SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
LUND INTERNATIONAL HOLDINGS, INC.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 21, 1998
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The annual meeting of stockholders of Lund International Holdings, Inc. (the
"Company") will be held at the offices of the Company, 911 Lund Boulevard,
Anoka, Minnesota, on Tuesday, April 21, 1998 at 11:00 a.m. Central Daylight
Time, for the following purposes:
1. To set the number of members of the Board of Directors at seven.
2. To elect seven directors of the Company for the ensuing year.
3. To vote on a proposal by the Board of Directors to adopt the 1998 Stock
Option Incentive Plan.
4. To approve the conversion of the Company's Series A Preferred Stock and
the terms of the Company's Class B-1 Common Stock.
5. To approve the selection by the Board of Directors of Coopers & Lybrand
L.L.P. as the Company's independent accountants for its 1998 fiscal
year.
6. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record shown on the books of the Company at the close of
business on March 18, 1998 will be entitled to vote at the meeting or any
adjournment thereof. Each stockholder is entitled to one vote per share on all
matters to be voted on at the meeting.
You are cordially invited to attend the meeting. Whether or not you plan to
attend the meeting, please sign, date and return your Proxy in the return
envelope provided as soon as possible. Your cooperation in promptly signing and
returning the Proxy will help avoid further solicitation expense to the Company.
This Notice, the Proxy Statement and the enclosed Proxy are sent to you by order
of the Board of Directors.
KATHY R. SMITH
Corporate Secretary
Date: March 25, 1998
Anoka, Minnesota
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 21, 1998
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INTRODUCTION
Your Proxy is solicited by the Board of Directors of Lund International
Holdings, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held on April 21, 1998, at 11:00 a.m., Central Daylight Time, at the offices
of the Company, 911 Lund Boulevard, Anoka, Minnesota, and at any adjournment
thereof, for the purposes set forth in the attached Notice of Annual Meeting.
The Company changed its fiscal year end from June 30 to December 31 of each
year, beginning with December 31, 1997, and will file a report on Form 10-K for
the six-month transition period ended December 31, 1997. The Company is holding
its 1998 Annual Meeting in April to coincide with its new fiscal year end.
The cost of soliciting Proxies, including preparing, assembling and mailing the
Proxies and soliciting material, will be borne by the Company. Directors,
officers and employees of the Company may, without compensation other than their
regular compensation, solicit Proxies personally or by telephone.
Any stockholder giving a Proxy may revoke it at any time prior to its use at the
Meeting by giving written notice of such revocation to the Secretary of the
Company. In the absence of such specification, the Proxies will be voted in
favor of the proposals set forth in the Notice of Annual Meeting and in favor of
the number and slate of directors proposed by the Board of Directors and listed
herein.
The mailing address of the Company's principal executive offices is 911 Lund
Boulevard, Anoka, Minnesota 55303. The Company expects this Proxy Statement and
the related Proxy and Notice of Annual Meeting will first be mailed to
stockholders on or about March 25, 1998.
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 18, 1998 as the record
date for determining stockholders entitled to vote at the Annual Meeting. At the
close of business on March 18, 1998, 5,268,370 shares of the Company's Common
Stock and 1,493,398 shares of the Company's Series A Preferred Stock were issued
and outstanding. The Common Stock is the only outstanding class of voting stock
of the Company. Each share of Common Stock is entitled to one vote on each
matter to be voted upon at the meeting. Holders of the Common Stock are not
entitled to cumulative voting rights in the election of directors.
The affirmative vote of a majority of the shares of Common Stock present, in
person or by proxy, and entitled to vote at the Annual Meeting, is required to
approve the matters mentioned in the foregoing Notice of Annual Meeting. LIH
Holdings, LLC and LIH Holdings II, LLC own, respectively, 32% and 16.6% of the
outstanding shares of Common Stock and have informed the Board of Directors that
they intend to vote in favor of the proposals. Proxies indicating abstention
from a vote and broker non-votes will be counted toward determining whether a
quorum is present at the meeting; however, abstentions and broker non-votes will
not be counted toward determining if a majority of the shares of Common Stock
has voted affirmatively.
The following table provides information concerning the only persons or entities
known to the Company to be beneficial owners of more than five percent (5%) of
the Company's outstanding Common Stock as of March 1, 1998:
<PAGE>
PRINCIPAL STOCKHOLDERS
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class
- ---------------- ----------------------- ----------------
LIH Holdings, LLC
767 Third Avenue
New York NY 10017 1,686,893(2) 32.0%
LIH Holdings II, LLC
767 Third Avenue
New York NY 10017 874,400(2) 16.6%
Old World Industries, Inc.
4065 Commercial Avenue
Northbrook, IL 60062 656,300(3) 12.5%
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019 405,200(4) 7.7%
(1) Unless otherwise indicated, the person listed as the beneficial owner of
the shares has sole voting and sole dispositive power over the shares.
(2) Based on a Schedule 13D filed with the Securities and Exchange Commission
by LIH Holdings, LLC, LIH Investors, L.P., LIH Management, L.P., LIH,
Inc., LIH Holdings II, LLC, LIH Investors II, L.P., LIH Management II,
L.P., Harvest Partners III, L.P., Harvest Partners III
Beteiligungsgesellschaft Burgerlichen Rechts (Mit Haftungsbeschrankung)
and Harvest Associates III, LLC on behalf of themselves, indicating shared
voting and dispositive power with respect to a total of 2,561,293 shares,
representing an aggregate of 48.6% of the Common Stock outstanding. LIH
Holdings, LLC holds 1,686,893 shares directly and LIH Holdings II, LLC
holds 874,400 shares directly. LIH Holdings II, LLC also owns 1,493,398
shares of nonvoting Series A Preferred Stock. If Proposal 4 is approved,
the Series A Preferred Stock would be converted into 1,493,398 shares of
nonvoting Class B-1 Common Stock which will be convertible into the same
number of shares of Common Stock in certain circumstances, but in any
event not later than September 9, 2000. The shares of Common Stock
issuable upon such conversion are not included in the amounts set forth in
the table.
(3) Based on a Schedule 13D filed with the Securities and Exchange Commission
by Old World Industries, Inc., Frederic M. Schweiger, J. Thomas Hurvis,
Riaz H. Waraich, James A. Bryan, Richard J. Jago and Mac M. Churchill, on
behalf of themselves, indicating shared voting and dispositive power.
(4) Based on a Schedule 13G filed with the Securities and Exchange Commission
by Royce & Associates, Inc. and Charles M. Royce, on behalf of themselves.
On September 9, 1997, LIH Holdings, LLC ("LIH") purchased 1,686,893 shares of
Common Stock from Allan W. Lund and certain affiliates and family members of Mr.
Lund. On December 30, 1997, LIH Holdings II, LLC ("LIH II") purchased 874,400
shares of Common Stock and 1,493,398 shares of Series A Preferred Stock from the
Company. Pursuant to the terms of an Amended and Restated Governance Agreement,
dated November 25, 1997, LIH, LIH II and their affiliates are restricted from
taking certain actions, as more fully described in Proposal 4.
<PAGE>
MANAGEMENT STOCKHOLDINGS
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned by each director and nominee for director, each
executive officer named in the Summary Compensation Table and by all directors,
nominees and executive officers as a group, as of March 18, 1998:
Name of Persons or Amount and Nature of
Identity of Group Beneficial Ownership (1) Percent of Class
- ----------------- ------------------------ ----------------
David E. Dovenberg 10,300(2) **
Ira D. Kleinman 2,563,293(3) 48.6%
William J. McMahon 75,000(4) **
Robert R. Schoeberl 4,000(5) **
Dennis W. Vollmershausen 2,000(6)
Harvey J. Wertheim 2,563,293(3) **
48.6%
Lawrence C. Day 2,000(7)
Bradley W. Andress 20,000(8) **
Jay M. Allsup 33,000(9) **
William H. Toms 36,000(10) **
All directors, nominees and
executive officers as a group
(thirteen persons) 2,765,093(11) 50.6%
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** less than 1%
(1) Unless otherwise indicated, the person listed as the beneficial owner of
the shares has sole voting and sole investment power over the shares.
(2) Includes options to purchase 8,000 shares of Common Stock, 4,000 of which
are exercisable at $13.875 per share, 2,000 of which are exercisable at
$13.50 per share and 2,000 which are exercisable at $11.25 per share.
(3) Consists of options to purchase 2,000 shares of Common Stock, which are
exercisable at $13.875; 1,686,893 shares of Common Stock owned by LIH; and
874,400 shares of Common Stock owned by LIH II, of which Messrs. Kleinman
and Wertheim are affiliates. LIH II also owns 1,493,398 shares of Series A
Preferred Stock which represents 100% of the class. If Proposal 4 is
approved, the Series A Preferred Stock would be converted into 1,493,398
shares of nonvoting Class B-1 Common Stock which will be convertible into
the same number of shares of Common Stock in certain circumstances, but in
any event not later than September 9, 2000. The shares of Common Stock
issuable upon such conversion are not included in the amounts set forth in
the table.
(4) Consists of options to purchase 75,000 shares of Common Stock which are
exercisable at $13.875 per share.
(5) Consists of options to purchase 4,000 shares of Common Stock, 2,000 of
which are exercisable at $11.50 per share and 2,000 of which are
exercisable at $11.25 per share.
(6) Consists of options to purchase 2,000 shares of Common Stock which are
exercisable at $14.00.
(7) Consists of options to purchase 2,000 shares of Common Stock which are
exercisable at $13.875 per share.
(8) Consists of options to purchase 20,000 shares of Common Stock which are
exercisable at $13.875 per share.
(9) Consists of options to purchase 18,000 shares of Common Stock which are
exercisable at $13.825 per share.
(10) Consists of options to purchase 36,000 shares of Common Stock which are
exercisable at $13.875 per share.
(11) Notes 2-10 are incorporated herein by reference. Includes options to
purchase 17,500 shares of Common Stock.
<PAGE>
ELECTION OF DIRECTORS
PROPOSAL 1.
The Bylaws of the Company provide that the number of directors shall be
determined by the stockholders at each annual meeting. The Board of Directors
recommends that the number of directors be set at seven (7). Each Proxy will be
voted for or against such number or not voted at all as directed in the Proxy.
The adoption of the resolution to set the number of directors requires the
affirmative vote of a majority of the shares represented in person or by proxy
at the meeting.
PROPOSAL 2.
In the election of directors, each Proxy will be voted for each of the nominees
listed herein unless the Proxy withholds a vote for one or more of the nominees.
Each person elected as a director shall serve for a term of one year and until
his successor is duly elected and qualified. All of the nominees are members of
the present Board of Directors. If any of the nominees should be unable to serve
as a director by reason of death, incapacity or other unexpected occurrence, the
Proxies solicited by the Board of Directors shall be voted by the proxy
representative for such substitute nominee as is selected by the Board or, in
the absence of such selection, for such fewer number of directors as results
from such death, incapacity or other unexpected occurrence. The election of each
nominee requires the affirmative vote of a majority of the shares represented in
person or by proxy at the meeting.
The Board of Directors has proposed a slate of seven nominees. The composition
of the Company's Board of Directors is subject to an Amended and Restated
Governance Agreement, dated as of November 25, 1997, among the Company, LIH and
LIH II, as further described in Proposal 4 (the "Restated Agreement"). The
Restated Agreement provides that LIH, LIH II and the Company shall use their
best efforts to maintain a seven-member Board of Directors, consisting of one
nominee recommended by LIH (Mr. Kleinman); one nominee recommended by LIH II
(Mr. Wertheim); the Company's Chief Executive Officer (Mr. McMahon); and four
independent directors (currently, Messrs. Day, Dovenberg, Schoeberl and
Vollmershausen).
<PAGE>
The following table provides certain information with respect to the nominees
for director.
<TABLE>
<CAPTION>
Current Position(s) Director Principal Occupation(s) During
Name of Nominee Age with Company Since The Past Five Years
- --------------- --- ------------ ----- -------------------
<S> <C> <C> <C> <C>
Lawrence C. Day 48 Director 1997 Chief Executive Officer and Director of
Monro Muffler and Brake, an auto service
retailer, since 1995; Chief Operating
Officer of Monro Muffler and Brake from 1993
to 1995.
David E. Dovenberg 53 Director 1994 Chief Financial Officer of Universal
Hospital Services, a provider of movable
medical equipment through Pay-Per-Use
Equipment Management Programs, from May
1988 to March 1998, then Chief Executive Officer.
Ira D. Kleinman 41 Director 1997 Chief Financial Officer of Harvest Partners,
Inc., a private equity investment firm,
since 1984.
William J. McMahon 51 President and Chief 1996 President and Chief Executive Officer of
Executive Officer Lund International Holdings and its
subsidiaries since 1994; Chief Operating
Officer of Anagram International, Inc., a
manufacturer and distributor of consumer
products and industrial packaging, from 1991
until 1994; President and Chief Executive
Officer of Lund International Holdings, Inc.
from 1988 until 1991.
Robert R. Schoeberl 61 Director 1997 Retired executive of Montgomery Ward since
1994, where he spent 35 years. Member of
the Board of Directors of the Automotive
Foundation for the Aftermarket and member of
the Automotive Parts and Accessories
Association.
Dennis W. Vollmershausen 54 Director 1997 Chairman of the Board of London Machinery,
Inc., an equipment manufacturing company,
since 1990; Executive Vice President of
Champion Road Machinery Limited, a
construction equipment manufacturing
company, from August 1996 to June 1997 and,
since June 1997, President and Chief
Executive Officer.
Harvey J. Wertheim 58 Director 1997 Chief Executive Officer of Harvest Partners,
Inc., a private equity investment firm,
since 1981.
</TABLE>
COMMITTEE AND BOARD MEETINGS
The Company's Board of Directors has an Audit Committee which reviews with the
Company's independent accountants the annual financial statements and the
results of the annual audit. The Audit Committee members currently are David E.
Dovenberg, Robert R. Schoeberl and Harvey J. Wertheim. The Audit Committee met
one time during the fiscal year ended June 30, 1997 and did not meet during the
transition period ended December 31, 1997.
The Company's Board of Directors has a Compensation Committee which makes
recommendations to the Board of Directors as to (i) the salaries of certain
executive officers; and (ii) bonuses and other incentive arrangements. It also
reviews and approves, or makes recommendations to the Board of Directors on, any
proposed plan or program for the benefit of any of the Company's executive
officers. The Compensation Committee members currently are Dennis W.
Vollmershausen, Lawrence C. Day and Harvey J. Wertheim. The
<PAGE>
Compensation Committee met two times during the fiscal year ended June 30, 1997
and did not meet during the transition period ended December 31, 1997.
The Company's Board of Directors also recently appointed a Stock Option
Committee which reviews the Company's stock option plans and arrangements and
makes recommendations to the Board of Directors as to all stock option grants.
The Committee members are Lawrence C. Day, Robert R. Schoeberl and Dennis W.
Vollmershausen. The Committee did not meet during the transition period ended
December 31, 1997.
The Board does not have a nominating committee.
During the fiscal year ended June 30, 1997, the Board held eight meetings.
During the transition period ended December 31, 1997, the Board held six
meetings. During each period, while a director, each incumbent director attended
75% or more of the meetings of the Boards and of the meetings of Committees of
which he was a member.
CERTAIN TRANSACTIONS
Messrs. Kleinman and Wertheim are affiliates of Harvest Partners, Inc.
("Harvest"), which has entered into a Services Agreement with the Company, which
provides that the Company will pay Harvest for consulting services for the
twelve months ending September 30, 1998 in the aggregate amount of $150,000,
provided that the Company's cumulative earnings before interest, taxes,
depreciation and amortization aggregates $4,000,000 for such period.
On December 30, 1997, LIH II, an affiliate of Harvest, purchased from the
Company 874,400 shares of Common Stock and 1,493,398 shares of Series A
Preferred Stock, as more fully described in Proposal 4.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by SEC regulation to furnish the Company with all Section 16(a)
forms they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representation that no other reports were
required, all Section 16(a) filing requirements applicable to officers,
directors and greater than ten percent stockholders were satisfied for the
fiscal year ended June 30, 1997 and the transition period ended December 31,
1997.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company as of March 1, 1998 are
as follows:
WILLIAM J. McMAHON, 51, 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 consumer products and industrial packaging. From 1988 to 1991,
Mr. McMahon was Chief Executive Officer and President of Lund International
Holdings, Inc.
<PAGE>
JAY M. ALLSUP, 39, joined the Company in October 1993 as the Director of Finance
and was appointed Chief Financial Officer and Treasurer in June 1994. From April
1989 to October 1993, he was the Chief Financial Officer and Treasurer of
Standun, Inc., a manufacturing holding company.
BRADLEY W. ANDRESS, 43, 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, at Plastics,
Inc. and Anchor-Hocking Plastics, manufacturers of household storage containers
and microwave cookware accessories. Anchor-Hocking is a division of the Newell
Companies.
KATHY R. SMITH, 36, 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 Officer of the Company in
February 1994.
WILLIAM H. TOMS, 52, 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.
STEPHEN S. TREICHEL, 54, joined the Company in October 1995 as Vice President of
Administration. 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.
KENNETH L. HOLBROOK, 42, joined the Company in March 1998 as Vice President of
Sales. From February 1992 until February 1998, Mr. Holbrook was the Vice
President of OEM and Aftermarket Sales for Bestop, Inc., a manufacturer of sport
utility vehicle soft and hard top systems, associated accessories and seating
systems, where he oversaw sales of over $126 million worldwide. From February
1987 to February 1992, he was an OEM Sales Representative for Bestop, Inc.
COMPENSATION OF EXECUTIVE OFFICERS
The following summary Compensation Table shows certain compensation information
for the Chief Executive Officer and other executive officers who received total
annual salary and bonuses in excess of $100,000 in the calendar year ended
December 31, 1997. This information includes the dollar value of base salaries
and bonus awards, number of shares of restricted stock granted and certain other
compensation, if any. Information is provided for the calendar year ended
December 31, 1997 and the fiscal years ended June 30, 1997, 1996 and 1995.
Compensation reflected for calendar 1997 includes amounts paid in the last six
months of the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Restricted
Other Annual Stock Securities All Other
Name and Principal Salary Bonus Compensation Awards Underlying Compensation
Position at 12/31/97 Year ($) ($) ($) ($) Options/SARs(#) ($)
- -------------------- ----- -------- ----- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. McMahon 1997(1) 189,615 -- -- -- --
President and Chief 1997(2) 180,000 -- -- -- -- 5,988(3)
Executive Officer 1996(2) 180,000 -- -- -- -- 5,366(3)
1995(2) 144,576(4) 65,060(5) -- -- 150,000 1,800(3)
William H. Toms 1997(1) 120,749 2,950(7) -- -- -- 3,706(6)
Vice President of 1997(2) 120,749 -- -- -- -- 3,599(6)
Operations 1996(2) 115,000 -- -- -- -- 1,084(6)
1995(2) 28,750(8) 7,762(5) -- -- 60,000 --
Bradley W. Andress 1997(1) 119,000 4,650(7) -- -- --
Vice President of 1997(2) 119,000 -- -- -- -- --
Marketing 1996(2) 79,615(9) -- -- -- 50,000 --
--
<PAGE>
Jay M. Allsup 1997(1) 109,710 4,450(7) 2,110(10) 68,125(11) -- 5,461(12)
Chief Financial Officer 1997(2) 109,710 -- 2,110(10) 55,781(11) -- 4,692(12)
1996(2) 99,737 -- -- 54,000(11) -- 2,469(12)
1995(2) 95,000 25,650(5) 10,000(13) 37,000(11) -- 3,832(12)
Restricted
Other Annual Stock Securities All Other
Name and Principal Salary Bonus Compensation Awards Underlying Compensation
Position at 9/97(14) Year ($) ($) ($) ($) Options/SARs(#) ($)
- -------------------- ----- ------- ----- ------------ ---------- --------------- ------------
Allan W. Lund 1997(1) 75,000 -- -- -- 611,496(15)
Chairman of the Board 1997(2) 100,000 -- -- -- -- 11,496(15)
1996(2) 100,000 -- -- -- -- 9,966(15)
1995(2) 250,000 67,500(5) -- -- -- 8,668(15)
</TABLE>
- --------------------------------------------------------------------------------
(1) Calendar year beginning January 1, 1997 through December 31, 1997.
(2) Fiscal years beginning July 1st through June 30th.
(3) In calendar 1997, a $5,988 payment was made by the Company on behalf of
Mr. McMahon to his 401(k) Plan. In fiscal 1997, a $5,366 payment was made
by the Company on behalf of Mr. McMahon to his 401(k) Plan. In fiscal
1996, a $1,800 payment was made by the Company on behalf of Mr. McMahon to
his 401(k) Plan.
(4) Mr. McMahon joined the Company in September 1994.
(5) The bonus amounts shown were earned in fiscal 1995, but paid in fiscal
1996.
(6) In calendar 1997, a $3,706 payment was made by the Company on behalf of
Mr. Toms to his 401(k) Plan. In fiscal 1997, a $3,599 payment was made by
the Company on behalf of Mr. Toms to his 401(k) Plan. In fiscal 1996, a
$1,084 payment was made by the Company on behalf of Mr. toms to his 401(k)
Plan.
(7) The bonus amounts shown were earned in fiscal 1997, but paid in calendar
1997.
(8) Mr. Toms joined the Company in April 1995.
(9) Mr. Andress joined the Company in October 1995.
(10) In calendar 1997, a $2,110 payment was made by the Company to Mr. Allsup
in lieu of vacation. In fiscal 1997, a $2,110 payment was made by the
Company to Mr. Allsup in lieu of vacation.
(11) Mr. Allsup received a grant of 5,000 shares of Company Common Stock in
calendar and fiscal 1997, a grant of 3,000 shares in fiscal 1996, and a
grant of 2,000 shares of Company Common Stock in fiscal 1995, with the
aggregate market value shown in the table.
(12) In calendar 1997, a $5,461 payment was made by the Company on behalf of
Mr. Allsup to his 401(k) Plan. In fiscal 1997, a $4,692 payment was made
by the Company on behalf of Mr. Allsup to his 401(k) Plan. In fiscal 1996,
a $2,469 payment was made by the Company on behalf of Mr. Allsup to his
401(k) Plan. In fiscal 1995, a $3,832 payment was made by the Company on
behalf of Mr. Allsup to his 401(k) Plan.
(13) In fiscal 1995, the Company reimbursed Mr. Allsup $10,000 in taxes paid by
Mr. Allsup with respect to moving expenses of $20,000 which the Company
paid to Mr. Allsup in fiscal 1993.
(14) Mr. Lund resigned from the Company in September 1997.
(15) On September 9, 1997, Mr. Lund resigned as Chairman of the Board of
Directors of the Company and entered into a Severance and Noncompetition
Agreement with the Company. Pursuant to such Agreement, the Company paid
Mr. Lund $600,000, as follows: $150,000 as severance; $450,000 in
consideration of Mr. Lund's agreeing to certain nondisclosure and
noncompetition provisions; and $50,000 as consideration for a release by
Mr. Lund of any claims he may have had against the Company. The Company
maintained life insurance policies on Mr. Lund, for which the Company paid
premiums of $60,000 in calendar and fiscal 1997, $180,000 in fiscal 1996,
and $180,000 in fiscal 1995. Mr. Lund received a taxable benefit of
$11,496 in calendar and fiscal 1997, $9,966 in fiscal 1996, and $8,668 in
fiscal 1995 as a result of such premium payments by the Company. In
October 1997, Mr. Lund entered into an agreement with the Company to
purchase the life insurance policies for the total premiums paid of
$960,000.
<PAGE>
DIRECTOR COMPENSATION
All non-employee directors (with the exception of Messrs. Kleinman and Wertheim,
who receive only the reimbursement of their out-of-pocket expenses) receive
$1,500 per quarter, $500 per meeting attended in person, $100 per meeting
attended telephonically and $500 per committee meeting attended in person, in
addition to out-of-pocket expenses incurred on behalf of the Company. In
addition, pursuant to the Company's 1992 Non-Employee Director Stock Option
Plan, directors who are serving on the last day of a fiscal year receive options
to purchase 2,000 shares of Common Stock, at the fair market value on the date
of grant. No options were granted at the end of the transition period.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with William J. McMahon, Jay M. Allsup,
Bradley W. Andress, William H. Toms, Kathy R. Smith, Stephen S. Treichel and
Kenneth L. Holbrook. The agreements include certain non-disclosure provisions
and provide that if the Company terminates the employee without cause, the
employee is entitled to a payment equal to six months' base salary. Mr.
McMahon's compensation package is detailed in the Compensation Committee Report,
below.
Mr. Allsup's compensation for fiscal 1997 included a base salary of $109,710. He
also received a bonus of $4,220 for fiscal 1997. His base salary for calendar
1998 is $130,000, and he is eligible for a bonus of up to 35% of his base
salary, subject to the Company's performance. Mr. Allsup owns 15,000 shares of
Common Stock with 5,000 shares being subject to forfeiture pursuant to his
employment agreement. Mr. Allsup also has been granted the option to purchase
30,000 shares of Lund Common Stock, which are subject to a five year vesting
schedule.
Mr. Andress' compensation for fiscal 1997 included a base salary of $119,000. He
also received a bonus of $4,500 for fiscal 1997. His base salary for calendar
1998 is $130,000 and he is eligible for a bonus of up to 35% of his base salary,
subject to the Company's performance. Mr. Andress has also been granted an
option to purchase 50,000 shares of Lund Common Stock, which is subject to a
five year vesting schedule.
Mr. Toms' compensation for fiscal 1997 consisted of a base salary of $120,750.
He also received a bonus of $2,800 for fiscal 1997. His base salary for calendar
1998 is $120,750, and he is eligible for a bonus of up to 30% of his base
salary, subject to the Company's performance. Mr. Toms has also been granted an
option to purchase 60,000 shares of Lund Common Stock, which is subject to a
five year vesting schedule.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Value Underlying Unexercised in-the-Money Options
Shares Acquired Realized Options at Fiscal Year End (#) at Fiscal Year-End ($)
Name on Exercise(#)(1) ($)(1) Exercised/Unexercisable(2) Exercisable/Unexercisable(3)
- ---- ----------------- ------ -------------------------- ----------------------------
<S> <C> <C> <C>
William J. McMahon -- -- 75,000 exercisable --
75,000 unexercisable --
Bradley W. Andress -- -- 20,000 exercisable --
75,000 unexercisable --
Jay M. Allsup -- -- 18,000 exercisable --
12,000 unexercisable --
<PAGE>
William H. Toms -- -- 24,000 exercisable --
36,000 unexercisable --
Allan W. Lund -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
(1) No options were exercised by the named executive officers in the fiscal
year ended June 30, 1997 or in the transition period ended December, 31
1997.
(2) Amounts shown are the same at June 30, 1997 and at December 31, 1997.
(3) As of fiscal year-end, June 30, 1997 and as of December 31, 1997, none of
such options were in-the-money.
There were no option or stock appreciation rights granted, or grants made under
long-term incentive plans, to the executive officers named in the compensation
table during the fiscal year ended June 30, 1997 or the transition period ended
December 31,1997. However, during the transition period options held by such
persons were repriced as follows:
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Number of
Securities Length of
Underlying Market Price Original Option
Unexercised of Stock at Exercise Price New Term
Options Time of at Time of Exercise Remaining at
Name Date Repriced (#) Repricing($) Repricing ($) Price ($) Date of Repricing
- ---- ---- ------------ ------------ ------------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
William J. McMahon 10/15/97 150,000 $13.875 $16.25 $13.875 3 years, 11 months
President and CEO
William H. Toms 10/15/97 60,000 $13.875 $21.25 $13.875 3 years, 6 months
Vice President of
Operations
Bradley W. Andress 10/15/97 50,000 $13.875 $16.75 $13.875 4 years
Vice President of
Marketing
Jay M. Allsup 10/15/97 30,000 $13.875 $16.125 $13.875 2 years, 8 months
Chief Financial
Officer
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors, which is
composed entirely of independent, outside directors, establishes the general
compensation policies of the Company and specific compensation for each
executive officer of the Company. The Compensation Committee intends to
undertake a comprehensive review of the Company's compensation policies in 1998,
including review of executive compensation levels, review of the short term
bonus plan and the development of a comprehensive option grant program. In order
to undertake a review of the option grant program, the Board has established a
Stock Option Committee consisting of Messrs. Schoeberl, Day and Vollmershausen.
<PAGE>
There are three major current components of the Company's compensation program:
Base Salary, Short Term Incentive Awards and Long Term Incentive Compensation.
BASE SALARY
A competitive base salary is vital to support the philosophy of management
development and career orientation of executives and is consistent with the
long-term nature of the Company's business.
Salary levels and adjustments to salaries are a result of competitive
positioning (how the Company's salary structure for comparable positions
compares with that of other companies), individual annual reviews, as well as
business performance and general economic factors. There is no specific weighing
of these factors. The Compensation Committee believes that the base salaries of
the Company's executive officers are competitive. Executive officers receive an
annual performance review and, based upon such review, may receive an adjustment
in base salary.
SHORT TERM INCENTIVE AWARDS
Short term incentive awards to executives are granted in cash pursuant to the
Company's Short Term Incentive Plan, which recognizes each executive's
contributions to the business. The Short Term Incentive Plan, which is adopted
annually, sets profitability goals at both minimum and maximum levels.
In adopting the Short Term Incentive Plan, the Compensation Committee considers
several factors, including the Company's strong competitive position, the risks
and rewards inherent in expanding the Company's product offering and the
continued improvement in the Company's performance.
The specific bonus an executive receives is primarily dependent on overall
Company performance. While assessment of an individual's relative performance is
made annually based on a number of factors which include initiative, business
judgment, technical expertise and management skills, the Company's philosophy
has been that all executive officers should be focused on the Company's
performance, not departmental performance. The Company believes qualities such
as team building, rather than particularism, should be rewarded and that this is
best accomplished by compensating individuals based primarily on overall Company
performance.
Discretionary payments aggregating $17,260 were awarded to certain Company
executives under the Short Term Incentive Plan for fiscal 1997 based on
individual performance criteria even though the Company did not achieve the
threshold level for payment under the Plan. Mr. McMahon received no bonus for
fiscal 1997. No awards will be made under the Short Term Incentive Plan for the
transition period ended December 31, 1997.
LONG TERM INCENTIVE COMPENSATION
GENERAL. Aligning the interests of the Company's executive officers with those
of the stockholders is accomplished through stock options which provide longer
term incentives directly related to improvement in long-term stockholder value.
The Compensation Committee believes that it is important for the Company's
executive officers to focus not just on short term achievements, but on the long
term financial health and development of the Company. No new incentive stock
options were awarded to named Company executives during fiscal 1997 or during
the transition period ended December 31, 1997
REPRICING OF OPTIONS. In October 1997, the Board repriced options under the 1992
Non-Employee Director Stock Option Plan, the Lund Enterprises 1989 Stock Option
Incentive Plan and the Lund International Holdings 1994 Employee Stock Option
Plan (collectively, the "Option Plans"). All outstanding options under the
Option Plans with a per share exercise price of $16.00 or greater were repriced
to $13.875 per share. Through this repricing, 150,000 options held by Mr.
McMahon were repriced from $16.25 to $13.875, 60,000 options held
<PAGE>
by Mr. Toms were repriced from $21.25 to $13.875, 50,000 options held by Mr.
Andress were repriced from $16.75 to $13.875 and 30,000 options held by Mr.
Allsup were repriced from $16.125 to $13.875. The basis for repricing these
options was to restore the incentive nature of the program which had been lost
due to the significant difference between the market prices for the stock and
the exercise prices. The repricing better reflects market conditions.
MR. McMAHON'S COMPENSATION
The Compensation Committee reviewed the performance of the Company's Chief
Executive Officer for the 1997 fiscal year and agreed on goals and directions
for the current fiscal year. In accordance with the Company's Short Term
Incentive Plan, Mr. McMahon received no bonus for fiscal 1997 or for the
transition period ended December 31, 1997. This is in keeping with the Company's
philosophy on short-term incentive awards and is reflective of the poorer
financial results reported by the Company for the last fiscal year. However, the
Committee felt that Mr. McMahon's performance during fiscal 1997 was very good
and concurred on the goals he had established for the current fiscal year and
the direction in which he would be moving the Company. Mr. McMahon's annual base
salary for fiscal 1997 was $180,000. In September 1997, the Compensation
Committee recommended, and the Board of Directors approved, the adjustment of
Mr. McMahon's annual base salary to $200,000 effective January 1, 1997. The
Compensation Committee intends to review the base salary and other benefits of
Mr. McMahon in 1998. After reviewing local, regional and national compensation
ranges for Chief Executive Officers of similarly-sized companies, the
Compensation Committee determined that Mr. McMahon's 1997 base salary was
competitive.
Dennis W. Vollmershausen
Robert R. Schoeberl
Lawrence C. Day
SHARE INVESTMENT PERFORMANCE
The following graph shows changes over the past five-year period in the value of
$100 invested in (1) the Company's Common Stock; (2) The NASDAQ Index; and (3)
an industry group consisting of fifty-eight companies (including the Company)
with the same Standard Industrial Classification Code as the Company.
The year-end values of each investment are based on share price appreciated plus
dividends paid in cash, assuming the reinvestment of dividends. The calculations
exclude trading commissions and taxes.
Calendar Year Ending
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
The Company 100 253.97 209.52 152.38 155.56 150.79
NASDAQ Market Index 100 143.87 121.52 133.31 164.48 212.49
Industry Group 100 119.95 125.94 163.35 202.99 248.30
<PAGE>
ADOPTION OF THE 1998 STOCK OPTION
INCENTIVE PLAN
PROPOSAL 3.
In February 1998, the Board of Directors (the "Board") adopted, subject to
stockholder approval, the Company's 1998 Stock Option Incentive Plan (the
"Plan") and reserved 500,000 shares of authorized Common Stock, par value of
$.10 per share, for issuance upon the exercise of options granted pursuant to
the terms of the Plan. The Board considered that, under the Company's existing
option plans, only 60,164 options were available for future grant. The
acquisition by the Company of Deflecta-Shield, Inc. in December 1997 more than
doubled the size of the Company and the Board wanted to be sure that sufficient
options would be available to properly incentivize and reward the Company's new
employees as well as to continue benefits for existing employees.
A general description of the basic features of the Plan is presented below, and
is qualified in its entirety by reference to the full text of the Plan.
* PURPOSE. The purpose of the Plan is to promote the success of the Company
and its subsidiaries by facilitating the employment and retention of
competent personnel and by furnishing incentive to key employees upon whose
efforts the success of the Company will depend to a significant degree.
* TERM. The term of the Plan expires on February 26, 2008, ten years from the
date the Plan was approved by the Board of Directors unless earlier
suspended or discontinued by the Board of Directors.
* ADMINISTRATION. The Plan is administered by the Board of Directors. The
Plan gives broad powers to the Board to administer and interpret the Plan,
including the authority to select the employees to be granted options and
to prescribe the particular form and conditions of each option granted. If
the Board so directs, the Plan may be administered by a stock option
committee of non-employee directors who are appointed and serve at the
pleasure of the Board. The Board has appointed a Stock Option Committee
(the "Committee") consisting of Messrs. Schoeberl, Day and Vollmershausen.
* ELIGIBILITY. All key employees, including officers, of the Company or of
any subsidiary are eligible to receive options pursuant to the Plan. As of
March 1, 1998, the Company employed 865 people on a full-time basis and
contracted for the services of 35 additional full-time people. Although the
directors who are also key employees are eligible to participate and
receive an option under the Plan, no director who is not otherwise engaged
as an employee and no member of the Committee is eligible to receive an
option.
* OPTIONS. Options granted under the Plan may be either options that qualify
as incentive stock options ("Incentive Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or those that do not qualify as such incentive options ("Non-Qualified
Options"). When an option is granted under the Plan, the Committee at its
discretion specifies the option exercise price, number of shares of Common
Stock which may be purchased upon exercise of the option and whether the
option is an Incentive Option. The option exercise price may not be less
than 100% of the fair market value of the Company's Common Stock on the
date of grant. Incentive Options granted to an owner of more than 10% of
the Company's Common Stock must have an exercise price of at least 110% of
the fair market value on the date of grant.
<PAGE>
The term during which the option may be exercised and whether the option
will be exercisable immediately, in stages, or otherwise are set by the
Committee but in no event may the option be exercisable more than ten years
from the date of grant. All options vest immediately upon a Change of
Control. A "Change of Control" is deemed to have occurred if (i) any person
or entity becomes the beneficial owner, directly or indirectly, of
securities representing in excess of fifty percent (50%) of the voting
securities of the Company except for (x) persons who, on March 1, 1998
together with their respective affiliates or associates (as such terms are
defined under Section 203 of the Delaware General Corporation Law) own
securities representing in excess of forty percent (40%) of the voting
securities of the Company; or (y) any affiliates or associates to which any
person identified in (x) transfers all or any portion of such voting
securities (the persons in (x) and (y) being referred to herein as a "40%
Holder"); (ii) the Company sells or otherwise disposes of all or
substantially all of its assets in a single transaction or series of
related transactions; (iii) persons who, at the beginning of any twelve
(12) consecutive month period, constitute the Board of Directors of the
Company, at the end of such period cease to constitute a majority of the
Board of Directors of the Company, unless (a) prior to September 9, 2000,
the nomination or appointment of each new Director was approved by a vote
of at least two-thirds (2/3) of the Directors then still in office who were
Directors at the beginning of such period or (b) on or after September 9,
2000, the nomination or appointment of each new Director was approved or is
ratified by a then 40% Holder or by any Director authorized by such 40%
Holder to exercise such approval (either pursuant to that certain Amended
and Restated Governance Agreement, dated as of November 25, 1997, among the
Company, LIH Holdings, LLC and LIH Holdings II, LLC, or otherwise); (iv)
the Company merges or combines with or into any other person or entity and
the stockholders of the Company immediately prior to the consummation of
the merger own less than fifty percent (50%) of the outstanding voting
securities of the surviving entity upon consummation of the merger. Each
option granted under the Plan is nontransferable during the lifetime of the
optionee. The form of option agreement under which the Committee currently
intends to issue options granted under the Plan generally provides that, if
the optionee's employment with the Company is terminated before the
expiration of the option, the optionee has a right to exercise the option
for a limited period of time (typically three months) after his
termination. If, however, the termination is because of death, the option
typically is exercisable until its original stated expiration or until the
12-month anniversary of the optionee's death. The Committee may impose
additional or alternative conditions and restrictions on the options
granted under the Plan.
Upon exercise of an option under the Plan, the exercise price is to be paid
in cash, by check or by delivering Common Stock of the Company acquired in
connection with the exercise or previously owned, unless the Board
restricts the use of stock for such purposes.
The Board of Directors or Committee will equitably adjust the maximum
number of shares of Common Stock reserved for issuance under the Plan, the
number of shares covered by each outstanding option and the option price
per share in the event of stock splits or consolidations, stock dividends
or other transactions in which the Company receives no consideration.
* AMENDMENT. The Board of Directors or Committee may from time to time
suspend or discontinue the Plan or revise or amend it in any respect;
provided, however, that no such revision or amendment may impair the terms
and conditions of any outstanding option to the material detriment of the
optionee. In addition, no such revision or amendment may be made without
the approval of the Company's stockholders if such approval is required
under Section 16 of the Securities Exchange Act, required by
<PAGE>
the applicable rules of an exchange or the Nasdaq Stock Market or required
to meet the requirements of incentive stock options under the Code.
* FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN. Under Section 422 of the Code,
a recipient of an Incentive Option receives a tax benefit of income
deferral if the recipient meets the holding period requirements of Section
422. The recipient of an Incentive Option realizes no taxable income when
the Incentive Option is granted. If the employee has at all times from the
date of grant until three months before the date of exercise been an
employee of the Company, the employee will realize no taxable income when
an Incentive Option is exercised. If the employee does not dispose of
shares acquired upon exercise for a period of two years from the granting
of the option and one year after receipt of the shares, the employee will
not realize taxable income until he sells the shares. No deduction is
allowable to the Company for federal income tax purposes in connection with
either the grant or exercise of an Incentive Option. Generally, the
recipient of a Non-Qualified Option will recognize compensation income,
subject to withholding, on the date the option is exercised in an amount
equal to the difference between the fair market value of the common stock
on the date of issuance and the exercise price. Upon said exercise, the
Company will generally be entitled to a deduction in an identical amount.
When the recipient of a Non-Qualified Option disposes of shares acquired
upon exercise of the option, any difference between the amount then
received and the fair market value on the date of exercise will be treated
as a long or short term capital gain, depending on the period of time the
shares have been held.
The foregoing summary of the Plan does not purport to be complete and is
qualified in its entirety by reference to the Plan itself. The full text of the
Plan will be provided to any stockholder who desires a copy, upon written
request to the Company, attention Secretary, 911 Lund Boulevard, Minneapolis,
Anoka, 55303.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
1998 STOCK OPTION INCENTIVE PLAN. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
SHARES REPRESENTED IN PERSON OR BY PROXY AT THE MEETING IS REQUIRED FOR APPROVAL
OF THE PLAN.
APPROVAL OF CONVERSION OF SERIES A PREFERRED STOCK
AND TERMS OF CLASS B-1 COMMON STOCK
PROPOSAL 4.
On December 30, 1997, the Company sold to LIH Holdings II, LLC ("LIH II")
874,400 shares of Common Stock and 1,493,398 shares of the Company's non-voting
Series A Preferred Stock. The non-voting Series A Preferred Stock is convertible
into shares of non-voting Class B-1 Common Stock upon approval by the
stockholders of the Company and upon approval of the terms of the non-voting
Class B-1 Common Stock, which include provisions for the conversion of shares of
non-voting Class B-1 Common Stock into Common Stock. The Board of Directors
recommends the approval of the conversion of the Series A Preferred Stock into
non-voting Class B-1 Common Stock and the approval of the terms of the
non-voting Class B-1 Common Stock, which include provisions for the conversion
of shares of non-voting Class B-1 Common Stock into Common Stock. The purchase
transaction, the terms of the Series A Preferred Stock, the terms of the Class
B-1 Common Stock and the approval requirement are described below.
<PAGE>
Background
On November 25, 1997, the Company and its wholly-owned subsidiary, Zephyros
Acquisition Corporation ("Zephyros"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Deflecta-Shield Corporation
("Deflecta-Shield"), pursuant to which Zephyros agreed to commence a tender
offer (the "Tender Offer") for all of the outstanding shares of Deflecta-Shield
and, if more than 50% of the outstanding shares of Deflecta-Shield were
tendered, to purchase such shares and to consummate a merger with
Deflecta-Shield in which Zephyros would merge into Deflecta-Shield and
Deflecta-Shield would become a wholly-owned subsidiary of the Company (the
"Merger"). On December 30, 1997, the Company closed the Tender Offer and
acquired approximately 99% of the outstanding shares of Deflecta-Shield. On
February 27, 1998, Zephyros consummated the Merger with Deflecta-Shield and
Deflecta-Shield become a wholly-owned subsidiary of the Company. In both the
Tender Offer and the Merger, the Company paid $16.00 per share for each of the
4,800,000 outstanding shares of Deflecta-Shield, for an aggregate purchase price
of approximately $76,800,000, not including the repayment of $9,400,000 of
Deflecta-Shield debt; the costs and expenses related to the acquisition of
Deflecta-Shield (the "Acquisition") and the costs and expenses related to
Acquisition financing (approximately $3,500,000). In addition, Deflecta-Shield
paid approximately $3,500,000 for the cancellation of outstanding
Deflecta-Shield options.
In order to finance the Acquisition, the Company used several financing sources:
approximately $10,000,000 of its own cash reserves; bank borrowings of
approximately $42,000,000; and $30,000,000 through the sale of equity to LIH II,
an entity affiliated with Harvest Partners, Inc., a private investment firm
("Harvest"). The sale of equity to LIH II is hereinafter referred to as the "LIH
II Financing."
The LIH II Financing represented the second purchase of the Company's equity
securities by a Harvest affiliate. In September 1997, LIH Holdings, LLC ("LIH"),
also an affiliate of Harvest, purchased from Allan Lund, the founder of the
Company, and his family, an aggregate of 1,686,893 shares of Common Stock,
constituting what was at the time approximately 38% of the Company's outstanding
shares. In connection with the purchase of Mr. Lund's and his family's shares,
as a condition to approval of the purchase by the Board of Directors pursuant to
Section 203 of the Delaware General Corporation Law, LIH entered into a
Governance Agreement with the Company. The Governance Agreement provided, among
other things, that the approval of the Company's Independent Directors* is
required for a sale of voting securities by the Company to Harvest or its
affiliates.
Accordingly, when the Company decided to raise $30,000,000 in Acquisition
financing by selling additional equity to LIH II, the approval of the
Independent Directors was required, pursuant to the terms of the Governance
Agreement.
- ------------------
* An Independent Director is defined by the Governance Agreement as any person
who is a director of the Company and who is independent of and otherwise
unaffiliated with either LIH or LIH II (the "LIH Entities"), the Company or
their respective affiliates or associates (other than as a director, or holder
of less than 5% of the voting securities, of the Company), and is not an officer
or an employee, agent, consultant or advisor (financial, legal or other) of
either of the LIH Entities, the Company or their respective affiliates or
associates, or any person who shall have served in any such capacity within the
three-year period immediately preceding the date such determination is made.
<PAGE>
Independent Director Consideration of the LIH II Financing
The Independent Directors of the Company's Board of Directors, consisting of
Messrs. Day, Dovenberg, Schoeberl and Vollmershausen, met twice to consider the
LIH II Financing. The Company retained Piper Jaffray Inc. to assist them in
their deliberations. The Independent Directors considered the prospects of
raising financing through alternative sources and the costs of such alternative
sources relative to the LIH II Financing. In particular, the Independent
Directors considered the likelihood that any sale of equity or subordinated debt
in a public or private offering would have to be consummated at a discount to
market price and that the costs of any such offering would be greater than the
costs associated with the LIH II Financing. Additional considerations
contributing toward the decision to utilize the LIH II Financing were (i)
Deflecta-Shield's conditioning of the execution of the Merger Agreement upon the
Company's offer being fully-financed and (ii) the Company's desire to commence
and close the Tender Offer quickly so as to minimize the possibility of a
bidding war for Deflecta-Shield. The delays inherent in raising financing
through alternative means, coupled with the merits of the LIH II Financing, led
the Independent Directors to conclude that the LIH II Financing was the most
efficient means to successfully finance the Acquisition.
However, the Independent Directors placed certain conditions on the LIH II
Financing. First, they determined that LIH II would only be permitted to
purchase shares of voting Common Stock in an amount such that, when added to the
number of shares of Common Stock owned by LIH, the LIH Entities, in the
aggregate, would have less than 50% of the outstanding voting shares. The
balance of the equity to be purchased would be non-voting Common Stock, which
would convert to voting Common Stock upon the satisfaction of certain conditions
(described below). Also, the Independent Directors determined that the per-share
price of the non-voting Common Stock would be the same as the price of the
voting Common Stock, and would be set as the average of the closing price for
the 20 trading days preceding the execution of the purchase agreement.
Accordingly, the Independent Directors agreed to recommend that the Company sell
to LIH II that number of shares of voting Common Stock which would give Harvest
affiliates an aggregate of 49% of the voting Common Stock and the balance in
shares of a new class of non-voting Common Stock (Class B-1 Common Stock).
However, such a sale would require shareholder approval under the corporate
governance rules of the National Association of Securities Dealers, Inc. (the
"NASD").
The NASD's Shareholder Approval Requirement.
The Company's Common Stock is reported on The Nasdaq Stock Market's National
Market ("NM") and the Company has agreed as a condition of its NM listing to
conduct its corporate governance in conformity with the corporate governance
requirements of the NASD. One of those requirements is that if shares of common
stock which amount to more than 20% of the number of shares outstanding are
being issued in connection with a transaction such as the Deflecta-Shield
Acquisition, shareholder approval for such issuance must be obtained. As the
Tender Offer was announced on November 26, 1997 and closed on December 30, 1997,
there was not sufficient time for the Company to call a shareholder meeting and
obtain shareholder approval for the LIH II Financing as originally proposed by
the Independent Directors. Accordingly, the Company sought and obtained from the
NASD an interpretation of the shareholder approval requirements, pursuant to
which:
<PAGE>
* the Company could issue voting Common Stock to LIH II in an amount not to
exceed 19.9% of the number of such shares outstanding;
* the Company could issue non-voting preferred stock to LIH II, rather than
non-voting Common Stock, which would be converted into non-voting Class B-1
Common Stock only upon shareholder approval; and
* the non-voting Class B-1 Common Stock would be convertible to voting Common
Stock only upon shareholder approval of the terms of the non-voting Class
B-1 Common Stock.
The LIH II Financing
On November 25, 1997, the Company entered into an Investment Agreement with LIH
II, pursuant to which LIH II agreed to purchase 874,400 shares of the Company's
Common Stock and 1,493,398 shares of the Company's non-voting Series A Preferred
Stock (convertible into shares of non-voting Class B-1 Common Stock, in the
circumstances described herein), at a price of $12.67 per share, equal to the
average of the closing prices for the Common Stock on the preceding 20 trading
days. The closing price of a share of Common Stock on November 24, 1997 was
$12.50. The Company, LIH and LIH II also agreed that, upon the closing of the
LIH II Financing, they would execute an Amended and Restated Governance
Agreement (the "Restated Agreement"). The Investment Agreement was recommended
unanimously by the Independent Directors and approved unanimously by the Board,
with Messrs. Kleinman and Wertheim not participating in the vote. On November
25, 1997, Piper Jaffray Inc. issued its opinion with respect to the LIH II
Financing that the terms were fair to the Company from a financial point of
view.
On December 30, 1997, the LIH II Financing was closed. As a result of such
purchases, LIH and LIH II currently own in the aggregate 2,561,293 shares of
voting Common Stock, or 48.6% of the voting Common Stock of the Company and
1,493,398 shares of non-voting Series A Preferred Stock which, if converted into
shares of non-voting Class B-1 Common Stock, would represent an additional 22%
of all shares of voting and non-voting Common Stock, or approximately 60% of the
Company's total equity. In connection with the closing, the Company filed a
Certificate of Designation of the Series A Preferred Stock, which includes a
provision that such stock will automatically convert into non-voting Class B-1
Common Stock on a one-for-one basis upon shareholder approval, provided that the
terms of the Class B-1 Common Stock are also approved by the shareholders. The
Company also filed a Certificate of Designation of the Class B-1 Common Stock.
This Proposal seeks shareholder approval of the conversion of the Series A
Preferred Stock into non-voting Class B-1 Common Stock and approval of the terms
of the Class B-1 Common Stock. Certain terms of the Restated Agreement, the
Series A Preferred Stock and the Class B-1 Common Stock are summarized below. A
copy of the Certificates of Designation of the Series A Preferred Stock and the
Class B-1 Common Stock are attached hereto as Appendices A and B. The summary of
the terms of the Series A Preferred Stock and the Class B-1 Common Stock is
qualified by such Certificates of Designation and stockholders should carefully
review such documents.
The Amended and Restated Governance Agreement
The Restated Agreement provides that the LIH Entities will not, and will not
permit any of their Associates or Affiliates (as defined in the Restated
Agreement) to, beneficially own collectively more than 2,561,293 shares (the
"Permitted Shares") of the Company's voting Common Stock; provided, however,
that this restriction will not apply in the event of a tender or exchange offer
for 50% or more
<PAGE>
of the total outstanding voting securities of the Company that is initiated by a
party other than the Company, the LIH Entities, any of their Affiliates or
Associates, or any person acting in concert with the LIH Entities or any of
their Affiliates or Associates. The number of Permitted Shares will be increased
to include the number of shares of Common Stock into which the shares of Class
B-1 Common Stock are ultimately converted, if and when such shares of Class B-1
Common Stock are converted. The Restated Agreement also provides that the
Company can issue additional shares of its Common Stock directly to the LIH
Entities or their Affiliates or Associates with the approval of a majority of
the Company's Independent Directors. In addition, the Restated Agreement
provides that, prior to its termination, the LIH Entities, and each Affiliate or
Associate thereof which acquires shares of the Company's Common Stock pursuant
to the terms of the Restated Agreement, will not transfer beneficial ownership
of such shares to any other Affiliate or Associate unless it becomes a signatory
to the Restated Agreement.
The Restated Agreement provides that the number of directors comprising the
Company's Board of Directors will be seven, including one individual nominated
by LIH; one individual nominated by LIH II; the Company's Chief Executive
Officer; and four Independent Directors.
The Restated Agreement also provides that, during its term, the Company and the
LIH Entities will use their best efforts to cause the composition of the
Company's Board of Directors to continue to reflect the same proportion of
directors set forth above. In the event that the aggregate number of shares of
the Company's Common Stock owned by the LIH Entities and any of their Affiliates
or Associates falls below 50% of the number of shares of such stock originally
acquired by LIH, LIH's right to nominate an individual to the Company's Board of
Directors terminates. If the holdings of the LIH Entities in the Company fall
below 5% of the number of shares of the Company's Common Stock, LIH II's right
to nominate an individual to the Company's Board of Directors terminates.
Finally, the Restated Agreement provides that approval by the Company's Board of
Directors of certain corporate transactions requires the affirmative vote of a
majority of directors, which majority includes the LIH II Director. Such matters
include, but are not limited to, the following: (i) any amendment to the
Certificate of Incorporation or Bylaws of the Company; (ii) any acquisition of
another business; (iii) any extraordinary sale, lease, transfer or other
disposition of the Company's assets, the book value of which exceeds 2% of the
consolidated assets of the Company; (iv) any reclassification, combination,
split or similar event involving any debt or equity securities of the Company;
(v) any declaration or payment of any dividend or distribution with respect to
shares of the Company's capital stock; and (vi) any incurrence of indebtedness
not in the ordinary course of the Company's business, if the aggregate amount of
such indebtedness, on a consolidated basis, exceeds $5,000,000.
The Restated Agreement terminates on September 9, 2000.
The Series A Preferred Stock
The Series A Preferred Stock is non-voting and converts on a one-for-one basis
to Class B-1 Common Stock only upon the approval by the Company's shareholders
of (i) such conversion and (ii) the terms of the Class B-1 Common Stock. Harvest
has informed the Company that LIH and LIH II will vote their aggregate of 48.6%
of the Company's outstanding Common Stock in favor of the proposal.
In the event that shareholder approval is not obtained by April 30, 1998,
quarterly dividends on the Preferred Stock, at the annual rate of 15%, will
begin to accrue, with the initial quarterly dividend
<PAGE>
payment due July 31, 1998. The Company may redeem the Preferred Stock for the
purchase price plus accrued but unpaid dividends commencing seven years from the
date of purchase. Although the Preferred Stock has no voting rights, it may vote
as required by the Delaware General Corporation Law and in certain limited
instances in connection with a merger or similar transaction. The Company has
agreed not to issue any series or class of preferred stock senior to the Series
A Preferred Stock.
The Series A Preferred Stock has a stated value of $12.67 per share, may be
redeemed by the Company at any time on or after December 29, 2004 and must be
redeemed by the Company at the request of a majority of the holders of shares of
Series A Preferred Stock at any time on and after the earliest of (i) December
29, 2004, (ii) the first date on which any person or group (as such term is
defined in Section 13(d)(3) under the Securities Exchange Act of 1934, as
amended) other than LIH, LIH II or any of their respective affiliates or
associates owns, beneficially and of record, securities representing at least
50% of the Common Stock, excluding any securities acquired by such person,
entity or group from LIH, LIH II or any of their respective Affiliates or
Associates (a "Change of Control") and (iii) a merger, consolidation,
recapitalization, reorganization or similar transaction in which holders of
Common Stock are given the opportunity to receive consideration for their
shares. Upon the approval of a majority of the holders of the then-outstanding
Common Stock present at a meeting called to approve both (i) the conversion of
the Series A Preferred Stock into shares of Class B-1 Common Stock, and (ii) the
terms of the non-voting Class B-1 Common Stock, each share of Series A Preferred
Stock automatically converts into one share of Class B-1 Common Stock.
The Class B-1 Common Stock
The Class B-1 Common Stock, which is also non-voting, automatically converts on
a one-for-one basis into shares of voting Common Stock on September 9, 2000 (the
termination date of the Restated Agreement) or, if earlier, on a Change of
Control. A Change in Control is defined as the acquisition by a third party of
at least 50% of the Common Stock, on a fully diluted basis, excluding shares
acquired from the LIH Entities and their respective Affiliates or Associates.
In addition, each holder of Class B-1 Common Stock is entitled to convert all or
any of such holder's shares into an equivalent number of shares of Common Stock
(i) upon the affirmative vote of a majority of the Independent Directors, (ii)
upon any transfer of such holder's shares of Class B-1 Common Stock, other than
any such transfer (a) by LIH, LIH II or any of their respective Affiliates or
Associates to any person or entity if, immediately after giving effect to such
transfer and conversion, the transferee and its Affiliates and Associates would
hold more than 49% of the Common Stock, or (b) to LIH, LIH II or any of their
respective Affiliates or Associates, or (iii) at any time on or after the first
date as of which LIH, LIH II and their respective Affiliates and Associates own
(beneficially and of record), in the aggregate, more than 50% of the outstanding
shares of Common Stock in a transaction that is permitted by, or is effected in
accordance with the terms of, the Amended and Restated Governance Agreement.
The shares of Common Stock into which the Class B-1 Common Stock are convertible
have been accepted for listing on The Nasdaq Stock Market's National Market.
Other Provisions
Other than as set forth above, the Preferred Stock and the Class B-1 Common
Stock have no dividend rights; conversion rights; sinking fund provisions;
redemption provisions; liquidation rights;
<PAGE>
preemptive rights; or liability to further call. Other than as set forth above,
no provision in the Governance Agreement or the Certificates of Designation
restrict transferability or discriminate against LIH or LIH II as a result of
such holders holding a substantial amount of securities.
There is no restriction on the repurchase or the redemption of shares while
there is any arrearage in the payment of dividends and there are no sinking fund
requirements.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE
CONVERSION OF THE SERIES A PREFERRED STOCK INTO NON-VOTING CLASS B-1 COMMON
STOCK ON A ONE-FOR-ONE BASIS AND FOR APPROVAL OF THE TERMS OF THE CLASS B-1
COMMON STOCK, INCLUDING PROVIDING FOR THE CONVERSION OF SHARES OF CLASS B-1
COMMON STOCK INTO SHARES OF COMMON STOCK. THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE MEETING IS REQUIRED FOR
APPROVAL OF PROPOSAL 4.
LIH and LIH II hold in the aggregate 48.6% of the outstanding Common Stock and
have indicated that they intend to vote in favor of Proposal 4.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS.
PROPOSAL 5.
Subject to approval by the stockholders, the Board of Directors has selected the
firm of Coopers & Lybrand L.L.P. as the Company's independent accountants for
the current year. Coopers & Lybrand L.L.P. has served as the Company's
independent accountants since 1996.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
If the stockholders do not approve the selection of Coopers & Lybrand L.L.P. as
the Company's independent accountants, the selection of such auditors will be
reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE SELECTION OF COOPERS & LYBRAND L.L.P. TO SERVE AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE CURRENT FISCAL YEAR. THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE SHARES REPRESENTED IN PERSON OR BY PROXY AT THE MEETING IS REQUIRED FOR
APPROVAL.
STOCKHOLDER PROPOSALS
Any appropriate proposal submitted by a stockholder of the Company and intended
to be presented at the 1999 Annual Meeting must be received by the Company at
its office by December 25, 1998, to be considered for inclusion in the Company
proxy statement and related proxy for the 1999 Annual Meeting.
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the meeting.
If any other matter does properly come before the meeting, the appointees named
in the Proxies will vote the Proxies in accordance with their best judgment.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the transition period
ended December 31, 1997, including financial statements, accompanies this Notice
of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material, except for
such financial statements.
REQUESTS SHOULD BE SENT TO THE CORPORATE SECRETARY, LUND INTERNATIONAL HOLDINGS,
INC., 911 LUND BOULEVARD, ANOKA, MINNESOTA 55303.
Dated: March 25, 1998
Anoka, Minnesota
<PAGE>
APPENDIX A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PREFERRED STOCK
LUND INTERNATIONAL HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, William J. McMahon, hereby certifies that:
A. He is the duly elected and acting Chief Executive Officer of LUND
INTERNATIONAL HOLDINGS, INC., Inc., a Delaware corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Certificate of
Incorporation, as amended through the date hereof (the "Certificate of
Incorporation"), the Board of Directors of the Corporation duly adopted the
following resolutions on November 25, 1997, creating a new series of 1,493,398
shares of Preferred Stock designated as "Series A Preferred Stock".
C. The resolutions contained herein have not been modified, altered or
amended and are presently in full force and effect.
RESOLVED, that pursuant to the authority expressly vested in the Board
of Directors of the Corporation by Article Fourth of the Certificate of
Incorporation, the Board of Directors hereby fixes and determines the powers,
preferences, rights and limitations of a series of Preferred Stock, which shall
consist of 1,493,398 shares and shall be designated as Series A Preferred Stock
(the "Series A Preferred Stock"), as follows:
4B. Series A Preferred Stock.
(i) Designation: Stated Value. There shall be a series of Preferred
Stock designated as "Series A Preferred Stock." The number of shares initially
constituting such series shall be 1,493,398. The Series A Preferred Stock shall
have a stated value of $12.67 per share (the "Series A Stated Value").
(ii) Rank. The Series A Preferred Stock shall, with respect to dividend
and other distribution rights, and rights on liquidation, dissolution and
winding up, rank (i) PARI PASSU with any class of capital stock or series of
Preferred Stock hereafter created which expressly provides that it ranks PARI
PASSU with the Series A Preferred Stock as to dividends, other distributions,
liquidation preference and/or otherwise (collectively, the "Parity Securities"),
and (ii) senior to (x) the Common Stock, the Class B Common Stock and all other
securities of any class or classes (however designated) of the Corporation
(other than the Series A Preferred Stock) the holders of which have the right,
without limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution, liquidation
or winding up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up (collectively, the "Common Stock
Instruments") and (y) any other class of capital stock or series of Preferred
Stock hereafter created which does not expressly provide that it ranks PARI
PASSU with the Series A Preferred Stock as to dividends, other distributions,
liquidation preference and/or otherwise (collectively, the "Junior Securities").
The terms "Parity Securities" and "Junior Securities" as used herein with
respect to any class or series of capital stock shall only be deemed to refer to
such class or series to the extent it ranks (i) PARI PASSU with or (ii) not PARI
PASSU with, as applicable, the Series A Preferred Stock with respect to
dividends, other distributions, liquidation preference or otherwise. The
Corporation shall not issue any securities ranking senior to the Parity
Securities with respect to dividends, distributions, liquidation preference or
otherwise.
<PAGE>
(iii) Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, to the extent funds are legally available therefor in
accordance with the Delaware General Corporation Law, a dividend for
each such share, payable quarterly, as provided below, on the last day
of each January, April, July and October, commencing on July 31, 1998
(each such date hereinafter referred to as a "Series A Dividend Payment
Date"), except that if such date is not a Business Day, then such
dividend shall be payable on the next succeeding Business Day, to the
holders of record as they appear on the register of the Corporation for
the Series A Preferred Stock of the Corporation five Business Days
prior to such Dividend Payment Date (the "Series A Dividend Record
Date").
Dividends on the Series A Preferred Stock shall accrue and be
paid at a rate per annum equal to 15.0 percent of the Stated Value of
each share of Series A Preferred Stock outstanding on the Series A
Dividend Record Date with respect to a Series A Dividend Payment Date.
(b) Dividends on the Series A Preferred Stock shall be
cumulative and shall accrue from April 30, 1998 whether or not such
dividends have been declared. Unpaid dividends, whether or not
declared, shall compound quarterly at a rate per annum equal to 15.0%
of the aggregate amount thereof' from the Series A Dividend Payment
Date on which such dividend was payable as herein provided until
payment of such dividend.
(c) For so long as any shares of Series A Preferred Stock
shall be outstanding, no dividend or distribution, whether in cash,
stock or other property, shall be paid, declared and set apart for
payment or made on any date on or in respect to any Junior Securities
and no payment on account of the redemption, purchase or other
acquisition or retirement for value by the Corporation shall be made on
any date of shares of Junior Securities unless, in each case, the full
amount of unpaid dividends accrued on all outstanding shares of Series
A Preferred Stock shall have been paid or contemporaneously are
declared and paid; provided, however, that the foregoing provisions of
this sentence shall not prohibit (i) a dividend payable solely in
shares of Common Stock Instruments or any other Junior Securities, or
(ii) the acquisition of any shares of any Common Stock Instruments or
any other Junior Securities upon conversion or exchange thereof into or
for any shares of any other class of Common Stock Instruments or other
Junior Securities.
In the event that the dividend to be paid to any holder of shares of
Series A Preferred Stock shall be a fractional interest in a share of Series A
Preferred Stock then a fractional share of Series A Preferred Stock shall be
issued to such holder of shares of Series A Preferred Stock.
(iv) Redemption.
(a) Redemption by Corporation. To the extent funds are legally
available therefor, the Company may, at any time on or after December
29, 2004 redeem for the Series A Redemption Price each share of Series
A Preferred Stock then outstanding. To the extent funds are legally
available therefor, the Company shall, at the request of a majority of
the holders of shares of Series A Preferred Stock then outstanding
given at any time on and after the Put Date, redeem for the Series A
Redemption Price each share of Series A Preferred Stock then
outstanding. The date on which shares are redeemed pursuant to this
Part iv(a) of Section 4B is referred to herein as the "Series A
Redemption Date." If on the Series A Redemption Date there shall be
insufficient funds of the Corporation legally available for such
redemption, such amount of the funds as is legally available shall be
used for the redemption requirement. Such redemption requirement shall
be cumulative so that if such requirement shall not be fully discharged
for any reason, funds legally available therefor shall immediately be
applied thereto upon receipt by the Corporation until such requirement
is discharged. The redemption price (the "Series
<PAGE>
A Redemption Price") for each outstanding share of Series A Preferred
Stock to be redeemed pursuant to this Part (iv)(a) of Section 4B shall
be the sum (payable in cash) of (x) the Series A Stated Value plus (y)
an amount equal to all accrued and unpaid dividends thereon to the
Series A Redemption Date.
(b) Payment of Series A Redemption Price. On the Series A
Redemption Date, the Corporation shall pay to the holder of each share
of Series A Preferred Stock being redeemed, upon surrender by such
holder at the Corporation's principal executive office of the
certificate representing such share, duly endorsed in blank or
accompanied by an appropriate form of assignment, the Series A
Redemption Price.
(c) Redeemed or Otherwise Acquired Shares Not to be Reissued.
All shares of Series A Preferred Stock redeemed pursuant to this Part
(iv) of Section 4B or otherwise acquired by the Corporation shall be
retired and shall not thereafter be reissued.
(d) Determination of Number of Each Holder's Shares to be
Redeemed. If, for any reason, less than all of the outstanding shares
of Series A Preferred Stock are to be redeemed pursuant to Part (iv)(a)
of this Section 4B, the Corporation shall determine the shares held by
each holder of Series A Preferred Stock to be redeemed as hereinafter
provided. The number of shares to be redeemed from each holder thereof
shall be the number of shares determined by multiplying the total
number of shares to be redeemed times a fraction, the numerator of
which shall be the total number of shares of Series A Preferred Stock
then held by such holder and the denominator of which shall be the
total number of shares of Series A Preferred Stock then outstanding.
(e) Notice of Redemption. Notice of any redemption of Series A
Preferred Stock pursuant to Part (iv)(a) of this Section 4B, specifying
the time and place of redemption and the Series A Redemption Price,
shall be mailed by certified or registered mail, return receipt
requested, to each holder of record of shares to be redeemed, at the
address for such holder shown on the Corporation's records, not less
than 15 days prior to the date on which such redemption is to be made;
provided, that neither failure to give such notice nor any defect
therein shall affect the validity of the proceeding for the redemption
of any shares of Series A Preferred Stock to be redeemed. Such notice
shall also specify the number of shares of each holder thereof and the
certificate numbers thereof which are to be redeemed. In case less than
all the shares represented by any certificate are redeemed, a new
certificate representing the unredeemed shares shall be issued to the
holder thereof without cost to such holder.
(f) Dividends After Redemption Date. Unless the Series A
Redemption Price in respect of a share of Series A Preferred Stock is
not made available in full to the holder thereof, from and after the
Series A Redemption Date, such share of Series A Preferred Stock shall
not be entitled to any dividends accruing after such date, all rights
of the holder of such share, as a stockholder of the Corporation by
reason of the ownership of such share, shall cease, except the right to
receive the Series A Redemption Price of such share upon the
presentation and surrender of the certificate representing such share,
and such share shall not after such date be deemed to be outstanding
for any purpose.
(v) Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of
outstanding shares of Series A Preferred Stock shall be entitled to
receive for each such share, out of the assets of the Corporation
available for distribution to stockholders, before any payment or
distribution to stockholders and before any payment or distribution
shall be made to the holders of Common Stock or any other Junior
Securities upon liquidation, an amount in cash equal to the sum of (x)
the Series A Stated Value, plus (y) all accrued and unpaid dividends in
respect of such share to the date of final distribution (the "Series A
Liquidation Value").
<PAGE>
(b) After the payment to the holders of the Series A Preferred
Stock of the full preferential amounts provided for in this Part (v) of
Section 4B, the holders of the Series A Preferred Stock as such shall
have no right or claim to any of the remaining assets of the
Corporation.
(c) If, upon any such liquidation, dissolution or other
winding up of the affairs of the Corporation, the assets of the
Corporation are insufficient to permit the payment in full of the
Series A Liquidation Preference for each share of Series A Preferred
Stock then outstanding and the full liquidating payment on all Parity
Securities, then the assets of the Corporation remaining shall be
ratably distributed among the holders of Series A Preferred Stock and
of any Parity Securities in proportion to the full amounts to which
they would otherwise be respectively entitled if all amounts thereon
were paid in full.
(d) Neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration)
of all or substantially all the property or assets of the Corporation
nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be
a liquidation, dissolution or winding-up voluntary or involuntary, of
the Corporation.
(vi) Conversion.
(a) Immediately upon Stockholder Approval, each share of
Series A Preferred Stock shall automatically convert into one share of
Class B-1 Common Stock (the "Series A Conversion Ratio") and such
conversion shall be effective without any further action on the part of
the Corporation, such holder of Series A Preferred Stock or any other
person or entity; provided, however, that in the event that Stockholder
Approval occurs after April 30, 1998, in addition to the shares of
Class B-1 Common Stock to be received by the holders of the Series A
Preferred Stock, each holder of Series A Preferred Stock shall receive
a cash payment of all accrued and unpaid dividends on the shares of
Series A Preferred Stock then held by it.
(b) Each conversion of shares of Series A Preferred Stock into
shares of Class B-1 Common Stock will be effected by the surrender of
the certificate or certificates representing the shares to be converted
at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate in writing
to the holders of the Series A Preferred Stock) at any time during
normal business hours. Each conversion will be deemed to have been
effected as of the close of business on the date on which such
certificate or certificates were surrendered. At such time, the rights
of the holder of the converted Series A Preferred Stock (in its
capacity as such) will cease and the person or persons or entity or
entities in whose name or names the certificate or certificates for
shares of Class B-1 Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of the
shares of Class B-1 Common Stock represented thereby.
(c) Following each surrender of certificates pursuant to
paragraph (b) above, the Corporation will issue and deliver, in
accordance with the surrendering holder's instructions, (x) the
certificate or certificates for the Class B-1 Common Stock issuable
upon such conversion, and (y) any cash payment required to be made
pursuant to Part (vi)(a) of Section 4B.
(d) The issuance of certificates representing shares of Class
B-1 Common Stock upon conversion of any shares of Series A Preferred
Stock will be made without charge to the holders of such converted or
newly issued shares for any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Class B-l Common Stock.
<PAGE>
(e) The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class B-1 Common
Stock the number of such shares sufficient for issuance upon
conversions of the Series A Preferred Stock hereunder.
(f) The Corporation will not close its books against the
transfer of Class B-1 Common Stock in any manner which would interfere
with the timely conversion of Series A Preferred Stock.
(g) If the Corporation at any time or from time to time after
the Issue Date effects a subdivision of the outstanding Class B-1
Common Stock or combines the outstanding shares of the Class B-1 Common
Stock, then, in each such case, the Series A Conversion Ratio in effect
immediately prior to such event shall be adjusted so that each holder
of shares of Series A Preferred Stock shall have the right to convert
its shares of Series A Preferred Stock into the number of shares of the
Class B- I Common Stock which it would have owned after the event had
such shares of Series A Preferred Stock been converted immediately
before the happening of such event. Any adjustment under this Part
(vi)(g) of Section 4B shall become effective as of the date and time
the subdivision or combination becomes effective.
(h) In connection with any merger, consolidation,
recapitalization, reorganization or similar transactions in which
holders of Common Stock generally receive, or are given the opportunity
to receive, consideration for their shares, then, in all such
circumstances, unless otherwise approved by a majority of the holders
of the then outstanding shares of Series A Preferred Stock voting as a
separate class, all holders of Series A Preferred Stock shall be given
the opportunity to receive (x) the same consideration per share for
their shares (calculated as if such shares of Series A Preferred Stock
had been converted into shares of Class B-l Common Stock at the Series
A Conversion Rate then in effect and as if such shares of Class B-1
Common Stock had been converted on a one-for-one basis into shares of
Common Stock) as is received by the holders of Common Stock, including,
but not limited to, form, amount and timing of payment, plus (y) if
such event occurs after April 30, 1998, all accrued and unpaid
dividends with respect to such shares of Series A Preferred Stock.
(vii) Voting Rights. Except as expressly provided herein or as required
under the Delaware General Corporation Law, on all matters to be voted on by the
Corporation's stockholders, holders of shares of Series A Preferred Stock will
be entitled to no voting rights.
As used in Part 4B, the following capitalized terms shall have the
following meanings:
"Affiliate" or "Associate" means an affiliate or associate of
a person or entity, as such terms are defined in Section 203
of the Delaware General Corporation Law.
"Equity Equivalents" means (a) the Class B-l Common Stock and
(b) any other securities which, by their terms, are or may be
exercisable, convertible or exchangeable for or into Common
Stock at the election of the holder thereof.
"Fully-Diluted Basis" means, with respect to the calculation
of the number of shares of Common Stock, (i) all shares of
Common Stock outstanding at the time of determination and (ii)
all shares of Common Stock issuable upon the exercise,
conversion or exchange of any Equity Equivalents outstanding
at the time of determination.
"Issue Date" means, as to any share of Series A Preferred
Stock, the date of original issuance thereof by the
Corporation.
<PAGE>
"Put Date" means the earlier of (a) December 29, 2004, (b) the
first date as of which any person or entity or group (as such
term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) other than LIH Holdings, LLC, LIH
Holdings II, LLC, or any of their respective Affiliates or
Associates owns, beneficially and of record, securities
representing at least 50% of the Common Stock, excluding any
securities acquired by such person, entity, or group from LIH
Holdings, LLC, LIH Holdings II, LLC, or any of their
respective Affiliates or Associates, and (c) the first date as
of which (and immediately prior to) the occurrence of any of
the events described in Part (vi)(h) of Section 4B.
"Stockholder Approval" means the approval of at least a
majority of the holders of the then outstanding shares of
Common Stock present at a meeting called to approve the terms
of the Class B-1 Common Stock and the conversion of the Series
A Preferred Stock into shares of Class B-1 Common Stock as
provided herein.
RESOLVED, that the Board of Directors hereby authorizes and directs the
officers of the Corporation, in the name of and on behalf of the Corporation,
and to the extent required under its corporate seal, to execute and deliver any
and all other instruments, certificates and other documents, and to do any and
all other acts and things, including the expenditure of corporate funds, that
said officers shall deem necessary or appropriate in order to fully carry out
the intent and accomplish the purposes of the resolutions adopted hereby.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by William J. McMahon, its
Chief Executive Officer, and attested by Kathy R. Smith, its Secretary, this
22nd day of December, 1997.
LUND INTERNATIONAL HOLDINGS, INC.
By: /s/ William J. McMahon
----------------------
Name: William J. McMahon
Title: Chief Executive Officer
Attest:
/s/ Kathy R. Smith
- ------------------
Name: Kathy R. Smith
Title: Secretary
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APPENDIX B
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF CLASS B-1 COMMON STOCK
LUND INTERNATIONAL HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, William J. McMahon , hereby certifies that:
A. He is the duly elected and acting Chief Executive Officer of LUND
INTERNATIONAL HOLDINGS, INC., Inc., a Delaware corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Certificate of
Incorporation, as amended through the date hereof (the "Certificate of
Incorporation"), the Board of Directors of the Corporation duly adopted the
following resolutions on November 25, 1997, creating a new series of 1,493,398
shares of Class B Common Stock designated as "Class B- 1 Common Stock".
C. The resolutions contained herein have not been modified, altered or
amended and are presently in full force and effect.
RESOLVED, that pursuant to the authority expressly vested in the Board
of Directors of the Corporation by Article Fourth of the Certificate of
Incorporation, the Board of Directors hereby fixes and determines the powers,
preferences, rights and limitations of a series of the Class B Common Stock,
which shall consist of 1,493,398 shares and shall be designated as Class B-1
Common Stock (the "Class B-l Common Stock"), as follows:
4C. Class B-1 Common Stock.
(i) Designation. There shall be a series of Class B Common
Stock designated as the Class B-1 Common Stock (the "Class B-1 Common
Stock"). The number of shares initially constituting the Class B-1
Common Stock shall be 1,493,398.
(ii) Voting Rights.
(a) Except as expressly provided herein or as
required under the Delaware General Corporation Law, on all
matters to be voted on by the Corporation's stockholders,
holders of shares of Class B-l Common Stock will be entitled
to no voting rights.
(b) Except as expressly provided herein or as
expressly required under the Delaware General Corporation Law,
on any matter on which holders of Class B-1 Common Stock shall
be entitled to vote, they shall be entitled to one vote per
share and shall vote together as a single class with the
holders of the Common Stock.
(iii) Dividends. In the event that the Corporation shall at
any time or from time to time declare, order, pay or make a dividend or
other distribution (whether in cash, securities or other property) on
its Common Stock, the holders of shares of the Class B- 1 Common Stock
shall be entitled to receive from the Corporation, with respect to each
share of Class B-1 Common Stock held, a dividend or distribution that
is the same dividend or distribution that would be received by a holder
of the number of shares of Common Stock into which such share of Class
B-1 Common Stock is convertible pursuant to the provisions of Section
4C(vi) hereof on the record date for such dividend or distribution,
provided that (a) if a dividend or distribution is declared in shares
of Common Stock, such dividend will be declared
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and paid on the Class B-1 Common Stock in shares of Class B-l Common
Stock at the same rate per share as the Common Stock, and (b) if a
dividend or distribution consists of voting securities of the
Corporation other than the Common Stock, the Corporation will make
available to each holder of Class B-l Common Stock, a dividend or
distribution consisting of non-voting securities of the Corporation
which are otherwise identical to such voting securities and which are
convertible into or exchangeable for such voting securities on the same
terms as the Class B-1 Common Stock is convertible into the Common
Stock. Any such dividend or distribution shall be declared, ordered,
paid or made on the Class B-1 Common Stock at the same time such
dividend or distribution is declared, ordered, paid or made on the
Common Stock.
(iv) Stock Splits: Combinations. If the Corporation, in any
manner, subdivides or combines the outstanding shares of Common Stock,
the outstanding shares of Class B-1 Common Stock will be
proportionately subdivided or combined.
(v) Liquidation, etc. The holders of the Class B-1 Common
Stock will be entitled to share ratably with the holders of Common
Stock, based upon the aggregate number of outstanding shares of Common
Stock and Class B-1 Common Stock and upon the number of shares of Class
B-1 Common Stock then held by each holder of Class B-l Common Stock, in
all distributions to the holders of the Common Stock in any
liquidation, dissolution or winding up of the Corporation.
(vi) Conversion of Class B-1 Common Stock. On the Conversion
Date, each share of Class B-l Common Stock shall automatically convert
into one share of Common Stock, and such conversion shall be effective
without any further action on the part of the Corporation, such holder
of Class B-1 Common Stock or any other person or entity. In addition,
each holder of Class B-1 Common Stock is entitled to convert all or any
of such holder's shares into an equivalent number of shares of Common
Stock (x) with the affirmative vote of a majority of the Independent
Directors, (y) upon any transfer of such holder's shares of Class B-l
Common Stock:, other than any such transfer (A) by LIH Holdings, LLC,
LIH Holdings II, LLC or any of their respective Affiliates or
Associates to any person or entity if, immediately after giving effect
to such transfer and conversion, the transferee and its Affiliates and
Associates would hold more than 49% of the outstanding Common Stock, or
(B) to LIH Holdings, LLC, LIH Holdings II, LLC or any of their
respective Affiliates or Associates, or (z) at any time on or after the
first date as of which LIH Holdings, LLC, LIH Holdings II, LLC and
their respective Affiliates and Associates own (beneficially and of
record), in the aggregate, more than 50% of the outstanding shares of
Common Stock in a transaction that is permitted by, or is effected in
accordance with the terms of, the Amended and Restated Governance
Agreement.
As used in this Section 4C(vi), the following capitalized
terms shall have the following meanings:
"Affiliate" or "Associate" means an affiliate or associate of
a person or entity, as such terms are defined in Section 203
of the Delaware General Corporation Law.
"Amended and Restated Governance Agreement" means the Amended
and Restated Governance Agreement, dated November 25, 1997,
among LIH Holdings, LLC, LIH Holdings II, LLC, Harvest
Partners III, L.P. and the Corporation, as amended,
supplemented or otherwise modified from time to time in
accordance with its terms.
"Conversion Date" means the earlier of (a) September 9, 2000
and (b) the first date as of which any person or entity or
group (as such term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) other than LIH
Holdings, LLC, LIH Holdings II, LLC, or any of their
respective Affiliates or Associates owns, beneficially and of
record, securities representing at least 50% of the Common
Stock on a Fully-Diluted Basis, excluding any securities
acquired by such person, entity, or group from LIH Holdings,
LLC, LIH Holdings II, LLC, or any of their respective
Affiliates or Associates.
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"Equity Equivalents" means (a) the Class B-l Common Stock and
(b) any other securities which, by their terms, are or may be
exercisable, convertible or exchangeable for or into Common
Stock at the election of the holder thereof.
"Fully-Diluted Basis" means, with respect to the calculation
of the number of shares of Common Stock, (i) all shares of
Common Stock outstanding at the time of determination and (ii)
all shares of Common Stock issuable upon the exercise,
conversion or exchange of any Equity Equivalents outstanding
at the time of determination.
"Independent Director" means any person who is a director of
the Corporation who is independent of and otherwise
unaffiliated with LIH Holdings, LLC, LIH Holdings II, LLC, the
Corporation or any of their respective Affiliates or
Associates (other than as a director, or holder of beneficial
ownership of less than 5% of the voting securities of the
Corporation), and shall not be an officer or an employee,
agent, consultant or advisor (financial, legal or other) of
LIH Holdings, LLC, LIH Holdings II, LLC, or their respective
Affiliates or Associates, or any person who shall have served
in any such capacity within the three-year period immediately
preceding the date such determination is made.
(vii) Conversion Procedure.
(a) Each conversion of shares of Class B-1 Common
Stock into shares of Common Stock will be effected by the
surrender of the certificate or certificates representing the
shares to be converted at the principal office of the
Corporation (or such other office or agency of the Corporation
as the Corporation may designate in writing to the holders of
the Common Stock and the Class B-l Common Stock) at any time
during normal business hours. Each conversion will be deemed
to have been effected as of the close of business on the date
on which such certificate or certificates were surrendered. At
such time, the rights of the holder of the converted Class B-1
Common Stock (in its capacity as such) will cease and the
person or persons or entity or entities in whose name or names
the certificate or certificates for shares of Common Stock are
to be issued upon such conversion will be deemed to have
become the holder or holders of record of the shares of Common
Stock represented thereby.
(b) Following each surrender of certificates pursuant
to paragraph (a) above, the Corporation will issue and
deliver, in accordance with the surrendering holder's
instructions, (x) the certificate or certificates for the
Common Stock issuable upon such conversion and (y) a
certificate representing any shares of Class B-l Common Stock
which were represented by the certificate or certificates
delivered to the Corporation in connection with such
conversion but which were not converted.
(c) The issuance of certificates representing shares
of Common Stock upon conversion of any shares of Class B-1
Common Stock will be made without charge to the holders of
such converted or newly issued shares for any issuance tax in
respect thereof or other cost incurred by the Corporation in
connection with such conversion and the related issuance of
shares of Common Stock.
(d) The Corporation will at all times reserve and
keep available out of its authorized but unissued shares of
Common Stock the number of such shares sufficient for issuance
upon conversions of the Class B-l Common Stock hereunder.
(e) The Corporation will not close its books against
the transfer of Common Stock in any manner which would
interfere with the timely conversion of Class B-1 Common
Stock.
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(viii) Merger; Etc. In connection with any merger,
consolidation, recapitalization, reorganization or similar transaction
in which holders of Common Stock generally receive, or are given the
opportunity to receive, consideration for their shares, then, in all
such circumstances, unless otherwise approved by the holders of a
majority of the then outstanding shares of Class B-1 Common Stock
voting as a separate class, all holders of Class B-1 Common Stock shall
he given the opportunity to receive the same consideration per share
for their shares as is received by holders of Common Stock, including,
but not limited to, form, amount and timing of payment.
RESOLVED, that the Board of Directors hereby authorizes and directs the
officers of the Corporation, in the name and on behalf of the Corporation, and
to the extent required under its corporate seal, to execute and deliver any and
all other instruments, certificates and other documents, and to do any and all
other acts and things, including the expenditure of corporate funds, that said
officers shall deem necessary or appropriate in order to fully carry out the
intent and accomplish the purposes of the resolutions adopted hereby.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by William J. McMahon, its
Chief Executive Officer, and attested by Kathy R. Smith, its Secretary, this
22nd day of December, 1997.
LUND INTERNATIONAL HOLDINGS, INC.
By: /s/ William J. McMahon
----------------------
Name: William J. McMahon
Title: Chief Executive Officer
Attest:
/s/ Kathy R. Smith
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Name: Kathy R. Smith
Title: Secretary
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LUND INTERNATIONAL HOLDINGS, INC.
ANNUAL MEETING OF STOCKHOLDERS, APRIL 21, 1998
The undersigned hereby appoints Kathy R. Smith and Jay M. Allsup, or either of
them, the attorneys and proxies of the undersigned, with full power of
substitution, to attend the annual meeting of stockholders of Lund International
Holdings, Inc., a Delaware corporation, (hereinafter referred to as the
"Company"), to be held on Tuesday, April 21, 1998 at 11:00 a.m., Central
Daylight Time, and any adjournment thereof, and thereat to vote the
undersigned's shares in the Company.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1-5.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE FOLLOWING PROPOSALS:
1. TO SET THE NUMBER OF DIRECTORS AT SEVEN (7):
FOR AGAINST ABSTAIN
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2. ELECTION OF DIRECTORS: To elect Ira D. Kleinman, William J. McMahon, David
E. Dovenberg, Robert R. Schoeberl, Dennis W. Vollmershausen, Harvey J.
Wertheim and Lawrence C. Day.
FOR all nominees WITHHOLD (INSTRUCTION: To withhold authority to
listed (except as AUTHORITY vote for any individual nominee, write
marked to the to vote for all that nominee's name in the space provided
contrary) nominees listed below)
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3. TO ADOPT THE 1998 STOCK OPTION INCENTIVE PLAN.
FOR AGAINST ABSTAIN
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4. TO APPROVE THE CONVERSION OF SERIES A PREFERRED STOCK AND THE TERMS OF THE
CLASS B-1 COMMON STOCK.
FOR AGAINST ABSTAIN
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5. TO APPROVE THE SELECTION OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
FOR AGAINST ABSTAIN
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In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
The undersigned hereby acknowledges receipt
of Notice of said Annual Meeting and the
accompanying Proxy Statement, each dated
March 25, 1998.
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee, or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Dated:________________________________, 1998
____________________________________________
Signature
____________________________________________
Signature if held jointly
Please mark, sign, date and return the Proxy
Card promptly using the enclosed envelope.
