SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______to________
Commission File Number: 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1568618
(State or other jurisdiction (I.R.S. Employer
or organization) Identification Number)
911 Lund Boulevard, Anoka Minnesota 55303
(Address of principal executive offices including Zip Code)
Registrant's telephone number, including area code: (612) 576-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Number of shares of Common Stock, $.10 par value, outstanding as of September
19, 1996 was 4,391,970. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of September 19, 1996 was approximately
$34,028,811 based upon the last sale price of the registrant's Common Stock on
such date.
Documents incorporated by reference:
Portions of the registrant's 1996 Annual Report to Stockholders are incorporated
by reference into Part II and portions of the registrant's Proxy Statement are
incorporated by reference into Part III.
Page 1 of 110 Pages
The Exhibit Index is located on page 18
PART I.
Item 1. BUSINESS
General
Lund International Holdings, Inc. ("Holdings") was incorporated on November 10,
1986, pursuant to the Delaware General Corporation Law. Lund Industries,
Incorporated ("Lund") was incorporated as a Minnesota corporation in 1965 and
first engaged in its present business in 1974. In October 1987, Holdings
acquired Lund as a wholly-owned operating subsidiary. During fiscal 1993, a
foreign sales corporation was incorporated and named Lund International FSC,
Inc. ("FSC") as a wholly-owned foreign sales corporation of Holdings. In fiscal
1996, Lund Acquisition Corp. ("Acquisition") was incorporated as a Minnesota
corporation. During 1996, Acquisition acquired certain assets of Innovative
Accessories, Inc., an Oklahoma corporation. (Holdings, Lund, FSC and Acquisition
will hereinafter be referred to collectively as the "Company" or "Lund").
Lund is a leading designer, manufacturer and marketer of a broad line of
appearance accessories for new and used light trucks, including pickup trucks,
sport utility vehicles, minivans and other vans. The Company's products allow
consumers to customize the relatively uniform look of light trucks with stylish
and functional accessories which are engineered and designed to give an original
equipment look and fit. The Company currently has 32 product lines, each
designed to fit a wide range of makes, models and years of light trucks. The
Company's major product categories are:
EXTERNAL VISORS, which give light trucks an aerodynamically-styled look
while reducing glare;
HOOD SHIELDS/BUG DEFLECTORS, which provide a distinctive look and
protect hoods and windshields from insects, stones and road debris;
RUNNING BOARDS, which provide an original equipment look, protect the
rocker panels of a vehicle and assist in passenger entry and exit;
TONNEAU COVERS, which protect the bed of a pickup truck with a smooth,
stylish look; and
OTHER EXTERNAL APPEARANCE ACCESSORIES, which include cab extenders,
styling covers for taillights and headlights, tailgate protectors,
fender extensions, custom grille inserts, rear window air deflectors,
side window covers, wiper cowls, rear valances, interior window nets,
cargo trays, floor mats and bumper covers.
Products
The Company currently has 32 appearance product lines, each designed to fit a
wide range of vehicles. These products are generally manufactured from
fiberglass or plastic sheets composed of polyester, ABS plastic, acrylic or
polycarbonate. Virtually all of Lund's products are custom molded for an exact
fit to each vehicle.
EXTERNAL VISORS
In fiscal 1978, Lund entered the light truck accessory market by introducing the
Lund SunVisor(R). Since then, the Company has been designing, manufacturing and
selling external visors and believes it is the largest supplier of external
visors in the industry. In fiscal 1996, Lund introduced and began shipping the
Solar(TM) and Lunar(TM) visors. The visor category represented 36.2%, 43.4% and
48.8% of the Company's gross sales in fiscal 1996, 1995 and 1994, respectively,
The Company's current visor product lines include:
LUND SUNVISOR(R). The Lund SunVisor extends forward from the roofline of the
truck's cab, enhancing its appearance with an aerodynamically-styled look while
reducing glare for passengers. A distinctive hawk-like silhouette is
incorporated into a majority of the Lund SunVisors.
MOONVISOR(TM). The MoonVisor is similar to the Lund SunVisor, with the addition
of recessed amber running lights for additional style and lighting.
The SunVisors and MoonVisors are sold unpainted to allow a customer to match the
paint of the visor to that of the vehicle. The visors are easy to install and
are mounted to the cab of the vehicle using self-tapping screws which are capped
with custom finishing covers.
SOLAR(TM) VISOR. The Solar Visor is manufactured using a UV stable, ABS polymer
and is designed with the unique feature of attaching in the door mount of the
vehicle rather the into the roof. This visor is available in the color black and
can be painted to match the exterior of the vehicle.
LUNAR(TM) VISOR. The Lunar Visor is similar to the Solar Visor, with the
addition of D.O.T. approved recessed amber lights.
HOOD SHIELDS/BUG DEFLECTORS
The Company entered the hood shield/bug deflector market in fiscal 1990 and now
offers four styles, which represented 24.1%, 23.9% and 23.3% of the Company's
gross sales in fiscal 1996, 1995 and 1994, respectively.
These product lines currently are:
INTERCEPTOR(TM). The Interceptor's wrap-around design is consistent with
today's sleek looking vehicles. The Interceptor's unique design protects the
leading edge of each fender as well as the hood from bugs, stones and other road
debris. This product line is available in smoke, red, blue and clear. The clear
shield can be painted for a more customized look.
FRONTRUNNER(TM). The FrontRunner, which is also available for certain cars,
follows the contour of the hood for a "second skin" look and mounts easily
without tools or drilling. The FrontRunner protects the hood as well as the
leading edge of each fender and is available in a black satin finish which can
be painted to match the color of the vehicle.
PREDATOR I(TM). The Predator I is a low-profile hood shield that is contoured
to match the lines of the hood for maximum aerodynamics. This product line is
available in smoke color.
PREDATOR II(TM). The Predator II is similar to the Predator I but has the added
feature of a wrap-around design for hood and fender protection. This product
line is also available in smoke color.
RUNNING BOARDS AND STEP BOARDS
In fiscal 1992, the Company entered this market when it developed its line of
fiberglass running boards. The Company currently offers four sets of running
boards, which provide an original equipment look, protect the rocker panels of a
vehicle and assist in passenger entry and exit. This product category
represented 18.0%, 14.4% and 10.8% of the Company's gross sales in fiscal 1996,
1995 and 1994, respectively. These lines currently are:
RUNNINGMATES(TM). RunningMates are full-length fiberglass running boards that
come with a non-skid rubber tread, gravel guard and splash guard. RunningMates
are offered in a two-piece design for pickups and large sport utility vehicles.
This product line is available in ready-to-paint white gel-coat or, for the Ford
Explorer, in mocha.
STEPMATES(TM). StepMates are single step boards that are similar to
RunningMates in style and function. StepMates are available in a white gel-coat
finish to allow a customer to match the exterior of the vehicle.
SUPERSTEPS(TM). SuperSteps are step boards designed to be a multi-application
product with limited part numbers that fit a broad array of vehicles. SuperSteps
are molded from an ABS black polymer which can be painted to match the vehicle
or installed without painting.
SIDETRACKER(TM). SideTracker running boards are designed to allow four
applications to fit most extended cab pickups and sport utility vehicles. These
running boards are manufactured from ABS plastic polymer which can be installed
without painting or painted to match the vehicle.
TONNEAU COVERS
The Company entered into the tonneau cover market with an initial marketing
agreement with, and the subsequent acquisition of certain assets of, Innovative
Accessories, Inc. The Company currently markets two styles of soft tonneau
covers, which are each designed to protect the bed of a pickup truck. This
product category represented 2.2% of the Company's gross sales in fiscal 1996.
These product lines currently are:
LUXXUS ADVANTAGE(TM). The Advantage tonneau cover is a vinyl cover that is
attached to the bed of a pickup truck to protect the cargo from the elements and
to add a smooth look to the pickup. The Advantage tonneau cover is available in
black. The cover attaches to the bed of the truck with the use of anodized
aluminum rails that are clamped onto the bed. Rust-proof Insulsnaps(R) are used
to attach the vinyl to the rail.
LUXXUS PREMIER(TM). The Premier tonneau cover is similar to the Advantage cover
but has an upgraded bow design system that allows for easy removal of the bows.
The Premier is available in a variety of colors to complement the color of the
pickup.
OTHER EXTERNAL APPEARANCE ACCESSORIES
The Company began designing, manufacturing and selling other external appearance
accessories in 1982. These products represented 19.5%, 18.3% and 17.1% of the
Company's gross sales in fiscal 1996, 1995 and 1994, respectively. The Company's
other external appearance accessories currently are:
CAB EXTENDERS AND BODY ACCESSORIES. The Company designed and began selling cab
extenders in the 1980's, and other body accessories in the 1990's. The Company's
cab extender and other body accessory product lines include:
FASTBACK(R). The Fastback is a cab spoiler designed to enhance the appearance of
a pickup truck by extending the lines of the cab. It also acts like a visor for
the back of the cab and provides a bar on which accessory lights may be mounted.
This product line is available with solid or cutout side panels and has a white
gel-coat finish which can be painted to match the vehicle.
RACERBACK(TM). The Racerback cab fairing is similar to the Fastback except that
it raises above the cab line with a streamlined spoiler-effect and fastens to
the truck cab and roof. The Racerback also allows for the use of a tonneau
cover. The Racerback comes in a white gel-coat finish which can be painted to
match the vehicle.
WINDJAMMER(TM). The WindJammer is a stylish rear window air deflector that
helps prevent the build-up of dirt on the rear window of vans, minivans and
sport utility vehicles. The WindJammer is available in smoke acrylic or
paintable plastic.
TAILMATE(TM). The TailMate is a fiberglass rear valance that is mounted below a
pickup truck's tailgate, providing a smooth look to the back of the vehicle. The
TailMate comes in a white gel coat finish which can be painted to match the
vehicle.
WIDESIDES(TM). WideSides are fiberglass fender extensions which attach to the
rear wheel wells of a pickup truck, giving a vehicle a "dual-tire" look.
WideSides extend the body panel by approximately four inches and are offered in
a nine inch super-wide size for Chevrolet(R) pickup trucks. WideSides come in a
white gel-coat finish which can be painted to match the vehicle.
GATEKEEPER(TM). The GateKeeper tailgate protector adheres to the top edge of a
pickup truck's tailgate, protecting it from scratches and dents. The GateKeeper
is made from flexible PVC and is sold in black.
SHADOW(TM) WIPER COWL. The Shadow wiper cowl hides the windshield wipers and
creates the appearance of a lowered cab, known as a "chopped look." The Shadow
is available in smoke or a paintable clear finish.
RUNNINGMATE(TM)REAR EXTENDER. The RunningMate rear extender is used to
complement the Company's running board line by extending the look of the running
boards to the rear portion of the fender. The RunningMate Extender is made of
ABS black polymer plastic and can be painted to match the vehicle.
N.E.T PERFORMANCE(TM) BY LUND. N.E.T.s are designed to capitalize on the popular
motorsports enthusiasm. They are installed to the interior of a vehicle to give
the look of window racing nets. N.E.T.s are available in a variety of colors.
HARDNOSE(TM) BUMPER COVER. The HardNose bumper cover is a clear plastic polymer
cover for the front bumper of a vehicle. The HardNose can be painted from behind
to ensure a chip-free painted surface.
BACKDRAFT(TM) TAILGATE SPOILER. The BackDraft tailgate spoiler is a designed
black ABS polymer spoiler that can be attached to the tailgate of a pickup using
3M(R) tape.
GRILLE INSERTS. The Company entered the market for grille inserts when it
acquired the Cold Front(R) product line in fiscal 1990. The Company developed
the Screen Front(TM) product line in fiscal 1991.
COLD FRONT(R). The Cold Front custom grille insert snaps into the grille of a
light truck to give a stylish "blacked-out look" and to provide it with fast
engine warm-up and even engine temperature in cold weather. The Cold Front
consists of solid Lexan(R) panels which come in smoke.
SCREEN FRONT(TM). The Screen Front custom grille insert is similar to the Cold
Front except that it consists of perforated Lexan panels that are used to screen
bugs and road debris from the grille. The Screen Front is sold in smoke and can
be painted to match the vehicle.
HEADLIGHT, TAILLIGHT AND SIDE WINDOW STYLING COVERS. In fiscal 1993, the Company
introduced its Eclipse(TM) line of styling covers for headlights and taillights.
The Company introduced the Eclipse side window styling covers in fiscal 1994.
The Eclipse product lines are:
ECLIPSE HEADLIGHT AND TAILLIGHT STYLING COVERS(TM). The Eclipse headlight and
taillight styling covers are solid in design and can be easily mounted without
tools or drilling, either by snapping in place or by using a patented mounting
system acquired by the Company. The Eclipse headlight styling covers are
available in smoke and paintable clear, and the Eclipse taillight styling covers
are available in smoke. The Company entered the market for automobile
accessories with its headlight styling covers, which are available for most
domestic and imported cars and light trucks.
ECLIPSE SLOTTED TAILLIGHT STYLING COVERS(TM). The Eclipse slotted taillight
styling covers provide a distinctive look and can be easily mounted using
double-sided industrial tape. This product comes in a paintable black finish.
ECLIPSE SIDE WINDOW STYLING COVERS(TM). The Eclipse side window styling covers
provide a distinctive look for many domestic and imported extended cab pickup
trucks. These covers attach to the side window using double-sided industrial
tape. The Eclipse side window styling covers come in smoke or a paintable black
finish.
CARGO TRAYS AND FLOOR MATS. The Company entered the market for cargo trays and
floor mats with the introduction of two new products in fiscal 1995. These
products are used to protect the interior floor of vehicles. Lund's cargo trays
and floor mats are manufactured using a special blend of polymers and recycled
rubber.
SPORTLINER(TM) CARGO TRAYS. The SportLiner cargo trays are used to protect the
storage areas of sport utility vehicles and minivans and are manufactured on the
Company's vacuum forming machine. This product is available in a variety of
colors to match the interior of the vehicle.
SPORTMAT(TM) FLOOR TRAYS. SportMats are designed to protect the interior floor
space of a light truck and are also manufactured on the vacuum forming machine.
This product is available to match the SportLiner cargo trays.
Manufacturing Process
The Company's products are generally manufactured from fiberglass or plastic
sheets composed of polyester, ABS plastic, acrylic or polycarbonate. Product
lines representing a majority of the Company's sales are manufactured from
laminated fiberglass and polyester resin, making these the predominate raw
materials currently used by the Company. The Company believes that the raw
materials it uses are available from numerous sources and that it could find
alternative vendors to supply such materials or alternative materials, if
necessary.
Fiberglass products, such as Lund SunVisors, Fastbacks and RunningMates, are
manufactured largely by hand using production molds to form a 1/8" fiberglass
laminate into product shapes. The edges are then machine trimmed and hand sanded
for a smooth finish.
Plastic products, including the Solar and Lunar visors, FrontRunner, WindJammer
and the Eclipse product lines, are manufactured from plastic sheets utilizing
drape forming and vacuum forming processes. In the drape forming process, a
plastic sheet is cut into custom flat shapes, known as blanks. These blanks are
heated in a computerized conveyor oven and formed into products by draping the
heated blanks over molds. In the vacuum forming process, a plastic sheet is
heated and formed over a mold using vacuum pressure in a thermoforming machine.
To supplement its internal manufacturing, the Company relies on independent
manufacturers. During fiscal 1996, the Company began outsourcing a portion of
its traditional visor line to a manufacturer that utilizes compression molding.
This manufacturing technique ensures that product is uniform in strength,
thickness and surface quality.
In addition, the Company is investigating the use of an automated resin transfer
molding process in its fiberglass manufacturing department.
The Company qualifies each manufacturer and works closely with it to assure the
timely delivery of products that meet the Company's specifications. The Company
generally retains ownership of the tooling used to produce a product line, with
the understanding that it will remove the tooling from the manufacturer's plant
at the termination of the manufacturing relationship.
The Company has not experienced any product liability claims in the past. Lund
generally provides limited lifetime warranties against manufacturing defects on
its products. Historically, warranty expense has not been material to the
Company. In fiscal 1996 and 1995, the Company had warranty expense of $778,239
and $510,624, which represented 1.7 % and 1.1% of net sales, respectively. These
expenses resulted primarily from warranty claims related to breakage in its
acrylic product lines. The Company believes it has addressed this issue by
moving to a virtually non-breakable Lexan(R) plastic material for a majority of
its acrylic product line.
Marketing and Sales
The Company sells its products through a national distribution system utilizing
an in-house sales staff and independent manufacturers' representatives. The
Company has three in-house regional sales managers who oversee 13 independent
manufacturers' representative organizations employing approximately 60 sales
representatives. The Company's staff and the independent manufacturers'
representatives sell the Company's products to warehouse distributors, dealer
expediters, automotive specialty chain stores, convertors and catalog companies.
In addition, the Company sells heavy duty truck visor products to original
equipment manufacturers.
While the light truck accessory market is highly fragmented, the Company
believes that there is a trend among distributors to prefer suppliers, such as
Lund, who provide well-recognized brand names, customer service and a broad
product line that accommodates "one-stop-shopping." In addition, the Company
believes that there is a trend toward computerized ordering and therefore offers
its customers access to ordering through Electronic Data Interchange (EDI).
Virtually all of the Company's sales are from product lines sold in the United
States and Canada. The Company delivers product to warehouse distributors by
truck from its manufacturing and warehouse facilities in Anoka, Minnesota and
Oklahoma City, Oklahoma, as well as from independent warehouses in Toronto,
Ontario and Los Angeles, California.
The Company's marketing program is focused on developing high profile new
products, creating excitement around its broad product offering and building
equity in the Lund name.
The Company employs an integrated communications strategy that utilizes consumer
and trade advertising, public relations, promotions, point-of purchase and
packaging to communicate a specific message to each level of the selling
process. That message is centered on industry leadership, innovation, high
quality, breadth of line and Company integrity.
Consumer advertising is focused on building equity in the Lund name through
getting the "Lund Look." The program utilizes consumer magazines targeted at the
street truck enthusiasts, off-road enthusiasts, sportsmen, tow vehicle owners
and family vehicle markets.
Promotion plays a critical role in exposing the "Lund Look" to the consuming
public. An example is the Company's sponsorship of the nationally televised
"Lund Look 225" NASCAR(R) Craftsman Super Truck Series Race. In addition, the
Company participates in other enthusiast events through team sponsorships in
racing, off-roading and fishing. The Company also promotes through the use of
"Lundmobiles." Lundmobiles consist of various light trucks that have been
customized with Lund products to illustrate the ultimate extent of the "Lund
Look." Lundmobiles appear at numerous consumer and trade shows, are used in all
of the Company's advertisements, are featured in consumer magazine editorials
and are utilized by retailers and distributors to create consumer excitement.
Other steps in pulling the product through the distribution system involve trade
advertising, direct communication with businesses that come in contact with the
consumer and a cooperative advertising program to help them reach the consumer.
The Company uses various trade magazines to create excitement at the jobber and
retail level. In addition, the Company has developed a network of Authorized
Dealers that currently consists of over 9,000 businesses. Lund communicates
directly with these dealers regarding new product introductions, promotions,
selling tools and selling techniques.
The Company also communicates directly to the consumer through the use of its
high quality consumer packaging and point-of-purchase displays. The packaging
depicts the product in use on standard vehicles as well as "Lundmobiles" and
conveys the features and benefits of the specific product.
Lund produces all of its printed selling tools internally. These tools include
product catalogs, application lists and other product literature, which it
distributes to the warehouse distributors and independent sales representatives.
SEASONALITY AND BACKLOG
Historically, Lund has had a seasonal mix which favored late winter, spring and
early summer with higher sales than late summer and early fall. During fiscal
1995, the Company did not experience its normal seasonality during the first
three quarters due to production and shipping capacity constraints in its
previous facility, which created significant backlog and shipping delays. During
the fourth quarter of fiscal 1995, the Company's new facility allowed it to
significantly reduce its backlog and order turn-around time. As a result, the
average order turn-around time at the end of fiscal 1996 decreased to five to
ten days compared to 15 to 25 days prior to the move.
COMPETITION
The Company's industry is highly competitive. The Company believes that
competition in the industry is based on brand name recognition, quality, design,
breadth of product line, price, service and packaging. Certain of the Company's
competitors and potential competitors, including manufacturers of light trucks,
have greater financial or other resources than the Company. There are no
significant technological or manufacturing barriers to entry into the Company's
business. While the Company has many competitors for most of its product lines,
it believes that in the United States it has one of the broadest offerings of
appearance accessories in the light truck market and that it occupies a dominant
position for external visors and cab extenders.
The Company has aggressively enforced its patents and trademarks and intends to
do so in the future. The Company believes that by aggressively enforcing its
patents and trademarks it deters other manufacturers from attempting to copy its
products or selling lesser quality products at lower prices.
INTELLECTUAL PROPERTY
The Company generally seeks to obtain patents protection, shape/design
trademarks and brand trademarks for its products. The Company holds more than 30
patents, expiring at various dates from 1998 to 2010, generally related to
product design or mounting procedures. In addition, the Company owns various
federally registered and common law trademarks, including the LUND SUNVISOR and
a shape/design mark in the distinctive "hawk-like" design, respectively,
incorporated in a majority of the Company's visor products. Lund regards its
intellectual property rights as valuable assets and has vigorously defended them
against infringement.
GOVERNMENT REGULATION
The Company is subject to federal, state and local laws and regulations
concerning consumer products, the environment and occupational safety and
health.
EMPLOYEES
As of September 17, 1996, the Company employed 267 people on a full-time basis,
three people on a part-time basis and contracted for the services of 15
additional full-time people. None of the Company's employees are represented by
a labor union. The Company believes its employee relations are good.
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company during fiscal
1996 were as follows:
Name Age Position
- ---- --- --------
Allan W. Lund 66 Chairman of the Board
William J. McMahon 50 President and Chief Executive
Officer
Jay M. Allsup 38 Chief Financial Officer
Kathy R. Smith 35 Corporate Secretary
William H. Toms 51 Vice President of Operations
Bradley W. Andress 42 Vice President of Marketing
Stephen S. Treichel 53 Vice President of Strategic and
Human Systems
James E. Haglund 59 Director
Charles R. Weaver, Jr. 39 Director
David E. Dovenberg 52 Director
Christopher A. Twomey 49 Director
ALLAN W. LUND, a co-founder of the Company, has been Chairman of the Board, a
director and executive officer of the Company since 1965.
WILLIAM J. MCMAHON rejoined the Company in September 1994 as President and Chief
Executive Officer. From May 1991 to September 1994, Mr. McMahon served as Chief
Operating Officer for Anagram International, Inc., a manufacturer and
distributor of mylar balloons, gift wrap and industrial packaging. Prior to
Anagram, Mr. McMahon was Chief Executive Officer and President of Lund
International Holdings, Inc. from 1988 to 1991.
JAY M. ALLSUP joined the Company in October 1993 as the Director of Finance and
was appointed Chief Financial Officer in June 1994. From April 1989 to October
1993, he was the Chief Financial Officer and Treasurer of Standun, Inc., a
manufacturing holding company.
KATHY R. SMITH joined the Company in May 1989 and since April 1990 has served as
Executive Assistant to the Chief Executive Officer. Ms. Smith was named
Corporate Secretary and Investor Relations Manager of the Company in February
1994.
WILLIAM H. TOMS joined the Company in April 1995 as Vice President of
Operations. From 1983 to April 1995, Mr. Toms was the Vice President of
Operations for Anchor-Hocking Plastics, a manufacturer of household storage
containers and microwave cookware accessories and a division of the Newell
Companies.
BRADLEY W. ANDRESS joined the Company in October 1995 as Vice President of
Marketing. From August 1985 to October 1995, Mr. Andress held various positions,
including Vice President of Marketing and Vice President of Sales of Plastics,
Inc. and Anchor-Hocking Plastics, which are divisions of the Newell Companies.
STEPHEN S. TREICHEL joined the Company in October 1995 as Vice President of
Strategic and Human Systems. From 1993 to October 1995, Mr. Treichel was the
President of Process Management International, a management consulting firm.
From 1990 to 1993, he was a senior manager of strategic services at McGladrey &
Pullen, a CPA and consulting firm.
JAMES E. HAGLUND has been a director of the Company since January 1992. He has
been the President and owner of Central Container Corporation, a designer and
manufacturer of corrugated packaging and related items, since March 1975; a
partner in Spectrum Screen Printing, a privately held screen printing company,
since 1986; and a partner in Eagle Embroidery, a privately held sportswear
design company, since 1992.
CHARLES R. WEAVER, JR. has been a director of the Company since October 1992. He
has served as Assistant County Attorney for Anoka County, Minnesota since June
1991, and has served as a Minnesota State Legislator since January 1988. Mr.
Weaver was an attorney with Lindquist and Vennum, a law firm based in
Minneapolis, Minnesota from September 1984 to June 1991.
DAVID E. DOVENBERG has been a director of the Company since June 1994. He has
been the Chief Financial Officer of Universal Hospital Services, Inc., a
provider of movable medical equipment, since May 1988.
CHRISTOPHER A. TWOMEY has been a director of the Company since June 1994 and
will serve in that capacity until the next annual meeting of stockholders or
until his successor is duly elected and qualified. He has been the President,
Chief Executive Officer and a director of Arctic Cat, Inc., a designer and
manufacturer of snowmobiles and personal watercraft, since February 1986. Mr.
Twomey is also a community board member of Norwest Bank Minnesota, N.A.
Item 2. PROPERTIES
In fiscal 1995, the Company constructed a new facility to consolidate its
corporate offices, manufacturing operations and warehouse facilities and allowed
Lund to significantly expand its manufacturing capacity and capabilities. This
228,000 square foot facility is located in Anoka, Minnesota. The Company
believes that the new facility will allow it to maintain its sales growth,
reduce costs by manufacturing more products internally, increase profitability
through greater manufacturing efficiencies and improve product quality.
In fiscal 1996, the Company acquired the assets of Innovative Accessories, Inc.
of Oklahoma City, Oklahoma. In connection with the acquisition, the Company
leased a 32,000 square foot manufacturing and office facility and a 10,000
square foot warehouse facility.
Item 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by Item 5 is incorporated herein by reference to the
section entitled "Market for the Company's Common Stock" which appears on page
27 of the Company's 1996 Annual Report to Stockholders for the fiscal year ended
June 30, 1996.
Item 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to the
section entitled "Five Year Summary" which appears on page 27 of the Company's
1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which appears on pages 10 through 13 of the Company's
1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to the
"Financial Statements, Notes thereto and Report of Independent Accountants"
which appear on pages 14 through 26 of the Company's 1996 Annual Report to
Stockholders for the fiscal year ended June 30, 1996. See Item 14 (a) for an
index of the financial statements and related schedule. The Report of
Independent Accountants as of June 30, 1995 and for the years ended June 30,
1995 and 1994 is included as Exhibit 99 of the Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 9, 1996, the Company dismissed KPMG Peat Marwick LLP as its accountant.
KPMG Peat Marwick LLP was the independent accountant who was engaged as
principal accountant to audit the Company's financial statements for the
Company's two most recent completed fiscal years. On April 9, 1996, the Company
retained Coopers & Lybrand L.L.P. as its independent auditors to audit the
Company's financial statements for the year ending June 30, 1996.
The reports of KPMG Peat Marwick LLP on the financial statements of the Company
for the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audits of the Company's financial statements for the two
most recent fiscal years and the subsequent interim period proceeding their
dismissal, there were no disagreements with KPMG Peat Marwick LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of KPMG Peat Marwick LLP, would have caused it to make reference to
the subject matter of the disagreement in connection with its report.
During the Company's two most recent fiscal years and the subsequent interim
period, there were no "reportable events" as described in Item 304(a)(1)(v) of
Regulation S-K.
Prior to the engagement of Coopers & Lybrand L.L.P., the Company had not
consulted with Coopers & Lybrand L.L.P. regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
or any matter described above.
The decision to change accountants was recommended by the audit committee of the
Board of Directors and approved by the entire Board.
The Company has requested, and KPMG Peat Marwick LLP has furnished, a letter
addressed to the Commission stating that it agrees with the above statements. A
copy of that letter was filed by the Company. In addition, Coopers & Lybrand
L.L.P. was provided an opportunity to review the above statements and provide a
letter regarding such statements.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 concerning executive officers of the Company
is set forth at the end of Part I of this report.
The information required by Item 10 concerning the directors of the Company is
incorporated herein by reference to the Company's Proxy Statement for its 1996
Annual Meeting of Stockholders which has been filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the close
of the fiscal year for which this report is filed.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has
been filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has
been filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to the
Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has
been filed with the Securities and Exchange Commission pursuant to Regulation
14A within 120 days after the close of the fiscal year for which this report is
filed.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Consolidated Financial Statements. The financial statements
below are incorporated herein by reference to:
Pages
-----
Report of Independent Accountants............................................*
Consolidated Balance Sheets as of June 30, 1996 and 1995 ...................*
Consolidated Statement of Earnings for the fiscal years
ended June 30, 1996, 1995 and 1994..................................*
Consolidated Statement of Changes in Stockholders' Equity
for the fiscal years ended June 30, 1996, 1995 and 1994 ............*
Consolidated Statement of Cash Flows for the fiscal years
ended June 30, 1996, 1995 and 1994 .................................*
Notes to Consolidated Financial Statements...................................*
*Incorporated by reference to the Company's Annual Report to Stockholders for
the fiscal year ended June 30, 1996, a copy of which is included in this Form
10-K as Exhibit 13.
(2) Financial Statement Schedule.
Pages in this
Form 10-K
-------------
Reports of Independent Accountants on Financial Statement Schedule........22-23
Schedule II: Valuation and Qualifying Accounts
for the fiscal years ended June 30, 1996, 1995 and 1994.............24
All other schedules are omitted because they are not required or not applicable
or the information is otherwise shown in the Consolidated Financial Statements
or notes thereto.
(3) Exhibits. See "Exhibit Index" on the pages following the
signatures.
(b) Reports on Form 8-K.
On April 15, 1996, a report on Form 8-K was filed with respect to the
Registrant's Change in Certifying Accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LUND INTERNATIONAL HOLDINGS, INC.
By /s/William J. McMahon
-------------------------------------
William J. McMahon
Chief Executive Officer and President
September 24, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. McMahon Chief Executive Officer September 24, 1996
- ------------------------------ President (Principal Executive
Officer)
/s/ Jay M. Allsup Chief Financial Officer September 24, 1996
- ------------------------------ (Principal Financial Officer)
/s/ Allan W. Lund Chairman of the Board, September 24, 1996
- ------------------------------ Treasurer and Director
/s/ James E. Haglund Director September 24, 1996
- -----------------------------
/s/ Charles R. Weaver Director September 24, 1996
- -----------------------------
/s/ Christopher A. Twomey Director September 24, 1996
- -----------------------------
/s/ David E. Dovenberg Director September 24, 1996
- -----------------------------
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NO: 0-16319
Exhibit Page Number or Incorporation by
Number Description Reference to
- ------ ----------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Exhibit 2 of the Registrant's
Reorganization dated July 21, 1987, Registration Statement on Form S-4
as amended as of August 20, 1987 Reg. No. 33-16685
and September 25, 1987, by and
among Flex Corporation, Lund
Industries, Incorporated and Flex
Acquisition Corp.
2.2 Articles of Merger of Flex Exhibit 2.2 of the Registrant's Form
Acquisition Corp. into Lund 10-K for the fiscal year ended June
Industries Incorporated 30, 1988, Commission File No. 0-16319
3.1 Certificate of Incorporation of Exhibit 19 of the Registrant's Form
Registrant as amended to date 10-Q for the quarter ended December
31, 1987, Commission File No. 0-16319
3.2 Bylaws Exhibit 3.2 of the Registrant's
Registration Statement on Form S-4,
Reg. No. 33-16685
10.2 Assignment dated July 22, 1987, Exhibit 10.2 of the Registrant's
of certain U.S. patents of Lund Registration Statement of Form S-4,
Industries, Incorporated by Allan Reg. No. 33-16685
W. Lund
10.3 Assignment of Certain Canadian Exhibit 10.3 of the Registrant's
Industries Designs to Lund Industries, Registration Statement on Form S-4
Incorporated by Allan W. Lund Reg. No. 33-16685
10.8 The Registrant's Incentive Stock Exhibit 10.8 of the Registrant's Form
Option Plan 10-K for the fiscal year ended June
30, 1989, Commission File No. 0-16319
10.9 Revised specimen of form of option
granted under the Registrant's
Incentive Stock Option Plan
10.18 The Registrant's 1992 Non-Employee Exhibit 10.18 of the Registrant's Form
Director Stock Option Plan 10-K for the fiscal year ended June 30, 1992
10.19 Employment letter with Jay M. Allsup Exhibit 10.19 of the Registrant's Form
dated September 16, 1993 10-K for the fiscal year ended June 30, 1994
10.20 Employment Agreement with Exhibit 10.20 of the Registrant's Form
William J. McMahon dated 10-K for the fiscal year ended June 30, 1994
August 30, 1994
10.28 Bond Purchase Agreement Among Exhibit 10.28 of the Registrant's Form
Lund Industries, Incorporated; Lund 10-Q for the quarter ended September
International Holdings, Inc.; City of 30, 1994
Anoka Minnesota; and Piper Jaffray,
Inc. dated September 22, 1994
10.29 1994 Incentive Stock Option Plan Exhibit 10.29 of the Registrant's Form
10-Q for the quarter ended December
31, 1994
10.31 Employment Letter with William H. Exhibit 10.31 of the Registrant's Form
Toms dated March 7, 1995 10-Q for the quarter ended March 31, 1995
10.32 Supply agreement between Lund Exhibit 10.32 of the Registrant's Form 10-K
Industries, Incorporated and GenCorp, for the fiscal year ended June 30, 1995
Inc. dated June 1, 1995
10.33 Master Lease Agreement between Exhibit 10.33 of the Registrant's Form 10-Q
LMI Funding Corporation and Lund for the quarter ended September 30, 1995
Industries, Incorporated dated August
1, 1995
10.34 Employment letter with Bradley W. Exhibit 10.34 of the Registrant's Form 10-Q
Andress dated October 11, 1995 for the quarter ended September 30, 1995
10.35 Marketing Agreement dated Exhibit 10.35 of the Registrant's Form 10-Q
October 18, 1995 by and between for the quarter ended September 30, 1995
Innovative Accessories, Inc. and
Lund Industries, Incorporated.
10.36 Restated Exclusive Purchase Option Exhibit 10.36 of the Registrant's Form 10-Q
Agreement dated October 18, 1995 by for the quarter ended September 30, 1995
and among Lund International
Holdings, Inc., Innovative
Accessories, Inc. and shareholders
of Innovative Accessories, Inc.
10.37 Employment and Non-Competition Exhibit 10.37 of the Registrant's Form 10-Q
Agreement dated October 18, 1995 for the quarter ended September 30, 1995
by and between Innovative Accessories,
Inc. and James A. Nett.
10.38 Interim Loan Agreement dated Exhibit 10.38 of the Registrant's Form 10-Q
November 7, 1995 by and between for the quarter ended September 30, 1995
Innovative Accessories, Inc. and
Lund International Holdings, Inc.
10.39 Demand Promissory Note dated Exhibit 10.39 of the Registrant's Form 10-Q
November 7, 1995 between Innovative for the quarter ended September 30, 1995
Accessories, Inc. and Lund International
Holdings, Inc.
10.40 Assignment of Patents dated Exhibit 10.40 of the Registrant's Form 10-Q
November 7, 1995 from James A. for the quarter ended September 30, 1995
Nett to Lund International Holdings,
Inc.
10.41 Loan Agreement dated November 29, Exhibit 10.41 of the Registrant's Form
1995 by and between Innovative 10-Q for the quarter ended
Accessories, Inc. and Lund December 31, 1995
International Holdings, Inc.
10.42 Revolving Promissory Note dated Exhibit 10.42 of the Registrant's Form
November 29, 1995 by and between 10-Q for the quarter ended
Innovative Accessories, Inc. and December 31, 1995
Lund International Holdings, Inc.
10.43 Security Agreement dated November Exhibit 10.43 of the Registrant's Form
29, 1995 by and between Innovative 10-Q for the quarter ended
Accessories, Inc. and Lund December 31, 1995
International Holdings, Inc.
10.44 Asset Purchase Agreement by and Page 26
among Lund Acquisition Corp., Innovative
Accessories, Incorporated, Lund
International Holdings, Inc., James A. Nett
and Ramona C. Friar dated May 29, 1996
10.45 Assignment and Assumption of Real Page 85
Property Lease by and between
Innovative Accessories, Incorporated
and Lund Acquisition Corp. dated
June 3, 1996
10.46 Assignment of Intellectual Property Page 87
Rights from Innovative Accessories,
Incorporated and James A. Nett to Lund
Acquisition Corp. dated June 3, 1996
13 Registrant's Annual Report to Page 88
Stockholders for fiscal 1996
16.1 Letter of KPMG Peat Marwick regarding Page 106
change in Certifying Accountant
21 Subsidiaries of the registrant:
</TABLE>
Name State or Jurisdiction of Incorporation
- ---- --------------------------------------
Lund Industries, Incorporated Minnesota
Lund International FSC, Inc. Virgin Islands
Lund Acquisition Corp. Minnesota
23.1 Consent of Independent Accountant Page 107
23.2 Consent of Independent Accountant Page 108
27 Financial Data Schedule Page 109
99 Report of Independent Accountants Page 110
as of June 30, 1995 and for the years
ended June 30, 1995 and 1994
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Lund International Holdings, Inc.:
Our report on the consolidated financial statements of Lund International
Holdings, Inc. has been incorporated by reference in this Form 10-K from page 26
of the 1996 Annual Report to stockholders of Lund International Holdings, Inc.
In connection with our audit of such financial statements, we have also audited
the related financial statement schedule for the fiscal year ended June 30, 1996
listed in Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
August 21, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lund International Holdings, Inc.:
Under date of August 11, 1995, we reported on the consolidated balance sheet of
Lund International Holdings, Inc. and Subsidiaries as of June 30, 1995, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the years in the two-year period ended June 30, 1995.
These consolidated financial statements are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with our audit of
the aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule as of June 30, 1995 and 1994
and for each of the years in the two-year period ended June 30, 1995. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 11, 1995
<TABLE>
<CAPTION>
LUND INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Balance Charged
at to cost Charged Balance
beginning and to other at end
Description of year expenses accounts Deductions of year
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
June 30,
1996:
Allowance for
doubtful accounts
(deducted from
accounts receivable) $532,000 $215,000 ---- ($27,000) (1) $720,000
Year ended
June 30,
1995:
Allowance for
doubtful accounts
(deducted from
accounts receivable) 580,000 29,000 ---- (77,000) (1) 532,000
Year ended
June 30,
1994:
Allowance for
doubtful accounts
(deducted from
accounts receivable) 155,000 446,000 ---- (21,000) (1) 580,000
Accrual costs relating
to closing Canadian
facility 6,606 ---- ---- (6,606) ----
(1) Represents accounts written off against the allowance, net of recoveries.
</TABLE>
LUND INTERNATIONAL HOLDINGS, INC.
- -------------------------------------------------------------------------------
FORM 10-K
- -------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED
JUNE 30, 1996
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Years Ended June 30, 1996
(in thousands, except per share amounts)
Lund International Holdings, Inc. designs, manufactures, and markets
appearance automotive aftermarket accessories for light duty trucks, sport
utility vehicles and vans. The Company is the world's leading supplier of
automotive sunvisors, with an estimated 70% market share in this category.
Beginning in fiscal 1989, Lund instituted a product diversification plan and
currently has 32 product lines, classified as Visors, Bug Shields/ Hood
Protectors, Running Boards, and Other Appearance Accessories.
RESULTS OF OPERATIONS:
SUMMARY: The Company posted lower net sales and net income for the first time in
five years in fiscal 1996 as net sales decreased to $46,423 and net income
decreased to $4,622. Shown below for the periods indicated, are the percentage
relationships of certain items in the Consolidated Statements of Earnings to net
sales and the percentage change of dollar amounts of such items compared with
prior periods.
NET SALES: Net sales decreased 2% for the year ended June 30, 1996, to $46,423,
compared to $47,384 for fiscal 1995. Net sales increased 30% in fiscal 1995,
compared to net sales of $36,395 for fiscal 1994. The fiscal 1996 net sales
decrease resulted primarily from lower sales of the Visor category, which
decreased 18% compared to fiscal 1995, contrasted to a 16% increase comparing
fiscal 1995 to fiscal 1994. The decreased sales in the Visor category resulted
principally from the Company's customers delaying visor orders in anticipation
of the newly developed visor lines and design, production and shipping delays in
these new lines. Running Board sales increased by 23% and 73%, comparing fiscal
1996 to 1995 and fiscal 1995 to 1994, respectively. These increases were driven
by the continued popularity of the Company's StepMate(TM) line and the
introduction of the SideTracker(TM) Running Board in fiscal 1996. The Other
Appearance Accessories category increased 16% in fiscal 1996 due to the
introduction of tonneau covers, which accounted for 2% of net sales.
Year-to-Year
Increase/(Decrease)
- ----------------------------------------- -------------------
Percent of Net Sales 1996 1995
Years ended June 30, Over Over
1996 1995 1994 1995 1994
- ----------------------------------------- -------------------
Net sales 100.0% 100.0% 100.0% (2)% 30%
Cost of goods sold 61.6 57.4 56.6 5 32
- ----------------------------------------- -------------------
Gross profit 38.4 42.6 43.4 (12) 28
- ----------------------------------------- -------------------
General and
administrative 8.9 8.6 9.7 1 15
Selling and
marketing 12.4 10.3 10.6 18 26
Research and
development 2.5 2.0 1.9 23 36
- ----------------------------------------- -------------------
Total operating
expenses 23.8 20.9 22.2 11 22
- ----------------------------------------- -------------------
Income from
operations 14.6 21.7 21.2 (34) 33
Other income, net 0.6 0.8 1.2 (32) (11)
- ----------------------------------------- -------------------
Income before income
taxes 15.2 22.5 22.4 (34) 31
Provision for
income taxes 5.2 7.8 7.8 (34) 29
- ----------------------------------------- -------------------
Net income 10.0% 14.7% 14.6% (34)% 32%
- ----------------------------------------- -------------------
COST OF GOODS SOLD AND GROSS PROFIT: Gross profit margins for the year ended
June 30, 1996 were 38.4%, compared to 42.6% and 43.4% for fiscal years 1995 and
1994, respectively. The decrease in gross profit margins for both fiscal 1996
and fiscal 1995 resulted from an increased percentage of sales of lower gross
margin products, higher raw material prices, and higher warranty claims on
acrylic products. Gross margins in fiscal 1996 were impacted by higher facility
costs, while gross margins in fiscal 1995 and 1994 were impacted by production
inefficiencies as a result of operating at maximum production and shipping
capacities in the Company's former facility.
Percent of Net Sales
Years ended June 30,
1996 1995 1994
- ---------------------------------------
Visors 36.2% 43.4% 48.8%
Bug Shields/Hood
Protectors 24.1 23.9 23.3
Running Boards 18.0 14.4 10.8
Other Appearance
Accessories 21.7 18.3 17.1
- ---------------------------------------
Total net sales 100.0% 100.0% 100.0%
- ---------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$4,125 in fiscal 1996, compared to $4,083 and $3,548 for fiscal 1995 and 1994,
respectively. As a percentage of net sales, general and administrative expenses
were 8.9% in fiscal 1996, compared to 8.6% in fiscal 1995 and 9.7% in fiscal
1994. The dollar increase in fiscal 1996 resulted from higher bad debt, salary,
operating lease and system implementation expenses which were offset by lower
incentive compensation expense. The dollar increase in fiscal 1995 was caused by
higher salary and bonus expense offset by lower bad debt and legal expenses.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $5,750 in
fiscal 1996, compared to $4,888 and $3,874 for fiscal 1995 and 1994,
respectively. As a percentage of net sales, selling and marketing expenses were
12.4% for fiscal 1996, compared to 10.3% and 10.6% for fiscal 1995 and 1994,
respectively. The dollar increase in fiscal 1996 resulted from higher customer
advertising and display expenses, general Company advertising and printing
costs, new product support costs, and promotional and sponsorship costs. The
dollar increase in fiscal 1995 resulted from higher manufacturer's
representative commissions due to higher sales and customer promotions and
samples.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $1,152
in fiscal 1996, compared to $934 and $687 for fiscal 1995 and 1994,
respectively. As a percentage of net sales, research and development expenses
were 2.5% in fiscal 1996, 2.0% in fiscal 1995, and 1.9% in fiscal 1994. The
dollar increase in both fiscal 1996 and 1995 related to an increase in personnel
and product material to support both new product and application development.
The increase in fiscal 1996 related to higher facility and operating lease
expenses allocated to research and development and higher computer system costs.
OTHER INCOME (EXPENSE): The decrease in fiscal 1996 in other income resulted
principally from the increase in interest expense associated with the Company's
Industrial Development Revenue Bonds, which was $313 in 1996 compared to $110 in
1995.
INCOME TAX EXPENSE: The effective income tax rates for fiscal 1996, 1995 and
1994 were 34.5%, 34.5% and 35.0%, respectively.
OUTLOOK: Fiscal 1996 was a transition year for the Company. The Company
relocated to a new facility in late fiscal 1995, which significantly increased
its production and shipping capabilities, thus reducing considerable order
backlogs. As a result, customer ordering patterns significantly changed during
fiscal 1996, reducing sales visibility. The Company has improved both order turn
around times and fill rates which prompted customers to reduce stocking
inventories and order sizes.
During fiscal 1996, the Company introduced two new visor lines which were
well received by the Company's customers; however, the new visor lines did not
ship until late in the fiscal year due to design and production delays. The
introduction of the new visor lines and the changing styling lines on new
vehicles caused slower sales in the original visor lines. For fiscal 1997, the
market penetration of the new visor may be slower due to initial delays in the
design, production and shipment of this product line.
The Company anticipates its principal growth in fiscal 1997 coming from its
new tonneau cover line acquired with the acquisition of the assets of Innovative
Accessories, Inc., augmented by continued growth and acceptance of its running
board lines. The tonneau covers have a lower than average gross margin, which
will impact overall margins and sales as this product line increases.
The traditional multi-step distribution channel is continuing to undergo
consolidation, with an increasing market share going to competitive channels
such as large chain specialty stores, mail-order, mass merchants and original
equipment manufacturers such as Ford, General Motors, and Chrysler. The Company
intends to devote increasing resources to enter the large chain specialty store
and the original equipment manufacturer channels. As a result, sales and
marketing expenses are expected to continue at fiscal 1996 rates as a percent of
sales.
Since late fiscal 1995, the demand for raw material products, including
plastic resins, fiberglass, and boxes has slowed. Prices for these products have
stabilized and the Company does not anticipate any significant raw material
price increases.
EFFECTS OF INFLATION:
Although increases in costs of certain materials and labor could adversely
affect the Company's operations, the Company generally has been able to increase
its selling prices to offset increased costs. Price competition, however,
particularly in the plastic product lines, could affect the ability of the
Company to increase its selling prices to reflect such increased costs. In
general, the Company believes that the relatively moderate inflation over the
last few years has not had a significant impact on the Company's net sales, but
that increasing raw material prices have had an impact on gross profits.
FINANCIAL CONDITION:
SUMMARY: The Company's financial condition on June 30, 1996 was strong. Cash and
marketable securities, including restricted cash, totalled $11,371, or 28% of
total assets. Working capital, the difference between current assets and current
liabilities, continued to increase. The Company has no working capital lines of
credit. The Company financed its new production, warehouse, and office facility
with tax-exempt Industrial Development Revenue Bonds.
The following key measurements are indicative of the excellent liquidity
and strong financial position of the Company.
<TABLE>
<CAPTION>
Years ended June 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and Marketable Securities $ 11,371 $ 12,079 $ 9,916
(including restricted cash)
Working Capital $ 24,649 $ 21,761 $ 16,085
Current Ratio 6.1 to 1 4.5 to 1 6.3 to 1
Cash Flow from Operations $ 2,835 $ 2,747 $ 4,314
Stockholders' Equity $ 30,507 $ 25,504 $ 18,069
Stockholders' Equity to Total Liabilities 3.1 to 1 2.3 to 1 5.9 to 1
</TABLE>
LIQUIDITY: Cash flow from operations continued to provide sufficient funds to
meet working capital and investment needs. Cash and marketable securities,
including restricted cash, decreased by $708 to $11,371 as of June 30, 1996.
Accounts receivable increased by $407, or 4%, during fiscal 1996, as days
sales outstanding (the average days worth of sales that are in accounts
receivable) increased to 78 days from 75 days. The increase was primarily due to
the continuation of extended dating terms to customers to increase product flow
and customer shelf stock. Days sales outstanding is traditionally higher as of
year end due to the seasonality of the Company's business, which favors higher
sales during the last quarter.
Inventories increased by $1,124, or 24%, during fiscal 1996. The increases
in both raw materials and finished goods inventories were primarily related to
new product line introductions and continuing efforts to improve product
shipment turnaround times and fill rates.
Accounts payable decreased by $836, or 30%, due to the timing of inventory
purchases and more aggressive cash management to maximize vendor cash discounts.
Purchases of plant and equipment of $814 were principally associated with
internal and external tooling costs, small equipment and computer purchases. Due
to capital spending limitations associated with the Industrial Development
Revenue Bond offering during fiscal 1995, all large equipment purchases and new
computer hardware and software systems were obtained through an operating lease.
The total value of equipment leased during fiscal 1996 was $1,057.
The Company acquired the assets and assumed certain liabilities of
Innovative Accessories, Inc. ("Innovative") during June 1996, after providing
working capital financing since November 1995. From November 1995 until June
1996, the Company provided funds to Innovative totaling $2,230 to pay off prior
debts, reduce accounts payable, and fund working capital. In addition, as part
of the acquisition, the Company paid additional consideration and transaction
costs, net of cash received, which are expected to total approximately $300, and
will pay future royalty payments to the former Innovative shareholders based
upon future sales of Innovative.
The Company expects future working capital requirements to be financed by
cash flow from operations and capital requirements to be financed or met through
operating leases or cash flow from operations.
CAPITAL: During fiscal 1995, the Company entered into a long-term financing
agreement for the first time in its history. On September 1, 1994, the City of
Anoka, Minnesota offered a $5,450 series of Industrial Development Revenue Bonds
on behalf of Lund Industries, Incorporated, a wholly-owned subsidiary of the
Company, with sequential annual maturities beginning on September 1, 1995 and
continuing through 2004, bearing interest rates between 4.6% and 6.5%, depending
upon maturity. The proceeds were used to build the Company's new facility and
acquire production machinery and equipment.
Although the Company has no other debt besides the Industrial
Development Revenue Bonds, the Company is prepared to utilize debt if necessary
to continue its diversification program. The Company believes its strong cash
flow will enable the Company to acquire sufficient capital to finance
anticipated future acquisitions which will be complementary to the Company's
operating philosophies.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. Among the factors
that could cause results to differ materially are the following: consumer
preference changes; expansion into new distribution channels; increased
competition; and raw material price increases.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and temporary cash investments .................. $ 1,643,416 $ 269,168
Restricted cash ...................................... 1,096,709 783,793
Marketable securities ................................ 8,630,649 11,026,034
Accounts receivable, less allowance for
doubtful accounts of $720,000 and $532,000 at
June 30, 1996 and 1995, respectively .............. 9,933,366 9,674,908
Inventories .......................................... 6,351,279 4,669,550
Deferred tax assets .................................. 815,600 678,800
Other current assets ................................. 1,047,776 830,448
------------ ------------
Total current assets ........................... 29,518,795 27,932,701
Property and equipment, net .............................. 6,906,446 6,630,666
Restricted cash and marketable securities ................ 777,919 1,336,564
Other assets, net ........................................ 761,021 654,955
Intangibles, net ......................................... 2,355,424 151,312
------------ ------------
Total assets ................................... $ 40,319,605 $ 36,706,198
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade .............................. $ 2,289,763 $ 2,797,718
Accrued expenses ..................................... 1,723,902 2,563,329
Income taxes payable ................................. 416,446 391,126
Long-term debt, current portion ...................... 440,000 420,000
------------ ------------
Total current liabilities ...................... 4,870,111 6,172,173
Long-term debt, less current portion ..................... 4,590,000 5,030,000
Other liabilities ........................................ 352,225 --
Commitments (notes 9 and 14)
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
June 30, 1996 and 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 ... (60,442) (150,356)
Unearned deferred compensation ....................... (159,872) (242,175)
Retained earnings .................................... 29,312,511 24,690,349
------------ ------------
Total stockholders' equity ..................... 30,507,269 25,504,025
------------ ------------
Total liabilities and stockholders' equity ..... $ 40,319,605 $ 36,706,198
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED JUNE 30,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .................... $ 46,423,208 $ 47,383,663 $ 36,395,124
Cost of goods sold ........... 28,599,293 27,201,277 20,592,787
------------ ------------ ------------
Gross profit .............. 17,823,915 20,182,386 15,802,337
Operating expenses
General and administrative 4,124,855 4,082,559 3,547,781
Selling and marketing ..... 5,749,668 4,888,045 3,873,996
Research and development .. 1,152,249 934,076 687,523
------------ ------------ ------------
Total operating expenses 11,026,772 9,904,680 8,109,300
------------ ------------ ------------
Income from operations ....... 6,797,143 10,277,706 7,693,037
Other income (expense)
Interest expense .......... (324,792) (133,566) (142)
Interest income ........... 601,362 613,359 373,621
Other, net ................ (18,797) (100,749) 54,306
------------ ------------ ------------
Other income, net ...... 257,773 379,044 427,785
------------ ------------ ------------
Income before income taxes ... 7,054,916 10,656,750 8,120,822
Provision for income taxes ... 2,432,754 3,676,579 2,842,289
------------ ------------ ------------
Net income .......... $ 4,622,162 $ 6,980,171 $ 5,278,533
============ ============ ============
Net income per share $ 1.05 $ 1.58 $ 1.20
============ ============ ============
Weighted average number of
shares outstanding ......... 4,393,889 4,429,661 4,387,466
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
COMMON STOCK UNREALIZED
------------------------------- ADDITIONAL HOLDING LOSSES
NUMBER OF DOLLAR PAID-IN ON MARKETABLE
SHARES AMOUNT CAPITAL SECURITIES
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Balance, June 30, 1993 ............ 4,310,260 $ 431,026 $ 157,081 --
Restricted shares ............... 4,500 450 23,175 --
Options exercised ............... 29,292 2,929 126,602 --
Net income ...................... -- -- -- --
Change in unrealized holding
losses on marketable securities -- -- -- $ (382,691)
------------ ------------ ------------ ------------
Balance, June 30, 1994 ............ 4,344,052 434,405 306,858 (382,691)
Restricted shares ............... 42,500 4,250 456,475 --
Options exercised ............... 1,350 135 4,084 --
Net income ...................... -- -- -- --
Change in unrealized holding
losses on marketable securities -- -- -- 232,335
Amortization of deferred
compensation .................. -- -- -- --
------------ ------------ ------------ ------------
Balance, June 30, 1995 ............ 4,387,902 438,790 767,417 (150,356)
Restricted shares ............... (15,000) (1,500) (10,423) --
Options exercised ............... 19,068 1,907 218,881 --
Net income ...................... -- -- -- --
Change in unrealized holding
losses on marketable securities -- -- -- 89,914
Amortization of deferred
compensation .................. -- -- -- --
------------ ------------ ------------ ------------
Balance, June 30, 1996 ............ 4,391,970 $ 439,197 $ 975,875 $ (60,442)
============ ============ ============ ============
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
UNEARNED
DEFERRED RETAINED
COMPENSATION EARNINGS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, June 30, 1993 ............ -- $ 12,431,645 $ 13,019,752
Restricted shares ............... -- -- 23,625
Options exercised ............... -- -- 129,531
Net income ...................... -- 5,278,533 5,278,533
Change in unrealized holding
losses on marketable securities -- -- (382,691)
------------ ------------ ------------
Balance, June 30, 1994 ............ -- 17,710,178 18,068,750
Restricted shares ............... $ (332,799) -- 127,926
Options exercised ............... -- -- 4,219
Net income ...................... -- 6,980,171 6,980,171
Change in unrealized holding
losses on marketable securities -- -- 232,335
Amortization of deferred
compensation .................. 90,624 -- 90,624
------------ ------------ ------------
Balance, June 30, 1995 ............ (242,175) 24,690,349 25,504,025
Restricted shares ............... 11,923 -- --
Options exercised ............... -- -- 220,788
Net income ...................... -- 4,622,162 4,622,162
Change in unrealized holding
losses on marketable securities -- -- 89,914
Amortization of deferred
compensation .................. 70,380 -- 70,380
------------ ------------ ------------
Balance, June 30, 1996 ............ $ (159,872) $ 29,312,511 $ 30,507,269
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 4,622,162 $ 6,980,171 $ 5,278,533
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............................ 908,201 672,183 374,436
Deferred income taxes .................................... (136,800) (106,700) (178,900)
(Gain) loss on disposal of property and equipment ........ (17,065) (43,529) 5,281
Provision for doubtful accounts .......................... 228,200 29,190 425,000
Provision for (reduction in) inventory reserves .......... 52,895 (32,019) 6,333
Increase in cash surrender value of life insurance ....... (175,320) (123,631) (102,255)
Changes in operating assets and liabilities, net of impact of
acquisition:
Accounts receivable ...................................... (407,852) (3,347,851) (1,868,380)
Inventories .............................................. (1,123,971) (2,836,781) (245,045)
Other current and other assets ........................... (158,391) (355,476) (279,872)
Accounts payable, trade .................................. (836,466) 1,661,665 342,958
Accrued expenses ......................................... (146,034) 412,506 575,885
Income taxes payable ..................................... 25,320 (162,579) (20,261)
------------ ------------ ------------
Net cash provided by operating activities .............. 2,834,879 2,747,149 4,313,713
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ......................... (814,959) (5,751,634) (1,136,469)
Proceeds from sales of property and equipment ............... 76,822 59,094 22,400
Purchase of marketable securities ........................... (7,880,519) (7,316,913) (11,224,932)
Proceeds from sales and redemptions of marketable securities 10,365,818 3,387,551 8,553,410
Change in restricted cash and marketable securities ......... 245,729 (2,120,357) --
Increase in note receivable from Innovative Accessories, Inc. (2,230,089) -- --
Acquisition costs ........................................... (114,341) -- --
------------ ------------ ------------
Net cash used in investing activities .................... (351,539) (11,742,259) (3,785,591)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cost of bond issuance, net .................................. -- (151,682) --
Proceeds from bond offering ................................. -- 5,450,000 --
Checks issued in excess of cash balances .................... (909,880) 909,880 --
Payment on long-term debt ................................... (420,000) -- --
Proceeds from issuance of common stock ...................... 220,788 4,219 129,531
------------ ------------ ------------
Net cash (used in) provided by financing activities ...... (1,109,092) 6,212,417 129,531
------------ ------------ ------------
Net increase (decrease) in cash and
temporary cash investments ............................. 1,374,248 (2,782,693) 657,653
CASH AND TEMPORARY CASH INVESTMENTS:
Beginning of year ........................................... 269,168 3,051,861 2,394,208
------------ ------------ ------------
End of year.................................................. $ 1,643,416 $ 269,168 $ 3,051,861
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes .................. $ 2,544,234 $ 3,947,415 $ 3,041,450
============ ============ ============
Cash paid during the year for interest ...................... $ 333,843 $ 23,817 $ 142
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Restricted shares issued .................................... -- $ 127,926 $ 23,625
============ ============ ============
Change in unrealized holding losses on marketable securities $ 89,914 $ 232,335 $ (382,691)
============ ============ ============
Conversion of note receivable to consideration for
Innovative Accessories, Inc. ............................. $ 2,230,089 -- --
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lund International Holdings, Inc. (the "Company") is the holding company for
all of the stock of Lund Industries, Incorporated; Lund Acquisition Corp.; and
Lund International FSC, Inc.; which manufactures and distributes aftermarket
accessory products for trucks, sport utility vehicles and vans to customers in
the United States and Canada. The following is a summary of the significant
accounting policies used in the preparation of the Company's consolidated
financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lund
International Holdings, Inc. and its wholly-owned subsidiaries: Lund Industries,
Incorporated; Lund Acquisition Corp.; and Lund International FSC, Inc. All
material intercompany balances and transactions have been eliminated in
consolidation.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method. The inventory reserves are determined based on
the Company's continuing analysis of inventory levels in excess of current
requirements or considered to be obsolete. The Company has established an
estimated reserve to record inventories at estimated net realized value.
TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of money market funds and certificates of
deposit, at the lower of cost or market. The Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be temporary cash investments.
MARKETABLE SECURITIES
Marketable securities consist of debt securities. Marketable securities are
classified as available-for-sale securities and are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary results in a charge to
earnings resulting in the establishment of a new cost basis for the security.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line or accelerated methods over their estimated useful lives. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in operations for the period. The cost of maintenance and repairs is
charged to operations as incurred. Significant renewals and betterments are
capitalized.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires that long-lived assets be
analyzed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. The impact of this statement on the
Company is immaterial.
MOLDS, TOOLING AND DIES
Costs for internally manufactured molds, tooling and dies relating to the
fiberglass product lines are expensed when incurred as their estimated useful
life is less than one year. Purchases of externally manufactured molds, tooling
and dies, and internally manufactured molds, tooling and dies related to the
plastics product lines are capitalized and amortized over the estimated life of
the asset.
AMORTIZATION OF INTANGIBLES
Intangibles, consisting mainly of patents, non-compete agreements, and
goodwill are amortized on a straight-line basis over their estimated lives.
Costs incurred in applications for new patents and purchases of patents are
capitalized and amortized over the life of the patent. Costs for defending and
protecting Company patents are expensed when incurred. Goodwill is being
amortized over twenty years.
The Company periodically, at least quarterly, evaluates the recoverability of
intangibles based on analyses of estimated future undiscounted cash flows.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Income tax expense is the
tax payable for the period and the change in deferred income tax assets and
liabilities during the period.
PRODUCT WARRANTY
The Company warrants its products that have been properly installed according
to the instructions provided by the Company with a limited lifetime warranty
which covers actual product failure. The Company accrues a liability for
estimated warranty claims associated with products sold.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Dilutive
stock options are considered common stock equivalents for the purpose of this
computation.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant areas which require the use of management's estimates relate to
allowances for doubtful accounts receivable, inventory obsolescence and accruals
for warranty claims, customer rebates, and customer advertising.
2. ADVERTISING
The Company expenses the production and space costs of advertising the first
time the advertising takes place, except for costs of direct response
advertising, product catalogs and brochures, which are capitalized and amortized
over the expected period of future benefits.
At June 30, 1996 and 1995, $257,153 and $176,305, respectively, of direct
response advertising costs, product catalogs, and brochures were reported as
other current assets, net of accumulated amortization. Advertising expense was
$2,577,981, $1,991,976 and $1,526,656 in 1996, 1995 and 1994, respectively.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized holding losses and fair value for
available-for-sale securities at June 30, 1996 and 1995 were as follows:
Gross
Unrealized
Amortized Holding
Cost Losses Fair Value
----------- ---------- -----------
June 30, 1996 $ 8,691,091 $ 60,442 $ 8,630,649
June 30, 1995 11,176,390 150,356 11,026,034
Proceeds from the sale of marketable securities were $7,861,812, $3,016,600
and $7,644,057 in 1996, 1995 and 1994, respectively. Net realized gains (losses)
included in net income in 1996, 1995 and 1994 were ($1,628), ($160,108) and
$51,912, respectively.
4. INVENTORIES
Inventories at June 30 consisted of: 1996 1995
----------- -----------
Raw materials $ 3,329,323 $ 2,195,717
Finished goods and work-in-process 3,021,956 2,473,833
----------- -----------
$ 6,351,279 $ 4,669,550
=========== ===========
5. PROPERTY AND EQUIPMENT
Property and equipment and their estimated useful lives at June 30 consisted
of:
<TABLE>
<CAPTION>
Estimated
Useful
1996 1995 Lives
----------- ----------- ---------
<S> <C> <C> <C>
Land $ 1,983 $ 1,983
Building 5,433,605 5,387,741 25 years
Machinery and equipment 2,730,718 1,897,667 5-7 years
Furniture and fixtures 883,136 881,240 3 years
Building-in-progress --- 61,939
----------- -----------
9,049,442 8,230,570
Less accumulated depreciation 2,142,996 1 ,599,904
----------- -----------
$ 6,906,446 $ 6,630,666
=========== ===========
</TABLE>
Depreciation expense in 1996, 1995, and 1994 was $779,388, $556,024 and
$349,091, respectively.
6. Accrued Expenses
Accrued expenses at June 30 consisted of:
1996 1995
---------- -----------
Checks issued in excess of cash balances --- $ 909,880
Salaries and vacation $ 320,266 649,523
Customer rebates 422,783 477,629
Other 980,853 526,297
----------- -----------
$ 1,723,902 $ 2,563,329
=========== ===========
7. LONG-TERM DEBT
Long-term debt at June 30 consisted of:
1996 1995
---------- ----------
Industrial Development Revenue Bonds,
interest ranging from 4.60% to 6.50%,
due in annual installments through 2004 $5,030,000 $5,450,000
Less current portion (440,000) (420,000)
---------- ----------
$4,590,000 $5,030,000
========== ==========
Long-term debt maturities are as follows:
1997 $ 440,000
1998 460,000
1999 500,000
2000 520,000
2001 545,000
Thereafter 2,565,000
----------
$5,030,000
==========
The bonds contain certain covenants which, among other things, require the
Company to maintain a minimum level of interest coverage, fixed charge coverage
and maximum ratio of debt to capitalization. The bonds were issued to provide
the Company with funding to finance the constructing and equipping of the new
manufacturing facility, completed in 1995. The loan agreement restricts certain
cash and marketable securities in accordance with the terms of the agreement.
Total restricted cash and marketable securities for the years ended June 30,
1996 and June 30, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Restricted cash - current $ 1,096,709 $ 783,793
Restricted cash and marketable securities - long-term 777,919 1,336,564
----------- -----------
Total restricted cash and marketable securities $ 1,874,628 $ 2,120,357
=========== ===========
</TABLE>
8. RELATED PARTY TRANSACTIONS
A member of the Company's Board of Directors has ownership interests in
another entity from which the Company purchases products and services. A summary
of these items is as follows:
1996 1995 1994
---------- ---------- --------
Rents - Facilities --- $ 351,447 $526,870
Rents - Equipment --- 1,811 21,726
Royalties --- --- 24,475
Purchase of components $1,667,982 1,336,268 898,121
9. OPERATING LEASE COMMITMENTS
During 1995 and 1994, the Company leased some of its facilities and equipment
from certain employees and/or stockholders of the Company under noncancelable
operating leases. Total lease expense for these facilities, including real
estate taxes and equipment rental, in 1995 and 1994 was $498,397 and $641,464,
respectively.
The Company has various noncancelable operating leases for certain equipment
related to the Company's manufacturing facility and computer system. Total lease
expense in 1996 and 1995 was $422,639 and $26,739, respectively.
Future minimum lease payments required under the above noncancelable
operating leases are as follows:
1997 $ 720,478
1998 672,189
1999 512,448
2000 512,448
2001 147,013
----------
$2,564,576
==========
10. SIGNIFICANT CUSTOMERS
During 1996, none of the Company's customers represented over 10% of net
sales. During 1995 and 1994, the Company had approximately 14.6%, and 10.5%,
respectively, of net sales with one customer.
11. INCOME TAXES
The provision for income taxes is summarized as follows:
1996 1995 1994
----------- ----------- -----------
Current:
Federal $ 2,326,754 $ 3,365,279 $ 2,687,189
Foreign 21,800 24,000 24,000
State 221,000 394,000 310,000
----------- ----------- -----------
2,569,554 3,783,279 3,021,189
----------- ----------- -----------
Deferred:
Federal (125,900) (97,700) (162,300)
State (10,900) (9,000) (16,600)
----------- ----------- -----------
(136,800) (106,700) (178,900)
----------- ----------- -----------
$ 2,432,754 $ 3,676,579 $ 2,842,289
=========== =========== ===========
Deferred taxes result from temporary differences in the recognition of
revenue and expense for income tax and financial statement purposes. The sources
of these differences and the related income tax effect are as follows:
1996 1995 1994
--------- --------- ----------
Allowance for doubtful accounts $ (69,600) $ 17,700 $ (157,100)
Depreciation 23,400 24,500 21,500
Accruals not currently deductible
for tax purposes (32,000) (51,800) (103,800)
Inventory capitalization (59,200) (4,400) (3,700)
Vacation accrual (2,300) (23,400) (10,200)
Other, net 2,900 (69,300) 74,400
--------- --------- ----------
$(136,800) $(106,700) $ (178,900)
========= ========== ==========
The effective tax rate differs from the statutory federal income tax rate as
follows:
1996 1995 1994
---- ---- ----
Statutory federal
income tax rate 34.0% 34.0% 34.0%
State income taxes,
net of federal tax effect 2.1 2.4 2.5
Foreign Sales Corporation (.6) (.4) (.5)
Tax exempt interest (2.1) (1.2) (1.5)
Nondeductible life insurance
premiums -- .2 .4
Other 1.1 (.5) .1
---- ---- ----
34.5% 34.5% 35.0%
==== ==== ====
The tax effects of temporary differences that give rise to deferred tax
assets as of June 30, 1996 and 1995 are as follows:
1996 1995
-------- --------
Allowance for doubtful accounts $266,300 $196,700
Depreciation 4,400 27,800
Accruals not currently deductible
for tax purposes 423,900 391,900
Inventory capitalization 70,300 11,100
Vacation accrual 50,700 48,400
Other, net --- 2,900
-------- ---------
$815,600 $678,800
======== ========
There is no valuation allowance as of June 30, 1996 and 1995.
12. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company adopted Incentive Stock Option Plans (the "Plans") during 1989
and 1995. The Plans authorize grants of options to purchase up to 250,000 and
400,000 shares of the Company's common stock, respectively. The option prices
may not be less than the fair market value of the common stock at the time the
option is granted. Options expire ten years after the date granted or on a prior
date as fixed by the Board of Directors or appropriate committee. Under the
Plans, the option may become exercisable at the date of grant or as determined
by the Board of Directors or appropriate committee.
Option activity is summarized as follows:
Number of Shares Option Price
---------------- ------------------
Balance, June 30, 1993 35,610 $ 3.125 -$ 5.50
Granted 141,000 16.00 - 16.125
Canceled (300) 3.125
Exercised (27,292) 3.125 - 5.50
------- ------------------
Balance, June 30, 1994 149,018 3.125 - 16.125
Granted 250,000 16.25 - 21.50
Canceled (7,500) 16.125
Exercised (1,350) 3.125
------ ------------------
Balance, June 30, 1995 390,168 3.125 - 21.50
Granted 120,000 13.50 - 16.75
Canceled (45,600) 16.125
Exercised (19,068) 3.125 - 16.125
------- ------------------
Balance, June 30, 1996 445,500 $13.50 -$ 21.50
======= =================
Number of shares exercisable
at June 30, 1996 50,200
=======
RESTRICTED STOCK
During 1992, the Company granted 50,000 shares of restricted stock to two key
employees. During 1993 and 1996, 18,000 shares and 15,000 shares, respectively,
were canceled. During 1994, the Company granted 20,000 shares of restricted
stock to a key employee. These restricted shares vest over a five-year period.
Amortization of the restricted stock's value (at the date of award) over the
vesting period resulted in compensation expense of approximately $70,380,
$90,600, and $80,500 in 1996, 1995 and 1994, respectively.
During 1995, the Company amended the restricted stock plan which resulted in
the issuance of 42,500 shares of previously granted but unissued shares of
restricted stock. These issued shares resulted in common stock and additional
paid-in capital which was offset by the unearned portion of the deferred
compensation. The deferred compensation is charged to stockholders' equity and
amortized to compensation expense over the remainder of the five-year vesting
period.
NON-EMPLOYEE DIRECTOR OPTIONS
The Company has a Non-Employee Director Stock Option Plan which authorizes
grants of options to purchase up to 40,000 shares of the Company's common stock.
The option prices must be 100% of the fair market value of the common stock
at the time the option is granted. Options expire five years from the date of
grant. Options become exercisable at the date of grant or as determined by the
Board of Directors or appropriate committee. During fiscal 1996, no options were
exercised. Options outstanding at June 30, 1996 were 30,000 shares at
$5.50-$20.625 per share. Total shares exercisable at June 30, 1996 were 30,000
shares.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, a new standard of accounting and
reporting for stock-based compensation plans. The Company is not required to
adopt the new standard until fiscal 1997. The Company will continue to measure
compensation costs for its stock option plans using the intrinsic value based
method of accounting that it has historically used and, therefore, the new
standard will have no effect on the Company's operating results. The Company's
financial statement disclosures will be expanded in fiscal 1997, as required, to
include pro forma disclosures as if the fair value based method of accounting
had been followed.
13. RETIREMENT SAVINGS PLAN
The Company has a 401(k) Retirement Savings Plan covering substantially all
of its employees. The Company provides matching contributions in accordance with
the plan. The Company's contribution to the plan in 1996, 1995 and 1994 was
$80,377, $71,080, and $35,854, respectively.
14. PURCHASE COMMITMENTS
At June 30, 1996, the Company had contractual supply agreements to purchase
certain products from several suppliers. Based upon the contract provisions and
Company estimates, these commitments are as follows:
1997 $ 2,561,000
1998 1,161,000
1999 390,150
------------
$ 4,112,150
============
15. ACQUISITION
During November 1995, the Company entered into an agreement to provide
working capital funds and to market products for Innovative Accessories, Inc.
("Innovative"). In connection with this agreement, the Company provided a
working capital note of $2,230,089.
During June 1996, the Company acquired the assets and assumed certain
liabilities of Innovative for a purchase price equal to the outstanding working
capital note of $2,230,089, additional consideration and transaction costs which
are expected to total approximately $300,000, and future royalty payments to the
former Innovative shareholders based upon future sales of Innovative.
The cost in excess of net tangible and identifiable intangible assets
acquired, which consists principally of goodwill, was approximately $1,835,916.
The acquisition has been recorded using the purchase method of accounting, and
Innovative's results have been included in the Company's operating results from
the date of acquisition. The acquisition is not significant to the Company's
overall results.
16. QUARTERLY FINANCIAL DATA (UNAUDITED AND UNREVIEWED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Sept. 30 Dec. 31 Mar. 31 June 30 Year Ended
-------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
1996
----
Net sales $10,436 $10,268 $11,525 $14,194 $46,423
Gross profit 3,953 3,945 4,284 5,642 17,824
Net income 995 821 1,218 1,588 4,622
Net income per share .22 .19 .28 .36 1.05
1995
----
Net sales $11,107 $11,057 $10,624 $14,596 $47,384
Gross profit 4,919 4,719 4,436 6,108 20,182
Net income 1,754 1,655 1,355 2,216 6,980
Net income per share .40 .37 .31 .50 1.58
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lund International Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Lund
International Holdings, Inc. as of June 30, 1996, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The financial
statements of Lund International Holdings, Inc. as of June 30, 1995, and for the
years ended June 30, 1995 and 1994, were audited by other auditors whose report
dated August 11, 1995, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lund International Holdings, Inc. as of June 30, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P
Minneapolis, Minnesota
August 21, 1996
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
Years ended June 30, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $46,423,208 $47,383,663 $36,395,124 $26,125,011 $16,524,317
Income before
income taxes 7,054,916 10,656,750 8,120,822 6,025,674 3,204,254
Provision for income taxes 2,432,754 3,676,579 2,842,289 2,094,928 1,202,128
Net income 4,622,162 6,980,171 5,278,533 3,930,746 2,002,126
Net income per share 1.05 1.58 1.20 .90 .47
Total assets 40,319,605 36,706,198 21,127,377 15,203,422 10,564,780
Long-term liabilities 4,942,225 5,030,000 -- -- --
Total stockholders' equity 30,507,269 25,504,025 18,068,750 13,019,752 8,984,851
</TABLE>
MARKET FOR THE COMPANY'S
COMMON STOCK
The Company's Common Stock is traded on the national-over-the-counter market
and quoted on the National Association of Securities Dealers Automated Quotation
National Market System ("NASDAQ/NMS") under the symbol "LUND". The following
table sets forth, for the periods indicated, the range of bid prices per share
for the Company as reported on the NASDAQ/NMS.
<TABLE>
<CAPTION>
1996 1995 1994
Bid Prices Bid Prices Bid Prices
--------------- ---------------- ----------------
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $21.00 $16.00 $19.25 $16.00 $17.00 $10.25
Second Quarter 18.50 10.25 20.75 15.75 20.00 14.00
Third Quarter 14.00 11.50 23.25 16.00 27.50 19.25
Fourth Quarter 15.75 11.75 23.00 19.00 20.75 15.25
</TABLE>
As of June 30, 1996, there were 194 Lund International Holdings, Inc.
stockholders of record. The Company estimates that an additional 2,500
stockholders own stock held for their account at brokerage firms and financial
institutions.
Lund International Holdings, Inc. has never paid cash dividends on its common
stock. Payment of dividends is within the discretion of the Company's Board of
Directors.
STOCKHOLDER INFORMATION
ANNUAL MEETING
4:00 P.M.CST October 24, 1996
Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, MN 55303-9876
OFFICERS
Allan W. Lund, Chairman of the Board
William J. McMahon, President and
Chief Executive Officer
Jay M. Allsup, Chief Financial Officer
Kathy R. Smith, Corporate Secretary
William H. Toms, Vice President of Operations
Bradley W. Andress, Vice President of Marketing
Stephen S. Treichel, Vice President of
Strategic and Human Systems
CORPORATE HEADQUARTERS
Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, MN 55303-9876
Telephone: (612) 576-4200
Facsimile: (612) 576-4297
STOCK LISTING
NASDAQ/NMS
Trading symbol: "LUND"
STOCK TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services
111 Founders Plaza
Suite 1100
E. Hartford, CT 06108-3212
INDEPENDENT ACCOUNTANTS
Coopers &Lybrand L.L.P.
IBM Park Building
Suite 1300
Minneapolis, MN 55402-4333
STOCKHOLDER COMMUNICATIONS
Copies of the Company's 1996 Form 10-K Report to the Securities and Exchange
Commission can be obtained by stockholders without charge from the Corporate
Secretary, 911 Lund Blvd., Anoka, Minnesota 55303-9876
Lund International Holdings, Inc. ("Lund") issues all of its corporate news
releases through PR Newswire. You may obtain a fax copy of any Lund news release
issued during the past twelve months by calling Company News On Call at
1-800-758-5804. This electronic, menu-driven system will request a six digit
code (518375) and allow you to request specific Lund releases to be sent to your
fax for immediate retrieval. This service is accessible 24 hours a day, seven
days a week.
BOARD OF DIRECTORS
[PHOTO]
(From left to right-front row) David E. Dovenberg - Universal Hospital Services
Inc., Chief Financial Officer; Allan W. Lund - Chairman of the Board of Lund
International Holdings; (From left to right-back row) Christopher A. Twomey -
Arctic Cat Inc., Chief Executive Officer; Charles R. Weaver, Jr. - Assis- tant
County Attorney, Minnesota State Legislator; James E. Haglund - Central
Container Corporation, President
EXHIBIT 10.44
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of the 29th day of May, 1996,
by and among LUND ACQUISITION CORP., a Minnesota corporation ("Purchaser"),
INNOVATIVE ACCESSORIES, INCORPORATED, an Oklahoma corporation ("Seller"), LUND
INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("Holdings"), JAMES A. NETT
("Nett"), and RAMONA C. FRIAR ("Friar"), with reference to the following:
(i) Seller owns and operates a manufacturing business
located at 7949 South I-35 Service Road, Oklahoma City, Oklahoma (the
"Business");
(ii) In connection with Seller's operation of the Business,
Seller and Nett own and lease certain properties and assets, including, without
limitation, raw materials, inventory, furnishings, fixtures, equipment, and
intellectual property rights;
(iii) Seller and Nett desire to sell or assign and Purchaser
desires to purchase or receive, as assignee or otherwise, the assets of the
Business upon the terms and subject to the conditions of this Agreement;
(iv) Nett owns or controls 50.1% of the issued and outstanding
stock of Seller, and Friar owns or controls 44.9% of the issued and outstanding
stock of Seller.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which hereby are acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. In consideration of the Purchase Price and the
assumption of the Assumed Liabilities, and upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, Seller and Nett
shall sell, assign, transfer, convey, and deliver to Purchaser and Purchaser
shall purchase, accept, acquire, and take assignment and delivery from Seller
and Nett, all of the assets of Seller and Nett (whether tangible or intangible)
used in the operation of the Business, including, without limitation, those
described in this Section 1.1 and excluding the assets described on Schedule
1.1(c) (collectively, the "Purchased Assets"):
(a) Inventory. All consumable business supplies, raw
materials, work in progress, and good and saleable inventory of Seller as of the
Closing (the "Inventory").
(b) Furniture, Fixtures, and Equipment. All of the furniture,
fixtures, equipment, machinery, tools, computers and related hardware, and all
other tangible personal property used or useful in the Business as of the
Closing, which assets include, without limitation, those described on Schedule
1.1(b) (the "Equipment").
(c) Real Property Lease. All of Seller's right, title and
interest as lessee under the real property lease described on Schedule 1.1(c)
hereto and the related fixtures and leasehold improvements (the "Lease");
(d) Intellectual Property Rights. The entire right, title, and
interest in and to all intellectual property rights, including, without
limitation, those listed in Schedule 1.1(d) hereto, together with all proceeds
thereof, including, without limitation, license royalties and proceeds of
infringement suits; license agreements related to any of the foregoing and
income therefrom; books, records, computer tapes or discs, flow diagrams,
specification sheets, source codes, object codes and other physical
manifestations of the foregoing; the right to sue for past, present, and future
infringement and all rights corresponding thereto throughout the world; all
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof; and all proceeds thereof; the intellectual
property rights shall include, without limitation, U.S. Patent Nos. 4,730866 and
4,838,602 and all related and corresponding domestic and foreign patent
applications and patents, including, for example, reissues, continuations,
divisionals, continuations-in-part, renewals, and reexaminations; the
intellectual property rights shall include, without limitation, domestic and
foreign patents and patent applications, presently owned by Seller or Nett, or
otherwise owned by a third party (e.g., an employee/inventor) under an
obligation to assign to Seller or Nett; the intellectual property rights shall
include, without limitation, all other inventions (i.e., for which a patent
application could be filed) related to tonneau covers and owned by Seller or
Nett or otherwise owned by a third party (e.g., employee/inventor) under an
obligation to assign to Seller or Nett; the intellectual property rights shall
include, without limitation, all rights to use the name "LUXXUS" and any
variations thereof and any similar name, and all other trademark, tradenames,
trade dress, copyrights, trade secrets, licenses, know-how, and other
intellectual property owned or used by Seller or Nett in connection with the
Business, and all of the goodwill, if any, associated with the Business,and
excluding only the intellectual property rights that relate solely and
exclusively to the hard tonneau covers produced by the Business (collectively,
the "Intellectual Property Rights").
(e) Intangibles. All contract rights, operating data, cost and
pricing information, computer programs and software (including source codes),
prepaid expenses, customer lists, and all other items of intangible personal
property used or useful in the operation of the Business.
(f) Operating Contracts. All assignable contracts that relate
to the operation of the Business and that are listed on Schedule 1.1(f) hereto
(collectively, the "Operating Contracts").
(g) Permits and Licenses. All of Seller's rights, to the
extent legally transferable, pursuant to the governmental licenses, code
approvals, and permits relating to the Business, all of which licenses,
approvals, and permits, regardless of transferability, are listed on Schedule
1.1(g) hereto (the "Permits").
(h) Cash and Accounts Receivable. All cash, accounts
receivable, and deposits used or useful in the operation of the Business.
1.2 Excluded Assets. The Purchased Assets shall not include any of the
following (the "Excluded Assets"):
(a) any claims, causes in action and rights of actions by
Seller against third parties except (i) contract rights under the Operating
Contracts, (ii) rights under warranties relating to the Purchased Assets, and
(iii) rights granted the tenant under the Lease;
(b) the Permits to the extent they are not lawfully
transferable; and
(c) the items of personal property described on Schedule
1.2(c).
ARTICLE II
ASSUMPTION OF LIABILITIES
2.1 Liabilities Assumed. Upon the terms and subject to the conditions
set forth in this Agreement, on the Closing Date, as of the Closing, Purchaser
shall assume only the following obligations of Seller (the "Assumed
Liabilities"):
(a) Seller's obligations under the Lease, Operating
Contracts, and all of the transferred Permits which accrue after the Closing
Date;
(b) The payables of Seller listed on Schedule 2.1(b) (the
"Payables");
(c) The obligations of Seller to, or with respect to, its
employees listed on Schedule 2.1(b) (the "Employee Obligations"); and
(d) The obligations of Seller, if any, for interest and
penalties on payroll taxes for employees of the Business due after December 15,
1995 through the Closing Date.
2.2 Non-Assumption of Other Liabilities. Purchaser shall not assume any
liability or obligation of Seller or Nett other than as specifically set forth
in this Agreement. The liabilities and obligations of Seller and Nett that
Purchaser shall not assume include, without limitation, (i) all liabilities for
taxes, except as provided in Section 2.1 and 14.2, and related interest and
penalties, including, without limitation, liabilities for income taxes, (ii)
notes and accounts payable other than the Payables, (iii) liabilities against
which Seller is insured, without regard to any deductible amounts, (iv) product
liabilities and other claims for personal injury, (v) liabilities and
obligations arising from claims asserted by any employee with respect to injury,
sickness, disease, or death or under any disability or worker's compensation
laws, (vi) liabilities relating to Hazardous Material or otherwise arising under
Environmental Laws, (vii) liabilities and obligations for noncompliance by
Seller with the requirements of OSHA and ADA, (viii) any liabilities or
obligations for any employment-related claim or proceeding including any
grievance or arbitration under any collective bargaining agreement, any charge
of discrimination before a state or federal regulatory agency, any unfair labor
practice charge, any claim or lawsuit arising out of the conditions of
employment, hiring, firing, or other employment practice of Seller with respect
to any applicant, employee, or former employee of Seller, (ix) liability to any
employee benefit plan established or maintained by Seller, or liability to any
participant in such plan, and (x) liability to any state or federal regulatory
agency or other person or entity with respect to any aspect of Seller's
operations, labor relations, employment practices, working conditions, personnel
policies, payroll taxes, unemployment insurance or workers' compensation
contributions or premiums, employee benefits or benefit plans, or any other
liabilities of Seller to its employees, other than the Employee Obligations.
ARTICLE III
PURCHASE PRICE AND PAYMENT; PRORATIONS
3.1 Amount. The purchase price of the Purchased Assets shall be,
subject to adjustment, if any, as provided in this Agreement, (i) the assumption
or payment of the Assumed Liabilities, which shall include payment of the
Payables and Employee Obligations not exceeding a total of $200,000, (ii) an
amount equal to the indebtedness of Seller to Lund International Holdings, Inc.
("Holdings"), the parent of Purchaser, under the Loan Agreement dated November
29, 1995, as amended by the Forbearance Agreement dated April 8, 1996 (the
"Purchase Price"), (iii) an amount equal to any payments made pursuant to
Sections 3.3, 3.4, 3.5, 3.6, and 3.7 of this Agreement, and (iv) the amounts to
be paid to Nett and Friar pursuant to Sections 7.13 and 7.14 of this Agreement.
3.2 Allocations.
(a) The Purchase Price shall be allocated by Purchaser in
accordance with generally accepted accounting principles ("GAAP") as follows:
(i) Cash and accounts receivable at stated book value less
appropriate reserves;
(ii) Raw materials at cost;
(iii) Work in progress at material cost;
(iv) Finished goods based on standard costs of manufacturing;
(v) Prepaids, deposits, and other current assets at stated
book value;
(vi) Leasehold improvements and Equipment at net book value;
(vii) Intangibles and Intellectual Property Rights at fair
market value determined by third party appraiser; and The portion of the
Purchase Price, if any, not allocated as described above shall be allocated to
goodwill for closing balance sheet purposes only. Purchaser shall advise Seller
of the final allocation not later than the 15th day of the month following the
month in which the Closing occurs.
(b) Reporting Requirements. After the Closing, Purchaser and
Seller shall not take any position or action inconsistent with the allocations
set forth above, including, without limitation, positions or actions taken in
connection with complying with the Code and the regulations promulgated
thereunder, and Seller shall assist Purchaser in completing a purchase price
allocation schedule (IRS Form 8594) for federal income tax purposes.
3.3 Payment of Additional Payables. If the sum of the Payables and the
Employee Obligations is less than $200,000, Purchaser shall pay a total of an
amount equal to the difference between such sum and $200,000 for a period of
three months after the Closing to payables of the Business accruing prior to the
Closing Date, including attorney's fees for services provided through the
Closing Date and for services provided after the Closing Date for defense of
lawsuits filed against Seller and preparation of Seller's corporate tax returns
for tax years 1995 and 1996, but not including attorney's fees for preparation
of tax returns of Seller's shareholders or for matters relating to dissolution
of Seller. On the day of the Closing, if the payables of the Business exceed
$200,000 and the application of any collected accounts receivable of the
Business would cause the amount of the payables to be less than $200,000, Seller
shall apply such receipts to payment of the payables.
3.4 Additional Payments. After the Closing, Purchaser shall (i) pay up
to $15,000 toward a settlement of all claims made by M. Robert Chandler and
Truck Pup International in Case No. 95-530895 CZ pending in the Circuit Court
of Wayne County, Michigan and (ii) pay up to $15,000 of the cost of remediating
the contamination of the real property covered by the Lease as described in
the written report of the environmental audit conducted by Stanley Engineering,
Inc. (the "Environmental Report").
3.5 Moving Expenses. Within five days after the Closing, Purchaser
shall pay Seller the amount of $35,000 to defray the cost of moving the Excluded
Assets from the Oklahoma City Facility.
3.6 Friar Attorney Fees. At the Closing, Purchaser shall pay Friar the
amount of $2,000 to defray her legal fees in connection with this Agreement.
3.7 Meridian Rent. Purchaser shall pay not more than $7,500 to the
landlord of the Meridian facility leased by Seller for application to the base
rent due from Seller for June through August 1996.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
REGARDING SELLER AND THE BUSINESS
Seller and Nett hereby jointly and severally represent and warrant to
Purchaser as follows:
4.1 Organization and Qualification. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Oklahoma and has the requisite corporate power to carry on the Business as now
conducted.
4.2 Due Authorization. Seller has full corporate power and authority to
enter into and perform this Agreement and all other agreements and transactions
contemplated hereby. The execution, delivery and performance by Seller of this
Agreement has been, and the execution, delivery, and performance by Seller of
all other agreements and transactions contemplated hereby have been or prior to
Closing will be, duly authorized and approved by all requisite corporate action
on the part of Seller. This Agreement has been, and the other agreements
contemplated hereby, when executed, will be, duly executed and delivered by
Seller and, assuming the due authorization, execution and delivery hereof and
thereof by the other parties hereto and thereto, this Agreement constitutes and,
when executed, each of the other agreements contemplated hereby will constitute,
a valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance, and similar laws affecting
creditors' rights generally from time to time and to general principles of
equity.
4.3 No Violation. The execution, delivery, and performance by Seller of
this Agreement and the other agreements and transactions contemplated hereby
will not cause Seller to violate any provision of its Certificate of
Incorporation or Bylaws. Seller is not subject to or obligated under any
provision of (i) any contract or other agreement (other than the Restated
Exclusive Purchase Option Agreement dated October 18, 1995, and the Forbearance
Agreement dated as of April 8, 1996), (ii) any license, franchise, or permit, or
(iii) any law (other than laws applicable to bulk sales transactions),
regulation, order, judgment, or decree that would be breached or violated or in
respect of which a right of termination or acceleration or any encumbrance on
any portion of the Purchased Assets would be created by the Seller's execution,
delivery, and performance of this Agreement or the other agreements and
transactions contemplated hereby, except for those breaches, defaults, and
violations that Seller shall have cured at or before the Closing.
4.4 Lease and Operating Contracts. Schedule 1.1(c) describes the Lease,
the name and address of the landlord thereunder, and the street address and
legal description of the tract of real property covered thereby. Schedule 1.1(f)
describes each Operating Contract and the names and addresses of each party
thereto. Seller has provided Purchaser with true, correct, and complete copies
of the Lease and Operating Contracts. Seller holds the leasehold estate
described by the Lease, free and clear of all security interests, mortgages,
assignments, liens, encumbrances, equities, claims, charges, easements, rights
of way, covenants, conditions, and restrictions. There are no defaults by Seller
under, or to Seller's knowledge, by any other party to, the Lease and the
Operating Contracts, and with the giving of notice or the passage of time or
both there would be no such defaults under the Lease and the Operating
Contracts. The Lease and Operating Contracts are in full force and effect and
constitute legal, valid, and binding agreements of Seller, enforceable against
Seller in accordance with their respective terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and
similar laws affecting creditors' rights generally from time to time and to
general principles of equity.
4.5 Permits. Seller has delivered to Purchaser true, correct, and
complete copies of all the Permits. There is no outstanding violation of any of
the Permits that would result in a material adverse effect on the operation of
the Business to which the Permit relates, and all the Permits are in full force
and effect. The Permits have been duly and validly issued and constitute all
Permits necessary to operate the Business in the manner in which it is currently
being operated.
4.6 Title to Purchased Assets. Seller or Nett owns indefeasible title
to all of the Purchased Assets subject to no liens, mortgages, privileges,
security interest, encumbrances, and charges of any kind, except those in favor
of Purchaser.
4.7 Inventory. The Inventory is of good quality, conforms in all
respects to the specifications thereof and is useable or saleable in the
ordinary course of business. No item included in the Inventory has been the
subject of a recall initiated by the manufacturer or supplier thereof or by a
government agency. Seller has not taken any action with respect to the Inventory
that, on the date hereof, and, as of the Closing Date would cause the Inventory
(i) not to be of a quality which complies with current governmental or industry
regulations, or (ii) to be articles that may not be introduced into interstate
commerce.
4.8 Intellectual Property. Nett or Seller owns all right, title, and
interest in the Intellectual Property Rights, free and clear of any and all
liens, claims, security interests, assignments, and encumbrances of any kind or
nature whatsoever. After the Closing, Purchaser shall have the exclusive right
to make, use, and sell products covered by or associated with the Intellectual
Property Rights, and neither Nett nor Seller shall retain any shop rights or
other rights in the Intellectual Property Rights. To the extent that such shop
rights could exist and will not have been transferred to Purchaser by this
Agreement or the Assignment of Intellectual Property Rights, Nett and Seller
waive such rights and agree to never exercise or purport to exercise such rights
in the future. Nett and Seller have provided Purchaser with a complete and
accurate list of all domestic and foreign patents and patent applications owned
by them or by a third party under an obligation to assign to them. All employees
of Nett and Seller are under an obligation to assign all inventions made within
the scope of the duties and responsibilities of their employment or that are
otherwise made using the resources and facilities of Nett or Seller. The LUXXUS
products covered by the Intellectual Property Rights do not infringe any
patents, copyrights, trade secrets, trademarks, trade dress, or other
proprietary rights of any third party. No rights or licenses are required from
third parties to exercise any rights with respect to the LUXXUS products or any
part thereof.
4.9 Condition of Purchased Assets.
(a) The Purchased Assets constitute all assets necessary for
the normal operation of the Business as historically operated by Seller and are
in good repair and condition and will be in good repair and condition at the
time of Closing.
(b) The Business and Seller's operation thereof are in
compliance with all applicable zoning, building, and other laws, ordinances,
codes, and governmental and industry regulations, including, without limitation,
Environmental Laws, OSHA, and ADA.
4.10 Hazardous Material. Except as disclosed in the Environmental
Report, (i) any handling, transportation, storage, treatment or usage of
Hazardous Material by Seller has been in compliance with all applicable
environmental laws, (ii) no leak, spill, release, discharge, emission, or
disposal of any Hazardous Material that would constitute a violation of or give
rise to remedial action under Environmental Laws has occurred on any real
property while owned or operated by Seller now or at any time in the past, and
(iii) other than a septic tank system there are no underground storage tanks
located on the real property currently occupied by Seller. Set forth on Schedule
4.10 are full, accurate and complete descriptions of any and all reports,
studies, tests, and other information in Seller's possession or control relating
to the presence or suspected presence of any Hazardous Material on the tract of
property covered by the Lease, and Seller has provided Purchaser with full,
accurate, and complete copies of all of the foregoing. Seller shall, promptly
following its receipt thereof, furnish to Purchaser full, accurate, and complete
copies of any such reports, studies, tests, and other information hereafter
obtained by Seller.
4.11 Commissions. No broker or finder has acted directly or indirectly
for Seller in connection with this Agreement or the transactions contemplated
hereby, and no broker or finder is entitled to any brokerage or finder's fee or
other commission in respect thereof based in any way on agreements,
arrangements, or understandings made by or on behalf of Seller.
4.12 Consents and Approvals of Third Parties. No consent, approval, or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority or other person (except the landlord under the Lease) is
required in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
4.13 Legal Proceedings, Defaults. Schedule 4.13 describes all legal
proceedings pending or threatened against Seller. There is no legal,
administrative, arbitration, or other proceeding pending or threatened, against
Seller or Nett which, if resolved against Seller or Nett or their successors,
would have an adverse effect on any of the Purchased Assets or Purchaser's use
thereof. Seller is not in violation or default, and in carrying out the
transactions described herein will not come into violation or default, under any
laws, ordinances, regulations, orders, or decrees applicable to the Seller or
the Purchased Assets (including, without limitation, Environmental Laws, the
provisions of WARN, and laws and regulations relating to employees, such as OSHA
and the Equal Employment Opportunity Commission), which would have an adverse
effect on any of the Purchased Assets or Purchaser's use thereof. Except as
described on Schedule 4.13, Seller has not received notice of any default under
any contract or agreement binding upon it and there exist no pending or
threatened lawsuits, actions, claims, grievances, charges of discrimination, or
any other proceedings involving Seller which relate to Seller's employment
practices, personnel policies or procedures, hiring, discharge, or termination
decisions, or other matters relating to the employment of employees or to
benefits paid or owed to such employees.
4.14 Employees and Employee Benefit Plans. Schedule 4.14 contains a
complete list of "employee welfare benefit plans", as defined in Section 3(1) of
ERISA, in which employees of Seller who work or worked in the Business
participate (which plans are hereinafter referred to as "Seller's Welfare
Plans"). Seller does not currently sponsor or participate in, nor has it ever
sponsored or participated in, any "employee pension benefit plans", as defined
in Section 3(2) of ERISA. Each of Seller's Welfare Plans is in compliance with
the provisions of all applicable laws, rules, and regulations, which shall
include, without limitation, ERISA and the Code.
4.15 Balance Sheets. Schedule 4.15 contains the balance sheet for the
Business on October 31, 1995, and March 31, 1996. Such information fairly
presents, in all material respects, the financial position of the Business on
those dates.
4.16 Completeness of Documents. The copies of all instruments,
agreements, and other documents (including all Schedules) delivered pursuant to
this Agreement, that have been or will be delivered to Purchaser pursuant to
this Agreement or in connection with the transactions contemplated hereby, are,
or if not now when delivered will be, complete and correct.
4.17 Collective Bargaining Agreements. Seller is not a party to any
collective bargaining agreements.
4.18 Taxes. Seller has timely filed all income, excise, franchise,
property, and other tax returns or reports required to be filed by Seller
(excluding those relating to payroll taxes due after December 15, 1995), as of
the date hereof, by any governmental authority and has paid all taxes and
assessments relating to the time periods covered by such returns and reports
that are due and payable prior to the date of this Agreement. There are no
present disputes as to taxes of any nature payable by Seller that affect the
Business or the Purchased Assets.
4.19 Purchase Orders. Schedule 4.19 lists all outstanding purchase
orders of the Business and describes the related vendor, product ordered,
quantity, and price of each.
4.20 Material Adverse Changes and Omissions. This Agreement and the
Schedules attached hereto do not contain any untrue statement of a material fact
and do not omit to state a material fact necessary to make the statements
contained herein not misleading in light of the circumstances under which they
were made. To the best of Seller's and Nett's knowledge, there is no fact that
would materially adversely affect the operations of the Business that has not
been disclosed to Purchaser in this Agreement or in the Schedules attached to
this Agreement. Neither the diligence investigation of the Business and the
Purchased Assets conducted Purchaser shall in any way limit the representations
and warranties of Seller, Nett, and Friar in this Agreement or Purchaser's
right to rely on such representations and warranties.
Friar represents and warrants to Purchaser, without first having made
due inquiry, that she knows of no facts or legal condition applicable to the
representations and warranties of Seller and Nett that would render such
representations false or misleading. In addition to all other remedies available
to Purchaser, Purchaser may set off the amount of any claim against Friar or
Nett arising under this Agreement against any payment due to Friar or Nett under
this Agreement or any other agreement entered into in connection with this
Agreement. The exercise of this right to set off will not be construed as an
election of remedies by Purchaser.
The liability of Seller and Nett and of Friar for a breach of any of
the representations and warranties made by them shall survive the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING PURCHASER
Purchaser and Holdings represent and warrant to Seller, Nett, and Friar
as follows:
5.1 Organization and Qualification. Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Minnesota.
5.2 Due Authorization. Purchaser has full corporate power and authority
to enter into and perform this Agreement and all other agreements and
transactions contemplated hereby. The execution, delivery, and performance by
Purchaser of this Agreement has been, and the execution, delivery, and
performance by Purchaser of all other agreements and transactions contemplated
hereby have been or prior to Closing will be, duly authorized and approved by
all requisite corporate action on the part of Purchaser. This Agreement has
been, and the other agreements contemplated hereby, when executed, will be, duly
executed and delivered by Purchaser and, assuming the due authorization,
execution, and delivery hereof and thereof by the other parties hereto and
thereto, this Agreement constitutes and, when executed, each of the other
agreements contemplated hereby will constitute, a valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance, and similar laws affecting creditors' rights generally
from time to time and to general principles of equity.
5.3 Consents; No Default. No consent or approval is required by any
person in connection with the execution, delivery, and performance by Purchaser
of this Agreement and the other agreements and transactions contemplated hereby.
The execution, delivery, and performance by Purchaser of this Agreement and the
other agreements and transactions contemplated hereby will not cause Purchaser
to violate any provision of its Certificate of Incorporation or Bylaws.
5.4 Commissions. No broker or finder has acted directly or indirectly
for Purchaser in connection with this Agreement or the transactions contemplated
hereby, and no broker is entitled to any brokerage or finder's fee or other
commission in respect thereof based in any way on agreements, arrangements, or
understandings made or on behalf of Purchaser.
The liability of Purchaser and Holdings for a breach of any of the
foregoing representations and warranties shall survive the Closing.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO CLOSING
6.1 Conduct of Business. Seller shall operate the Business between the
date hereof and the Closing Date only in the ordinary course. Without limitation
of the foregoing, Seller shall maintain the operation of the Business pending
Closing and in so doing shall (i) continue its business in the ordinary and
usual course (other than the anticipated depletion and replenishment of
Inventory); (ii) maintain and repair all of the Purchased Assets in accordance
with past practice and Seller's contractual obligations; (iii) use its best
efforts to preserve Seller's relationship with suppliers, customers, brokers,
agents, and others; (iv) comply with all applicable laws, rules, and regulations
of each federal, state, or municipal authority and industry association having
jurisdiction over the Business and the Purchased Assets; (v) operate the
Business in accordance with past practices; (vi) maintain insurance in the
ordinary course of business with respect to the Purchased Assets until the close
of business on the Closing Date; (vii) promptly notify Purchaser of any event
which would cause any of Seller's representations and warranties herein to be
not true and correct as of the time of such event; and (viii) not modify, amend,
or terminate the Lease, Operating Contracts, or Permits.
6.2 Books and Records. Seller shall maintain the books,
accounts, and records with respect to the Business in Seller's customary manner
so as to fully and accurately reflect all relevant information concerning the
Purchased Assets.
ARTICLE VII
OBLIGATIONS PRIOR, AS OF AND SUBSEQUENT TO THE CLOSING
The parties agree that, prior to the Closing and, where specifically
indicated below, subsequent to the Closing:
7.1 Access. From the date hereof through the Closing Date, Seller shall
afford the officers, employees, and agents of Purchaser access to Seller's
properties, books, contracts, documents, and records relating to the Business,
and shall furnish Purchaser all financial, operating, and other data and
information with respect to the Business as Purchaser, through its officers,
employees, or agents, may reasonably request. Purchaser may, at its expense,
make such reasonable soil and other environmental tests as are appropriate to
its investigation of the real estate subject to the Lease.
7.2 Consents; Additional Agreements. Purchaser and Seller shall
cooperate and promptly take, or cause to be taken, all action and to cooperate
and promptly do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, including (i) the removal of any legal
impediment to the consummation or effectiveness of such transactions and (ii)
the obtaining of all necessary and material waivers, consents, and approvals of
all third parties and governmental bodies and the making of all necessary
filings. Seller shall use its best efforts to obtain and deliver to Purchaser
prior to or at the Closing estoppel letters from the landlord under the Lease or
from other parties to agreements to be assigned to Purchaser, as may be
requested by Purchaser (the "Estoppel Letters").
7.3 Books and Records. After the Closing, Purchaser will allow
reasonable access to all books and records of Seller.
7.4 Third Party Claims. From and after the Closing, the parties shall
reasonably cooperate with each other with respect to any claims made or
litigation which relate to the operations of the Business prior to Closing, and
the party requesting cooperation shall reimburse the other party for the other
party's reasonable out-of-pocket costs and expenses of furnishing such
cooperation.
7.5 Waiver. At the Closing, the parties shall execute and deliver a
waiver of claims in substantially the form of Exhibit A hereto (the "Waiver of
Claims").
7.6 Casualty or Condemnation. Seller shall not, prior to the Closing
Date, pursue or settle any casualty or condemnation claim with respect to any of
the Purchased Assets without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld or delayed.
7.7 Confidentiality. Except as permitted in Section 7.8, at all times
prior to the Closing Date, Purchaser will hold, and will cause its officers,
representatives, attorneys, advisers, and affiliates to hold, in confidence, and
not disclose to others for any reason whatsoever, all plans, documents,
contracts, records, data analyses, compilations, forecasts, studies, and other
information and material received or prepared by any of them from or with
respect to the Business, in connection with the transactions contemplated hereby
(collectively, the "Information"), except (i) to the extent that such
Information is otherwise available from third persons without restriction on its
further use or disclosure or is required by order of any court or by law or by
any regulatory agency to which Purchaser is subject or in connection with any
civil or administrative proceeding, or (ii) to the extent such Information is or
becomes publicly known other than through actions, direct or indirect, of the
Purchaser, any of its officers, representatives, brokers, attorneys, advisers,
or affiliates.
7.8 Public Announcements. Whether prior to or after the Closing, and
subject to Section 8.6(a) hereof, each party shall use its best efforts to
consult with the other before issuing any press releases or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement and, except as may be necessary to comply with legal or stock exchange
requirements, shall not issue any such press release or make any such public
statement prior to the other party approving in writing of such press release or
public statement. No approval by either party of any such press release or
public statement shall be unreasonably withheld or delayed.
7.9 Utilities. Prior to the Closing Date, Seller and Purchaser shall
notify all appropriate utility companies to take final meter readings on the
Closing Date and to change the party to be billed, effective as of the day after
the Closing Date.
7.10 Keys. On the Closing Date, Seller shall deliver to Purchaser all
of the keys for all facilities of the Business and the combination of any safe
located therein.
7.11 Assignment of Lease. At the Closing, Purchaser and Seller shall
enter into the Assignment and Assumption Agreement in substantially the form of
Exhibit B hereto with respect to the Lease.
7.12 Bill of Sale and Assignment. At the Closing, Seller shall execute
and deliver a Bill of Sale and Assignment in substantially the form of Exhibit C
hereto.
7.13 Friar Payments. Purchaser will pay to Friar or her designee an
amount equal to 1.75% of all of Seller's Net Sales from January 1, 1996, through
the date of the Closing. Purchaser will make this payment within five days after
the end of the calendar month in which the Closing occurs. In addition,
Purchaser will pay to Friar or her designee an amount equal to 1.75% of
Purchaser's Net Sales from the facility covered by the Lease (the "Oklahoma City
Facility") occurring after the Closing and through April 30, 2002. The total of
such payments to Friar or her designee will not be less than $200,000. These
payments shall be made on or before the 30th day following the last day of each
March, June, September, and December of each year and shall commence on July 30,
1996. "Net Sales" shall be calculated on the basis of (i) the transfer price
listed on Schedule 7.13 for products shipped to Holdings (or any affiliate
thereof) from the Oklahoma City Facility during the relevant period, and (ii)
the quoted sales price (F.O.B. the Oklahoma City Facility) of products
manufactured at the Oklahoma City Facility and sold directly to Ford Motor
Company, General Motors, and other original equipment automotive manufacturers
during the relevant period. Purchaser shall have no obligation to maintain any
production of products at the Oklahoma City Facility. Nett and Friar shall have
the right to audit the books and records of Purchaser relating to the Oklahoma
City facility in order to determine Purchaser's proper calculation of the
amounts of payments due to them, but there shall not be more than one such audit
during each twelve month period after the Closing. The cost of any audit shall
be borne by the party requesting it, but if the audit reveals an underpayment by
Purchaser of more than five percent, Purchaser shall pay the reasonable costs of
the audit.
7.14 Nett Payment. Purchaser will pay to Nett or his designee or heirs
an amount equal to 1.75% of all of Seller's Net Sales from January 1, 1996,
through the date of the Closing. Purchaser will make this payment within five
days after the end of the calendar month in which the Closing occurs. In
addition, Purchaser will pay to Nett or his designee or heirs an amount equal to
1.75% of Purchaser's Net Sales from the Oklahoma City Facility occurring after
the Closing and through May 31, 1999. These payments will be made on or before
the 30th day following the last day of each March, June, September, and December
of each year and shall commence on July 30, 1996. If Purchaser ceases sales from
the Oklahoma City Facility before May 31, 1999, in lieu of the payments
described above Purchaser shall pay Nett or his designee or heirs a prorated
amount for the period from the date such sales cease through May 31, 1999, based
on the Net Sales for the 12-month period following the Closing.
7.15 Assignment of Intellectual Property Rights. At the Closing, Seller
and Nett shall execute and deliver the Assignment of Intellectual Property
Rights in substantially the form of Exhibit D hereto.
7.16 Further Actions. At any time after the Closing Date, upon the
request of Purchaser, Seller, Nett, and Friar shall promptly take any and all
reasonable action and execute and deliver, instruments or conveyances as may be
necessary to more fully and effectively convey to, transfer to, and invest in,
Purchaser title to, and to put Purchaser in possession and operating control of,
all or any part of the Purchased Assets.
7.17 Holdings Guaranty. Holdings hereby guarantees to Seller, Nett, and
Friar the performance by Purchaser of all of Purchaser's obligations in this
Agreement. Holdings shall be entitled to assert against Seller, Nett, and Friar
any and all rights, defenses, and claims that Purchaser has or may have in the
future or that could be asserted by Purchaser, except in any discharge in any
bankruptcy of Purchaser.
7.18 Intellectual Property Rights. Purchaser shall control the
preparation and prosecution of all applications for patents and trademarks on
the Intellectual Property Rights, and Nett and Seller shall cooperate with
Purchaser in the preparation and prosecution of any such applications. Nett and
Seller will cooperate and assist Purchaser in perfecting Purchaser's rights in
the Intellectual Property Rights, including the execution of the Assignment of
Intellectual Property Rights, and the obtaining of declarations and assignments
from any and all inventors (including, without limitation, any employee
inventors) for the Intellectual Property Rights. Nett and Seller shall cooperate
with Purchaser in identifying all patentable inventions in the current
embodiments of the LUXXUS tonneau cover products, including any inventions in
subcomponents thereof. Nett and Seller will provide all reasonable and necessary
assistance in the defense of any claims that the LUXXUS products infringe any
intellectual property rights of others.
7.19 License. After the Closing, Seller and Purchaser shall negotiate
in good faith a license agreement pursuant to which Purchaser would grant a
limited license to Seller for the use of the portion of the Intellectual
Property Rights useful in the manufacturing of hard tonneau covers.
ARTICLE VIII
PROVISIONS RESPECTING EMPLOYEES
8.1 Business Employees. Seller shall notify all of its employees who
are engaged at or in connection with the operations of the Business
("Employees") and the bargaining representative, if any, of such employees that
the Purchased Assets are being sold to Purchaser. Purchaser will have no
obligation to offer employment to any of the Employees, except Nett. Any
Employees hired by Purchaser shall be employed under terms and conditions of
employment established solely by Purchaser pursuant to its hiring practices and
policies. If Purchaser hires any Employees, Purchaser shall recognize all
employment service of such Employees with Seller for the purpose of determining
eligibility for vacation time.
8.2 Indemnification for Wages, Severance, and Other Obligations. Seller
shall be liable to the Employees for all wages, severance benefits, accrued
vacations, unpaid sick and holiday pay, and other obligations of any kind
whatsoever (except the Employee Obligations), including, without limitation,
obligations and liabilities under Seller's Plans that accrue through the Closing
Date, and shall hold Purchaser harmless from and indemnify Purchaser against,
any and all such liabilities to Employees. Seller shall be solely responsible
for any employment related claims of any nature accruing or vesting prior to or
as of the Closing Date.
8.3 COBRA Indemnification and Information. Seller shall pay and be
liable to Purchaser and shall assume, indemnify, defend, and hold harmless
Purchaser from and against and in respect of any and all losses, damages,
liabilities, taxes, and sanctions that arise under the Consolidated Omnibus
Budget Reconciliation Act of 1984 ("COBRA") and the Code, interest and
penalties, costs, and expenses (including, without limitation, disbursements and
reasonable legal fees incurred in connection therewith, and in seeking
indemnification therefor, in any amounts or expenses required to be paid or
incurred in connection with any action, suit, proceeding, claim, appeal, demand,
assessment, or judgment) imposed upon, incurred by, or assessed against
Purchaser and any of its employees arising by reason of or relating to any
failure to comply with the continuation health care coverage of COBRA and
Sections 601 through 608 of ERISA which failure occurred with respect to any
current or prior employee of Seller or any qualified beneficiary of such em-
ployee (as defined in COBRA) or as otherwise required as a result of any
transactions or matters contemplated by this Agreement.
8.4 Multiemployer Pension Plans. Seller and Nett represent and warrant
to Purchaser that neither Seller nor any related company currently sponsors,
maintains, or participates in and is required to contribute to any
"multiemployer employer pension plan" as defined in Section 414(f) of the Code
covering any Employees ("Multiemployer Plans"). Purchaser shall have no
liability with respect to any complete withdrawal (as described in Section 4203
of ERISA) or partial withdrawal (as described in Section 4205 of ERISA), and
Seller and Nett shall assume and indemnify, defend, and hold harmless Purchaser
from and against and in respect of, any and all losses, damages, liabilities,
taxes, and sanctions (including, without limitation, reasonable attorneys' fees
and costs) that arise out of such complete or partial withdrawal, if any, under
any Multiemployer Plans resulting from the consummation of this Agreement.
8.5 Plant Closing Notice. Seller shall bear full responsibility for
providing any notice to Seller's employees that may be required pursuant to the
Federal Worker Adjustment and Retraining Notification Act of 1988 ("WARN") or
any similar applicable law for any employment loss that occurs on or after the
Closing Date or otherwise in connection with this Agreement. Seller shall bear
any liability or obligation which may accrue to the Employees, any unit of local
government, or otherwise under WARN or any similar applicable law as the result
of improper or untimely notice. Seller and Nett shall indemnify and hold
Purchaser harmless from and against any and all losses (including, without
limitation, reasonable attorneys' fees and costs) associated with or related to
Seller's failure to comply with WARN with respect to the Employees.
8.6 General. Seller and Purchaser shall consult with each other before
issuing any written communications or otherwise making any public statements to
employees relating to the transactions contemplated by this Agreement through
the Closing Date. Seller will have full and complete discretion with respect to
the content of such communications, but shall at all times act in good faith.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF
SELLER, NETT, AND FRIAR
Each and every obligation of Seller, Nett, and Friar under this
Agreement to be performed at or before the Closing shall be subject to the
satisfaction, at or prior to the Closing, of the following conditions:
9.1 Representations and Warranties True. The representations and
warranties made by Purchaser in this Agreement shall be true and accurate in all
material respects as of the date when made and, at and as of the Closing, and
Purchaser shall have delivered to Seller a certificate, dated the Closing Date,
to that effect duly executed by the president or chief financial officer of
Purchaser.
9.2 Performance of Covenants. Purchaser shall have performed and
complied in all material respects with each and every covenant, agreement, and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing Date, and Purchaser shall have delivered to Seller a
certificate, dated the Closing Date, to that effect duly executed by the
president or chief financial officer of Purchaser.
9.3 No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency shall be in effect or threatened which restrains
or prohibits the transactions contemplated hereby.
9.4 Approvals and Consents. All approvals, or the absence of
disapprovals within applicable time periods, from public authorities, federal,
state, or local (or exemptions from the requirements therefor), shall have been
obtained. All consents, waivers and approvals necessary for the transfer of the
Purchased Assets shall have been obtained by Seller.
9.5 Documents and Certificates. At the Closing, and concurrently with
the making of the deliveries by Seller as set forth in Section 10.5, Purchaser
shall have delivered to the Seller the following, in form and substance
reasonably satisfactory to Seller:
(a) Appropriate instruments of assumption providing for the
assumption of the Assumed Liabilities duly executed by Purchaser;
(b) A copy of all necessary corporate resolutions authorizing
the execution, delivery, and performance of this Agreement and all other
agreements and transactions contemplated hereby by Purchaser, certified (with
original or facsimile signature) by Purchaser's secretary or assistant secretary
as of the Closing Date;
(c) Duly executed incumbency certificates for all officers of
Purchaser executing documents in connection with the Closing;
(d) Such other instruments and documents as are required or
contemplated by any other provision of this Article IX; and (e) The Waiver of
Claims duly executed by Purchaser.
9.6 Waiver. Seller, Nett, and Friar may, in their discretion, waive any
conditions precedent to the Closing set forth in this Article IX. To be
effective any such waiver must be in writing.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF PURCHASER
Each and every obligation of Purchaser under this Agreement to be
performed at or before the Closing shall be subject to the satisfaction, at or
before the Closing, of the following conditions:
10.1 Representations and Warranties True. The representations and
warranties made by Seller, Nett, and Friar shall be true and accurate in all
material respects as of the date when made and, at and as of the Closing, and
Seller, Nett, and Friar shall have delivered to Purchaser certificates dated the
Closing Date to that effect duly executed by Nett, Friar, and the president of
Seller.
10.2 Performance of Covenants. Seller shall have performed and complied
in all material respects with each and every covenant, agreement, and condition
required to be performed or complied with by it prior to or on the Closing Date,
and Seller shall have delivered to Purchaser certificates dated the Closing Date
to that effect duly executed by the president of Seller.
10.3 No Governmental or Other Proceeding or Litigation. No order of any
court or administrative agency shall be in effect or threatened which restrains
or prohibits the transactions contemplated hereby.
10.4 Approvals and Consents. All approvals, or the absence of
disapprovals within applicable time periods, from public authorities, federal,
state, foreign, or local law (or exemptions from the requirements therefor),
shall have been obtained. All consents, waivers, and approvals necessary for the
transfer of the Purchased Assets shall have been obtained by Seller.
10.5 Documents and Certificates. At the Closing, and concurrently with
the making of the deliveries by Purchaser as set forth in Section 9.5, Seller
and Nett shall have delivered to Purchaser the following, in form and substance
reasonably satisfactory to Purchaser:
(a) Appropriate instruments of conveyance for the Purchased
Assets, including but not limited to, the Bill of Sale and Assignment;
(b) Certificate of good standing for Seller from the Secretary
of State of Oklahoma dated not more than ten days prior to the Closing Date;
(c) Originals of the Lease and each Operating Contract
included in the Purchased Assets and Seller's complete files relating thereto;
(d) Original consents, approvals, or waivers by third parties
necessary to carry out the transactions contemplated hereby, including, without
limitation, the consent of the Landlord under the Lease;
(e) A copy of all necessary corporate and shareholder
resolutions authorizing the execution, delivery, and performance of this
Agreement and all other agreements contemplated hereby by Seller, certified by
Seller's secretary;
(f) Duly executed incumbency certificates for all officers of
Seller executing documents in connection with the Closing;
(g) An Assignment and Assumption Agreement with respect to the
Lease duly executed by Seller;
(h) The Waiver of Claims duly executed by Seller, Nett, Friar,
and the other persons named therein;
(i) Such other instruments and documents as are required or
contemplated by any other provision of this Article X;
(j) A designation agreement designating the "reporting
person" for purposes of completing Internal Revenue Form 1099 and, if
applicable, Internal Revenue Form 8594;
(k) An affidavit regarding the nonforeign status of Seller and
sufficient to relieve Purchaser from the obligation to withhold taxes under
Section 1445 of the Code and the regulations related thereto;
(l) The duly executed Estoppel Letters;
(m) A release of any claims to the Purchased Assets by ITT
Commercial Finance Corp. or its successor; and
(n) A certificate in substantially the form of Exhibit E duly
executed by Nett and the president of Seller representing and warranting to the
accuracy and completeness of the list of accounts receivable of Seller from Ford
Motor Company and General Motors attached to such certificate.
10.6 Title Searches. Purchaser shall have obtained reports of Uniform
Commercial Code, tax lien, and other searches reasonably requested by Purchaser
as to liens, security interests, claims, and encumbrances affecting the
Purchased Assets showing no lien, security interests, claims, or encumbrance not
satisfactory to Purchaser.
10.7 Material Adverse Change. Prior to the Closing there shall have
been no material adverse change in the Purchase Assets or the Business since
March 31, 1996.
10.8 Inspection. Purchaser shall not have discovered any damage to or
defect in any of the Purchased Assets or other change in the condition thereof,
other than ordinary wear and tear which, if not repaired, would materially
interfere with the use of such Purchased Asset.
10.9 Waiver. Purchaser may, in its discretion, waive any conditions
precedent to the Closing set forth in this Article X. To be effective any such
waiver must be in writing.
ARTICLE XI
CLOSING
11.1 Time and Place of Closing. Consummation of the transactions
contemplated by this Agreement shall be held at the offices of McAfee & Taft A
Professional Corporation, Tenth Floor, Two Leadership Square, 211 North
Robinson, Oklahoma City, Oklahoma, or such other place as the parties may agree,
at 9:00 a.m. on June 3, 1996, or such other date as the parties shall agree (the
"Closing Date").
11.2 The Closing. The consummation of the transactions contemplated by
this Agreement and the delivery of the documents provided for in Articles IX and
X is herein referred to as the "Closing." If the Closing occurs, the Closing
will be effective as of the Closing, Seller and Nett shall bear the risk of loss
for the Purchased Assets until the conclusion of the Closing.
11.3 Simultaneous Delivery. All payments, documents and instruments to
be delivered on the Closing Date pursuant to Articles IX and X and this Article
XI shall be regarded as having been delivered simultaneously, and no document or
instrument shall be regarded as having been delivered until all documents and
instruments being delivered on the Closing Date have been delivered.
ARTICLE XII
TERMINATION PRIOR TO CLOSING
12.1 Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement, other than Sections 7.7 and 15.1, may be
terminated at any time prior to the Closing Date as follows:
(a) By mutual written consent of Seller, Nett, Friar, and
Purchaser;
(b) By either Purchaser or Seller, if the conditions to such
party's obligations hereunder have not been satisfied on or before the Closing
Date; or
(c) By Purchaser or Seller if the Closing Date shall not have
occurred on or before June 3, 1996.
In the event of the termination of this Agreement pursuant to the
provisions of this Article XII, no party shall have any liability of any nature
whatsoever to the other under this Agreement, including liability for damages,
unless either party is in default under its obligations hereunder, in which
event the party in default shall be liable to the other party for such default.
Notwithstanding the foregoing or anything to the contrary contained herein, the
provisions of Sections 7.7 and 15.1 shall survive any termination of this
Agreement and in the event of a breach thereof shall be actionable by the
aggrieved party to the fullest extent permitted by applicable law.
ARTICLE XIII
DEFINITIONS
The following terms shall have the following respective meanings:
ADA shall mean Title III of Americans with Disabilities Act (42 U.S.C.
ss. 12181 et seq.) and the regulations and guidelines promulgated pursuant
thereto.
Assumed Liabilities shall have the meaning set forth in Section 2.1.
Business shall have the meaning set forth in the recitals.
Closing shall have the meaning set forth in Section 11.2.
Closing Date shall have the meaning set forth in Section 11.1.
COBRA shall have the meaning set forth in Section 8.3.
Code means the Internal Revenue Code of 1986, as amended.
Employee Obligations shall have the meaning set forth in Section
2.1(c).
Employees shall have the meaning set forth in Section 8.1.
Environmental Law(s) shall mean any federal, state, or local laws,
ordinances, codes, statutes, regulations, rules, policies and orders, and other
authority, existing now or hereafter enacted relating to the environment or to
human health or safety associated with the environment, all as amended or
modified from time to time.
Environmental Report shall have the meaning set forth in Section 3.4.
Equipment shall have the meaning set forth in Section 1.1(b).
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Estoppel Letters shall have the meaning set forth in Section 7.2.
Excluded Assets shall have the meaning set forth in Section 1.2.
Friar shall have the meaning set forth in the first paragraph of this
Agreement.
GAAP shall have the meaning set forth in Section 3.2(a).
Hazardous Material shall mean means ammonia, asbestos, petroleum, and
any material, substance, or waste that may adversely affect human health or the
environment or that is referenced in or regulated under the Environmental Laws,
including, without limitation, any "hazardous waste," "hazardous substance,"
"toxic substance," "regulated substance," "pollutant," or "contaminant" as those
terms are defined or used in the Environmental Laws. Such term includes, without
limitation, (i) any material, substance or waste defined as a "hazardous waste"
pursuant to Section 1004 of RCRA, (ii) any material, substance or waste defined
as a "hazardous substance" pursuant to Section 101 of CERCLA or (iii) any
material, substance or waste defined as a "regulated substance" pursuant to
Subchapter IX of RCRA.
Holdings shall have the meaning set forth in the first paragraph of
this Agreement.
Information shall have the meaning set forth in Section 7.7.
Intellectual Property Rights shall have the meaning set forth in
Section 1.1(d).
Inventory shall have the meaning set forth in Section 1.1(a).
Lease shall have the meaning set forth in Section 1.1(c).
Multiemployer Plans shall have the meaning set forth in Section 8.4.
Oklahoma City Facility shall have the meaning set forth in Section
7.13.
Operating Contracts shall have the meaning set forth in Section 1.1(f).
OSHA means the Occupational Health and Safety Act of 1970 (29 U.S.C.
ss.ss. 651 et seq.) and the regulations promulgated pursuant thereto.
Net Sales shall have the meaning set forth in Section 7.13.
Payables shall have the meaning set forth in Section 2.1(b).
Permits shall have the meaning set forth in Section 1.1(g).
Purchase Price shall have the meaning set forth in Section 3.1.
Purchased Assets shall have the meaning set forth in Section 1.1.
Purchaser shall have the meaning set forth in the first paragraph of
this Agreement.
Seller shall have the meaning set forth in the first paragraph of this
Agreement.
Seller's Welfare Plans shall have the meaning set forth in Section
4.14.
Waiver of Claims shall have the meaning set forth in Section 7.5.
WARN shall have the meaning set forth in Section 8.5.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Further Assurance and Assistance. After the Closing Date, Seller,
Nett, and Friar shall, from time to time, upon the reasonable request of
Purchaser, execute, acknowledge, and deliver in proper form any instrument of
conveyance or further assurance reasonably necessary or desirable to consummate
the transactions contemplated by the terms of this Agreement. After the Closing
Date, Purchaser shall, from time to time, upon the reasonable request of Seller,
Nett, or Friar, execute, acknowledge, and deliver in proper form any further
assurance reasonably necessary or desirable to consummate the transactions
contemplated by the terms of this Agreement.
14.2 Transfer Taxes and Title Closing Charges. Purchaser shall pay
any sales tax required to be paid in connection with the transfer of the
Purchased Assets.
14.3 Amendment and Modification. This Agreement may be amended,
modified, or supplemented only by mutual written consent of the parties hereto.
14.4 Waiver of Compliance. The failure by any party at any time to
require performance of any provision hereof shall not affect its right later to
require such performance. No waiver in any one or more instances shall (except
as stated therein) be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any condition or breach of
any other term, covenant, representation, or warranty.
14.5 Expenses. Except as otherwise provided in this Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
14.6 Bulk Transfer Laws. Purchaser hereby waives Seller's compliance
with all applicable bulk sales and bulk sales tax laws relating to the transfer
to it of the Purchased Assets.
14.7 Notices. All notices, requests, demands, or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by certified mail, return
receipt requested, postage prepaid, or national overnight courier, or confirmed
facsimile transmission, addressed as follows:
(a) If to Purchaser or Holdings:
Mr. William J. McMahon
President and Chief Executive Officer
Lund Acquisition Corp.
911 Lund Boulevard
Anoka, Minnesota 55303
FAX: (612) 576-4297
Copy to:
J. Michael Nordin, Esq.
McAfee & Taft
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
FAX: (405) 235-0439
(b) If to Seller or Nett:
Mr. James A. Nett
President
Innovative Accessories, Incorporated
7949 South I-35 Service Road
Oklahoma City, Oklahoma 73149
FAX: (405) 634-2066
Copy to:
Thomas E. Kemp, Jr., Esq.
629 24th Avenue, S.W.
Norman, Oklahoma 73069
FAX: (405) 360-7902
(c) If to Friar:
Ramona C. Friar
10920 Abbeywood
Oklahoma City, Oklahoma 73149
Copy to:
Michael Paul Kirschner, Esq.
Lee Kirschner Haswell PLLC
1500 Liberty Tower
100 North Broadway
Oklahoma City, Oklahoma 73102-8603
FAX: (405) 235-3352
John A. Green, Esq.
Green, Brown & Stark, P.C.
5550 North Francis
Oklahoma City, Oklahoma 73118
FAX: (405) 848-6430
or to such other addresses as may be specified pursuant to notice given by
either party in accordance with the provision of this Section 15.1.
14.8 Assignability of Agreement. This Agreement may not be assigned in
whole or in part by any party without the prior written consent of the other
parties, which consent shall not be unreasonably withheld.
14.9 Governing Law. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Oklahoma, except insofar as the internal law of any political
entity or jurisdiction shall specifically and mandatorily apply to any of the
transactions.
14.10 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14.11 Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
14.12 Entire Agreement. This Agreement, including the agreements
referred to herein, the Schedules and Exhibits attached hereto and other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
14.13 Attorneys' Fees. If any action or proceeding is commenced by
either party hereto relating to this Agreement, the prevailing party in such
action or proceeding may receive as part of any award, judgment, decision or
other resolution of such action or proceeding its costs and reasonable
attorneys' fees.
14.14 Construction. All parties to this Agreement participated in the
drafting of this Agreement, and the provisions of 15 Okla. Stat. ss. 170 are
therefore not applicable to this Agreement.
14.15 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors, and
assigns.
ARTICLE XV
ARBITRATION
15.1 Arbitration. All disputes between all or any of Seller, Nett,
Friar, and Purchaser, including, without limitation, those relating to this
Agreement, shall be resolved by arbitration as provided in this Article XV. This
agreement to arbitrate shall survive the rescission or termination of this
Agreement. All arbitration shall be conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association except as herein may
be provided. The decision of the arbitrators shall be final and binding on all
parties. All arbitration shall be undertaken pursuant to the Federal Arbitration
Act, where applicable, and the decision of the arbitrators shall be enforceable
in any court of competent jurisdiction.
In any dispute where a party seeks $50,000 or more in damages, three
arbitrators shall be employed. All costs attendant to the arbitration, excluding
attorney's and expert's fees, shall be borne equally by the parties. Each party
shall bear its own expert's fees. The arbitrators shall not award punitive,
consequential, or indirect damages. Each party hereby waives the right to such
damages and agrees to receive only those actual damages directly resulting from
the claim asserted. In resolving all disputes between the parties, unless an
agreement specifies otherwise, the arbitrators shall apply the law of the State
of Oklahoma, except as may be modified by this Agreement. The arbitrators are by
this Agreement directed to conduct the arbitration hearing no later than three
months from the service of the statement of claim and demand for arbitration
unless good cause is shown establishing that the hearing cannot fairly and
practically be so convened.
Except as needed for presentation in lieu of a live appearance,
depositions shall not be taken. Parties shall be entitled to conduct document
discovery by requesting production of documents. Responses or objections shall
be served twenty days after receipt of a request. The arbitrators shall resolve
any discovery disputes by such prehearing conferences as may be needed. All
parties agree that the arbitrators and any counsel of record to the proceeding
shall have the power of subpoena process as provided by law.
The parties agree that either shall be entitled to pursue emergency or
preliminary injunctive relief in any court of competent jurisdiction, and each
party agrees that it shall consent to the stay of such judicial proceedings on
the merits of both this Agreement and the related transactions pending
arbitration of all underlying claims between the parties immediately following
the issuance of any such emergency or injunctive relief.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in multiple original counterparts as of the date first written above.
INNOVATIVE ACCESSORIES, INCORPO-
RATED, an Oklahoma corporation
By /s/ James A. Nett
James A. Nett, President
LUND ACQUISITION CORP., a Minnesota
corporation
By /s/ Jay M. Allsup
Jay M. Allsup, Chief Financial
Officer
/s/ James A. Nett
James A. Nett
/s/ Ramona C. Friar
Ramona C. Friar
LUND INTERNATIONAL HOLDINGS,
INC., a Minnesota corporation
By /s/ William J. McMahon
William J. McMahon, President
and Chief Executive Officer
EXHIBIT 10.45
ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE
THIS ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE is
entered into this 3rd day of June, 1996, by and between INNOVATIVE ACCESSORIES,
INCORPORATED, an Oklahoma corporation ("Assignor"), and LUND ACQUISITION CORP.,
a Minnesota corporation ("Assignee").
W I T N E S S E T H:
WHEREAS, in that Asset Purchase Agreement of even date
herewith, by and between Assignor, Assignee, James A. Nett, and Ramona C. Friar
(the "Agreement"), Assignor agreed to assign to Assignee all of Assignor's
right, title, and interest in, to, and under the lease of real property attached
as Exhibit "A" hereto (the "Real Property Lease"); and
WHEREAS, pursuant to the Agreement, Assignee agreed to assume
and perform Assignor's obligations under the Real Property Lease accruing after
the date hereof;
NOW THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Assignor hereby grants,
bargains, sells, transfers, assigns, and conveys to Assignee all of Assignor's
right, title, and interest in, to, and under the Real Property Lease.
Assignee hereby accepts the foregoing assignment from Assignor
and assumes and agrees to perform all responsibilities and obligations of tenant
under the Real Property Lease accruing after the date hereof.
This Assignment and Assumption of Real Property Lease is made
pursuant and subject to the Agreement and incorporates all of the terms and
conditions therein including, without limitation, the representations,
warranties, and indemnities of Assignor.
This Assignment and Assumption of Real Property Lease shall
bind and inure to the benefit of Assignor and Assignee and their respective
successors and assigns.
EXECUTED AND DELIVERED the day and year first written above.
INNOVATIVE ACCESSORIES, INCORPO-
RATED, an Oklahoma corporation
By
James A. Nett, President
LUND ACQUISITION CORP., a Minne-
sota Corporation
By
Jay M. Allsup, Chief Financial
Officer
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
This instrument was acknowledged before me on May 29,
1996, by James A. Nett, as President of Innovative Accessories,
Inc., an Oklahoma corporation.
(Seal)
---------------------------------
Notary Public
My Commission Expires:___________
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
This instrument was acknowledged before me on May 29,
1996, by Jay M. Allsup, Chief Financial Officer of Lund Acquisition
Corp., a Minnesota corporation.
(Seal)
---------------------------------
Notary Public
My Commission Expires:___________
EXHIBIT 10.46
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
KNOW ALL MEN BY THESE PRESENTS:
THAT INNOVATIVE ACCESSORIES, INCORPORATED, an Oklahoma
corporation, and JAMES A. NETT, an individual (individually and collectively
"Assignors"), for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, do hereby sell, transfer, assign, and convey to
LUND ACQUISITION CORP., a Minnesota corporation ("Assignee"), the entire right,
title, and interest of Assignors in and to all intellectual property rights,
including, without limitation, license royalties and proceeds of infringement
suits; license agreements related to any of the foregoing and income therefrom;
books, records, computer tapes or discs, flow diagrams, specification sheets,
source codes, object codes and other physical manifestations of the foregoing;
the right to sue for past, present, and future infringement and all rights
corresponding thereto throughout the world; all reissues, divisions,
continuations, renewals, extensions, and continuations-in-part thereof; and all
proceeds thereof; U.S. Patent Nos. 4,730,866 and 4,838,602 and all related and
corresponding domestic and foreign patent applications and patents, including,
for example, reissues, continuations, divisionals, continuations-in-part,
renewals, and reexaminations; domestic and foreign patents and patent
applications, presently owned by Assignor, or otherwise owned by a third party
(e.g., an employee/inventor) under an obligation to assign to Assignors; all
other inventions (i.e., for which a patent application could be filed) related
to tonneau covers and owned by Assignors or otherwise owned by a third party
(e.g., employee/inven- tor) under an obligation to assign to Assignors; all
rights to use the name "LUXXUS" and any variations thereof and any similar name,
and all other trademark, tradenames, trade dress, copyrights, trade secrets,
licenses, know-how, and other intellectual property owned or used by Assignors
in connection with the Business, and all of the goodwill, if any, associated
with Assignors' manufacturing business, and excluding only the intellectual
property rights that relate solely and exclusively to the hard tonneau covers
produced by Assignors.
This Assignment is made pursuant and subject to that certain
Asset Purchase Agreement dated as of May 29, 1996, by and among Assignors,
Assignee, and Ramona C. Friar and incorporates all of the terms and conditions
therein, including, without limitation, the representations, warranties, and
covenants of Assignors and Assignee therein.
This Assignment shall bind and inure to the benefit of
Assignors and Assignee and their respective successors and assigns.
EXECUTED AND DELIVERED the 3rd day of June, 1996.
ASSIGNORS: INNOVATIVE ACCESSORIES, INCORP-
ORATED, an Oklahoma corporation
By:______________________________
James A. Nett, President
----------------------------------
James A. Nett
EXHIBIT 16.1
April 12, 1996
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
We were previously principal accountants for Lund International Holdings, Inc.
and, under the date of August 11, 1995, we reported on the consolidated
financial statements of Lund International Holdings, Inc. and subsidiaries as of
and for the years ended June 30, 1995 and 1994. On April 9, 1996, our
appointment as principal accountants was terminated. We have read Lund
International Holdings, Inc.'s statements included under Item 4 of its Form 8-K
dated April 15, 1996, and we agree with such statements, except that we are not
in a position to agree or disagree with Lund International Holdings, Inc.'s
statements that the change was recommended by the Audit Committee of the Board
of Directors and approved by the entire Board and that Coopers & Lybrand LLP was
not consulted regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be provided on Lund International Holdings, Inc.'s consolidated financial
statements.
Very truly yours,
KPMG Peat Marwick LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Lund International Holdings, Inc. on Form S-8 (File Nos. 33-64083 and 33-37160)
of our reports dated August 21, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Lund International
Holdings, Inc. as of June 30, 1996 and for the year then ended, which reports
are included (or incorporated by reference) in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
September 25, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lund International Holdings, Inc.:
We consent to incorporation by reference in the registration statement (File
Nos. 33-64083 and 33-37160) on Form S-8 of Lund International Holdings, Inc. of
our report dated August 11, 1995, relating to the consolidated balance sheet of
Lund International Holdings, Inc. as of June 30, 1995 and the related
consolidated statements of earnings, changes in stockholders equity and cash
flows and related financial statement schedule as of June 30, 1995 and 1994 and
for each of the years in the two-year period ended June 30, 1995, which report
appears in the June 30, 1996 annual report on Form 10-K of Lund International
Holdings, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 25, 1996
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Management
Lund International Holdings, Inc.:
We have audited the consolidated balance sheet of Lund International Holdings,
Inc. and subsidiaries as of June 30, 1995, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the years in the two-year period ended June 30, 1995, as contained in the
1996 annual report to stockholders. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimate made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lund International
Holdings, Inc. and subsidiaries as of June 30, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended June 30, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,740,125
<SECURITIES> 8,630,649
<RECEIVABLES> 10,797,131
<ALLOWANCES> 863,765
<INVENTORY> 6,351,279
<CURRENT-ASSETS> 29,518,795
<PP&E> 6,906,446
<DEPRECIATION> 2,253,783
<TOTAL-ASSETS> 40,319,605
<CURRENT-LIABILITIES> 4,870,111
<BONDS> 4,590,000
0
0
<COMMON> 439,197
<OTHER-SE> 30,068,072
<TOTAL-LIABILITY-AND-EQUITY> 40,319,605
<SALES> 46,423,208
<TOTAL-REVENUES> 46,423,208
<CGS> 28,599,293
<TOTAL-COSTS> 39,626,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 720,000
<INTEREST-EXPENSE> 324,293
<INCOME-PRETAX> 7,054,916
<INCOME-TAX> 2,432,754
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,622,162
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
