the purchase of Shares pursuant to the Offer
in the event of a breach by the Company of any representation,
warranty, covenant or other agreement contained in the Merger Agreement
which (i) would give rise to the failure of the Offer conditions
described in paragraph (e) or (f) of Section 14 of the Offer Documents
and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to the Company;
(d) by Parent or Sub if either Parent or Sub is entitled to terminate the
Offer as a result of the occurrence of any event set forth in paragraph
(d) of Section 14 of the Offer Documents;
(e) by the Company if the Company Board reasonably determines that a
Takeover Proposal constitutes a Superior Proposal and a majority of the
Company Board determines in its reasonable good faith judgment, after
consultation with independent counsel, that failing to terminate the
Merger Agreement would constitute a breach of its fiduciary duties
under applicable law; provided, that it has complied with the notice
and other provisions of the Merger Agreement relating to no
solicitation of Takeover Proposals and it complies to the extent
applicable with requirements of the Merger Agreement relating to
payment of Expenses and the Termination Fee (each as defined below
under "--Fees and Expenses"); and provided further that the Company may
not terminate the Merger Agreement pursuant to this clause (e) unless
and until 72 hours have elapsed following the delivery to Parent of a
written notice of such determination by the Company Board;
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(f) by the Company, if (i) any of the representations or warranties of
Parent or Sub set forth in the Merger Agreement that are qualified as
to materiality shall not be true and correct in any respect or any such
representations or warranties that are not so qualified shall not be
true and correct in any material respect or (ii) Parent or Sub shall
have failed to perform in any material respect any material obligation
or to comply in any material respect with any material agreement or
covenant of Parent or Sub to be performed or complied with by it under
the Merger Agreement and such untruth, incorrectness or failure cannot
be or has not been cured within 30 days after the giving of written
notice to Parent or Sub, as applicable; or
(g) by the Company if the Offer has not been timely commenced in accordance
with the Merger Agreement.
In the event of a termination of the Merger Agreement by either the Company
or Parent, the Merger Agreement shall become void (except for certain
provisions pertaining to the payment of certain expenses and fees and except
for certain confidentiality obligations of the parties) and there shall be no
liability or obligation on the part of Parent, Sub or the Company or their
respective officers or directors other than for liability for any breach of a
representation or warranty contained in the Merger Agreement, the breach of
any covenant contained in the Merger Agreement or for fraud.
Preferred Stock Redemption. Upon consummation of the Offer, the Company has
agreed to redeem all of its issued and outstanding shares of Series "A"
Preferred Stock at a redemption price of $9.375 (which represents a net
redemption price of $1.875 for each Share into which the Series "A" Preferred
Stock is convertible under certain circumstances) per share of Series "A"
Preferred Stock in cash.
Fees and Expenses. Except as provided in the Merger Agreement, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the Offer, the Merger and the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such costs and
expenses.
The Merger Agreement provides that the Company will pay, or cause to be
paid, in same day funds to Parent the following amounts under the
circumstances and at the times set forth as follows:
(i) if Parent or the Sub terminates the Merger Agreement in accordance with
the provisions described in clause (d) under "Termination" above, the
Company shall pay the Expenses (as defined below) of Parent and a
$1,500,000 termination fee (the "Termination Fee") upon demand;
(ii) if the Company terminates the Merger Agreement in accordance with the
provision described in clause (e) under "Termination" above, the Company
shall pay the Termination Fee within one business day following such
termination and the Expenses of Parent upon demand; or
(iii) if any termination of the Merger Agreement occurs under the
provisions described in clause (b) or (c) under "Termination" above,
and at the time of any such termination a Takeover Proposal shall
have been made (other than a Takeover Proposal made prior to the date
of the Merger Agreement), if concurrently therewith or within 12
months thereafter, (A) the Company enters into a merger agreement,
acquisition agreement or similar agreement (including a letter of
intent) with respect to a Takeover Proposal, or a Takeover Proposal
is consummated, involving any party (1) with whom the Company had any
discussions with respect to a Takeover Proposal, (2) to whom the
Company furnished information with respect to or with a view to a
Takeover Proposal or (3) who had submitted a proposal or expressed
any interest publicly in a Takeover Proposal, in the case of each of
clauses (1), (2) and (3), prior to such termination, or (B) the
Company enters into a merger agreement, acquisition agreement or
similar agreement (including a letter of intent) with respect to a
Superior Proposal, or a Superior Proposal is consummated, then, in
the case of either (A) or (B) above, the Company shall pay the
Termination Fee and the Expenses of Parent upon the earlier of the
execution of such agreement or upon consummation of such Takeover
Proposal or Superior Proposal; provided, that if the Merger Agreement
is terminated by the Company pursuant to clause (b)(i) under
"Termination" above and at
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the time of such termination the Financing Condition has not been
satisfied, the Company shall not be obligated to pay the Termination Fee
and the Expenses of Parent under this clause (iii).
For purposes of the Merger Agreement, "Expenses" means documented out-of-
pocket fees and expenses incurred or paid by or on behalf of Parent in
connection with the Offer, the Merger or the consummation of any of the
transactions contemplated by the Merger Agreement, including all fees and
expenses of law firms, commercial banks, investment banking firms,
accountants, experts and consultants to Parent, in an aggregate amount not in
excess of $500,000.
The Confidentiality Agreement.
The following summary description of the confidentiality agreement entered
into between Parent and the Company (the "Confidentiality Agreement") is
qualified in its entirety by reference to the agreement itself, which has been
filed as an exhibit to the Schedule TO that Parent filed with the Commission
and is incorporated herein by reference.
In July 2000, the Company and Parent entered into a Confidentiality
Agreement pursuant to which Parent agreed, in return for the Company's making
available certain non-public information, to use such information solely for
the purpose of evaluating the transaction between the parties and to not use
such information in any way directly or indirectly detrimental to the Company.
Parent also agreed that it and its representatives will not disclose any of
the evaluation information unless the disclosure is made to a representative
of Parent who needs to have such material for the sole purpose of evaluating
the transaction between the parties. Without the prior consent of the Company,
Parent agreed that it and its representatives will not disclose to any other
person the fact that the materials have been provided to it or that
discussions or negotiations were taking place.
The Stockholder Agreements.
The following summary description of the Stockholder Agreements is
qualified in its entirety by reference to the agreements themselves, which
have been filed as exhibits to the Schedule TO that Parent filed with the
Commission and is incorporated herein by reference.
Parent and Sub entered into Stockholder Agreements dated as of January 4,
2001 (the "Stockholder Agreements") with each of the following stockholders of
the Company: Darrell J. Lowrance, Ronald G. Weber, Willard P. Britton and
Peter F. Foley (the "Tendering Stockholders"). Pursuant to the Stockholder
Agreements, each Tendering Stockholder has agreed that, (a) such Tendering
Stockholder will vote the Shares held by such Tendering Stockholder in favor
of the Merger and the Merger Agreement; (b) such Tendering Stockholder will
vote his or her Shares against (i) any other merger agreement or merger,
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the Company
or any other Takeover Proposal or (ii) any amendment of the Company's
Certificate of Incorporation or Bylaws or other proposal or transaction
involving the Company, which amendment or other proposal or transaction would
in any manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement; (c) such Tendering Stockholder will not (i) sell, transfer, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement (including any profit sharing arrangement) with respect to the
sale, transfer, pledge, assignment or other disposition of, his or her Shares
to any person other than Sub or Sub's designee or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in connection,
directly or indirectly, with any Takeover Proposal; (d) such Tendering
Stockholder will not, and will not permit any investment banker, attorney or
other adviser or representative of such Tendering Stockholder to, (i) directly
or indirectly solicit, initiate or encourage the submission of, any Takeover
Proposal or (ii) directly or indirectly participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal; and (e) the Tendering Stockholder will tender pursuant to
the Offer and not withdraw the Shares owned by such Tendering Stockholder. The
Stockholder Agreements terminate upon the earlier of (i) the Effective Time
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<PAGE>
and (ii) the valid termination of the Merger Agreement as set forth in the
Stockholder Agreements. In addition, Darrell J. Lowrance and Ronald G. Weber,
the only holders of Series "A" Preferred Stock, have agreed that their shares
of Series "A" Preferred Stock shall be redeemed by the Company at a redemption
price of $9.375 per share (which represents a net redemption price of $1.875
for each share into which the Series "A" Preferred Stock is convertible under
certain circumstances), effective immediately after the acceptance of Shares
for payment by Sub pursuant to the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board
The Company Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and determined unanimously that the Offer
and the Merger are advisable and fair to and in the best interests of the
stockholders of the Company and recommends that all stockholders of the
Company accept the Offer and tender all of their Shares pursuant to the Offer.
This recommendation is based in part upon an opinion (the "Fairness Opinion")
received by the Company from American Appraisal Associates, Inc. ("American
Appraisal") that the consideration to be received by the Company's
stockholders in the Offer and the Merger is fair to the stockholders from a
financial point of view. No limitations were imposed by the Board or
management of the Company on American Appraisal with respect to the
investigation made, or the procedures followed by it, in rendering the
Fairness Opinion. For purposes of its opinion, American Appraisal relied,
without independent verification, on the accuracy, completeness and fairness
of all financial and other information reviewed by it. The Fairness Opinion
contains a description of the factors considered, the assumptions made and the
scope of review undertaken by American Appraisal in rendering its opinion. THE
FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY THE COMPANY FROM AMERICAN
APPRAISAL IS ATTACHED AS ANNEX II TO THIS STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE IN ITS ENTIRETY. SHAREHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
(b) Background
On August 20, 1998, the Company engaged J P Morgan, a division of Chase
Securities Inc. ("J P Morgan") as its financial advisor to assist in exploring
potential strategic alternatives, particularly a sale or merger of the
Company. In September 1998, representatives of J P Morgan began contacting
potential strategic and financial partners to ascertain their interest in
pursuing an acquisition of, a merger with or an investment in the Company. In
October 1998, the Company and J P Morgan requested and received from several
parties, including Orbital Sciences Corporation ("Orbital"), non-binding
indication of interest letters that stipulated the basic terms upon which
these parties would be interested in exploring a potential acquisition of,
merger with or investment in the Company.
On November 23, 1998, Orbital sent a letter to J P Morgan which expressed
Orbital's interest in a potential merger with the Company and requested
additional time for due diligence. On December 21, 1998, Orbital informed J P
Morgan of its continued interest in a possible merger of the Company into
Orbital in an all-stock transaction. After consultation with the Company
Board, representatives of J P Morgan informed Orbital that the Company was
interested in the possible merger, pending negotiation of a definitive
agreement.
After several weeks of negotiations, including discussions of the
consideration to be received by the Company stockholders, Orbital informed J P
Morgan on January 7, 1999 that it would be willing to increase the value of
its merger proposal to a number of shares of Orbital stock having an implied
value of $7.30 (based upon Orbital's then current per share price) for each
Share.
On March 8, 1999, the Orbital board voted unanimously to approve the stock-
for-stock merger agreement and authorized the execution of the merger
agreement, subject to negotiation of remaining issues within the ranges
authorized by the Orbital board.
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On March 11, 1999, the Company Board voted unanimously to approve the
stock-for-stock merger agreement and authorized the execution of the merger
agreement, subject to negotiation of remaining issues within the ranges
authorized by the Company Board, and recommended that the Company stockholders
approve and adopt the merger agreement.
On the afternoon of March 11, 1999, the stock-for-stock merger agreement
and the other transaction documents were executed. Public disclosure of the
transaction was made prior to the opening of trading on Nasdaq on
March 12, 1999.
On August 18, 1999, Orbital management proposed changing the terms of the
merger agreement from a stock-for-stock merger to a cash-for-stock merger
valued at $7.30 per Share. On August 26, 1999, both the Orbital board and the
Company Board voted unanimously to approve the amended merger agreement and
the Company Board recommended that the Company stockholders approve and adopt
the amended merger agreement. On August 26, 1999, the parties executed the
amended merger agreement and other transaction documents. Public announcement
of the execution of the amended merger agreement was made on August 30, 1999.
On September 11, 1999, the Company mailed a proxy statement to its
stockholders recommending that, among other things, the stockholders vote for
approval and adoption of the amended merger agreement.
In September and subsequent to the mailing of the proxy statement,
Orbital's chief financial officer informed representatives of J P Morgan that
Orbital had been unsuccessful in its efforts to secure $150 million in
privately placed equity. Orbital's chief financial officer also informed
representatives of J P Morgan that Orbital would attempt to finance the
acquisition through its existing bank lines.
At a special meeting of the stockholders of the Company held on
October 12, 1999, the Company stockholders approved and adopted the amended
merger agreement.
Orbital was ultimately unsuccessful in securing the financing from its bank
group. The amended merger agreement contained a termination date of
December 23, 1999, on which date the Company informed Orbital that the amended
merger agreement had been breached and that the Company was terminating the
amended merger agreement effective as of December 27, 1999.
Following the termination of the Orbital transaction, the Company met with
several potential strategic and financial partners that had contacted the
Company on an unsolicited basis. Between February and July 2000, three
potential strategic partners and one potential financial partner contacted the
Company on an unsolicited basis, including the Parent.
On July 6, 2000, James R. Bazet, President and Chief Executive Officer of
Parent, contacted Darrell J. Lowrance, President and Chief Executive Officer
of the Company, to discuss the potential for a strategic business combination
between the two companies. Subsequently, Parent's financial advisor contacted
representatives of J P Morgan to request certain information for use by Parent
in assessing the possibility of a merger of the two companies. As a result of
these discussions, a mutual confidentiality agreement between the Company and
Parent was executed.
On July 28, 2000, Mr. Bazet, Mr. Lowrance and certain other Parent and
Company management team members met in Dallas, Texas to discuss the
possibility of a merger between the companies. Representatives of each company
presented an overview of its operations, markets, products, strategies, and
financial projections. At the conclusion of this meeting, senior management of
each company agreed that the strategic merits of a merger warranted further
discussion and it was agreed that the Company would provide Parent and its
advisers with additional financial and operating information to allow Parent
to formulate an offer to purchase all of the outstanding Shares of the
Company.
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<PAGE>
Between August 16 and August 29, representatives of the Company and Parent
had conducted several discussions concerning the possibility of an acquisition
transaction, including price, structure, timing, due diligence and Parent's
valuation analysis. Parent's senior management indicated that, subject to
satisfactory completion of due diligence, Parent would be willing to pay $8.25
per Share in cash for all of the outstanding Shares of the Company. Parent
indicated that any transaction would be conditioned on Parent obtaining
adequate financing. Parent also indicated that it would require that
Mr. Lowrance, and possibly other stockholders of the Company, enter into
agreements to support the transaction.
On August 30, during a regularly scheduled Company Board meeting,
representatives of J P Morgan presented Parent's offer to the Company Board.
At this meeting, the directors were informed of all prior discussions between
senior management of the Company and representatives of Parent as well as
discussions with other potential acquirers. In addition to the financial
merits of the offer by Parent, the Board discussed the strategic rationale for
the transaction, including but not limited to, the benefits to the Company
from access to Parent's Hong Kong buying office for electronic components,
Parent's ability to use the existing capacity at the Company's Mexican
facility, opportunities to leverage the Company's existing technology in
Parent's products and opportunities to use Parent's mass market retail
channels for distribution of the Company's products.
During the August 30 meeting, the Board also discussed the ability of the
Parent to obtain financing to complete the transaction and concluded, based on
the presentations of representatives of J P Morgan and senior management's
views, that such financing was likely to be obtainable. Additionally, the
Company Board concluded that it was extremely important that the pursuit of
the transaction not lead to any major disruptions at the Company, particularly
with regard to the significant new product rollouts that were well under way.
At the conclusion of the August 30 meeting, the Board recommended that
senior management of the Company and representatives of J P Morgan continue to
explore the possibility of completing a transaction with Parent at the
proposed $8.25 per Share price.
On September 11, 2000, the Company and Parent executed an Exclusivity
Agreement which, among other things, provided Parent with exclusive access to
non-public information concerning the Company until October 31, 2000 so that
Parent could complete its evaluation of an acquisition of the Company. The
agreement also contained the Company's agreement not to solicit, initiate or
encourage the submission of proposals by third parties for an acquisition of
the Company and provided for payment of certain Parent expenses by the Company
in the event the Company entered into a definitive agreement for an
alternative transaction on or prior to November 30, 2000.
From mid-September through mid-October, there were a series of meetings
held between representatives of the Company and Parent during which Parent
continued its due diligence investigation of the Company and representatives
of Parent gathered information about the Company to be used in connection with
securing Parent's financing. Both parties agreed that the Company's
participants in these due diligence meetings would be limited to Mr. Lowrance,
Ronald G. Weber, the Company's Executive Vice President of Engineering and
Manufacturing, and Douglas J. Townsdin, the Company's Vice President of
Finance and Chief Financial Officer, in order to preserve confidentiality and
not disrupt the Company's operations. These meetings were held at an off-site
location in Tulsa, Oklahoma. As part of Parent's due diligence,
representatives of Parent met with the Company's financial auditors and
visited the Company's manufacturing facility in Ensenada, Mexico.
On October 11, 2000, counsel to Parent delivered to counsel for the Company
a draft merger agreement and draft form of stockholder agreement to be
executed by certain stockholders of the Company, including Mr. Lowrance. On
October 19, 2000, counsel to the Company transmitted comments to the draft
merger agreement to counsel for Parent.
On October 25, 2000, the board of directors of Parent held a regularly
scheduled meeting at which Parent's financial and legal advisors gave
presentations relating to the terms of the proposed merger agreement and
stockholder agreement, the status of due diligence and the status of
discussions with potential financing sources.
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After discussion, Parent's board of directors approved the Offer, the Merger
and the proposed merger agreement and stockholder agreement and authorized
senior management to negotiate the final terms of the transaction agreements
and to proceed with efforts to secure the necessary financing.
In late October, legal advisors to Parent and the Company held discussions
to negotiate the terms of the proposed merger agreement. From late October
through mid-December, the Company continued to supply due diligence
information to Parent to allow Parent to complete its due diligence
investigation. During this period, Parent pursued discussions with various
financing sources. On December 7, 2000, at a regularly scheduled meeting, the
Parent board of directors reviewed with Parent's senior management the status
of the transaction and Parent's progress towards securing financing in the
form of a senior credit facility and subordinated note financing.
On December 22, 2000, Parent delivered to senior management of the Company
copies of executed financing term sheets for a senior credit facility as well
as subordinated financing.
Between December 26, 2000 and January 4, 2001, the legal advisors of Parent
and the Company negotiated the final terms of the merger agreement and the
stockholder agreements.
In the morning of January 4, 2001, the Company Board met to consider
Parent's offer to purchase the Shares for $8.25 per Share in cash. The Company
Board reviewed the terms of the Merger Agreement and received the opinion of
American Appraisal that the offer price of $8.25 per Share was fair to the
stockholders of the Company from a financial point of view. Thereafter, the
Company Board unanimously approved the Merger Agreement, the Offer and the
Merger, determined that the terms of the Offer and the Merger are fair to, and
in the best interests of, the Company's stockholders and recommended that the
stockholders of the Company accept the Offer and tender their Shares pursuant
to the Offer. In the late afternoon of the same day, Parent and the Company
executed the Merger Agreement and Mr. Lowrance, Mr. Weber, Willard P. Britton
and Peter F. Foley executed Stockholder Agreements. Public disclosure of the
execution of the Merger Agreement was made by joint press release on the
morning of January 5, 2001, prior to the opening of trading of Shares on
Nasdaq.
(c) Reasons for Recommendation
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders accept the Offer and tender their Shares
pursuant to the Offer, the Board considered a number of factors, including the
following:
(i) the Board's familiarity with, and information provided by the
Company's management as to, the business, financial condition, results of
operations, current business strategy and future prospects of the Company,
the nature of the markets in which the Company operates, the Company's
position in such markets, the historical and current market prices for the
Shares;
(ii) the terms of the Merger Agreement, including the proposed
structure of the Offer and the Merger involving an immediate cash tender
offer followed by a merger for the same consideration;
(iii) that the per share price contemplated by the Merger Agreement, at
$8.25, represented an approximate 165% premium over the average closing
price of the Company's public stock market price for the 25 trading days
ended January 4, 2001;
(iv) the oral presentation of American Appraisal at the January 4,
2001 Board meeting, confirmed in writing, that the consideration to be
received by the Company's stockholders pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view; a copy of the
American Appraisal written opinion is attached to this Statement as Annex
II and is incorporated herein by reference; such opinion should be read in
its entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and limitations of the review
undertaken by American Appraisal;
(v) that the Merger Agreement permits the Company to furnish nonpublic
information to, and to participate in negotiations with, any third party
that has submitted a Superior Proposal if a majority of the
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members of the Board determines in its reasonable good faith judgment,
after consultation with independent counsel to the Company, that failure to
take such actions would cause the Board to violate its fiduciary duties to
its stockholders under applicable law, and the Merger Agreement permits the
Company Board to terminate the Merger Agreement upon three days' prior
written notice to Parent in order to accept a proposal which the Board has
determined is a Superior Proposal and the Board has concluded in good
faith, after consultation with independent counsel, that its fiduciary
duties would require it to accept such Superior Proposal; provided,
however, that, among other things, the Company has paid the termination fee
and expenses described below within one business day following such
termination;
(vi) the termination provisions of the Merger Agreement, which under
certain circumstances could obligate the Company to pay a $1,500,000
termination fee to Parent and/or to reimburse Parent for its actual
expenses (not to exceed $500,000) incurred in connection with the
transaction, and the Board's belief that such fees and expense
reimbursement provisions would not deter a higher offer;
(vii) strategic considerations, such as the Company's competitive
position and the need for additional capital to support further growth by
the Company; and
(viii) alternatives to the proposed sale of the Company, including
seeking additional proposals from other parties and accepting the
uncertainties associated therewith (including with respect to timing,
valuation and the likelihood of completion of any such proposals that might
be received) and continuing to maintain the Company as an independent
public corporation and not engaging in any extraordinary transaction.
The foregoing discussion addresses the material information and factors
considered by the Board in its consideration and approval of the Offer and the
Merger. In view of the variety of factors and the amount of information
considered, the Board did not find it practicable to provide specific
assessments of, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination or determine that any factor
was of particular importance. The determination to recommend that stockholders
accept the Offer and tender their Shares pursuant to the Offer was made after
consideration of all of the factors taken as a whole. In addition, individual
members of the Board may have given different weights to different factors.
To the best of the Company's knowledge, all of its executive officers and
directors currently intend to tender all Shares which are held of record or
beneficially owned by such persons pursuant to the Offer, other than Shares,
if any, held by such persons which, if tendered, could cause such person to
incur liability under the provisions of Section 16(b) of the Exchange Act.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Except as described below, neither the Company nor any person acting on its
behalf has employed, retained or agreed to compensate any other person to make
solicitations or recommendations to stockholders of the Company concerning the
Offer.
The Company retained J P Morgan to act as its financial advisor to assist
in exploring potential strategic alternatives, particularly the sale or merger
of the Company. Pursuant to a Letter Agreement between the Company and J P
Morgan dated August 20, 1998, as amended by the Letter Agreement between the
Company and J P Morgan dated March 7, 2000 (as amended, the "Letter
Agreement"), the Company agreed to pay J P Morgan as follows: (a) an advisory
fee of $100,000, payable $25,000 upon the Company's execution of the August
20, 1998 Letter Agreement and $75,000 upon the signing of a definitive merger
agreement; plus (b) if one or more transactions are consummated, a success fee
based upon the value of the transaction, subject to a minimum success fee of
$750,000. The value of the transaction is defined in the Letter Agreement as
the total amount of cash plus the fair market value (upon the consummation of
the transaction) of all other property paid or payable directly or indirectly
to the Company and its security holders by a buyer in connection with each
transaction or a transaction related thereto (including the present value of
all earnouts or other forms of contingent payments or amounts paid in escrow,
the amounts of any indebtedness, capital leases, preferred stock obligations
or guarantees on the balance sheet of the Company or directly or indirectly
assumed, retired or
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<PAGE>
defeased in connection with each transaction and amounts paid by the buyer to
holders of any warrants or convertible securities of the Company and to
holders of any options or stock appreciation rights issued by the Company,
whether or not vested). The success fee will become payable by the Company
when control of more than 10% of the Shares changes hands. If the transactions
contemplated by the Merger Agreement are consummated, J P Morgan will receive
a success fee equal to $750,000.
The Company also agreed to reimburse J P Morgan for its reasonable out-of-
pocket expenses (including, without limitation, professional and legal fees
and disbursements) incurred in connection with its engagement with respect to
the services to be rendered by it, and to indemnify J P Morgan against certain
liabilities in connection with its engagement under the Letter Agreement.
The Company retained American Appraisal to provide the Fairness Opinion in
connection with the proposed Offer and Merger. Pursuant to a Letter Agreement,
dated November 29, 2000, between the Company and American Appraisal, the
Company agreed to pay American Appraisal a fee of $50,000 as follows: (i)
$25,000 upon public announcement of the Offer; and (b) $25,000 upon completion
of the Offer. The Company has also agreed to reimburse American Appraisal for
its reasonable expenses incurred in connection with the engagement, including
expenses of legal counsel. In the event the Offer is not completed, the
Company has agreed to pay American Appraisal an amount that will compensate
American Appraisal for the services performed under the Letter Agreement to
the effective date of the termination of the Offer (such compensation to be
based upon the hourly rate of the respective consultants involved which rates
will range from $200 to $325 per hour) plus reasonable expenses; provided,
however, in no event may the total of such hourly rates exceed $25,000. The
Company has also agreed to indemnify American Appraisal and its directors,
employees, agents and controlling persons for certain costs, expenses and
liabilities to which it may be subjected arising out of or related to its
engagement.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
To the best of the Company's knowledge, no transactions in the Shares have
been effected during the last 60 days by the Company or any executive officer,
director, affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in Item 4 above, no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger, reorganization,
or liquidation involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary thereof; or (iii) a material change in the present dividend
rate or policy, or indebtedness or capitalization of the Company.
ITEM 8. ADDITIONAL INFORMATION.
(a) Section 14(f) Information Statement. The Information Statement
attached as Annex I hereto is being furnished in connection with the possible
designation by Sub, pursuant to the Merger Agreement, of certain persons to be
appointed to the Board other than at a meeting of the Company's stockholders.
(b) Section 203 of the Delaware General Corporation Law. As a Delaware
corporation, the Company is subject to Section 203 of the DGCL. Under Section
203, "business combinations" between a Delaware corporation whose stock is
listed on a national securities exchange, authorized for quotation on the
NASDAQ stock market or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
time that such a stockholder became an interested stockholder, unless, among
other possible exemptions, the business combination or transaction in which
the stockholder became an interested stockholder was approved by the board of
directors of the corporation before such other party to the business
combination became an interested stockholder. The term "business combination"
is defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions
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with an interested stockholder involving the sale or other disposition of
assets of the corporation having a market value of 10% or more of the
aggregate market value of the assets or stock of the corporation and
transactions which increase an interested stockholder's proportionate
ownership of stock. The term "interested stockholder" is defined generally as
a stockholder who, together with affiliates and associates, owns 15% or more
of a Delaware corporation's outstanding voting stock. An owner includes a
person who has the right to acquire such stock, including upon the exercise of
an option or who has the right to vote such stock pursuant to an agreement
(but not if such right arises from certain revocable proxies).
In accordance with the Merger Agreement and pursuant to Section 203, at its
meeting on January 4, 2001, the Board unanimously approved the Offer and the
Merger and determined to make the restrictions of Section 203 inapplicable to
the Offer and the Merger.
(c) Section 253 of the Delaware General Corporation Law. Under Section 253
of the DGCL, if Sub acquires, pursuant to the Offer or otherwise, at least 90%
of the outstanding Shares, Sub will be able to effect the Merger after the
consummation of the Offer without a meeting of the Company's stockholders.
However, if Sub does not acquire at least 90% of the outstanding Shares
pursuant to the Offer or otherwise, a meeting of the Company's stockholders
will be required under the DGCL to effect the Merger. If the Sub does not
acquire at least 90% of the outstanding Shares, the vote of 63 1/3 percent of
the outstanding voting stock of the Company, which will include shares
acquired by Sub, must be voted in favor of the adoption of the Merger
Agreement for the Merger to be consummated.
ITEM 9. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
No. Description
--------- -----------
<C> <S>
(a)(1)(A) Offer to Purchase, dated January 16, 2001 (incorporated herein by
reference to Exhibit (a)(1)(A) of Schedule TO filed by Parent on
January 16, 2001) (the "Schedule TO").
(a)(1)(B) Letter of Transmittal (incorporated herein by reference to Exhibit
(a)(1)(B) of Schedule TO).
(a)(1)(C) Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14-C-1 thereunder (incorporated by
reference herein and attached hereto as Annex I).
(a)(1)(D) Letter to Stockholders of the Company dated January 16, 2001.
(a)(1)(E) Fairness Opinion of American Appraisal Associates, Inc. dated
January 4, 2001 (incorporated by reference herein and attached
hereto as Annex II).
(a)(1)(F) Joint Press release issued by Parent and the Company on
January 5, 2001 (incorporated herein by reference to
Exhibit (a)(1)(H) of Schedule TO).
(e)(1) Agreement and Plan and Merger, dated as of January 4, 2001, among
the Parent, the Sub and the Company (incorporated herein by
reference to Exhibit 2.1 to the Current Report on Form 8-K of the
Company filed on January 8, 2001).
(e)(2) Form of Stockholder Agreement executed by Darrell J. Lowrance and
Ronald G. Weber (incorporated herein by reference to Exhibit (d)(2)
of Schedule TO).
(e)(3) Form of Stockholder Agreement executed by Willard P. Britton and
Peter F. Foley, III (incorporated herein by reference to
Exhibit (d)(3) of Schedule TO).
(e)(4) Confidentiality Agreement between Parent and the Company executed in
July 2000 (incorporated herein by reference to Exhibit (d)(4) of
Schedule TO).
(e)(5) Exclusivity Agreement between Parent and the Company dated
September 11, 2000 (incorporated herein by reference to Exhibit
(d)(5) of Schedule TO).
</TABLE>
17
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
LOWRANCE ELECTRONICS, INC.
Dated: January 16, 2001
By:/s/ Darrell J. Lowrance
--------------------------------
Name:Darrell J. Lowrance
Title:President and Chief Executive
Officer
18
<PAGE>
ANNEX I
Lowrance Electronics, Inc.
12000 East Skelly Drive, Tulsa, Oklahoma 74128
Information Statement Pursuant to Section 14(f)
of the Securities Exchange Act of 1934
and Rule 14f-1 Thereunder
This information statement ("Information Statement") is being mailed on or
about January 16, 2001 as part of the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") to holders of the Common Stock, par
value $0.10 per share ("Shares"), of Lowrance Electronics, Inc. (the
"Company"). Capitalized terms used and not otherwise defined herein shall have
the respective meanings set forth in the Schedule 14D-9. You are receiving
this Information Statement in connection with the possible election of persons
designated by Blue Marlin, Inc. (the "Sub"), a Delaware corporation and wholly
owned subsidiary of Cobra Electronics Corporation (the "Parent").
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action. The information
contained in this Information Statement concerning Parent and the Sub has been
furnished to the Company by Parent, and the Company assumes no responsibility
for the accuracy, completeness or fairness of any such information.
GENERAL INFORMATION REGARDING THE COMPANY
General
At the close of business on January 3, 2001, there were 3,768,796 Shares
issued and outstanding, which is the only class of securities outstanding
having the right to vote for the election of the Company's directors, each of
which entitles its record holder to one vote.
Sub Designees
On January 4, 2001, the Company, the Parent, and the Sub entered into an
Agreement and Plan of Merger (the "Merger Agreement") and, in accordance with
the terms and subject to the conditions therein, (i) Sub commenced a tender
offer (the "Offer") for any and all outstanding Shares of the Company at a
price of $8.25 per Share, net to the seller in cash, without interest thereon
(the "Offer Price") and (ii) at the effective time of such Merger (the
"Effective Time"), Sub will be merged with and into the Company (the
"Merger").
The Merger Agreement provides that promptly after payment by Sub for the
Shares tendered pursuant to the Offer in accordance with the Merger Agreement,
Sub shall be entitled to designate at its option up to that number of
directors (the "Sub Designees"), rounded to the nearest whole number, of the
Company's Board of Directors (the "Board") as will make the percentage of the
Company's directors designated by Sub equal to the percentage of the aggregate
voting power of the Shares held by Parent or its Subsidiaries (as defined in
the Merger Agreement). At Parent's request, the Company will either increase
the size of the Board or secure the resignations of the number of incumbent
directors necessary to enable the Sub Designees to be elected. Notwithstanding
the foregoing, until the Effective Time, the Company and Parent shall retain
as members of the Board at least two directors who were directors of the
Company on the date of the Merger Agreement and who are not officers of the
Company (the "Independent Directors"). Pursuant to the Merger Agreement, in
the event the Sub Designees are elected or appointed directors after the
payment for the Shares and prior to the Effective Time, the affirmative vote
of a majority of the Independent Directors shall be required, and alone shall
be sufficient, to take action by the Company to (i) amend or terminate the
Merger Agreement, (ii) exercise or waive any of the Company's rights or
remedies under the Merger Agreement or the Company Charter or By-Laws, (iii)
I-1
<PAGE>
extend the time for performance of Parent's and Sub's respective obligations
under the Merger Agreement, or (iv) approve any other consent or action by the
Company with respect to the Merger Agreement.
As of the date of this Information Statement, Sub has not determined who
will be the Sub Designees. However, the Sub Designees will be selected from
the directors and executive officers of Parent listed below upon the purchase
by Sub pursuant to the Offer of the Shares representing not less than 63 1/3
of the outstanding Shares on a fully diluted basis.
The following table sets forth the name, present principal occupation or
employment and business address and material occupations or employment for the
past five years of each of the directors and executive officers for each
person who may be designated by Sub to the Company Board as Sub Designees.
Unless otherwise indicated below, each individual listed below has a business
address of 6500 West Cortland Street, Chicago, Illinois 60707. Each individual
listed below is a citizen of the United States.
Directors and Executive Officers of Parent
<TABLE>
<CAPTION>
Principal Occupation or Employment and
Name Five-Year Employment History
---- --------------------------------------
<C> <S>
James R. Bazet................... President and Chief Executive Officer of Parent,
January 1998 to present; Executive Vice President and
Chief Operating Officer of Parent, July 1997 to
December 1997; President and Chief Executive Officer,
Ryobi Motor Products Floor Care Division, 1995-1997;
President and Chief Executive Officer, Code-A-Phone
Corporation, 1991-1994. Director since May 1997.
William P. Carmichael............ Director of Opta Food Ingredients, Inc. since 1999.
Senior Vice President & Chief Accounting Officer, Sara
Lee Corporation, 1991-1993; retired 1993; Senior Vice
President and Chief Financial Officer, Beatrice
Company, 1988-1990. Director since 1994.
Gerald M. Laures................. Vice President--Finance of Parent, since March 1994;
Corporate Secretary of Parent, 1989 to present;
Corporate Controller of Parent 1988-1994. Director
since 1994.
Anthony A. Mirabelli............. Senior Vice President, Marketing and Sales of Parent,
February 1997 to present; Vice President of Marketing,
Uniden America Corporation, 1992-1997; Vice President,
Marketing of Parent, 1989-1992.
</TABLE>
The Parent has informed the Company that each of the executive officers of
the Parent and the Sub listed above has consented to act as a director of the
Company, if so designated. If necessary, Sub may choose additional or other
Sub Designees, subject to the requirements of Rule 14f-1.
None of such executive officers (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any of
the directors or executive officers of the Company or (iii) to the best
knowledge of the Parent, beneficially owns any securities (or rights to
acquire any securities) of the Company. The Company has been advised by the
Parent that, to the best of the Parent's knowledge, none of such executive
officers has been involved in any transaction with the Company or any of its
directors, executive officers or affiliates which are required to be disclosed
pursuant to the rules and regulations of the Commission, except as may be
disclosed herein or in the Schedule 14D-9.
The Merger Agreement provides that, upon the Effective Time, the directors
of Sub will be the directors of the surviving corporation.
I-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Directors
The directors of the Company are divided into three classes, designated as
Class I, Class II, and Class III. Each class consists of one-third of the
directors constituting the entire Board. There are currently no Class II
directors. The directors, upon being elected, all serve three-year terms, and
the term of each member of the same class expires at the same time. At each
Annual Meeting of Stockholders, directors to replace those whose terms expire
at such Annual Meeting are elected for a three-year term.
The Compensation and Nominating Committee has not nominated any candidates
to replace Robert F. Biolchini, who resigned December 8, 1999, and Alpo F.
Crane, who resigned February 1, 2000, for election as Class II Directors.
Willard P. Britton and Ronald G. Weber, the Class I directors, and Darrell J.
Lowrance and Peter F. Foley, III, the Class III directors, will continue to
serve as directors pursuant to their prior elections.
Class I Directors
(Term Expires December 2002)
WILLARD P. BRITTON. Mr. Britton, age 77, has been a director of the Company
since December 1985. Mr. Britton is a retired Vice President and Controller of
Knight Ridder, Inc., a corporation engaged primarily in communications.
RONALD G. WEBER. Mr. Weber, age 56, has served the Company as its Executive
Vice President of Engineering and Manufacturing since July 2000, and prior
thereto as its Senior Vice President of Engineering since 1980 and as its
Executive Vice President of Technology and Engineering since December 1993.
Mr. Weber has also been a director since October 1992. Mr. Weber joined the
Company in 1976, and prior to serving in his current position, he held several
technical positions with the Company.
Class III Directors
(Term Expires December 2001)
DARRELL J. LOWRANCE. Mr. Lowrance, age 62, a founder of the Company, has
been with the Company since its formation in 1957. He currently serves as
President and Chief Executive Officer and a director of the Company, positions
he has held since 1964. During 1983 and 1984, Mr. Lowrance served as President
of the American Fishing Tackle Manufacturer's Association (AFTMA). In July,
1988, Mr. Lowrance returned to the Board of Directors of AFTMA, a position he
previously held from 1978 through 1986. Additionally, in April, 1989, Mr.
Lowrance was elected as a director of the National Association of Marine
Products and Services.
PETER F. FOLEY, III. Mr. Foley, age 64, has served as a director since
October 1991 and has been President of Boone Bait Company, a company engaged
in the manufacture of saltwater fishing lures, since 1978. For more than 10
years, Mr. Foley has served on numerous boards related to the marine industry,
including the American Fishing Tackle Manufacturer's Association (AFTMA).
Further, he has been awarded government grants, as an industry expert in
international marketing of fishing tackle products, to study and report on key
opportunities for the industry.
Executive Officers
All officers of the Company are elected annually and serve at the pleasure
of the Board. Information concerning the following executive officers is set
forth above under "Directors": President and Chief Executive Officer, Darrell
J. Lowrance; and Executive Vice President of Engineering and Manufacturing,
Ronald G. Weber.
Mark C. McQuown, age 49, has served as Vice President of Sales since
February 2000. Prior thereto, Mr. McQuown was Director of Sales since August
1997. Mr. McQuown joined the Company in June 1984, as a Zone
I-3
<PAGE>
Sales Manager and was subsequently promoted to Regional Sales Manager in June
1988, Director of International Sales in February 1995 and Director of
International, Government and Industrial Sales in June 1996.
Bob G. Callaway, age 57, has served as Vice President of Marketing since
March 2000. Mr. Callaway joined the Company in August 1987 as Manager of Video
Communications and was promoted to Director of Video Communications in October
1993. He subsequently joined Addvantage Media as Vice President-Field Service
Group in March 1997. He worked as a freelance marketing consultant from
October 1998 and in July 1999, joined T.D. Williamson as Manager of Marketing
Relations before returning to the Company in March 2000.
Jane M. Kaiser, age 40, has served as Vice President of Customer Operations
since February 2000. Prior thereto, Ms. Kaiser was Director of Customer/Sales
Service since August 1997. Ms. Kaiser joined the Company in May 1995 as a Cost
Productivity Analyst and was subsequently promoted to Director of Cost
Productivity in December 1995 and to Manager of Customer Service in June 1997.
Douglas J. Townsdin, age 37, has served as Vice President of Finance and
Chief Financial Officer since March 2000. Prior thereto, Mr. Townsdin was a
Senior Manager with Arthur Andersen LLP.
H. Wayne Cooper, age 55, has served as Secretary of the Company since
February 15, 2000. Prior thereto, Mr. Cooper was Assistant Secretary of the
Company since December 1999. Mr. Cooper has been a partner with Doerner,
Saunders, Daniel & Anderson, LLP since 1982.
I-4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth, as of October 31, 2000, the number and
percentages of outstanding Shares beneficially owned by all persons known by
the Company to own more than 5% of the Company's Common Stock, by each director
of the Company, and by all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Shares
------------------- -------------------- -------------
-------------------------------------------------------------------------------
<S> <C> <C>
Darrell J. Lowrance (1) 1,907,423 (2) 50.6%
12000 East Skelly Drive
Tulsa, OK 74128-2486
-------------------------------------------------------------------------------
Willard P. Britton (1) 14,653 (Direct) *
1571 Breakwater Terrace
Hollywood, FL 33019
-------------------------------------------------------------------------------
Ronald G. Weber (1) 71,745 (3) 1.9%
12000 East Skelly Drive
Tulsa, OK 74128-2486
-------------------------------------------------------------------------------
Peter F. Foley, III (1) 54,183 (Direct) 1.4%
Boone Bait Company
1501 Minnesota Avenue
Winter Park, FL 32790
-------------------------------------------------------------------------------
Estate of James L. Knight 336,754 (Direct) 8.9%
c/o Northern Trust Bank of Florida,
N.A.
700 Brickell Avenue
Miami, FL 33131-2881
-------------------------------------------------------------------------------
Don C. Whitaker 296,900 (4) 7.9%
23 Beechwood
Irvine, CA 72604
-------------------------------------------------------------------------------
All directors and officers as a group 2,048,104 (5) 54.3%
(including those listed above, five
persons
total)
</TABLE>
* One-half of one percent or less
(1) Director
(2) Includes 180,500 Shares held indirectly in an individual retirement
account with Mr. Lowrance having the sole voting and investment power,
143,908 Shares held of record by the Trustees of the Lowrance Savings
Plan and Trust for Mr. Lowrance, who is entitled to vote such Shares
and 3,725 owned indirectly by an immediate family member.
(3) Includes 33,000 Shares held of record by the Trustees of the Lowrance
Savings Plan and Trust for Mr. Weber, who is entitled to vote such
Shares.
(4) Of the 296,900 Shares identified as being beneficially owned by Don C.
Whitaker, 25,000 Shares are owned by Don C. Whitaker, Inc. and 15,800
Shares are owned by Don C. Whitaker, Jr.
(5) All voting securities owned by officers and directors are owned
directly except for 361,133 Shares.
Darrell J. Lowrance and James L. Knight (deceased) entered into a
Shareholders' Agreement dated December 22, 1978, which provides that, except
for sales in a public offering, neither party may sell his Shares without
offering the Company the right of first refusal at the same price offered by a
third party, payable in eight
I-5
<PAGE>
equal annual payments, including annual interest at 8%. If the Company does
not exercise the right of first refusal and purchase the Shares, then the
other individual party has the right to purchase such stock at the same price
and under the same payment terms. On October 8, 1986, a First Amendment to the
Shareholders' Agreement was entered into between Messrs. Knight and Lowrance
which allowed them, after the initial public offering of the Company's stock
in 1986, to sell their Shares in the public market pursuant to Rule 144 and
permits charitable donations of their Shares within certain limits as to the
total number of Shares which may be donated to one charitable institution
without first offering such Shares to the Company or the other party. The
right of first refusal terminates only when either (a) Mr. Lowrance's stock
ownership in the Company is less than 15% of the Company's outstanding stock,
or (b) Mr. Knight's stock ownership in the Company is less than 10% of the
Company's outstanding stock, exclusive of any stock donated by either of them
to a charitable institution. Additionally, Messrs. Lowrance and Knight entered
into an Agreement on October 8, 1986, with the Company whereby they agreed not
to sell any of their Shares privately, except as permitted under the First
Amendment to Shareholders' Agreement. As of October 31, 2000, 840,460 Shares
were sold in the public market by the Estate of James L. Knight pursuant to
Rule 144 since May of 1992 when the Estate first elected to sell stock owned
by the Estate as permitted by the Agreement and First Amendment to
Shareholders' Agreement and as allowed under Rule 144. Additionally, in May
1993, 68,966 Shares were sold by the Estate of James L. Knight to the Company
and retired, and 34,483 Shares were sold by the Estate of James L. Knight
directly to Mr. Lowrance. Except for the sales made by the Estate of James L.
Knight pursuant to Rule 144 and the sales made by the Estate of James L.
Knight to the Company and Mr. Lowrance, neither Mr. Knight nor Mr. Lowrance
has sold nor made a gift of any stock in the Company pursuant to the
aforementioned Agreement and First Amendment to Shareholders' Agreement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons holding more than 10% of a registered class of the
Company's equity securities to file with the Securities and Exchange
Commission and any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted (i) initial reports of ownership,
(ii) reports of changes in ownership and (iii) annual reports of ownership of
Shares and other equity securities of the Company. Such directors, officers
and 10% stockholders are also required to furnish the Company with copies of
all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
2000, the Company believes that all Section 16(a) reporting requirements
related to the Company's directors and executive officers were timely filed
during 2000.
GENERAL INFORMATION WITH RESPECT
TO THE BOARD OF DIRECTORS
The Board met six times during the fiscal year ended July 31, 2000. The
Board has an Audit Committee and a Compensation and Nominating Committee.
Committees of the Board
Audit Committee. The Audit Committee is composed of Willard P. Britton
(Chairman) and Peter F. Foley, III. The Audit Committee held two meetings
during the Company's 2000 fiscal year. All members attended the meetings. The
Audit Committee meets on a scheduled basis with the Company's independent
public accountants and is available to meet at the request of the Company's
independent public accountants. The Audit Committee reviews the Company's
accounting policies, internal controls, and other accounting and auditing
matters; considers the qualifications of the Company's independent public
accountants; makes a recommendation to the Board as to the engagement of an
independent public accountant; and reviews the letter of engagement and
statement of fees relating to the scope of the annual audit and special audit
work which may be recommended or required by the independent public
accountants.
I-6
<PAGE>
Compensation and Nominating Committee. The Compensation and Nominating
Committee is composed of Willard P. Britton and Peter F. Foley, III
(Chairman), each a non-employee director. The Compensation and Nominating
Committee held four meetings during the Company's 2000 fiscal year at which
all members attended. The Committee reviews the nature and amount of
compensation of the officers of the Company and recommends changes with
respect thereto, including the Company's Executive Bonus Plan, 1986 Stock
Option Plan, and the 1989 Stock Option Plan, and recommends the nominees for
directors. The Committee will consider qualified director candidates submitted
to it by other directors, employees, or stockholders. As a prerequisite to
consideration, each recommendation must be accompanied by biographical
material of the proposed candidate, fully disclosing the candidate's
qualifications and demonstrated sound business judgment, as well as an
indication that the proposed candidate would be willing to serve as a
director, if elected. In order for a candidate recommended by a stockholder to
be considered as a nominee at the Annual Meeting to be held in 2001, the name
of such candidate, together with the written description of the candidate's
qualifications, must be received by the Secretary of the Company prior to
August 10, 2001.
There was no incumbent director who failed to attend at least 75% of the
aggregate number of meetings of the Board and Committees upon which they sit.
There are no family relationships between any director or executive officer of
the Company.
DIRECTORS' COMPENSATION
Each director receives $12,000 per year compensation and an additional fee
of $1,000 for each meeting of the Board and $750 for each Committee meeting
attended. All directors are reimbursed for certain reasonable out-of-pocket
expenses incurred in attending meetings of the Board or Committee meetings.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth the aggregate
cash compensation earned by the executive officers listed for services
rendered in all capacities to the Company for the fiscal year ended July 31,
2000:
<TABLE>
<CAPTION>
(1) (2) (3)
Name of Individual/Principal Other Annual All
Position Year Salary Bonus Compensation Other
---------------------------- ---- -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Darrell J. Lowrance............... 2000 $399,200 $108,000 -- $31,200
President and Chief 1999 382,000 249,000 -- 30,600
Executive Officer 1998 382,000 -- -- 30,300
Ronald G. Weber................... 2000 217,000 59,200 -- 25,300
Executive Vice 1999 208,000 92,000 -- 30,600
President of 1998 208,000 -- -- 30,686
Engineering and
Manufacturing
Douglas J. Townsdin (4)........... 2000 150,000 16,800 -- --
Vice President of 1999 -- -- -- --
Finance and Chief 1998 -- -- -- --
Financial Officer
Mark C. McQuown................... 2000 139,700 34,100 -- 9,600
Vice President of Sales 1999 126,600 37,300 -- 3,522
1998 100,100 -- -- 2,482
Bob G. Callaway (5)............... 2000 150,000 15,100 -- --
Vice President of 1999 -- -- -- --
Marketing 1998 -- -- -- --
Mark C. Wilmoth (6)............... 2000 107,600 -- -- 38,691
Former Vice President 1999 145,000 64,000 -- 9,010
of Finance and 1998 145,000 -- -- 8,596
Treasurer
Steven L. Schneider (7)........... 2000 119,600 -- -- 114,391
Former Vice President 1999 163,000 47,000 -- 9,600
Of Sales and Marketing 1998 163,000 -- -- 9,313
</TABLE>
I-7
<PAGE>
--------
(1) The Company's Executive Bonus Plan for fiscal year 2000 provided for a
performance bonus pool measured entirely on the basis of the Company's
pretax, prebonus earnings compared to budgeted pretax, prebonus earnings.
This bonus pool was to be divided, based on certain predetermined
percentages, between the Company's President, five Vice Presidents, and
certain other key employees. In order to earn any performance bonus, it
was necessary for pretax, prebonus income to exceed $1,067,000, which the
Company did and accordingly a performance bonus pool of $185,000 was
earned and paid in October 2000 to those officers and key employees who
earned a performance bonus. The Executive Bonus Plan for fiscal year 2000
also provided for discretionary bonuses for executive officers, except the
President, and certain other key employees, granted at the recommendation
of the President on the basis of individual performance not to exceed 15%
of their respective salaries. The President exercised his right to
recommend discretionary bonuses for executive officers and certain key
employees of the Company to the Compensation and Nominating Committee of
the Board. Accordingly, certain discretionary bonuses aggregating $124,000
were recommended by the Compensation and Nominating Committee and approved
by the Board for payment in October 2000. The Company paid an aggregate of
$309,000 in bonuses in October 2000 pursuant to the Company's 2000
Executive Bonus Plan. The aggregate maximum amount payable pursuant to the
Company's 2000 Executive Bonus Plan, exclusive of discretionary bonuses,
was limited to $1,000,000.
(2) The 2000 remuneration described in other annual compensation includes the
cost to the Company of benefits furnished to the executive officers,
including premiums for life and health insurance, personal use of Company
automobiles, and other personal benefits provided to such individuals that
are extended in connection with the conduct of the Company's business.
During 2000, 1999 and 1998, no executive officers received other
compensation in excess of 10% of such officer's cash compensation.
(3) Other long-term compensation resulted from contributions to the Lowrance
Savings Plan and Trust Number 1 on behalf of the listed executive
officers. Also included are director's fees of $19,000, $21,000, and
$21,000 paid to Mr. Lowrance and $19,000, $21,000 and $21,000, paid to Mr.
Weber in 2000, 1999 and 1998, respectively. Also included with respect to
Mr. Wilmoth and Mr. Schneider are payments in accordance with the terms of
their respective employment and severance agreements as described in Notes
(6) and (7) below.
(4) Mr. Townsdin's salary is presented on an annualized basis. His actual
salary earned since joining the Company on March 6, 2000 was $60,600. All
other compensation is presented on an as-earned basis.
(5) Mr. Callaway's salary is presented on an annualized basis. His actual
salary earned since joining the Company on March 27, 2000 was $51,600. All
other compensation is presented on an as-earned basis.
(6) Mr. Wilmoth resigned as an officer on February 9, 2000. All other
compensation includes $33,500 paid in accordance with the terms of Mr.
Wilmoth's employment and severance agreement.
(7) Mr. Schneider's association with the Company ended on December 29, 1999.
All other compensation includes $110,200 paid in accordance with the terms
of Mr. Schneider's employment and severance agreement. $58,300 will be
paid in accordance with the terms of Mr. Schneider's employment and
severance agreement during fiscal 2001.
Employment and Severance Arrangements. The Company entered into employment
agreements with the following four executive officers of the Company in April
2000: Bob G. Callaway, Mark C. McQuown, Douglas J. Townsdin and Jane M.
Kaiser. The initial term of these employment agreements, all of which are
substantially identical, runs for a period of 24 months. Each agreement has a
renewal term of an additional 24 months unless proper notice (as defined in
the employment agreement) is given prior to the expiration of the initial term
by either party. Under the terms of the employment agreements, if the
employment of any executive is terminated other than for "cause" (as defined
in the employment agreement), then each such executive would be entitled to
payment of their salary in accordance with the Company's standard payroll
practices for the remainder of the initial term of the agreement or a period
of twelve months, whichever is longer. If the employment of the executive is
terminated upon a change of control of the Company (as defined in the
employment agreement), then each such executive would be entitled to a lump
sum payment equal to 24 months of their salary. In accordance with the salary
recommendations of the Compensation Committee, as of November 13, 2000 the
I-8
<PAGE>
maximum aggregate amount of cash benefits payable to each executive would be
$318,000 for Mark C. McQuown, $312,458 for Douglas J. Townsdin, $311,376 for
Bob G. Callaway and $254,400 for Jane M. Kaiser.
Stock Option Plans. The Company's 1986 and 1989 Stock Option Plans (the
"Plans") adopted by the Board of Directors and approved by the Stockholders,
reserve 400,000 Shares (subject to certain adjustments) for issuance upon the
exercise of incentive stock options (as defined in Section 422A of the
Internal Revenue Code), non-qualified stock options, and limited stock
appreciation rights ("limited SAR's") which may be granted to directors,
officers and key employees (10 persons are eligible to participate as of the
date of the Schedule 14D-9). The Plans are designed to serve as an incentive
for attracting and retaining qualified and competent employees and directors.
The Compensation and Nominating Committee of the Board administers and
interprets the Plans and has authority to grant options on such terms and at
such prices as it may determine, but the exercise price of incentive stock
options will not be less than the fair market value of the Common Stock on the
date of grant and no option will be exercisable after the expiration of ten
years from the date of grant. The committee may also grant limited SAR's in
tandem with options. A limited SAR is exercisable only to the extent that the
related option is exercisable and the exercise of any portion of either the
related option or tandem limited SAR will cause a corresponding reduction in
the number of Shares remaining subject to the option or the tandem limited
SAR. The Board has resolved that the exercise price of non-statutory stock
options will be not less than 85% of the fair market value of the Common Stock
on the date of grant.
During fiscal year 2000, no options and no limited SAR's were granted. As
of October 31, 2000, the Company had no non-qualified options issued of the
400,000 authorized in the Plans. There were no options exercised during the
year either by the Company's Chief Executive Officer or by the other executive
officers named in the compensation table.
As of January 3, 2001, options on 80,000 shares under these plans have been
exercised to date and no limited SAR's have been granted.
Retirement Plan. The Lowrance Savings Plan and Trust (the "Retirement
Plan") requires the Company to contribute to the Retirement Plan up to 6% of
each participant's salary annually. Participants include all employees of the
Company, including executive officers, who have completed one year of
employment with at least 1,000 hours of service. The Company makes a fixed
contribution of 3% of each participant's salary. In addition, if an employee
makes voluntary contributions, the Company will make additional contributions
equal to 100% of the first $10 per pay period of the employee's contribution
and 50% thereafter, not to exceed 3% of the employee's salary. Each
participant's interest in the Company's contributions vests fully over a
period of seven years. Generally, a participant's interest in the Company's
contributions may be withdrawn only upon termination or in certain hardship
situations. The Trustees and Administrative Committee of the Retirement Plan
are appointed by the Board.
Series "A" Preferred Stock and Indebtedness of Management. In accordance
with the Company's May 13, 1996 private placement of 70,000 shares of Series
"A" Redeemable Preferred Stock (the "Series "A" Preferred Stock") with key
officers of the Company, five such persons became indebted to the Company for
the purchase price of $6.875 per share for each share purchased. The Series
"A" Preferred Stock, issued for a term of ten years, is a nonvoting stock
paying a cumulative dividend of 2 1/2 cents. Each share 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 thirty percent of his Common Stock of the Company,
or (ii) the Company sells substantially all of its assets and operations to a
third party. Each purchaser executed a Promissory Note in favor of the Company
bearing interest at Chase prime and a Security Agreement whereby the Series
"A" Preferred Stock is pledged to the Company to secure the payment of such
Promissory Note. In the event (i) the Series "A" Preferred Stock is not
converted within its ten-year term, or (ii) the purchaser terminates his
employment with the Company for any reason except death, the Series "A"
Preferred Stock is surrendered to the Company for cancellation in exchange for
cancellation of the principal amount of indebtedness owing under his
respective Promissory Note provided that all accrued interest is paid to the
date of
I-9
<PAGE>
termination. As of January 3, 2001, there are 40,000 shares of Series "A"
Preferred Stock outstanding and the following persons remain indebted to the
Company in conjunction with their respective purchase of Series "A" Preferred
Stock:
<TABLE>
<CAPTION>
Relationship Number of Indebtedness as of
Name to the Company Shares Purchased January 3, 2001
---- -------------- ---------------- ------------------
<S> <C> <C> <C>
Darrell J. Lowrance President and 20,000 $137,500.00
Chief Executive Officer
Ronald G. Weber Executive Vice President 20,000 $137,500.00
of Engineering and
Manufacturing
</TABLE>
Upon consummation of the Offer, the Company shall redeem all of its issued
and outstanding shares of Series "A" Preferred Stock at a redemption price of
$9.375 (which represents a net redemption price of $1.875 for each share into
which the Series "A" Preferred Stock is convertible under certain
circumstances) per share of Series "A" Preferred Stock in cash.
Report of Compensation and Nominating Committee on Executive Compensation
The members of the Compensation and Nominating Committee are Mr. Willard P.
Britton and Mr. Peter Foley, III. Each member of the Committee is a non-
employee director.
In determining the compensation payable to the Company's executive
officers, it is the basic philosophy of the Committee that the total annual
compensation for these individuals should be at a level which is competitive
with the marketplace (which requires compensation to be middle to high) in
companies of similar size for positions of similar scope and responsibility.
In determining the appropriateness of compensation levels, the Committee
annually reviews the Company's compensation policies and nationally recognized
compensation surveys, principally the William Mercer Executive Compensation
Survey, which is a comparison of fixed and variable compensation based upon a
corporation's industry and size.
The key elements of the total annual compensation for executive officers
consists of a base salary and variable compensation in the form of annual
bonuses and stock options. The base salaries are generally set at or near the
middle to high range for the competitive marketplace as indicated in the
above-referenced survey for companies within the same industry classification
and relative size. Annual bonuses consist of two components, a performance
bonus based entirely on the basis of the Company's pretax, prebonus earnings
and a discretionary bonus for executive officers, except the President, which
is recommended by the President on the basis of individual performance.
In fiscal 2000, the Company's performance exceeded target levels, therefore
performance bonuses of $185,000 were earned and discretionary bonuses in the
amount of $124,000 were granted. The aggregate payout in October 2000 was
$309,000.
The base salary for the Chief Executive Officer approximates the 75th
percentile for the comparable companies in the above-referenced survey. The
committee has set the base pay for the Chief Executive above the market
average due to his tenure with the Company and his irreplaceable knowledge of
and personal contacts and relationships in the industries in which the Company
operates. All of the Chief Executive's incentive pay is based on achieving
targeted pretax, prebonus earnings levels with no discretionary bonus
component. As the Company's performance was above target levels in fiscal year
2000, and incentive bonus of $108,000 was earned and paid in October 2000.
Compensation and Nominating Committee:
Peter F. Foley III, Chairman
Willard P. Britton
I-10
<PAGE>
Performance Graph. The following performance graph reflects yearly
percentage change in the Company's cumulative total Stockholder return on
Common Stock as compared with the cumulative total return of the NASDAQ (US)
and the NASDAQ Electronic Components Index. All cumulative returns assume
reinvestment of dividends and are calculated on a fiscal year basis on July 31
of each year.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, NASDAQ US AND NASDAQ ELECTRONIC COMPONENT
[STOCK PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NASDAQ U.S........................................ 100 109 161 189 271 385
NASDAQ ELECTRONIC COMPONENTS...................... 100 93 198 169 305 677
LEIX.............................................. 100 92 88 65 99 58
</TABLE>
I-11
<PAGE>
[American Appraisal Associates Logo]
Annex II
January 4, 2001
Board of Directors
Lowrance Electronics, Inc.
12000 East Skelly Drive
Tulsa, Oklahoma 74128
Dear Members of the Board:
American Appraisal Associates, Inc. ("American Appraisal") was retained to
provide financial and valuation advisory services to the Board of Directors
("Board") of Lowrance Electronics, Inc., a Delaware corporation ("Lowrance" or
the "Company"), in connection with an offer from Cobra Electronics
Corporation, a Delaware corporation ("Cobra"), to purchase all the outstanding
common stock of Lowrance for $8.25 in cash per share (the "Offer").
Terms of Offer
As of the date hereof, the terms and conditions of the Offer, as contained
in the Agreement and Plan of Merger among Cobra, Blue Marlin, Inc., a Delaware
corporation and a wholly-owned subsidiary of Cobra ("Sub"), and the Company,
dated January 4, 2001 (the "Agreement"), are summarized as follows:
. Cobra will cause Sub to make a tender offer to purchase all of the
outstanding shares (the "Shares") of common stock, par value $.10 per
share, of the Company (the "Company Common Stock") at a purchase price of
$8.25 per Share (the "Offer Price") net to the seller in cash, without
interest thereon, upon the terms set forth in the Agreement;
. After successful completion of the Offer, the Sub shall be merged with
and into the Company "("Merger") and following the Merger, the separate
corporate existence of the Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation"); and
. If Sub acquires at least 90 percent of the outstanding Shares, the
parties to the Agreement agree to take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable
after expiration of the Offer without a meeting of stockholders of the
Company.
American Appraisal Credentials
Through its Financial and Valuation Advisory Services Group, American
Appraisal is regularly and continually engaged in the valuation of businesses
and securities in connection with restructurings and reorganizations, mergers
and acquisitions, private placements and other corporate purposes. Prior to
this engagement, American Appraisal had provided financial and valuation
advice to the Company but had not provided financial or valuation advice to
Cobra.
II-1
<PAGE>
Board of Directors AMERICAN APPRAISAL ASSOCIATES, INC.
Lowrance Electronics, Inc.
January 4, 2001
Page 2
Role of American Appraisal
As financial advisor to the Board, we will assist the Board in its review
of the terms and conditions of the Offer and provide an opinion as to whether
the Offer Price and other terms and conditions of the Offer and Merger are, in
our opinion, fair, from a financial point of view, to the holders of Company
Common Stock (the "Opinion").
Due Diligence
In connection with our analysis leading to the opinions set forth below, we
have, among other things:
(i) Reviewed the Agreement;
(ii) Reviewed the Company's Annual Reports on Form 10-K for the fiscal
years ended July 31, 1996 through 2000 and its draft Quarterly Reports
on Form 10-Q for the fiscal period ended October 31, 2000 and other
publicly available financial and operating information relating to the
Company that American Appraisal considered relevant;
(iii) Reviewed and analyzed the internal unaudited operating results
reported by the Company for the four months ended November 30, 2000
and financial projections for the Company through fiscal year 2001
provided to American Appraisal by Company management;
(iv) Considered the Company's operating history, financial condition and
prospects prior to, and after, the Offer and Merger,
(v) Reviewed and discussed with representatives of the Company's financial
advisor, Chase Securities, Inc. ("Chase") (a) the depth and results of
discussions Chase and members of the Board had with other potential
acquirers, partners or investors and (b) analysis of written
presentations prepared by Chase to the board dated July 2000 and
August 30, 2000;
(vi) Analyzed available information, public and private, concerning other
companies that (a) are similar to the Company's product line and
operating structure for the purpose of comparing their market
capitalizations and investor ratios to the operating and financial
performance of the Company;
(vii) Reviewed the public stock market price and trading volume history of
the Company's Common Stock on the Nasdaq National Market;
(viii) Conducted other financial analyses and studies as American Appraisal
deemed appropriate for purposes of delivering its opinion as to the
fairness, from a financial point of view, of the terms and
conditions of the Merger;
American Appraisal's analysis of the foregoing and other factors led to the
following observations and conclusions:
(i) The Offer Price represented an approximate 165% premium over the moving
average closing price of the Company's public stock market price for
the 25 trading days ended January 4, 2001;
(ii) Correlation of market capitalizations of certain public companies
considered similar to the Company in terms of products lines and/or
markets implied a valuation of the Company's Common Stock ranging
between $6.75 and $21.50 per Share;
II-2
<PAGE>
Board of Directors AMERICAN APPRAISAL ASSOCIATES, INC.
Lowrance Electronics, Inc.
January 4, 2001
Page 3
(iii) A discounted cash flow valuation analysis of the Company's
prospective operations indicated a range of current value of the
Company's Common Stock ranging from $8.00 to $12.00 per Share;
(vi) A capitalization valuation analysis of the Company's reported latest 12
months net income indicated a value for the Company's Common Stock
ranging from $7.00 to $10.00 per Share; and
(v) The marketability of the Company's business to other business entities
was believed to be limited because of the seasonality of its product
line and the volatility of its revenues and profitability, among other
factors.
Conditions of Opinion
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion.
We were not authorized by the Company's Board of Directors to solicit, nor
have we solicited, other potential merger candidates for the Company. Our
opinion is necessarily based on market, economic and other conditions as they
existed on, and can be evaluated as of the date of this letter.
It is understood that this letter is for the information of the Board of
Directors of the Company only and is not to be quoted or referred to in whole,
or in part, without the prior written approval of American Appraisal other
than in any document filed by the Company with the Securities and Exchange
Commission in connection with the Offer and Merger.
This Opinion is not intended to supplement or to substitute for the Board's
due diligence to the extent required by the Board in connection with the Offer
and Merger or any other transaction.
Fairness Conclusion
Based upon, and subject to, the foregoing, it is our opinion that as of the
date hereof, the Offer Price and other terms and conditions of the Offer and
Merger are, in our opinion, fair, from a financial point of view, to the
holders of Company Common Stock.
Very truly yours,
AMERICAN APPRAISAL ASSOCIATES, INC.
[/s/ AMERICAN APPRAISAL ASSOCIATES,
INC.]
II-3
