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 December 31, 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 February 5, 1996, 4,391,970 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
December 31, 1995 (Unaudited)
and June 30, 1995 1-2
Consolidated Income Statements (Unaudited)
Three and six months ended December 31, 1995 and 1994 3
Consolidated Statements of Cash Flows (Unaudited)
Three and six months ended December 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 6-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1995
----------- -----------
(unaudited)
ASSETS
Current Assets
Cash and temporary cash investments $ 91,314 $ 269,168
Restricted cash 261,766 783,793
Marketable securities 7,741,209 11,026,034
Restricted marketable securities 231,776 0
Accounts receivable, net 10,532,325 9,674,908
Inventories 4,931,905 4,669,550
Deferred tax assets 678,800 678,800
Other current assets 806,314 830,448
----------- -----------
Total current assets 25,275,409 27,932,701
----------- -----------
Long Term Assets
Property and equipment, net 6,562,992 6,630,666
Restricted cash and marketable securities 1,129,846 1,336,564
Deferred financing costs, net 135,991 151,682
Note receivable 1,955,939 0
Other assets, net 680,762 654,585
----------- -----------
Total long term assets 10,465,530 8,773,497
----------- -----------
TOTAL ASSETS $35,740,939 $36,706,198
=========== ===========
The accompanying notes are an integral part of these financial statements.
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1995
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 1,134,100 $ 2,797,718
Accrued expenses and other 1,826,371 2,563,329
Income taxes payable 106,090 391,126
Long term debt - current portion 440,000 420,000
----------- -----------
Total current liabilities 3,506,561 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 December 31, 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 (82,754) (150,356)
Unearned deferred compensation (194,132) (242,175)
Retained earnings 26,506,192 24,690,349
----------- -----------
Total stockholders' equity 27,644,378 25,504,025
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $35,740,939 $36,706,198
=========== ===========
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 10,267,716 $ 11,056,725 $ 20,704,299 $ 22,163,874
Cost of goods sold 6,322,298 6,337,476 12,806,483 12,525,361
------------ ------------ ------------ ------------
Gross profit 3,945,418 4,719,249 7,897,816 9,638,513
Operating expenses
General and administrative 1,113,741 952,470 2,110,263 1,916,007
Selling and marketing 1,319,783 1,111,456 2,587,365 2,171,542
Research and development 275,519 233,656 521,946 465,714
------------ ------------ ------------ ------------
Total operating expenses 2,709,043 2,297,582 5,219,574 4,553,263
------------ ------------ ------------ ------------
Income from operations 1,236,375 2,421,667 2,678,242 5,085,250
Other income (expense)
Interest expense (77,944) 0 (169,793) 0
Interest income 153,184 151,269 315,598 283,657
Other (57,604) (27,254) (51,771) (123,808)
------------ ------------ ------------ ------------
Other income (expense), net 17,636 124,015 94,034 159,849
------------ ------------ ------------ ------------
Income before taxes 1,254,011 2,545,682 2,772,276 5,245,099
Provision for income tax 432,631 890,839 956,433 1,835,634
------------ ------------ ------------ ------------
Net income $ 821,380 $ 1,654,843 $ 1,815,843 $ 3,409,465
============ ============ ============ ============
Net income per share $ 0.19 $ 0.37 $ 0.41 $ 0.77
============ ============ ============ ============
Weighted average number
of shares outstanding 4,394,122 4,427,088 4,421,642 4,413,104
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,815,843 $ 3,409,465
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 374,545 276,217
Deferred compensation amortization 48,043 45,312
Gain on disposal of property and equipment (10,758) (24,591)
Provision for doubtful accounts 170,657 28,984
Provision for (reduction in) inventory reserves 49,895 (41,002)
Increase in cash surrender value of life insurance (87,660) (93,863)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,028,074) (2,424,200)
Increase in inventories (312,250) (270,472)
(Increase) decrease in other assets 72,849 (160,470)
Increase (decrease) in accounts payable-trade (1,663,618) 364,570
Increase in accrued expenses and other 172,922 98,035
Decrease in income taxes payable (285,036) (483,866)
----------- -----------
Total adjustments (2,498,485) (2,685,346)
----------- -----------
Net cash (used in) provided by operating activities (682,642) 724,119
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (294,476) (1,969,517)
Proceeds from sales of property and equipment 26,822 34,850
Purchases of marketable securities (2,993,882) (6,725,124)
Proceeds from sale and redemption of marketable securities 6,346,309 4,315,050
Net increase in restricted cash and investments 496,969 (994,430)
Increase in note receivable (1,955,939) 0
----------- -----------
Net cash provided by (used in) investing activities 1,625,803 (5,339,171)
----------- -----------
Cash flows from financing activities:
Cost of bond issuance, net 0 (151,682)
Proceeds from bond offering 0 5,450,000
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 208,865 415,726
----------- -----------
Net cash (used in) provided by financing activities (1,121,015) 5,714,044
----------- -----------
Net increase (decrease) in cash and
and temporary cash investments (177,854) 1,098,992
Cash and temporary cash investments:
Beginning of period 269,168 3,051,861
----------- -----------
End of period $ 91,314 $ 4,150,853
=========== ===========
Supplemental disclosure on cash flow information:
Cash paid during the period for income taxes $ 1,219,000 $ 2,319,500
=========== ===========
Cash paid during the period for interest $ 176,233 $ 0
=========== ===========
</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 December 31, 1995, and the related consolidated income statements for the
three and six month periods ended December 31, 1995 and 1994 and consolidated
statements of cash flows for the six month periods ended December 31, 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:
December 31, June 30,
1995 1995
Raw Materials $2,225,724 $2,195,717
Finished goods and work in process 2,706,181 2,473,833
------------ ------------
Total $4,931,905 $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 - Note Receivable
Lund entered into an agreement to market products for Innovative Accessories,
Inc. dba Luxxus Truxcovers on October 18, 1995. 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 to Innovative Accessories which was $1,955,369 as of December 31, 1995.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED
DECEMBER 31, 1995
AS COMPARED TO THREE AND SIX MONTHS ENDED
DECEMBER 31, 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 the 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 entered into fiscal 1996 without the historical backlog that resulted
from production and shipping constraints in the previous facility. These
fundamental improvements, in addition to the generally soft retail market,
contributed to the decrease in net sales and income for the first six-month
period of fiscal 1996 compared to fiscal 1995.
Results of Operations
Net sales for the three-month period ended December 31, 1995 decreased 7.1% to
$10,267,716 from $11,056,725 for same period ended December 31, 1994. Net sales
for the six-month period ended December 31, 1995 decreased 6.6% to $20,704,299
from $22,163,874 for the same period ended December 31, 1994. The net sales
decrease for both periods was primarily due to Lund's customers reducing their
inventory levels, an overall sluggishness in retail sales and reduced
availability in the fall and early winter of new trucks. The net sales decrease
for the three months ended December 31, 1995, was also impacted by customers
delaying visor orders in anticipation of Lund's newly developed visor which
began shipping during the third quarter of fiscal 1996.
For the three-month period ended December 31, 1995, gross profit decreased 16.4%
to $3,945,418 from $4,719,249 for the same period ended December 31, 1994. For
the six-month period ended December 31, 1995, gross profit decreased 18.1% to
$7,897,816 from $9,638,513 for the same period ended December 31, 1994. For the
three-month period ended December 31, 1995, gross profit margin was 38.4%
compared to 42.7% for the comparable period ended December 31, 1994. For the
six-month period ended December 31, 1995, gross profit margin was 38.1% compared
to 43.5% for the comparable period ended December 31, 1994. The decrease in
gross profit margins for both periods primarily resulted from (i) higher raw
material and packaging expenses, (ii) a shift in sales mix which continued to
favor plastic products and lower gross margin fiberglass products, (iii) higher
labor and manufacturing operating costs as a percent of sales due to lower
production and sales levels, and (iv) higher overall expenses as a percent of
sales for the new facility.
For the three-month period ended December 31, 1995, general and administrative
expenses increased 16.9% to $1,113,741 from $952,470 for the same period ended
December 31, 1994. For the six-month period ended December 31, 1995, general and
administrative expenses increased 10.1% to $2,110,263 from $1,916,007 for the
same period ended December 31, 1994. The increased expenses for both periods
resulted from higher bad debt, recruiting and salary expenses which were offset
by reduced bonus expense. The increased expenses for the three-month period
ended December 31, 1995 included computer consulting expenses and a one-time
write-off of South Dakota facility development costs. As a percent of net sales,
general and administrative expenses were 10.8% and 8.6% for the three-month
periods ended December 31, 1995 and 1994, respectively. As a percent of net
sales, general and administrative expenses were 10.2% and 8.6% for the six-month
periods ended December 31, 1995 and 1994, respectively. These increases were
primarily due to general and administrative expenses increasing in a period when
sales decreased.
For the three-month period ended December 31, 1995, selling and marketing
expenses increased 18.7% to $1,319,783 from $1,111,456 for the same period ended
December 31, 1994. For the six-month period ended December 31, 1995, sales and
marketing expenses increased 19.1% to $2,587,365 from $2,171,542 for the same
period ended December 31, 1994. The increase for both the three and six-month
periods primarily resulted from increased customer co-operative advertising,
sales displays and promotional expenses. As a percent of net sales, selling and
marketing expenses increased to 12.9% and 10.1%, from 12.5% and 9.8% for the
three-month and six-month periods ended December 31, 1995 and 1994,
respectively. These increases were primarily due to sales and marketing expenses
increasing in a period when sales decreased.
For the three-month period ended December 31, 1995, research and development
expenses increased 17.9% to $275,519 from $233,656 for the same period ended
December 31, 1994. For the six-month period ended December 31, 1995, research
and development expenses increased 12.1% to $521,946 from $465,714 for the
comparable period in fiscal 1995. As a percent of net sales, research and
development expenses increased to 2.7% from 2.1% for the three-month period
ended December 31, 1995 compared to the same period ended December 31, 1994. As
a percent of net sales, research and development expenses were 2.5% and 2.1% for
the six-month periods ended December 31, 1995 and 1994, respectively. These
increases primarily resulted from higher facility and operating lease expenses
and lower than anticipated sales which placed research and development expenses
in excess of our 2% goal.
Income tax expense for the three and six-month period ended December 31, 1995
was calculated using an estimated tax rate of 34.5% compared to 35.0% for the
comparable period ended December 31, 1994. The decrease in the estimated tax
rate for fiscal 1996 was primarily due to an increase in tax exempt income.
Liquidity and Capital Resources
The Company has generally funded its operations to date from operating cash
flow. The Company had working capital of $21,768,848 including cash and
marketable securities of $8,094,289 as of December 31, 1995 compared to
$21,760,528 including cash and marketable securities of $12,078,995 as of June
30, 1995. The reduction of $3,984,706 in cash and marketable securities was
principally due to (i) an increase of $1,955,939 in notes receivable from
Innovative Accessories, Inc., (ii) a $1,633,618 decrease in accounts payable
resulting from lowering purchasing levels and by fully utilizing cash discounts
and (iii) a $1,028,074 increase in accounts receivable due to seasonal dating
programs.
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
10.41 Loan Agreement dated November 29, 1995 by and between Innovative
Accessories, Inc. and Lund International Holdings, Inc.
10.42 Revolving Promissory Note dated November 29, 1995 by and between
Innovative Accessories, Inc. and Lund International Holdings, Inc.
10.43 Security Agreement dated November 29, 1995 by and between Innovative
Accessories, Inc. and Lund International Holdings, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended December 31,
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
LOAN AGREEMENT
November 29, 1995
Innovative Accessories, Inc.
7949 South I35 Service Road
Oklahoma City, OK 73149
Re: $1,250,000 Working Capital Loan
Ladies and Gentlemen:
Innovative Accessories, Inc. ("Borrower"), an Oklahoma corporation has
requested that Lund International Holdings, Inc. ("Lender") lend to Borrower the
sum of an amount not less than $1,250,000 as a working capital line of credit.
Lender is willing to lend such funds to Borrower upon the terms and subject to
the conditions set forth in this letter agreement (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 a Working Capital Loan of an
amount not less than $1,250,000 according to this Agreement.
2. Working Capital Line of Credit. The Working Capital Loan shall be
evidenced by a revolving 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 29, 1995, and secured by a duly executed Security
Agreement (the "Security Agreement") 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 the Loan shall be used to pay off the following:
(a) An amount not to exceed $85,000 to First State Bank (Noble, OK) in
full satisfaction of an outstanding loan and for release of security interests
filed by First State Bank on certain of Borrower's assets;
(b) An amount not to exceed $230,000 to Bank One in full satisfaction of
an outstanding loan and for release of security interests filed by Bank One on
certain of Borrower's assets;
(c) An amount to exceed $313,000 to DFM Corporation in full satisfaction
of outstanding balance owing and for release of security interests filed by DFM
Corporation on certain of Borrower's assets;
(d) An amount not to exceed $54,000 to Mr. Robert Ryan in full
satisfaction of loans owing to Mr. Ryan;
(e) An amount not to exceed $90,000 to Mr. John McClelland in full
satisfaction of loans owing to Mr. McClelland;
(f) An amount not to exceed $120,000 to Muxelberg, Duncan, Inc. in full
satisfaction of open payable terms outstanding;
(g) An amount not to exceed $105,000 to the Internal Revenue Service in
full satisfaction of withholding taxes, interest and penalties not currently
payable;
(h) An amount not to exceed $150,000 to Trans America Financial Services,
Inc. (in Oklahoma City, OK) in full satisfaction of outstanding balance on loan
to James A. Nett for his home in Oklahoma City, OK;
(i) An amount not to exceed $101,000 to Ms. Ramona L. Friar as partial
payment of her loan to Borrower; and
(j) An amount not to exceed $2,000 for trade payables.
(k) Any amount in excess of $1,250,000 shall be used for general working
capital purposes for the Company.
3. Guaranty. James A. Nett shall personally guaranty all obligations of
the Borrower, including payment and performance, under the Loan Documents (as
defined below).
4. Definitions. As used in this Agreement the following terms have the
following meanings (equally applicable to singular and plural forms of the terms
defined):
(a) "Inventory" means the Borrower's raw materials and finished goods held
for sale in the ordinary course of business.
(b) "Loan Documents" means this Agreement, the Note, the Security
Agreement, and all other documents to be executed in connection with this
Agreement, all of which are listed on Schedule 1.
(c) "Person" means an individual, corporation, partnership, joint venture,
trust or unincorporated organization or government or other agency or political
subdivision thereof.
(d) "Tangible Net Worth" means the aggregate of the notes receivable due
Borrower from Borrower's employees and shareholders, capital stock, paid in
surplus and retained earnings of the Borrower (excluding stock of the Borrower
held by the Borrower) determined in accordance with generally accepted
accounting principles consistently applied from year to year, less the book
value of all assets of the Borrower that would be treated as intangibles under
generally accepted accounting principles including without limitation, such
items as good will, trade marks, trade names, service marks, copyrights, patents
and licenses.
(e) "Total Liabilities" means the aggregate of the liabilities of Borrower
determined and computed in accordance with generally accepted accounting
principles consistently applied from year to year.
5. Commitment for Revolving Loan. The Lender agrees, in accordance with
the terms of this Agreement, to make advances (the "Advances") to the Borrower
from time to time from the date hereof to and including June 30, 1996 (the
"Termination Date") or the earlier termination of the Commitment under the terms
of this Agreement, in an aggregate amount not to exceed $2,100,000 (the
"Commitment") provided, however, that the aggregate amount of Advances
outstanding shall not at any time exceed the Commitment. Within the limits of
the Commitment the Borrower may borrow, prepay and reborrow under this Section
5.
6. Making of Advances. Borrower may request Advances by giving oral notice
of the amount thereof to the Lender. Any request for an Advance shall be deemed
to be a representation that the Borrower's representations and warranties in all
Loan Documents are true and correct as of the date of the Advance and that no
event has occurred and is continuing, or will result from such Advance, which
constitutes an Event of Default or would constitute an Event of Default but for
the requirement that notice be given or time elapse or both.
7. Mandatory Prepayment. In the event that the aggregate outstanding
principal amount of the Note shall exceed the Commitment, the Borrower shall pay
to the Lender the amount of such excess together with the amount of accrued
interest to the date of such prepayment on the amount prepaid, within five days
after demand by the Lender for such amounts.
8. Conditions Precedent to Making Loan. Lender shall have no obligation to
make the loan hereunder unless the Lender shall have received on or before the
date of such loan the following documents:
(a) The Note, properly executed and delivered on behalf of Borrower.
(b) Evidence of the irrevocable assignment of all patents developed and
held by James A. Nett to the Borrower, and conditional assignments (in form and
substance satisfactory to Lender) of such patents to Lender.
(c) The Security Agreement in a form of Exhibit B attached hereto,
properly executed and delivered on behalf of the Borrower, granting to the
Lender a security interest in all of the Borrower's inventory, accounts and
other property described therein as security for the performance of the
Borrower's obligations under this Agreement and the Note, together with any
UCC-1 Financing Statement or other document deemed necessary by the Lender to
perfect the security interest granted by the Security Agreement.
(d) UCC-3 Statements, properly executed and ready for filing, releasing
all existing liens on Borrower's assets.
(e) Evidence of the irrevocable transfer of all capital stock of the
Borrower held by Mr. Jamie Nett, Mr. John Nett and Mr. Jeffrey Nett to Mr. James
A. Nett.
(f) A legal opinion issued by Borrower's counsel in the form of Exhibit C
attached hereto.
(g) Evidence that that certain agreement between the Borrower and Ramona L
Friar, whereby she may purchase up to 49% of the Borrower has been duly and
irrevocably revoked
9. Representations and Warranties of the Borrower. To induce the Lender to
make the loan, the Borrower represents, warrants, and covenants as follows:
(a) Litigation. No litigation or governmental proceeding is pending or, to
best of the Borrower's knowledge, threatened against the Borrower which may have
a materially adverse effect on the financial condition or operations of the
Borrower, except such litigation as is detailed in the opinion of counsel and
except as noted on Schedule 2, attached hereto.
(b) Taxes. The Borrower has filed all required federal and state income
and excess profits tax returns and has paid all required taxes.
(c) Assumed Liabilities. A true and complete listing of all agreements,
contracts and commitments to which the Borrower is a party as of the date hereof
with respect to the Borrower's business as set forth on Schedule 3 hereto. The
Borrower has delivered to the Lender a true, complete and correct copy of each
such agreement, contract or other commitment with all amendments and other
modifications thereto and all such agreements, contracts and commitments are now
in full force and effect and valid and enforceable in accordance with their
terms. The Borrower is not now in default under any of such agreements,
contracts and commitments and, to the best of the Borrower's knowledge, there is
no default under any of the same by any other party thereto. No event has
occurred that, with the giving of notice or the passage of time or both, would
constitute a default by the Borrower under any of the contracts and, to the best
of the Borrower's knowledge, no event or omission has occurred that, with the
giving of notice or the passage of time or both, would constitute such a default
by any other party thereto. The Borrower has not collected any payment or other
amount owing on or subsequent to the date hereof under any of the contracts,
agreements or other commitments.
(d) Licenses and Permits; Compliance with Laws. The Borrower has all
material licenses, permits, certificates and approvals, including health and
safety permits, from federal, state, local and foreign authorities necessary to
conduct its business and own and operate its assets in the manner such business
is presently conducted as such assets are presently owned and operated
(collectively, the "Permits"), all of which are in full force and effect. To
such Borrower's knowledge (i) the Borrower has fully complied with all material
conditions of the Permits, (ii) the Borrower has not received notice of any
material default or violation, (iii) the Borrower does not have knowledge of any
event which with the lapse of time or giving of notice or both would become a
material default or violation in the due observance of any Permit, and (iv) the
Borrower has not received notice to the effect that there is lacking any
material Permit required in connection with the current use or operation of any
of Borrower's property. The Borrower has made available to the Lender true,
correct and complete copies of all material Permits.
(e) Personnel and Benefits. Schedule 4 attached hereto is an accurate and
complete list of the names of all persons currently employed or retained as
independent contractors by the Borrower, together with a statement of the rate
of compensation currently payable to each such person. The Borrower has no
written or oral agreement with any employee that is not terminable by the
Borrower upon not more than thirty (30) days written notice without payment of
any additional consideration. The Borrower has delivered to the Lender documents
that accurately describe all material employee benefit policies, plans and
arrangements, including, without limitation, contributions to hospitalization
and/or other insurance programs, vacation and sick leave policies, and profit
sharing, pension and retirement plans. Nothing contained in this Agreement shall
be construed to impose any obligation on the Purchaser with respect to any of
the Borrower's employees or agents.
(f) ERISA. No Plan (as that term is defined in the Employees' Retirement
Income Security Act of 1974 ("ERISA")) of Borrower which is subject to Part 3 of
Subtitle B of Title 1 of ERISA had an accumulated funding deficiency (as such
term is defined in ERISA) as of the last day of the most recent fiscal year of
such Plan ended prior to the date hereof, or would have had such an accumulated
funding deficiency on such date if such year were the first year of such Plan,
and no material liability to the Pension Benefit Guaranty Corporation has been,
or is expected by the Borrower to be, incurred with respect to any such Plan. No
Reportable Event (as defined in ERISA) has occurred and is continuing in respect
to any such Plan.
(g) Subsidiaries. Borrower has no Subsidiaries.
(h) Use of Proceeds. No proceeds of this loan will be used to acquire any
security in any transaction which is subject to Sections 13 and 14 of the
Securities Exchange Act of 1934. The proceeds shall be used as set forth in
Section 2 hereof.
(i) Patents, Trademarks, etc. The Borrower has good and marketable title
to all patents, trademarks, processes, copyrights, franchises and licenses,
title to which is necessary for the operation of Borrower's business.
(j) Regulation U. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of this loan will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
(k) Liabilities and Manufacturer's Representative Commissions. All
liabilities, including all manufacturer's representative commissions, are
current as of the date of this Agreement except for liabilities noted in Section
2 above.
(l) The balance sheet furnished to the Lender by the Lender's audit firm
(identified on attached Exhibit D) has been reviewed by the Borrower and fairly
presents the financial condition of Borrower.
(m) Environmental Matters. To the Borrower's knowledge:
(i) The Company is in substantial compliance with all environmental
laws, except for noncompliance that, individually or in the aggregate, is
not reasonably expected to have a material adverse effect;
(ii) There is no proceeding pending or threatened before any court
or governmental agency in which the Borrower has been named as a defendant
or potentially responsible party for alleged noncompliance with any
environmental law, whether or not occurring at or on a site owned or
operated by the Borrower, except for proceedings pending or threatened
that, individually or in the aggregate, are not reasonably expected to
have a material adverse effect;
(iii) There is no proceeding threatened before any court or
governmental agency in which the Borrower reasonably expects to be named
as a defendant or potentially responsible party for alleged noncompliance
with any environmental law except for proceedings that, individually or in
the aggregate, are not reasonably expected to have a material adverse
effect;
(iv) The Borrower has not caused or suffered to occur any release of
a hazardous material in, on, under or above any portion of any real
property owned or leased by the Borrower which is reasonably likely to
give rise to liability under any environmental law, where such liability,
if incurred, would, individually or in the aggregate, have a material
adverse effect. There are no storage tanks, containers, drums, cylinders,
cans or deposits of hazardous materials located in, on, under or above any
portion of any real property owned or leased by the Borrower, other than
in compliance with all applicable laws.
(v) The Borrower has not received any notice from (i) any
governmental agency alleging a violation of any environmental law,
including, without limitation, any environmental law relating, directly or
indirectly, to the environment on, in, under or above any real property
owned or leased by the Borrower, any real property formerly owned or
leased by the Borrower, or any property adjoining property owned or leased
by the Borrower or any affiliated or related person or entity, or (ii)
from any former or subsequent owner, lienholder or former or present
tenant or other user of any real property owned or leased by the Borrower
or any real property formerly owned or leased by the Borrower, seeking
indemnification for any cost associated with the presence of hazardous
materials on, beneath or adjoining any real property owned or leased by
the Borrower or any real property formerly owned or leased by the
Borrower, or (iii) from any other person or entity with respect to the
alleged release by the Borrower or any predecessors thereof of a hazardous
material into the environment.
(n) Lack of Misrepresentations. No representation or warranty made herein
by the Borrower nor any statement or certificate given or to be given to the
lender pursuant hereto on or after the date hereof, in connection with
performance under this Agreement, with respect to the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
knowingly omits or will knowingly omit to state a material fact necessary to
make the statements contained therein not misleading.
(o) Survival of Representations and Warranties. The foregoing
representations and warranties are made by Borrower with the knowledge and
expectation that Lender is placing reliance thereon, notwithstanding any
investigations undertaken by or on behalf of Lender prior to the date hereof,
and such representations and warranties are true as of the date hereof.
10. Affirmative Covenants. So long as the Note remains unpaid or the
Lender has a commitment under this Agreement, the Borrower will, unless the
Lender gives its prior written consent:
(a) Financial Reporting. Furnish to the Lender: (i) as soon as available
and in any event within 30 days after the end of each month (except the final
month) of each fiscal year of the Borrower, balance sheets of the Borrower as of
the end of such month and statements of income and retained earnings of the
Borrower for the period commencing at the end of the previous fiscal year and
ending with the end of such month, certified by the controller of the Borrower;
(ii) as soon as available and in any event within 120 days after the end of each
fiscal year of the Borrower, a copy of the annual report for such year for the
Borrower, containing financial statements for such year certified in a manner
acceptable to the Lender by independent public accountants acceptable to the
Lender; (iii) such other information concerning the conditions or operations,
financial or otherwise, of the Borrower as the Lender from time to time may
reasonably request and; (iv) within 20 days after the end of each month an
accounts receivable and accounts payable aging for the month most recently
ended.
(b) Notification of Default, Etc. Notify the Lender as promptly as
practicable (but in any event not later than 5 Business Days) after Borrower
obtains knowledge of: (i) the occurrence of any event which constitutes an Event
of Default or which would constitute an Event of Default with the passage of
time or the giving of notice or both; or (ii) the commencement of any litigation
or governmental proceedings of any type which could materially adversely affect
the financial condition or business operations of the Borrower.
(c) Minimum Net Working Capital. Maintain at all times a difference
between the amount of total current assets and the amount of total current
liabilities of the Company that is not less than $200,000.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership of its properties. In addition,
the Borrower shall not issue or sell, or agree to issue or sell, any additional
shares of capital stock or grant any options, warrants or rights to purchase any
shares of capital stock.
11. Events of Default. "Events of Default" in this Agreement means any of
the following events:
(a) Failure of the Borrower to pay any monetary obligation pursuant to any
Loan Document when due or, if payable on demand, upon demand;
(b) Any representation or warranty made by, or on behalf of, Borrower or
Guarantor in, or pursuant to, any Loan Document shall prove to have been
incorrect in any material respect when made;
(c) Default in performance of any other covenant or agreement of Borrower
in, or pursuant to, any Loan Document;
(d) The entry against Borrower of a final judgment, decree or order for
the payment of money in the excess of $100,000 and the continuance of such
judgment, decree or order unsatisfied for a period of 30 days without a stay of
execution, except for contested taxes;
(e) Any Reportable Event (as defined in ERISA) shall have occurred and
continue for 30 days; or any Plan shall have been terminated by Borrower not in
compliance with ERISA, or a trustee shall have been appointed by a court to
administer any Plan, or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or any of Borrower's retirement plans subject to ERISA is
not in compliance with ERISA;
(f) Lender shall at any time have reasonable grounds to believe that the
prospect of due and punctual payment of any of the obligations of the Borrower
now or hereafter existing under, or pursuant to, this Agreement is impaired.
12. Rights and Remedies. If any Event of Default shall occur and be
continuing, Lender may exercise any or all of the following rights and remedies;
(a) Declare the Note, all interest thereon, and all other obligations
under, or pursuant to any Loan Document to be immediately due and payable, and
upon such declaration such Note, interest and other obligations shall
immediately be due and payable, without presentment, demand, protest, or any
notice of any kind, all of which are expressly waived;
(b) Exercise any right or remedy available to Lender at law or in equity.
13. No Waiver; Cumulative Remedies. No failure or delay on the part of
Lender in exercising any right or remedy pursuant to any Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy or power preclude other or further exercise thereof, or the
exercise of any other right, remedy or power. The remedies in the Loan Documents
are cumulative and are not exclusive of any remedies provided by law.
14. Amendments and Waivers. No amendment or waiver of any provision of any
Loan Document shall be effective unless such amendment or waiver is in writing
and is signed by the Lender, and such amendment or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given.
15. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic communication) and mailed
or telegraphed or delivered, if to the Borrower, at 7949 South I-35 Service
Road, Oklahoma City, OK 73149, Attention: James A. Nett, President, if to the
Guarantor, at 7949 East I35 Service Road, Oklahoma City, OK 73149, and if to the
Lender, at 911 Lund Boulevard, Anoka, MN 55303, Attention: Jay Allsup, Chief
Financial Officer; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed or telegraphed, be effective when
deposited in the mails or delivered to the telegraph company, respectively,
addressed as aforesaid.
16. Costs and Expenses. The Borrower agrees to pay on demand all costs and
expenses of the Lender in connection with the preparation of the Loan Documents,
including reasonable attorneys fees and legal expenses, as well as all costs and
expenses of Lender, including reasonable attorneys fees and expenses, in
connection with the administration and enforcement of the Loan Documents
(whether suit is commenced or not).
17. Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default the Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any
amounts owed by Lender to Borrower against any and all of the obligations of the
Borrower now or hereafter existing under any Loan Documents, irrespective of
whether or not the Lender shall have made any demand under any Loan Documents
and although such obligations may be unmatured. The Lender agrees promptly to
notify the Borrower after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which Lender may have.
18. Governing Law. All Loan Documents shall be governed by the laws of the
State of Minnesota. Any term used in this Agreement and not otherwise defined
shall have the definition given that term in the Uniform Commercial Code as in
effect in the State of Minnesota from time to time. If any term in this
Agreement shall be held to be illegal or unenforceable, the remaining portions
of this Agreement shall not be affected, and this Agreement shall be construed
and enforced as if this Agreement did not contain the term held to be illegal or
unenforceable. The Borrower hereby irrevocably submits to the jurisdiction of
the Minnesota District Court, Fourth Division, and the Federal District Court,
District of Minnesota, Fourth Division, over any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court.
19. Binding Effect; Assignment. All Loan Documents shall be binding upon
and inure to the benefit of the Loan Parties and the Lender and their respective
successors and assigns. Borrower shall not have the right to assign its rights
or interest under such agreement without the prior written consent of the
Lender.
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 PRES
By /s/ Marilyn Nett
Its Secretary Treasurer
Accepted by:
LUND INDUSTRIES INCORPORATED
By /s/ Jay M. Allsup
CFO
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 29, 1995
EXHIBIT 10.42
EXHIBIT A
REVOLVING PROMISSORY NOTE
$2,100,000 Minneapolis, Minnesota
Dated: November 29, 1995
Due: June 30, 1996
For value received on November 29, 1995, the undersigned Innovative Accessories,
Inc., an Oklahoma corporation, promises to pay to the order of Lund
International Holdings, Inc., a Delaware corporation (hereinafter called the
"Lender"), on June 30, 1996, at its main office at 911 Lund Boulevard, Anoka,
Minnesota 55303 or at any other place designated at any time in writing by the
holder thereof, in lawful money of the United States of America, the principal
sum of an amount not to exceed Two Million One Hundred Thousand Dollars
($2,100,000), or so much thereof as is advanced and remains outstanding
hereunder on the due date hereof, as shown on Schedule 1 hereto, together with
interest (calculated on the basis of actual days elapsed and a 360-day year) on
the unpaid principal hereof, from the date hereof until this Note is fully paid
at an annual rate equal to eight percent (8%). As used herein, "due date" means
the maturity date hereof (whether it be the stated maturity date or such earlier
date by reason of acceleration).
Interest shall be payable monthly, on the first day of each month, commencing
December 1, 1995, and at maturity. The undersigned may prepay this Note at any
time without penalty.
This Note is the Revolving Note referred to in the Loan Agreement dated November
29, 1995, between undersigned and the Lender (the "Loan Agreement").
This Note is secured by a Security Agreement dated November 29, 1995, and is
guaranteed by a personal guaranty of James A. Nett dated November 29, 1995.
If interest hereon is not paid when due, or if any other indebtedness of the
undersigned to the Lender is not paid when due, or if a garnishment summons or a
writ of attachment is issued against or served upon the Lender for the
attachment of any property of the undersigned in the Lender's possession or any
indebtedness owing to the undersigned, or if there should occur an Event of
Default under the Loan Agreement, or if the undersigned shall submit to the
Lender any financial statement containing information which shall prove to be
incorrect in any respect when made, or if the undersigned shall fail to pay when
due any taxes or any indebtedness the undersigned may owe for money borrowed, or
if there has been any material change in the ownership or management of the
undersigned, or if the holder shall at any time in good faith believe that the
prospect of due and punctual payment of the Note is impaired, then, in any such
event, the holder hereof may, at its option, declare this Note to be immediately
payable, together with all unpaid interest accrued hereon, without notice or
demand.
This Note shall also become automatically due and payable (including unpaid
interest accrued hereon) without notice or demand should a petition be filed by
or against the undersigned under the United States Bankruptcy Code, or if a
proceeding is commenced seeking an order for the appointment of a trustee,
receiver or similar officer for the undersigned or for the undersigned's
property.
The holder hereof may at any time renew this Note or extend its maturity date
for any period and release any security for, or any party to, this Note, all
without notice to or consent of and without releasing any accommodation maker,
endorser or guarantor.
The undersigned agrees to pay all costs of collection, including attorneys' fees
and legal expenses, in the event this Note is not paid when due whether suit is
commenced or not, including costs and expenses in litigation, bankruptcy, or
insolvency proceedings. None of the provisions hereof and none of the Lender's
rights or remedies hereunder on account of any past or future defaults shall be
deemed to have been waived by the Lender's acceptance of any past due
installments or by any indulgence granted by the Lender to the undersigned.
Presentment or other demand for payment, notice of dishonor and protest are
hereby waived by the undersigned.
This Note shall be governed by the substantive laws of the State of Minnesota,
except insofar as the Lender may rely on the laws of the United States to
justify the interest rate charged hereunder.
IN WITNESS WHEREOF, Undersigned has caused this Note to be duly executed the day
and year first above written.
INNOVATIVE ACCESSORIES, INC.
By /s/ James A. Nett
James A. Nett
The Undersigned, James A. Nett, majority shareholder and President of
Undersigned, hereby irrevocably and unconditionally guarantees the prompt
payment of the foregoing Note.
GUARANTOR
/s/ James A. Nett
James A. Nett
EXHIBIT 10.43
EXHIBIT B
SECURITY AGREEMENT
This "Security Agreement" is made and entered into this 29 day of
November, 1995, among Innovative Accessories, Inc. ("Debtor"), James A. and
Marilyn Nett ("Stockholders") and Lund International Holdings, Inc. ("Secured
Party").
RECITALS
WHEREAS, Debtor has borrowed $1,250,000 from Secured Party and has
made, executed and delivered a promissory note, of even date hereof, in favor of
Secured Party in the principal amount of $1,250,000 (the "Promissory Note"); and
WHEREAS, to induce Secured Party to lend such amount, Debtor has agreed
to grant Secured Party a security interest in its assets;
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Creation of Security Interest. Debtor hereby grants to Secured Party
a security interest in all of Debtor's right, title and interest in and to the
collateral described in Section 2 hereinbelow (the "Collateral") in order to
secure the payment and performance of the obligations of Debtor to Secured Party
described in Section 3 hereinbelow (the "Security Interest").
2. Collateral. The Collateral under this Security Agreement is all of
Debtor's assets and property, real and personal, tangible and intangible,
including without limitation the real property specified on Schedule 1 hereto,
the equipment specified on Schedule 2 hereto, the patents specified on Schedule
3 hereto (which shall be conditionally assigned to Secured Party), all
inventory, fixtures, supplies, tools, jigs, molds, know-how, processes, bank
accounts, receivables, prepaid items, deposits, designs, blueprints, trade
names, trademarks, other intellectual property, in each case of every kind and
manner whatsoever, and the capital stock of the Stockholders specified on
Schedule 4 hereto.
3. Secured Obligations of Debtor. The Collateral secures and shall
hereafter secure (i) the due and punctual payment by Debtor to Secured Party of
all amounts now or hereafter owed to Secured Party by Debtor under the
Promissory Note, together with any interest thereon and extensions,
modifications and renewals thereof, and (ii) the performance by Debtor of all
other obligations and the discharge of all other liabilities to Secured Party of
every kind and character, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, joint, several and joint and
several, created under the Promissory Note (upon execution and delivery
thereof), this Security Agreement, or the Marketing Agreement, of even date
herewith (all such obligations, the "Obligations"). All payments and performance
shall be in accordance with the terms under which the Obligations were or are
hereafter incurred or created. Debtor shall also promptly reimburse Secured
Party for any and all amounts expended by Secured Party in accordance with, or
in the enforcement (judicially or otherwise) or exercise of its rights under,
the terms of this Security Agreement, including reasonable attorneys' fees,
which amounts are included in the Obligations secured hereunder.
4. Debtor's Representations and Warranties. Debtor represents and
warrants that:
(a) Debtor is (or to the extent that the Collateral is to be
acquired after the date hereof, will be) the sole owner of the
Collateral; the security interest hereunder in the Collateral is a
first, prior and perfected security interest; that there are no
security interests, liens or encumbrances, or adverse claims of title
to, or any other interest whatsoever in, the Collateral or any portion
thereof except the interest of Secured Party and that created by this
Security Agreement; and that no financing statement, mortgage or deed
of trust covering the Collateral or any portion thereof exists or is on
file in any public office;
(b) Neither the execution and delivery of this Security
Agreement by Debtor nor the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof will result in a
breach of any of the terms or provisions of, or constitute a default
under, or constitute an event which with notice or lapse of time or
both will result in a breach of or constitute a default under, any
agreement, indenture, mortgage, deed of trust, equipment lease,
instrument or other document to which Debtor is a party, or conflict
with any law, order, rule or regulation applicable to Debtor of any
court or any federal or state government, regulatory body or
administrative agency, or any other governmental body having
jurisdiction over Debtor or their respective properties.
5. Covenants of Debtor. Debtor covenants that:
(a) So long as Secured Party has not completed foreclosure
proceedings hereunder, Debtor will defend the Collateral against all
claims and demands of all persons (other than Secured Party) at any
time claiming the same or any interest therein;
(b) Debtor will not, without the prior written consent of
Secured Party, change its place of business other than that set forth
in this Security Agreement, or change its name, identity or corporate
structure, and, in the event such consent is given, Debtor will execute
and file any and all documents relative thereto, including without
limitation, financing statements and/or amendments thereto, as
reasonably requested by Secured Party;
(c) Debtor will, within five (5) business days of a request by
Secured Party, procure or execute and deliver any document (including,
without limitation, subordination agreements) give any notices, execute
and file any financing statements or other documents, all in form and
substance satisfactory to Secured Party, mark any chattel paper or
other instrument or document, deliver any chattel paper or instruments
to Secured Party and take any other actions which are necessary or, in
the judgment of Secured Party, desirable to perfect or continue the
perfection and priority of Secured Party's security interest in the
Collateral, to protect the Collateral against the rights, claims, or
interests of third persons or to effect the purposes of this Security
Agreement, and will pay all reasonable costs incurred in connection
therewith. If Debtor shall fail to fulfill its obligations described in
this subsection (c) within the time periods provided herein, Secured
Party is hereby authorized to sign, deliver and/or file any such
documents, notices, financing statements or other writings, mark any
chattel paper or instruments as it deems necessary or advisable as
Debtor's agent and/or attorney-in-fact;
(d) Debtor will not, without the prior written consent of
Secured Party, in any way hypothecate or create or permit to exist any
lien, security interest or encumbrance on or other interest in any of
its properties, assets or rights, including the Collateral other than
the interest of the Secured Party created by this Security Agreement,
nor will Debtor sell, transfer, assign, exchange, lease, or otherwise
dispose of the Collateral. If the Collateral, or any part thereof, is
sold, transferred, assigned, leased, exchanged, or otherwise disposed
of in violation of these provisions, the security interest of Secured
Party shall continue in such Collateral or part thereof notwithstanding
such sale, transfer, assignment, lease, exchange or other disposition,
and Debtor will hold the proceeds thereof in a separate account for
Secured Party's benefit. Debtor will, at Secured Party's request,
transfer such proceeds to Secured Party in kind;
(e) Debtor will not enter into, modify or amend any existing
or future contracts or agreements relating to the sale, lease or
disposition of the Collateral or any part thereof without the prior
written consent of Secured Party. Upon request of Secured Party, Debtor
will provide Secured Party with copies of all existing and hereafter
created contracts and agreements relating to the Collateral or any part
thereof and of all amendments and modifications thereto;
(f) Debtor will pay and discharge all taxes, assessments and
governmental charges or levies against the Collateral prior to
delinquency thereof and will keep the Collateral free of all unpaid
charges whatsoever; provided however, that Debtor shall have the right
to contest any such taxes, assessments, charges or levies, so long as
Debtor posts an appropriate bond or takes other actions reasonably
satisfactory to Secured Party that will ensure that Secured Party's
rights hereunder, including its first priority lien in the Collateral,
are not modified or diminished;
(g) Debtor will keep and maintain the Collateral in good
condition and repair. Debtor will not misuse or abuse the Collateral,
or waste or allow it to deteriorate except for the ordinary wear and
tear of its normal and expected use in Debtor's business, and will
comply with all laws, statutes and regulations pertaining to the use or
ownership of the Collateral.
(h) Debtor will cause the Collateral to be kept insured at its
own expense under one or more policies and against such risks and
liabilities as are reasonably satisfactory to Secured Party.
(i) Debtor will, upon Secured Party's request, promptly notify
Secured Party in writing of any event, or change of law, regulation,
business practice, or business condition, of which it is aware, which
may materially and adversely affect Debtor's ability to pay or perform
any obligations secured hereunder; provided, however, that nothing
contained in this subsection (i) shall require Debtor to disclose any
proprietary or confidential information which could adversely impact
Debtor's competitive position;
(j) Secured Party shall have the right at any time to make any
payments and do any other acts Secured Party may reasonably deem
necessary to protect its security interest in the Collateral,
including, without limitation, the rights to pay, purchase, contest or
compromise any encumbrance, charge or lien which in the judgment of
Secured Party appears to cover or include the Collateral, and appear in
and defend any action or proceeding purporting to affect its security
interest in and/or the value of the Collateral, and in exercising any
such powers or authority, the right to pay all expenses incurred in
connection therewith, including reasonable attorneys' fees. Debtor
hereby agrees to reimburse Secured Party for all reasonable payments
made and reasonable expenses incurred, which amounts shall be secured
under this Security Agreement, and agrees it shall be bound by any
payment made or act taken by Secured Party hereunder. Secured Party
shall have no obligation to make any of the foregoing payments or
perform any of the foregoing acts.
6. Defaults and Remedies.
6.1 The occurrence of any one or more of the following events
or conditions shall constitute a default under this Security Agreement
("Default(s)").
(a) Debtor fails to pay or perform any Obligation or
covenant required herein, or discharge any liability to
Secured Party in accordance with the terms upon which such
Obligation, covenant or liability was incurred or created
within thirty (30) days of giving written notice from Secured
Party to Debtor of such failure;
(b) Debtor makes or has made or furnishes or has
furnished any warranty, representation or statement to Secured
Party as set forth in with this Security Agreement, which is
or was false or misleading in any material respect when made
or furnished (a "False Warranty"), which False Warranty has a
material adverse impact on Secured Party;
(c) The Collateral, or any substantial portion
thereof, is destroyed or damaged and for which the Secured
Party is not fully insured against;
(d) Any lien or encumbrance other than that created
by this Security Agreement is placed on or any levy is made on
the Collateral or any portion thereof, or the Collateral or
any portion thereof is seized or attached pursuant to legal
process; provided, however, that Debtor shall post an
appropriate bond (only if such lien or encumbrance may be a
priority lien to Secured Party's lien hereunder) or take other
actions reasonably satisfactory to Secured Party that will
ensure that Secured Party's rights hereunder, including its
first priority lien in the Collateral, are not modified or
diminished;
(e) Debtor is unable to or does not pay all or any
material portion (in number or dollar amount) of its debts as
they become due, permits or suffers a judgment to exist
against it which has or may have a material impact on Debtor's
ability to perform its obligations under the Promissory Note
or hereunder (unless enforcement thereof is stayed pending
appeal) makes or proposes an assignment for the benefit of
creditors, convenes or proposes to convene a meeting of its
creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts,
proposes any such moratorium, extension or composition, or
commences or proposes to commence any bankruptcy,
reorganization or insolvency proceeding, or other proceeding
under any federal, state or other law for the relief of
debtors;
(f) Debtor fails to obtain the dismissal, within
thirty (30) days after the commencement thereof, of any
bankruptcy, reorganization or insolvency proceeding, or other
proceeding under any law for the relief of debtors, instituted
against it by one or more third parties, fails actively to
oppose any such proceeding, or, in any such proceeding,
defaults or files an answer admitting the material allegations
upon which the proceeding was based or alleges its willingness
to have an order for relief entered or its desire to seek
liquidation, reorganization or adjustment of any of its debts;
(g) Any receiver, trustee or custodian is appointed
to take possession of all or any substantial portion of the
assets of Debtor, or any committee of the Debtor's creditors,
or any class thereof, is formed for the purpose of monitoring
or investigating the financial affairs of Debtor or enforcing
such creditors' rights;
(h) Debtor ceases to conduct its business in the
ordinary course;
6.2 Immediately upon the occurrence of a Default hereunder,
Secured Party may, at its option, upon five (5) business days' notice
to or demand upon Debtor, do any one or more of the following:
(a) Declare all Obligations to be immediately due and
payable, whereupon all unpaid amounts and interest on said
amounts shall become and be immediately due and payable;
(b) Exercise any or all of the rights and remedies
provided for by the applicable Uniform Commercial Code,
specifically including, without limitation, the right to
recover the reasonable attorneys' fees and other reasonable
expenses incurred by Secured Party in the enforcement of this
Security Agreement or in connection with Debtor's redemption
of the Collateral;
(c) Require Debtor to assemble the Collateral or any
part thereof (as such term is used by the relevant Uniform
Commercial Code(s) and/or applied in cases thereunder) and
make it available at one or more places as Secured Party may
designate, and to deliver possession of the Collateral or any
part thereof to Secured Party, which delivery and assembly
shall be accomplished by execution of document of title and
Secured Party shall have full right to enter upon any or all
of Debtor's premises and property to exercise Secured Party's
rights hereunder;
(d) Use, manage, operate and control the Collateral
to preserve the Collateral or its value, including, without
limitation, the rights to make repairs, replacements,
alterations, additions and improvements to the Collateral and
to dispose of all or any portion of the Collateral;
(e) Use, in connection with any assembly, use or
disposition of the Collateral, copyright, patent or technical
knowledge or process used or utilized by Debtor;
(f) Enforce one or more remedies hereunder,
successively or concurrently, and such action shall not
operate to estop or prevent Secured Party from pursuing any
other or further remedy which it may have, and any
repossession or retaking or sale of the Collateral pursuant to
the terms hereof shall not operate to release Debtor until
full and final payment of any deficiency has been made in
cash. Debtor shall reimburse Secured Party upon demand for, or
Secured Party may apply any proceeds of Collateral to, the
costs and expenses (including reasonable attorneys' fees,
transfer taxes and any other charges) incurred by Secured
Party in connection with any sale, disposition or retention of
any Collateral hereunder;
(g) In connection with any public or private sale
under the applicable Uniform Commercial Code, Secured Party
shall give Debtor at least five (5) business days' prior
written notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or
other intended disposition thereof is to be made, which shall
be deemed to be reasonable notice of such sale or other
disposition. Such notice may be delivered to Debtor at the
address set forth in Section 7.2 of this Security Agreement.
Secured Party shall have no obligation to exhibit (as may be
required, if any, under any relevant Uniform Commercial
Code(s) and/or applied in cases thereunder) any part of the
Collateral at or prior to the sale thereof;
(h) Proceed by an action or actions at law or in
equity to recover the amounts secured hereunder or to
foreclose this Security Agreement and sell the Collateral, or
any portion thereof, pursuant to a judgment or decree of a
court or courts of competent jurisdiction; and
(i) In the event Secured Party recovers possession of
all or any part of the Collateral pursuant to a writ of
possession or other judicial process, whether prejudgment or
otherwise, Secured Party may thereafter retain, sell or
otherwise dispose of such Collateral in accordance with this
Security Agreement or the applicable Uniform Commercial Code,
and following such retention, sale or other disposition,
Secured Party may voluntarily dismiss without prejudice the
judicial action in which such writ of possession or other
judicial process was issued. Debtor hereby consents to the
voluntary dismissal by Secured Party of such judicial action,
and Debtor further consents to the exoneration of any bond
which Secured Party filed in such action.
7. Miscellaneous Provisions.
7.1 Applicable Law; Entire Agreement; Modification. The
existence, validity, construction, operation and effect of this
Security Agreement shall be determined in accordance with and be
governed by the laws of the State of Minnesota. The parties agree that
any action regarding this Security Agreement shall be venued solely in
any federal district or state court in the State of Minnesota. The
parties agree to submit to the personal jurisdiction of any such court
and hereby waive any objection thereto. This Security Agreement
constitutes the entire agreement between the parties and supersedes all
previous understandings, commitments or representations concerning the
subject matter. The parties each acknowledge that the other party has
not made any representations other than those which are contained
herein (or any exhibit or attachment thereto). This Security Agreement
may not be amended or modified in any way, except by a writing signed
by an authorized officer or the party against whom the amendment,
modification or waiver is sought to be enforced.
7.2 Notices. All notices and other communications from either
party to the other hereunder shall be in writing and shall be deemed
received upon actual receipt when personally delivered, upon
acknowledgment of receipt if sent by facsimile or upon the expiration
of the third business day after being deposited in the United States
mails, postage prepaid, certified or registered mail, addressed to the
other party as follows:
TO SECURED PARTY:
If by mail: Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, Minnesota 55303
Attention: Jay Allsup
If by Fax: (612) 576-4297
Attention: Jay Allsup
TO DEBTOR:
If by mail: Innovative Accessories, Inc.
7949 East I-35 Service Road
Oklahoma City, OK 73149
Attention: James A. Nett, President
If by Fax: (918) 224-8227
Attention: James A. Nett, President
All payments to be made under this Security Agreement, if made by mail,
shall be deemed to have been made on the date of receipt thereof. The
parties hereto may change their addresses by giving notice thereof in
conformity with this Section 7.2.
7.3 Severability. Nothing contained in this Security Agreement
shall be construed so as to require the commission of any act contrary
to Law, and wherever there is any conflict between any provision of
this Security Agreement and any Law, such Law shall prevail; provided,
however, that in such event the provisions of this Security Agreement
so affected shall be curtailed and limited only to the extent necessary
to permit compliance with the minimum legal requirement, and no other
provisions of this Security Agreement shall be affected thereby and all
such other provisions shall continue in full force and effect.
7.4 Successors, Assignment. This Security Agreement shall be
binding on and shall inure to the benefit of any and all successors and
assigns of the parties. Any purported assignment by Debtor without the
prior written consent of Secured Party, which may be withheld in its
sole discretion, shall be null and void and of no force and effect.
Secured Party shall have the right to assign its interest under this
Security Agreement.
7.5 Heading. The descriptive headings of the several sections
and paragraphs of this Security Agreement are inserted for convenience
only and do not constitute a part of this Security Agreement.
7.6 Counterparts. This Security Agreement may be executed in
several counterparts, each of which shall be deemed an original, and
all such counterparts together shall constitute but one and the same
instrument.
7.7 No Waiver. No delay in enforcing or failure to enforce any
right under this Security Agreement by Secured Party shall constitute a
waiver by Secured Party of such right. No waiver by Secured Party of
any default or Default hereunder shall be effective unless in writing,
nor shall any waiver operate as a waiver of any other default or
Default or of the same default or Default on a future occasion.
7.8 Time of the Essence. Time is of the essence of each
provision of this Security Agreement of which time is an element.
7.9 Definitions. All terms not defined herein shall have the
meaning set forth in the applicable Uniform Commercial Code, except
where the context otherwise requires.
7.10 Survival of Provisions. All representations, warranties
and covenants of Debtor contained herein shall survive the execution
and delivery of this Security Agreement, and shall terminate only upon
the full and final payment and performance by Debtor of its
indebtedness and obligations secured hereunder.
7.11 Power of Attorney. Debtor hereby appoints and constitutes
Secured Party as Debtor's attorney-in-fact for purposes of (i)
collecting accounts or proceeds of any Collateral, (ii) conveying any
item of Collateral, only upon an event of Default, to any purchaser
thereof, (iii) executing, delivering, marking and/or filing any
documents or instruments which Secured Party may file pursuant to the
last sentence of Section 5(c) hereof; and (iv) making any payments or
taking any acts under section 5(j) hereof. Secured Party's authority
hereunder shall include, without limitation, the authority to endorse
and negotiate, for Secured Party's own account, any checks or
instruments in the name of Debtor, to execute and receive any
certificate of ownership or any document, to transfer title to any item
of Collateral, and to take any other actions necessary or incident to
the powers granted to Secured Party in this Security Agreement. This
power of attorney is coupled with an interest and is irrevocable by
Debtor.
7.12 Authority of the Secured Party. Secured Party shall have
and be entitled to exercise all powers hereunder which are specifically
delegated to Secured Party by the terms hereof, together with such
powers as are reasonably incident thereto. Secured Party may perform
any of its duties hereunder or in connection with the Collateral by or
through agents or employees and shall be entitled to retain counsel and
to act in reliance upon the advice of counsel concerning all such
matters. Neither Secured Party nor any director, officer, employee,
attorney or agent of Secured Party shall be liable to Debtor for any
action taken or omitted to be taken by it or them hereunder, except for
its or their own recklessness, gross negligence or willful misconduct;
nor shall Secured Party be responsible for the validity, effectiveness
or sufficiency hereof or of any document or security furnished pursuant
hereto, except for the release of the Security documents. Secured
Party, and its directors, officers, employees, attorneys or agents,
shall be entitled to rely on any communication, instrument or document
believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons. Debtor agrees to
indemnify and hold harmless Secured Party and/or any such other person
from and against any and all costs, expenses (including reasonable
attorneys' fees) claims or liability incurred by Secured Party or such
person hereunder, unless such claim or liability shall be due to
recklessness, willful misconduct or gross negligence on the part of
Secured Party or such person.
7.13 Termination of Agreement. This Security Agreement shall
terminate upon full and final payment and performance of all the
Obligations. At such time, Secured Party shall release its interest to
Debtor in all of the Collateral hereunder which has not been sold,
disposed of, retained or applied by Secured Party in accordance with
the terms hereof. Such release shall be without warranty by or recourse
to Secured Party, except that Secured Party shall warrant that the
Collateral shall be free and clear of any liens or encumbrances caused
by it, and shall be at the expense of Debtor. Both parties shall
reasonably provide the other with requested documentation and filings
with respect to such release.
7.14 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Security Agreement, or to seek damages
for a breach of any provision hereof, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to any other
available remedy.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the day and year first written above.
"SECURED PARTY" "DEBTOR"
LUND INTERNATIONAL HOLDINGS, INC. INNOVATIVE ACCESSORIES,
INC.
By: /s/ Jay M. Allsup By: /s/ James A. Nett
Its: CFO Its: PRES
<TABLE> <S> <C>
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<CIK> 0000820526
<NAME> LUND INTERNATIONAL HOLDINGS, INC.
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
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439,197
0
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