UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to __________
Commission File Number: 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1568618
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
911 LUND BOULEVARD
ANOKA MINNESOTA 55303
Registrant's telephone number, including area code: (612) 576-4200
_________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
At November 7, 1995, 4,397,970 shares of the registrant's common stock, $.10 par
value, were outstanding.
LUND INTERNATIONAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1995 (Unaudited)
and June 30, 1995 1-2
Consolidated Income Statements (Unaudited)
Three months ended September 30, 1995 and 1994 3
Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1995 1995
(unaudited)
ASSETS
Current Assets
Cash and temporary cash investments $1,666,096 $269,168
Restricted cash 94,056 783,793
Marketable securities 9,351,196 11,026,034
Restricted investments 231,776 0
Accounts receivable, net 9,251,929 9,674,908
Inventories 5,136,917 4,669,550
Deferred tax assets 678,800 678,800
Other current assets 622,767 830,448
Total current assets 27,033,537 27,932,701
Long Term Assets
Property and equipment, net 6,623,080 6,630,666
Restricted cash and marketable securities 1,095,182 1,336,564
Deferred financing costs, net 151,682 151,682
Other assets, net 628,316 654,585
Total long term assets 8,498,260 8,773,497
TOTAL ASSETS $35,531,797 $36,706,198
The accompanying notes are an integral part of these financial statements.
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable, trade $ 1,737,406 $ 2,797,718
Accrued expenses and other 1,358,289 2,563,329
Income taxes payable 647,428 391,126
Long term debt - current portion 440,000 420,000
Total current liabilities 4,183,123 6,172,173
Long Term Liabilities
Long term debt, less current portion 4,590,000 5,030,000
Total long term liabilities 4,590,000 5,030,000
Stockholders' Equity
Preferred stock, $.01 par value.
Authorized 2,000,000 shares;
none issued -- --
Common stock, $.10 par value.
Authorized 25,000,000 shares;
issued and outstanding 4,391,970 and
4,387,902 shares at September 30, 1995
and June 30, 1995, respectively 439,197 438,790
Class B common stock, $.01 par value.
Authorized 3,000,000 shares;
none issued -- --
Additional paid-in capital 975,875 767,417
Unrealized holding losses on marketable securities (129,948) (150,356)
Unearned deferred compensation (211,262) (242,175)
Retained earnings 25,684,812 24,690,349
Total stockholders' equity 26,758,674 25,504,025
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 35,531,797 $ 36,706,198
</TABLE>
The accompanying notes are an integral part of these financial statements.
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended
September 30,
1995 1994
Net sales $10,436,583 $11,107,149
Cost of goods sold 6,484,185 6,187,885
Gross profit 3,952,398 4,919,264
Operating expenses
General and administrative 996,522 963,537
Selling and marketing 1,267,582 1,060,086
Research and development 246,427 232,058
Total operating expenses 2,510,531 2,255,681
Income from operations 1,441,867 2,663,583
Other income (expense)
Interest expense (91,849) 0
Interest income 162,414 132,388
Other 5,833 (96,554)
Other income (expense), net 76,398 35,834
Income before taxes 1,518,265 2,699,417
Provision for income tax 523,802 944,795
Net income $994,463 $1,754,622
Net income per share $0.22 $0.40
Weighted average number
of shares outstanding 4,455,893 4,407,258
The accompanying notes are an integral part of these financial statements.
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 994,463 $ 1,754,622
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 175,760 135,367
Deferred compensation amortization 30,913 0
Gain on disposal of property and equipment (4,258) (24,591)
Provision for doubtful accounts 50,451 6,884
Provision for inventory reserves 25,305 0
Increase in cash surrender value of life insurance (43,830) (30,060)
Changes in operating assets and liabilities:
Decrease in accounts receivable 372,528 326,810
Increase in inventories (492,672) (42,499)
(Increase) decrease in other assets 271,396 (1,203)
Increase (decrease) in accounts payable-trade (1,060,312) 370,470
Increase (decrease) in accrued expenses and other (295,160) 178,990
Decrease in income taxes payable 256,302 561,795
Total adjustments (713,577) 1,481,963
Net cash provided by operating activities 280,886 3,236,585
Cash flows from investing activities:
Purchases of property and equipment (177,853) (402,904)
Proceeds from sales of property and equipment 20,322 34,850
Purchases of marketable securities (1,357,753) (369,798)
Purchases of restricted securities 0 0
Proceeds from sale of marketable securities 3,052,998 370,951
Proceeds from redemption of marketable securities 0 1,509,676
Proceeds from redemption of restricted marketable securities 0 0
Decrease in restricted cash-short term 689,737 0
Increase in restricted investments-short term (231,776) 0
Decrease in restricted cash-long term 241,382 0
Net cash provided by investing activities 2,237,057 1,142,775
Cash flows from financing activities:
Checks issued in excess of cash balances, net (909,880) 0
Reduction in long term debt (420,000) 0
Proceeds from issuance of common stock 208,865 0
Net cash used in financing activities (1,121,015) 0
Net increase (decrease) in cash and
and temporary cash investments 1,396,928 4,379,360
Cash and temporary cash investments:
Beginning of period 269,168 3,051,861
End of period $ 1,666,096 $ 7,431,221
Supplemental disclosure on cash flow information:
Cash paid during the period for income taxes $ 245,000 $ 383,000
Cash paid during the period for interest $ 91,849 $ 0
Supplemental disclosure on non-cash financing
activities:
Unrealized holding losses on marketable securities $ 129,948 $ 440,236
</TABLE>
The accompanying notes are an integral part of these financial statements.
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A - Principles of Consolidation.
The accompanying consolidated financial statements include the accounts of Lund
International Holdings, Inc. and its wholly-owned subsidiaries, Lund Industries,
Incorporated, and Lund International FSC, Inc. The consolidated balance sheet as
of September 30, 1995, and the related consolidated income statements for the
three month periods ended September 30, 1995 and 1994 and consolidated
statements of cash flows for the three month periods ended September 30, 1995
and 1994 are unaudited. In the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items.
The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the Company's annual financial
statements and notes.
B - Inventories.
Inventories consisted of the following:
September 30, June 30,
1995 1995
Raw Materials $2,431,714 $2,195,717
Finished goods and work in process 2,705,203 2,473,833
Total $5,136,917 $4,669,550
C - Earnings per Share.
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the period. Options and warrants
are considered common stock equivalents for the purposes of this computation.
D - Subsequent Events
On October 18, 1995, Lund entered into an agreement to market products for
Innovative Accessories, Inc. dba Luxxus Truxcovers. In addition, Lund entered
into an option agreement to purchase the company between June 30, 1996 and June
30, 1997. In connection with this arrangement, Lund will provide a working
capital loan during the quarter ending December 31, 1995 to Innovative
Accessories, Inc. of not less than $1,250,000.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED
SEPTEMBER 30, 1995
AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
Introduction
Over the last four fiscal years ended June 30, 1995, Lund has experienced
significant sales growth due to the popularity of its product lines, the
strength of its marketing programs and growth in unit sales of light duty
trucks. During fiscal 1995, Lund responded to this increased demand by adding
additional capacity with a new facility which was completed in March 1995. This
facility allowed Lund to meet current customer demand, reduce backlog and
improve order fill rates. As a result of improved servicing levels during the
fourth quarter of fiscal 1995, Lund's customers decreased inventory stock levels
to improve inventory turns. Additionally, with the increased capacity, the
Company was able to enter into fiscal 1996 without the historical backlog that
resulted from production and shipping constraints in the previous facility.
These fundamental improvements resulted in a decrease in net sales and income
for the first quarter of fiscal 1996 compared to fiscal 1995.
Results of Operations
Net sales for the three-month period ended September 30, 1995 decreased 6.0% to
$10,436,583 from $11,107,149 for the same period ended September 30, 1994. The
net sales decrease was primarily due to lower unit sales as a result of the
Company's ability to improve order fill rates in the fourth quarter of fiscal
1995, allowing Lund's customers to adjust their inventory levels to better
reflect the Company's ability to ship product on a more timely basis.
For the three-month period ended September 30, 1995, gross profit decreased
19.7% to $3,952,398 from $4,919,264 for the same period ended September 30,
1994. For the three-month period ended September 30, 1995, gross profit margin
was 37.9% compared to 44.3% for the comparable period ended September 30, 1994.
The decrease in gross profit margin primarily resulted from (i) higher raw
material and packaging expenses, (ii) a shift in product mix which continued to
favor higher sales of plastic products and a mix of lower margin fiberglass
products, (iii) higher manufacturing overhead expenses as a percent of sales for
the new facility and higher labor costs as a percent of sales due to lower
shipping levels, and (iv) higher warranty expense principally associated with
its bugshield/hood protector lines.
For the three-month period ended September 30, 1995, general and administrative
expenses increased 3.4% to $996,522 from $963,537 for the same period ended
September 30, 1994. The increase in general and administrative expenses for the
three-month period ended September 30, 1995 as compared to 1994 primarily
resulted from higher salary and facility expenses. As a percentage of net sales,
general and administrative expenses were 9.5% and 8.7% for the three-month
period ended September 30, 1995 and 1994, respectively. The increase was caused
by general and administrative expenses increasing in a period when sales have
decreased.
For the three-month period ended September 30, 1995 compared to 1994, selling
and marketing expenses increased 19.6% to $1,267,582 from $1,060,086, primarily
resulting from higher advertising and promotional expenses. As a percentage of
net sales, selling and marketing expenses increased to 12.1% from 9.5% for the
three-month period ended September 30, 1995 compared to 1994.
For the three-month period ended September 30, 1995 compared to 1994, research
and development expenses increased 6.2% to $246,427 from $232,058. As a
percentage of net sales, research and development expenses increased to 2.4%
during the three-month period ended September 30, 1995 compared to 2.1% for the
three-month period ended September 30, 1994. This increase was principally due
to higher facility and operating lease expenses and lower than anticipated sales
levels which placed research and development expenses in excess of our 2.0%
goal.
Income tax expense for the three-month period ended September 30, 1995 was
calculated using and estimated tax rate of 34.5%, compared to 35.0% for the
three-month period ended September 30, 1994. The reduction in the estimated tax
rate for fiscal 1996 is due to increased tax exempt interest income.
Liquidity and Capital Resources
Lund historically and currently funds its operations and debt service
requirements from operating cash flow. Lund does not have a line of credit. As
of September 30, 1995, the Company has working capital of $22,850,414 including
cash and temporary cash investments of $1,666,096 and marketable securities of
$9,351,196.
The Company anticipates acquiring a new data processing system and other
capital expenditures expected to be between $1 million and $1.5 million and
providing an operating loan of at least $1.25 million to Innovative Accessories,
a company which Lund has an option to acquire during fiscal 1997. The Company
believes that its existing cash and internally generated funds will be
sufficient to meet the Company's working capital and capital expenditure
requirements for the foreseeable future. If the Company makes significant future
acquisitions, however, it may be required to raise funds through bank financing
or the issuance of debt or equity securities.
PART II. OTHER INFORMATION
Item 5. - None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.34 Employment letter with Bradley W. Andress dated October 11, 1995
10.35 Marketing Agreement dated October 18, 1995 by and between Innovative
Accessories, Inc. and Lund Industries Incorporated.
10.36 Restated Exclusive Purchase Option Agreement dated October 18, 1995 by and
among Lund International Holdings, Inc., Innovative Accessories, Inc. and
shareholders of Innovative Accessories, Inc.
10.37 Employment and Non-Competition Agreement dated October 18, 1995 by and
between Innovative Accessories, Inc. and James A. Nett.
10.38 Interim Loan Agreement dated November 7, 1995 by and between Innovative
Accessories, Inc. and Lund International Holdings, Inc.
10.39 Demand Promissory Note dated November 7, 1995 between Innovative
Accessories, Inc. and Lund International Holdings, Inc.
10.40 Assignment of Patents dated November 7, 1995 from James A. Nett to Lund
International Holdings, Inc.
27.0 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended September 30,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By /s/ William J. McMahon
William J. McMahon
President and Chief Executive Officer
By /s/ Jay M. Allsup
Jay M. Allsup
Chief Financial Officer
October 11, 1995
Brad Andress
749 Summit Lane North
Hudson, WI 54016
Re: Position with Lund International Holdings, Inc.
and Lund Industries, Incorporated
Employment Agreement
Dear Mr. Andress:
As per our recent discussions, Lund International Holdings, Inc. and Lund
Industries, Incorporated (collectively referred to as "Lund") are offering you
the position of Vice President of Marketing for Lund International Holdings,
Inc. and Lund Industries, Incorporated. This correspondence sets out the terms
of our offer to you, except for the terms of our employee handbook, which
reflect policies and procedures of Lund International Holdings, Inc. and its
subsidiaries including Lund Industries, Incorporated (the "Company"), which are
subject to change, and apply to you.
If the terms offered in this letter are acceptable to you, please sign the
letter at the bottom. We hope that you will accept our offer and look forward to
making you part of our management team.
Position: Vice President of Marketing
Base Salary: $115,000 per year
Bonus: You will be eligible for any executive bonus plan offered by Lund
Industries, Incorporated and will be in the thirty percent (30%) bonus bracket
for the current Short Term Incentive Plan for Fiscal 1996. Lund Industries,
Incorporated reserves the right to change the bonus plan at the end of any plan
year as applied to the following or next plan year. Also, each bonus plan will
be evaluated for any particular year, and it is understood that future bonus
plans have not been adopted and have yet to be determined or approved and in
some years there may be no bonus plan. For this year's bonus plan, you are
eligible to receive a pro rata bonus, if the plan goals and trigger points are
achieved. The bonus you may receive will correspond to your actual date of
commencement of employment through the end of the plan year or June 30, 1996.
Signing Bonus: $15,000 payable on or before October 23, 1995.
Stock Options: You will be granted Fifty Thousand (50,000) options to purchase
Lund International Holdings, Inc. Common Stock, subject to Board approval. The
option exercise price will be set as of the fair market value on the date of
Board approval. In addition, any options, if granted, will be subject to the
terms of Lund International Holdings, Inc.'s Incentive Stock Option Plan and/or
Plans. The Board of Directors retains the right and discretion to modify all
stock option plans. The vesting schedule for any stock options granted shall be
determined by the Board of Directors. You must be employed on successive
anniversary dates of your date of hire with no break in service for any vesting
to occur.
Benefits: You are entitled to all benefits offered to employees of Lund
Industries Incorporated.
Vacations: You will be eligible for a three (3) week paid vacation, vesting
according to Lund Industries, Incorporated's vacation benefits.
In the position of Vice President of Marketing, you will be provided with
confidential, trade secret, and/or proprietary information of Lund International
Holdings, Inc., and its subsidiaries, which includes Lund Industries,
Incorporated, and/or any company acquired by Lund International Holdings, Inc.
or its subsidiaries (collectively referred to in this letter as the "Company").
This includes, but is not limited to the following confidential, trade secret,
and/or proprietary information:
1. Sales activities, sales records, sales histories and/or how sales have
developed or changed in a particular geographical area or market or for a
particular product; customer lists and/or vendor lists or knowledge of all of
the Company's customers and/or potential customers and/or vendors; and
2. The quantity of products purchased from the Company by its customers and
the prices paid, the Company's purchasing activities, advertising and
promotional activities, past and present, potential sales and/or markets, market
strategies; and
3. Products' specifications, materials, costs; development of new products;
inventions, modifications of current products, and information pertaining to all
aspects of the Company's research and development; and
4. The quantity of various products purchased from the Company and/or the
product mix as they relate to overall sales of all products and/or a particular
product; and
5. The reasons for the use by the Company of certain methods of attachment
of its products to the vehicles; manufacturing processes and/or costs and/or
time and/or labor studies; the products' designs, dimensions, and tolerances;
and
6. The quantity of materials purchased from suppliers and/or the reason for
the use of certain materials; and
7. Shipping methods, pricing, profit margins per product; and
8. The financial information which is not made public in the Company's
press releases, quarterly reports, Securities and Exchange Filings, and/or the
Company's annual reports; and
9. Information concerning the Company's management, financial conditions,
financial operations, purchasing activities, marketing plans, strategic plans,
information systems, communication systems, planning activities, operational
activities and plans, investor relations activities, interdepartmental
communication or operational communication activities, and business plans; and
10. All other types and categories of information which are generally
understood by persons involved in the automotive aftermarket industry or any
manufacturing operations to be trade secrets, and or confidential information
and/or proprietary information.
You agree that you will not disclose or use at any time in any manner any
confidential trade secret and/or proprietary information as defined in this
letter or elsewhere or subsequently revealed to you to be confidential, a trade
secret or proprietary information.
You agree in the event your employment with the Company is terminated, whether
voluntarily or otherwise, that you, for a period of one (1) year from the date
of termination of your employment, shall not engage or participate in (whether
as an employee, shareholder, owner, officer, director, partner, consultant,
advisor, principal, agent, or in any other capacity) any business which engages
in the invention, design, development, marketing, and/or selling, and/or
manufacturing of products competitive with those which are then listed in the
Company's current catalogues or marketing materials, and/or such products which
the Company has at your termination from employment, under design, development,
modification, alteration, or purchase from another company, or for which
conception has occurred.
You further agree that you will not for a period of one (1) year from the date
of your termination of employment with the Company, whether voluntarily or
otherwise, engage in or participate in, in any capacity, the solicitation of any
product designer, supplier, customer and/or manufacturer of the Company's.
You also agree that for a period of one (1) year from your termination from
employment with the Company, whether voluntarily or otherwise, that you will not
hire or offer to hire any of the Company's directors, officers, employees,
and/or agents, or attempt to and/or entice them to discontinue their
relationship with the Company, and/or attempt to divert and/or divert any
product designer, customer, manufacturer, or supplier of the Company's.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operational, promotional, sales or marketing
activities, or has otherwise established its good will, business reputation, or
any product designer or customer or supplier relations.
The confidentiality and non-compete terms of this agreement, extend beyond the
termination of your employment and shall continue in full force and effect after
the termination of your employment or this agreement. Your agree to always keep
confidential and to not use any trade secret and/or proprietary information.
You agree that at the time of your termination of employment with the Company,
that you will promptly deliver to the Company all Company confidential, trade
secret, or proprietary information and all Company property, equipment, and
materials.
If you accept the Company's offer of employment, you understand that it is not
for a particular time period, and that either you or the Company may terminate
the employment relationship at any time for any reason or no reason. This
agreement is not to be interpreted as an agreement for continued employment,
since either party may terminate it at any time.
If the event that you are terminated without reason, as determined by the
Company, you shall be paid, exclusive of any bonuses or other renumeration, six
(6) months of your base salary in effect on the date of termination, on the
condition that you sign a full release of all claims against the Company.
However, you will not be entitled in any way to six (6) months of your base
salary, if you voluntarily terminate your employment with the Company or you are
terminated for reason, as determined by the Company, or you decline to execute
the full release.
It is the Company's understanding that you are not subject to any agreements or
restrictions arising out of any prior employment or any consulting
relationships, and that by accepting this offer of employment, you will not be
breaching or violating any other obligations.
This agreement may be severed, in that if any portion is determined to be
unenforceable, the other terms remain in full force and effect. Also, this
agreement will be interpreted under the laws of the State of Minnesota and the
United States of America, and is binding on the parties, their heirs,
successors, personal representatives, and assigns.
Please accept our offer for the position of Vice President of Marketing of Lund
International Holdings, Inc. and Lund Industries, Incorporated by executing this
agreement at the bottom. Thank you for your time and interest in employment with
Lund. Please feel free to call me at your convenience if you have any questions.
If look forward to your response in the very near future.
Sincerely,
By /s/ William J. McMahon
William J. McMahon
President and CEO
Accepted by: /s/ Bradley Andress
Brad Andress
MARKETING AGREEMENT
THIS AGREEMENT is made as of October 18, 1995 by and between Innovative
Accessories Inc., an Oklahoma corporation ("IA"), and Lund Industries
Incorporated, a Minnesota corporation ("Lund").
RECITALS
A. IA and its principal shareholders have granted to Lund International
Holdings, Inc., a Delaware corporation and the parent of Lund ("Holdings"), an
option (the "Option") to purchase stock of IA.
B. In connection with the Option, IA and Lund desire to enter into
certain arrangements regarding the distribution of certain IA products pursuant
to the terms and conditions of this Agreement.
TERMS AND CONDITIONS
In consideration of the terms and provisions of this Agreement and for
other good and valuable consideration, the receipt and sufficiency of which is
acknowledged by the execution and delivery thereof, IA and Lund agree as
follows:
I. EXCLUSIVE MARKETING RIGHTS
1. GENERAL.
Subject to Section I.5 hereof, IA agrees to sell its products,
as set forth on Schedule 1 hereto (the "IA Products") to Lund as the exclusive
marketer of the IA Products and Lund agrees to market the IA Products under the
Lund label. If IA develops any new products, such new products shall also be
subject to this Agreement.
2. PURCHASE ORDER AND QUANTITY.
All deliveries and sales of IA Products shall be initiated
pursuant to the standard Lund purchase order, the current version of which is
attached as Schedule 2 hereto. If the terms of any Lund purchase order expressly
conflict with the terms and provisions hereof, then this Agreement shall be
deemed controlling. IA shall ship the IA Products F.O.B. IA's facilities in
Oklahoma City within ten (10) working days of receipt of a purchase order. IA
agrees to supply all Lund's requirements for IA's Products.
3. PRICES.
The price per unit of the IA Products shall be the standard
cost of the IA Products, as agreed to by the parties from time to time, plus
10%. The initial standard costs for the IA Products is set forth on Schedule 3
hereto. Standard cost shall not include freight charges. However, Lund shall pay
all freight charges, including related administrative expenses. Lund shall pay
all invoices on Net 15 day terms.
4. PURCHASES OUT OF INVENTORY.
IA shall sell, and Lund shall purchase, the IA Products at
such time as the IA Products are transferred from work-in-progress to finished
goods inventory.
5. RETENTION OF MARKETING RIGHTS.
Lund's exclusive marketing rights shall not include the OEM
and private label customers specified on Schedule 4 hereto. IA retains all
marketing rights with respect to such customers.
II. REPRESENTATIONS AND WARRANTIES
IA hereby represents and warrants to the other party hereto as follows:
1. INSURANCE.
IA has obtained and will maintain product liability insurance
and blanket contractual liability insurance respecting the IA products in the
minimum amount of One Million Dollars ($1,000,000) single limit for bodily
injury, death, illness or property damage with an umbrella policy which provides
at least an additional $1,000,000 in coverage. During the term of this
Agreement, IA shall name Lund as an additional insured under such policies.
2. RESALE RIGHTS.
IA has not granted any resale or distribution rights or
licenses for the IA Products which would restrict or limit Lund's rights
hereunder and will not do so during the term of this Agreement.
3. INTELLECTUAL PROPERTY.
IA has obtained and will maintain all patents, trademarks,
copyrights, licenses, permits and authorizations necessary to the manufacture,
packaging and other processing of the IA Products and the delivery and sale of
such products.
4. WARRANTY.
IA warrants its products to be sold under this Agreement
against all defects in material and workmanship and warrants that they are
suitable for the purposes for which they are sold. The sole remedy for warranty
coverage will be replacement of defective products.
5. AUTHORIZATION.
This Agreement has been duly and validly executed and
delivered by IA and Lund and constitutes the valid and binding obligation of IA
and Lund, respectively, enforceable against each of IA and Lund in accordance
with its terms.
III. MISCELLANEOUS
1. INDEMNIFICATION.
(a) IA shall indemnify and hold Lund harmless at all times
from, against and in respect of any and all damage, loss, claim or expense
(including any and all actions, suits, proceedings, demands, judgments,
settlements, costs and legal and other expenses) which Lund may sustain
resulting from (i) any misrepresentation, breach of warranty, or noncompliance
with any obligation or covenant on the part of IA to be performed under this
Agreement, or (ii) any product liability or warranty claim with respect to the
IA Products.
(b) Lund shall indemnify and hold IA harmless at all times
from, against and in respect of any and all damage, loss, claim or expense
(including any and all actions, suits, proceedings, demands, judgments,
settlements, costs, and legal and other expenses) which IA may sustain resulting
from any misrepresentation, breach of warranty, or noncompliance with any
obligation or covenant on the part of Lund to be performed under this Agreement.
2. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon, inure
to the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto. Without the consent of the other, neither IA nor Lund shall assign its
rights or delegate its obligations hereunder to any other person; and provided,
however, that Lund may assign its rights hereunder to an affiliate of Lund,
which shall assume Lund's obligations under this Agreement.
3. ENTIRE AGREEMENT. This Agreement and the exhibits hereto contain the
entire understanding of the parties and supersede all prior agreements and
understandings between the parties with respect to its subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties to be bound.
4. COUNTERPART SIGNATURES. This Agreement may be executed in
counterparts, each of which will be deemed to be an original, but all of which
together with constitute one and the same instrument.
5. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of Minnesota without giving
any effect to principles of conflict of laws.
6. NOTICES. All notices hereunder shall be in writing and shall be
deemed to have been given at the time when mailed by registered or certified
mail, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:
To IA: Innovative Accessories, Inc.
7949 East I-35 Service Road
Oklahoma City, OK 73149
Attention: Mr. James A. Nett
To Lund: Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, MN 55303
Attention: Mr. Jay Allsup
provided, however, that any notice of change of address shall be effective only
upon receipt.
7. INVALIDITY.
The invalidity or unenforceability of any term or provision of this
Agreement shall not affect the other terms and provisions and such invalid or
unenforceable term or provision will, in all events, be construed and enforced
to the fullest extent permissible under applicable law.
8. WAIVER.
The failure of any party to exercise their respective rights under this
Agreement regarding any misrepresentation, breach or other default shall not
prevent such party from exercising such or any other right hereunder regarding
such or any subsequent misrepresentation, breach or default.
9. TERM.
This Agreement shall commence as of the date first above written and
shall terminate as follows:
(a) If the Option expires unexercised, this Agreement shall
terminate upon expiration of the Option, unless extended by
mutual written agreement of the parties hereto.
(b) If the Option is exercised, this Agreement shall
terminate upon the closing of such exercise.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
LUND INDUSTRIES INCORPORATED INNOVATIVE ACCESSORIES, INC.
By: /s/ Jay Allsup By: /s/ James A. Nett
Its: Chief Financial Officer Its: President
RESTATED EXCLUSIVE PURCHASE OPTION AGREEMENT
THIS AGREEMENT is made as of the 18th day of October, 1995, by and among
Lund International Holdings, Inc., a Delaware corporation (the "Purchaser"),
Innovative Accessories, Inc., an Oklahoma corporation (the "Company"), James A.
Nett and Marilyn Nett, individuals residing in Oklahoma as husband and wife, as
joint tenant owners of a majority of the outstanding shares of the capital stock
of the Company, Ramona C. Friar, an individual residing in Oklahoma as an owner
of a minority of the outstanding shares of the capital stock of the Company, and
Robert E. and Terry J. Ryan, individuals residing in Oklahoma as husband and
wife, joint owners of a minority of the outstanding shares of the capital stock
of the Company (the "Sellers").
RECITALS
A. Certain of the parties hereto have entered into an Exclusive Purchase
Option Agreement, dated October 18, 1995.
B. The parties to this Agreement desire to restate said Option Agreement.
C. Sellers are the owners of 100% of the issued and outstanding shares of
capital stock of the Company, consisting of 10,000 shares (the "Shares") of
common stock.
D. Purchaser desires to acquire an option to purchase the Shares from
Sellers, and Sellers desire to sell such Shares on the terms and conditions
contained herein.
E. In connection with the grant of the option described herein, the
Purchaser has agreed to loan to the Company $1,250,000 (or such larger amount as
may be agreed to by the Purchaser and the Company) and the Company has agreed to
enter into such loan, subject to a loan agreement, such loan to be evidenced by
the Company's Secured Promissory Note (the "Note") in the principal amount of
$1,250,000 (or such larger amount) secured by collateral described in the
Security Agreement between the Purchaser and the Company.
TERMS AND CONDITIONS
1. Definition. As used in this Agreement, the following terms shall have
the following meanings:
"Net Equity Value at Time of Funding" means the sum of the cash,
receivables and inventory of the Company, subtracted by the amount of
nonshareholder liabilities owed by the Company on the date the Note is
executed.
"Net Equity Value at Time of Exercise of Option" means the sum of the
cash, receivables and inventory on the date of closing of the exercise of
the Option, plus the amount of capital expenditures made by the Company
subsequent to the date hereof, less the amount of nonshareholder
liabilities owed by the Company on such date.
2. Grant of Option. For good and valuable consideration, the sufficiency of
which is hereby acknowledged, the Sellers hereby each grant to Purchaser the
exclusive irrevocable right and option (the "Option") to purchase from the
Sellers all (but not less than all) of the Shares. The term of the Option (the
"Option Period") shall be for the period commencing June 30, 1996 and expiring
on June 30, 1997, inclusive of such dates.
3. Manner of Exercise, Closing and Closing Date. Purchaser may exercise the
Option at any time during the Option Period by giving written notice to Sellers
at least sixty (60) days in advance stating that the Option is being exercised.
Purchaser must exercise the Option at the conclusion of the Option Period if the
Company has shown profits for the eighteen months preceding the expiration of
the Option Period, as demonstrated by positive pretax income reflected on
financial statements prepared in accordance with generally accepted accounting
principals, as certified by Purchaser's certified public accountants and no
material adverse event affecting the condition (financial or otherwise) or
prospects of the Company has occurred. The closing of the exercise of the Option
shall take place at the offices of the Purchaser at 911 Lund Boulevard, Anoka,
MN 55303 (the "Closing"). At the Closing, the Purchaser will deliver the
purchase price provided for in Section 4 of this Agreement; and the Company and
each Seller will deliver stock certificates duly endorsed for transfer. The
written notice from the Purchaser shall set forth the date for the purchase of
the Shares, which date shall be not less than sixty (60) or more than sixty-five
(65) days after the date of such notice (the "Closing Date").
4. Purchase Price. In the event the Option is exercised during the Option
Period:
(a) The Purchaser shall pay to Ms. Friar for her Shares, and in full
satisfaction of all amounts owed to her by the Company, an amount equal to
the difference between Two Million One Hundred Thousand Dollars
($2,100,000.00) (the "Base Purchase Price"), as adjusted, and the amount
outstanding under the Note at the time the Option is exercised;
(b) The Purchaser shall pay Mr. and Ms. Nett, jointly, an amount equal
to the amount that the Company has paid the Purchaser in repayment of the
Note and shall release Mr. Nett as a guarantor of the Note and that certain
Loan Agreement between the Purchaser and the Company.
(c) The Base Purchase Price shall be increased or decreased by the
increase or decrease, respectively, between the Net Equity Value at Time of
Funding and the Net Equity Value at Time of Exercise of Option.
(d) If the Base Purchase Price, as adjusted, is in excess of
$2,100,000, then James A. Nett, Ramona C. Friar, and Robert E. Ryan will
jointly direct Lund as to how such excess shall be paid.
(e) It is agreed that the Company will pay Ms. Frair $4,620 per month
in loan repayment amounts until the Option is exercised.
5. Representations, Warranties and Covenants of Sellers. Each of the
Sellers and the Company jointly and severally represent and warrant to, and
covenant with, Purchaser as follows:
(a) Each Seller owns, and on the Closing Date will own, his or her
Shares free and clear of all liens, claims, agreements, pledges,
restrictions and encumbrances, whether oral or written, perfected or
unperfected or direct or indirect.
(b) Each Seller has, and on the Closing Date will have, the right to
sell his or her Shares to Purchaser.
(c) On the Closing Date, Purchaser shall receive good and marketable
title to the Shares.
(d) During the Option Period, neither the Company nor any of the
Sellers will enter into any discussions or negotiations, or enter into any
transactions by which the business or assets or any part thereof, any of
the Shares or other capital stock of the Company or any part thereof, are
or will be sold, assigned, transferred or pledged to any other party,
whether by contract, operation of law, or otherwise. If any Shares are
sold, assigned, transferred or pledged, despite the prohibition against
such act or event, such Shares shall nonetheless remain fully subject to
this Agreement and the purchaser, assignee, transferee or pledgee shall be
bound hereby.
(e) During the Option Period, the Company will, and the Sellers will
cause the Company to:
(i) Provide to Purchaser written financial reports of the
Company, including an income statement and a balance sheet, for each
month following October 1, 1995, within 15 days of the last day of
each such month;
(ii) Provide Purchaser and any agent of the Purchaser access to
the Company's books and records for inspection of such books and
records at reasonable times and upon reasonable notice from Purchaser;
(iii) Cooperate with Purchaser and Purchaser's accounting firm in
preparing an opening a balance sheet on the Company upon the execution
of this agreement at the Company's expense.
(f) During the Option Period, the Purchaser shall hire an retain a
controller/financial officer to review the operations of the Company.
(g) During the Option Period, the Company shall operate its business
in the ordinary course and shall neither make, declare nor issue any
payments, dividends or distributions with respect to its capital stock (in
cash, securities or property, whether tangible or intangible) or any
rights, options or warrants. The Company will pay historical salaries to
its non shareholder employees and will not increase salaries in excess of
five per cent (5%) of such employees' annual current salary. The Company
shall make no payments to shareholders of the Company without specific
authorization of the Purchaser, except that James A. Nett may receive a
normal and customary salary which shall initially be One Hundred Twenty
Thousand Dollars ($120,000.00), adjusted only with specific authorization
of the Purchaser.
(h) This Agreement has been duly and validly executed and delivered by
Sellers and the Company and constitutes the valid and binding obligation of
Sellers and the Company, respectively, enforceable against Sellers in
accordance with its terms.
The representations, warranties and covenants of Sellers and the Company
contained in this Agreement shall survive the execution and delivery of this
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
Purchaser shall have the right to exercise the Option without releasing Sellers
or the Company from any liability for any loss or damage sustained by Purchaser
by reason of the breach by Sellers or the Company of any covenant, obligation or
agreement contained herein, or by reason of any misrepresentation made by
Sellers or the Company regardless of whether such breach or misrepresentation is
known to Purchaser on the Closing Date.
6. Indemnification.
(a) Sellers and the Company shall jointly and severally indemnify and
hold Purchaser harmless at all times from, against and in respect of any
and all damage, loss, claim or expense (including any and all actions,
suits, proceedings, demands, judgments, settlements, costs and legal and
other expenses) which Purchaser may sustain (i) resulting from any
misrepresentation, breach of warranty, or noncompliance with any obligation
or covenant on the part of Sellers or the Company to be performed under
this Agreement or (ii) resulting from the operations or conduct of the
business of the Company prior to the Closing Date.
(b) Purchaser shall indemnify and hold Sellers or the Company harmless
at all times from, against and in respect of any and all damage, loss,
claim or expense (including any and all actions, suits, proceedings,
demands, judgments, settlements, costs, and legal and other expenses) which
Sellers or the Company may sustain resulting from any misrepresentation,
breach of warranty, or noncompliance with any obligation or covenant on the
part of Purchaser to be performed under this Agreement.
7. Confidentiality. Each of the Company, Purchaser and Sellers will hold,
and will use its best efforts to cause its officers, directors, employees,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning the other party hereto and
its subsidiaries furnished in connection with the transactions contemplated by
this Agreement, including, without limitation, all of the terms and conditions
of this Agreement, except to the extent that such information can be shown to
have been (i) previously known to such party on a nonconfidential basis, (ii) in
the public domain through no fault of such party or (iii) later lawfully
acquired by such party from other sources; provided that each of the Company,
Purchaser and Sellers may disclose such information to its officers, directors,
employees, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such persons are informed of the
confidential nature of such information and are directed to treat such
information confidentially. A party's obligation to hold such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would exercise to preserve the confidentiality of its own
similar information. Such confidentiality shall also be maintained during and
after the time the Purchaser exercises its Option to exercise the Sellers'
Shares, if such event should occur. The parties recognize Purchaser's
obligation, as a public company, to make certain public disclosures.
8. Finder's Fees. Purchaser, Sellers and the Company represent and warrant
to each other that no brokerage commission or finder's fees have been incurred
in connection with this Agreement and the transactions contemplated hereby.
9. Successors and Assigns. This Agreement will be binding upon, inure to
the benefit of and be enforceable by the respective heirs, executors,
administrators, legal representatives, successors and assigns of the parties
hereto. Without the consent of the other, neither Purchaser nor Sellers shall
assign his/her or its rights or delegate his or its obligations hereunder to any
other person; provided, however, that Purchaser may assign its rights hereunder
to an affiliate of Purchaser, which shall assume Purchaser's obligations under
this Agreement.
10. Legends. Sellers will promptly cause all certificates representing
their shares in the Company to have the following legend printed thereon:
The shares represented by this certificate are subject to an Exclusive
Purchase Option Agreement, and may not be sold, assigned, pledged or
transferred. A copy of such Agreement is on file at the offices of the
Company.
11. Entire Agreement. This Agreement contains the entire understanding of
the parties and, when fully executed, supersedes all prior agreements and
understandings between the parties, including without limitation the Exclusive
Purchase Option Agreement, dated October 15, 1995, with respect to its subject
matter. This Agreement may be amended only by a written instrument duly executed
by the parties to be bound.
12. Counterpart Signatures. This Agreement may be executed in counterparts,
each of which will be deemed to be an original, but all of which together with
constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of Minnesota without giving any
effect to principles of conflict of laws.
14. Notices. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed by registered or certified mail,
addressed to the address below stated of the party to which notice is given, or
to such changed address as such party may have fixed by notice:
To Sellers: James A. and Marilyn Nett
Innovative Accessories, Inc.
7949 East I-35 Service Road
Oklahoma City, OK 73149
Ms. Ramona C. Friar
10920 Abbeywood
Oklahoma City, OK 73170
Robert E. and Terry J. Ryan
12412 Sussex Road
Midwest City, OK 73130
To the Company: Innovative Accessories, Inc.
7949 East I-35 Service Road
Oklahoma City, OK 74149
Attention: Mr. James A. Nett
To Purchaser: Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, MN 55303
Attention: Mr. Jay Allsup
- with a copy to -
Leonard, Street and Deinard
150 South Fifth Street
Suite 2300
Minneapolis, MN 55402
Attention: Mark S. Weitz, Esq.
provided, however, that any notice of change of address shall be effective only
upon receipt.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first written above.
LUND INTERNATIONAL HOLDINGS, INC.
By: /s/ Jay Allsup
Its: Chief Financial Officer
SELLERS
/s/ James A. Nett
James A. Nett
/s/ Marilyn Nett
Marilyn Nett
/s/ Ramona C. Friar
Ramona C. Friar
/s/ Robert E. Ryan
Robert E. Ryan
/s/ Terry J. Ryan
Terry J. Ryan
INNOVATIVE ACCESSORIES, INC.
By: /s/ James A. Nett
Its: President
EMPLOYMENT & NON-COMPETITION AGREEMENT
THIS AGREEMENT is entered into as of the 18th day of October 1995, by
and between Innovative Accessories, Inc., an Oklahoma corporation, (the
"Company"), and James A. Nett (the "Executive").
W I T N E S E T H:
WHEREAS, the Executive and Lund International Holdings Inc., a Delaware
corporation ("Lund"), are parties to that certain Exclusive Purchase Option
Agreement, dated October 18, 1995, by and among Lund, the Executive and Ramona
L. Friar (the "Option Agreement"), pursuant to which the Executive and Ramona L.
Friar agreed to sell to Lund, and Lund agreed to acquire from the Executive and
Ramona L. Friar, all of the issued and outstanding shares of the capital stock
of the Company; and
WHEREAS, it is a condition precedent to the closing of the transactions
contemplated under the Option Agreement that the Executive and the Company enter
into this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
1. Employment and Duties.
(a) The Company hereby employs the Executive as its
President, and the Executive hereby accepts such employment,
on the terms and subject to the conditions contained in this
Agreement, for a term (the "Term") commencing on the date
the Option Agreement is executed and continuing for a period
of six (6) years thereafter, unless terminated earlier in
accordance with the provisions of Section 4 hereof.
(b) The Executive shall, subject to the direction and
control of the President and Board of Directors, be
responsible for and carry out the executive administration,
management and operation of the Company's business. It is
contemplated by the parties that under the management of the
Executive and with his day to day involvement in its
operations and affairs, the Company shall continue to
actively engage in the manufacture and sale of the Luxxus
line of automotive after-market accessories. The Executive
shall devote an average of at least thirty (30) hours per
week of his time and attention during normal business hours
to the performance of services on behalf of the Company.
2. Compensation and Benefits. During the Term, the Executive shall
receive the following compensation and benefits:
(a) Salary. The Company shall pay to the Executive,
during the Term, an annual salary in an amount hereinafter
specified (less withholding taxes and other proper payroll
taxes and deductions), payable in monthly or such other more
frequent periodic installments as is consistent with the
Company's payroll practices. The initial amount of the
annual salary payable to the Executive pursuant to this
Agreement shall be One Hundred and Twenty Thousand Dollars
($120,000). This salary shall not be increased during the
Term without the written consent of the Company.
(b) In addition to annual salary, the Executive shall
receive an amount not to exceed three and one-half percent
(3.5%) of the net sales price of all products manufactured
by the Company at its Oklahoma City, OK facility at the date
of the execution of this Agreement. The foregoing payments
are hereinafter referred to as the "Royalty Interest."
3. Vacation and Sick Leave. The Executive shall be entitled to three
(3) weeks of paid vacation leave each year, and the Executive shall be entitled
to accumulate such vacation leave from year to year and receive payment therefor
to the extent permitted under the vacation leave policy of the Company. The
Executive shall also be entitled to such periods of leave for illness and
disability (without loss of pay) as are reasonably required (subject to Section
4 hereof).
3. Expense Reimbursement. The Company shall reimburse the Executive for
all expenses reasonably and properly incurred by him in the performance of his
duties hereunder or otherwise on behalf of the Company, provided that proper
documentation is submitted to the Board of Directors.
4. Termination Provisions. The Term of this Agreement and the
Executive's employment hereunder shall not be terminated by either the Company
or the Executive prior to the expiration thereof pursuant to Section 1 of this
Agreement except as provided in Section 1(a) and this Section 4.
(a) Termination by Company. The Company may terminate
the Term of this Agreement and the Executive's employment
hereunder at any time upon sixty (60) days prior written
notice to the Executive in the event of (i) the Executive's
Disability (as hereinafter defined), (ii) the Executive's
engagement in misconduct materially and demonstrably
injurious to the Company, (iii) the Executive's breach of a
material provision of this Agreement, unless such breach is
cured within 30 days following written notice thereof by the
Company to the Executive, (iv) the Executive's conviction of
a felony, (v) the Executive's perpetration of a fraudulent
act against the Company, or (vi) the determination by the
Board of Directors in its reasonable judgment that the
Executive's performance is unsatisfactory.
(b) Termination by the Executive. The Executive may
terminate his employment hereunder upon sixty (60) days
prior written notice to the Company at any time in the event
of (i) the Disability of the Executive, or (ii) a breach by
the Company of any material provision of this Agreement
unless such breach is cured within 30 days following notice
thereof by the Executive to the Company.
(c) Termination upon Death. The Term of this Agreement
and the Executive's employment hereunder shall be terminated
automatically and immediately upon the Executive's death.
Lund shall carry a life insurance policy on the life of the
Executive worth not less than One Million Dollars
($1,000,000) on behalf of the Executive, to be paid to the
Executive's estate at his death.
(d) Disability Defined. As used in this Agreement, the
term "Disability" means the failure of the Executive to
perform substantially his duties under this Agreement by
reason of a medically determined physical or mental
impairment for a period of 3 consecutive months or for
shorter periods aggregating 6 months over any consecutive 2
year period.
(e) Compensation Upon Termination. In the event of a
termination pursuant to the provisions of this Section 4,
the Company shall only be obligated to pay the Executive his
accrued compensation to the date of termination pursuant to
Sections 2(a)-(b). So long as the Executive has been
employed for at least two years hereunder prior to the
Executive's termination of employment with the Company, the
Company may in its sole discretion pay the Executive one
hundred and fifty percent (150%) of the Royalty Interest
figure earned by the Executive for each fiscal year
remaining in the original six (6) year term hereof, payable
at the end of each such fiscal year with respect to the
Royalty Interest for that year, or the Executive's salary
figure earned during the final year of his employment with
the Company, whichever is greater.
5. Business Conduct Guidelines. It is the intent of the parties that no
payments or transfers of value shall be made that have the purpose or effect of
public or commercial bribery, acceptance of or acquiescence in extortion,
kickbacks or other unlawful or improper means of obtaining business. This
provision shall not, however, prohibit normal and customary business
entertainment or the giving of business mementos of nominal value.
6. Confidentiality. The Executive acknowledges that in and as a result
of his employment hereunder he will be making use of, acquiring, and/or adding
to confidential information of a special and unique nature deriving independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by property means by, other persons who can obtain
economic value from its disclosure or use. Such information is hereinafter
referred to as "Confidential Information" and includes, without limitation, the
Company's products, designs, systems, software, data files, techniques, manuals,
confidential reports, the fees and other amounts paid by or to the Company's
customers and Vendors, the amounts the Company pays or has paid for products and
services, and other trade secrets and information the Executive knows or has
reason to know, or will know or have reason to know, the Company intends or
expects to remain confidential. As a material inducement to the Company to enter
into this Agreement and to pay to the Executive the compensation provided for in
Section 2 hereof, the Executive covenants and agrees that he shall not, at any
time during or following the Term, directly or indirectly, divulge or disclose
for any purpose whatsoever (except as required in the performance of his duties
hereunder), nor appropriate for his own use, any Confidential Information.
Provided, however, that nothing in this Section 6 shall be construed to prohibit
the Executive from disclosing or using for his own benefit following the Term
(i) any information that is generally known to, or readily ascertainable by
proper means by, other persons who can obtain economic value from its disclosure
or use, including, without limitation, the identities of the Company's customers
and vendors (but not amounts paid by or to such customers or vendors or the fact
that such customers and vendors are customers and vendors of the Company), (ii)
any information that becomes available to the Executive on a non-confidential
basis from a source independent of the Company, which source is entitled to
disclose such information on a non-confidential basis, or (iii) any information
that is or has been made public other than by acts or omissions of the
Executive. The parties acknowledge that the Company's software, data files and
compilations of data are proprietary to the Company and confidential, even if
some or all of the information contained therein is not "Confidential
Information" as defined in this Section 6. The Executive shall not at any time
divulge, disclose, appropriate, use for his own purposes or transfer any of such
software, data files, or compilations of data, directly or indirectly,
regardless of whether the Executive is entitled to divulge, disclose,
appropriate, use for his own purposes or transfer any or all of the information
contained therein in accordance with the terms of this Section 6.
7. Competition. During the Term and for a period of 2 years following
the expiration of the Term, the Executive shall not, directly or indirectly own,
manage, invest or acquire any economic stake or interest in, or otherwise engage
or participate in any manner whatsoever (whether as a proprietor, partner,
independent contractor, consultant, lender, borrower, guarantor, lessor, lessee,
adviser or other participant) in any individual, corporation, association or
other business enterprise in any form, other than the Company, that is engaged
in the design or manufacture of all products made by the Company, its parent and
affiliates now or ever produced during the Term.
8. Inventions.
(a) The Company and the Executive acknowledge that
during the Term hereunder, and for a period of one year
thereafter, the Executive may create inventions. Any
inventions created by the Executive for use by the Company
in its business shall be the sole and exclusive property of
the Company. The Executive hereby irrevocably assigns to the
Company all of his right, title and interest in and to any
such inventions and agrees to execute and assign any and all
applications, assignments, and other documents, and render
all assistance, reasonably necessary for the Company to
obtain patent, copyright or trademark protection for such
inventions in any country.
9. Reduction Of Restrictions By Court Action. Each provision hereof,
including, without limitation, the periods of time, types and scopes of duties
of, and restrictions on the activities of, the Executive specified herein are
and are intended to be divisible, and if any portion thereof (including any
sentence, clause or part) shall be held contrary to law or invalid or
unenforceable in any respect in any jurisdiction, or as to one or more periods
of time, areas or business activities or any part thereof, the remaining
provisions shall not be affected but shall remain in full force and effect as to
the other remaining parts, and any such invalid or unenforceable provision shall
be deemed, without further action on the part of any person, modified, amended
and limited to the extent necessary to render the same valid and enforceable in
such jurisdiction.
10. Notices. Any notice, request, consent, demand, offer, acceptance or
other communications required or permitted under this Agreement shall be made in
writing and shall be given (i) by personal delivery; (ii) by first class
registered or certified mail, postage prepaid, return receipt requested (and
shall be deemed given three days after the date of delivery to the Postal
Service); (iii) by telefax, telecopier or similar transmission if the
appropriate telefax, telecopier or transmission number is included in the
address (and shall be deemed given on the date sent), or by Federal Express or
similar overnight delivery service, charges prepaid (and shall be deemed given,
addressed to the parties hereto at their respective addresses.
11. Waiver. The waiver by the Company or the Executive of a breach by
the other of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent such breach.
12. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of Minnesota.
13. Entire Agreement. This Agreement contains the entire Agreement
between the parties hereto with respect to the subject matter hereof and
supersedes any and all prior oral or written understandings and agreements
between them with respect thereto.
14. Representation and Warranties. In order to induce the Company to
enter into this Agreement, the representations, warranties and covenants set
forth in Section 5 of the Option Agreement are hereby reaffirmed by the
Executive.
15. Arbitration. The Company and the Executive shall submit to binding
arbitration for all disputes regarding the rights and obligations of the parties
under this Agreement. The arbitration shall be conducted according to the
Commercial Arbitration Rules ("the Rules") of the American Arbitration
Association. The Rules are incorporated by reference into this Agreement to the
extent that they are not inconsistent with the provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
INNOVATIVE ACCESSORIES, INC.
By /s/ James A. Nett
Its President
/s/ James A. Nett
JAMES A. NETT
INTERIM LOAN AGREEMENT
November 7, 1995
Innovative Accessories, Inc.
7949 South I-35 Service Road
Oklahoma City, OK 73149
Re: Interim Working Capital Loan of an amount not less than $250,000
Ladies and Gentlemen:
Innovative Accessories, Inc. (the "Borrower"), an Oklahoma corporation, and
Lund International Holdings, Inc. (the "Lender") are negotiating a definitive
working capital loan agreement for an amount which shall be not less than
$1,250,000 (the "Agreement"). Prior to the execution of the Agreement, the
Borrower has requested that the Lender lend to the Borrower an amount not less
than $250,000 as an interim working capital loan, which amount shall be deducted
from the funds available to the Borrower under the terms of the Agreement. The
Lender is willing to lend such funds to the Borrower and the Borrower is willing
to borrow such funds upon the terms and subject to the conditions set forth in
the Agreement. All references to Borrower shall also apply to Guarantor with
equal force and effect. In consideration of the promises contained in this
Agreement, Borrower and Lender agree as follows:
1. Loan. Lender agrees to lend to Borrower an Interim Working Capital Loan
of an amount not less than $250,000 according to this agreement.
2. Interim Working Capital Loan. The Interim Working Capital Loan shall be
evidenced by a demand promissory note in the form of attached Exhibit A, duly
executed by Borrower (together with any renewals or extensions of the note (the
"Note"), dated November 7 1995; and secured by a duly executed assignment of
patents held by James A. Nett to Lender in the form of attached Exhibit B.
Lender shall make notations on the Note, as appropriate, which shall be binding
on the parties absent manifest error, of the amount outstanding thereunder. The
proceeds of this interim loan shall be used to for the following purposes:
(a) An amount not less than $145,000 to satisfy outstanding debts that
Borrower currently has with several of its creditors; and
(b) An amount not less than $105,000 to the Internal Revenue Service in
full satisfaction of withholding taxes, interest and penalties not currently
payable.
If the Borrower agrees to the foregoing, Borrower should execute this
Agreement on the space indicated below.
BORROWER:
INNOVATIVE ACCESSORIES, INC.
By /s/ James A. Nett
Its President
By /s/ Marilyn Lee Nett
Its Secretary
Accepted by:
LUND INDUSTRIES INCORPORATED
By /s/ Jay Allsup
Chief Financial Officer
The undersigned, James A. Nett, majority shareholder and President of
Borrower, hereby irrevocably and unconditionally guarantees the prompt payment
of the foregoing loan.
GUARANTOR
/s/ James A. Nett
James A. Nett
Date: November 7, 1995
EXHIBIT A
DEMAND PROMISSORY NOTE
$250,000 Minneapolis, Minnesota
November 7, 1995
FOR VALUE RECEIVED, the undersigned, Innovative Accessories, Inc. an
Oklahoma corporation ("Maker") promises to pay to the order of Lund
International Holdings, Inc., a Delaware corporation ("Lender"), at 911 Lund
Boulevard, Anoka, Minnesota 55303 (or at such other place as the holder hereof
shall notify Maker in writing) the principal amount as shown on Schedule 1
hereto, which amount shall be not less than Two Hundred Fifty Thousand Dollars
$250,000 with interest from the date hereof on the unpaid principal balance
hereunder to be calculated on the first business day of each month at an annual
rate equal to 8%. Interest shall be paid monthly, in arrears, on the fifteenth
day of each month. The principal amount of this Note, and all interest accrued
thereon, shall be due and automatically payable on demand.
Principal and interest shall be payable in lawful money of the United
States of America.
If any default occurs in any payment due under this Note,
Maker and its successors and assigns promise to pay all reasonable costs and
expenses, including reasonable attorneys' fees, incurred by each holder hereof
in collecting or attempting to collect the indebtedness under this Note. None of
the provisions hereof and none of the holder's rights or remedies hereunder on
account of any past or future defaults shall be deemed to have been waived by
the holder's acceptance of any past due installments or by any indulgence
granted by the holder to Maker.
Maker and its successors and assigns hereby waive presentment, demand,
protest and notice thereof or of dishonor, and agree that they shall remain
liable for all amounts due hereunder notwithstanding any extension of time or
change in the terms of payment of this Note granted by any holder hereof, any
change, alteration or release of any property now or hereafter securing the
payment hereof or any delay or failure by the holder hereof to exercise any
rights under this Note or the Security Agreement.
This Note shall be governed by and construed in accordance with the
laws of the State of Minnesota.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed the
day and year first above written.
INNOVATIVE ACCESSORIES, INC.
By: /s/ James A. Nett
President
By: /s/ Marilyn Lee Nett
Secretary
The undersigned, James A. Nett, majority shareholder and President of
Maker, hereby irrevocably and unconditionally guarantees the prompt payment of
the foregoing note.
GUARANTOR
/s/ James A. Nett
James A. Nett
Date: November 7, 1995
SCHEDULE 1
AMOUNT BORROWED DATE
EXHIBIT B
ASSIGNMENT OF PATENTS
WHEREAS, I, JAMES A. NETT, a citizen of the United States of America,
with an address of 7949 South I-35 Service Road, Oklahoma City, OK 73149, am the
inventor and holder of Letters Patent of the United States that have been
assigned numbers 4,730,866 and 4,838,602 by The United States Patent and
Trademark Office on March 15, 1989 and June 13, 1989, respectively, and entitled
"PICKUP BED TONNEAU COVER MOUNTING"; and
WHEREAS, LUND INTERNATIONAL HOLDINGS, INC., a corporation organized and
existing under the laws of the State of Delaware, and having its principal
office located at 911 Lund Boulevard, Anoka, MN 55303, ("Lund") is desirous of
acquiring the entire interest in the same.
NOW, THEREFORE, Be It Known that in consideration of the loan evidenced
by that certain Interim Loan Agreement between Lund and Innovative Accessories,
Inc., dated November 7, 1995, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, I, James A. Nett, have sold, assigned
and transferred, and do hereby sell, assign and transfer unto said Lund, the
entire right, title and interest, both legal and equitable, in and to the same
above identified Letters Patent to be held and enjoyed by Lund, for its own use
and for its legal representatives and assigns, to the full end of the term of
the Interim Loan Agreement, dated November 7, 1995 between Lund and Innovative
Accessories, Inc., and the subsequent Working Capital Loan Agreement between
Lund and Innovative Accessories, Inc. which said Letters Patent are granted, as
fully and entirely as the same would have been held by me had this assignment
and sale not been made.
Signed at Oklahoma City, Oklahoma, this 7th day of November, 1995.
/s/ James A. Nett
James A. Nett
7949 South I-35 Service Road
Oklahoma City, OK 73149
STATE OF OKLAHOMA
ss
COUNTY OF OKLAHOMA
On this 7th day of November 1995, before me, a Notary Public for and
within the County aforesaid, personally appeared JAMES A. NETT, to me known and
known to me to be the person described in the foregoing Assignment, and he
acknowledged to me that he executed the same as his free act and deed.
(SEAL) /s/ Rhonda Clark
Notary Public
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