UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from __________ to
__________
Commission File Number 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1568618
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
911 LUND BOULEVARD
ANOKA, MINNESOTA 55303
Registrant's telephone number, including area code: (612) 576-4200
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to the filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
As of August 13, 1998, 5,263,370 shares of the registrant's common stock, $.10
par value, and 1,493,398 shares of the Company's Class B-1 common stock, $.01
par value, were issued and outstanding.
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1-2
at June 30, 1998 (Unaudited) and December 31, 1997
Consolidated Statements of Operations (Unaudited) 3
Three months ended June 30, 1998 and 1997
Consolidated Statements of Operations (Unaudited) 4
Six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows (Unaudited) 5
Six months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-8
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis of Financial 10-18
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
June 30, December 31,
1998 1997
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and temporary cash investments $ 1,650 $ 6,790
Restricted cash 445 1,123
Accounts receivable, net 23,394 21,450
Inventories 16,913 17,994
Deferred income taxes 3,168 3,517
Other current assets 3,115 1,591
-------- --------
Total current assets 48,685 52,465
Property and equipment, net 20,410 20,621
Intangibles, net 67,599 68,778
Restricted cash and marketable securities 554 595
Other assets 2,079 1,568
-------- --------
Total assets $139,327 $144,027
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
1
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
($ in thousands, except per share data)
June 30, December 31,
1998 1997
--------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 7,347 $ 7,521
Accrued expenses 6,982 15,786
Long-term debt, current portion 3,165 1,700
--------- ---------
Total current liabilities 17,494 25,007
Long-term debt, less current portion 56,970 52,927
Deferred income taxes 2,289 2,352
Other liabilities 129 1,227
--------- ---------
Total liabilities 76,882 81,513
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 2,000 shares; 1,493
issued and outstanding
at December 31, 1997 -- 15
Common stock, $.10 par value;
authorized 25,000 shares; 5,263
issued and outstanding at
June 30, 1998, and 5,268 issued
and outstanding at December 31, 1997 526 527
Class B common stock, $.01 par value;
authorized 3,000 shares; 1,493 issued
and outstanding at June 30, 1998 15 --
Additional paid-in capital 30,857 30,884
Unearned deferred compensation -- (57)
Retained earnings 31,047 31,145
--------- ---------
Total stockholders' equity 62,445 62,514
--------- ---------
Total liabilities and stockholders' equity $ 139,327 $ 144,027
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
June 30,
1998 1997
-------- --------
Net sales $ 29,897 $ 12,112
Cost of goods sold 20,603 7,898
-------- --------
Gross profit 9,294 4,214
-------- --------
Operating expenses
General and administrative 2,940 1,075
Selling and marketing 3,413 1,790
Research and development 694 333
Amortization of intangibles 586 31
-------- --------
Total operating expenses 7,633 3,229
-------- --------
Income from operations 1,661 985
-------- --------
Other income (expense)
Interest expense (1,377) (79)
Interest income 26 187
Other, net (15) (3)
-------- --------
Other income (expense), net (1,366) 105
-------- --------
Income before income taxes 295 1,090
Income tax expense 132 286
-------- --------
Net income $ 163 $ 804
======== ========
Net income per share:
Basic $ 0.03 $ 0.18
======== ========
Diluted $ 0.02 $ 0.18
======== ========
Weighted average common shares 6,412 4,376
======== ========
Weighted average common and
common equivalent shares 6,761 4,394
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data)
Six Months Ended
June 30,
1998 1997
-------- ---------
Net sales $ 57,082 $ 22,553
Cost of goods sold 39,824 14,809
-------- --------
Gross profit 17,258 7,744
-------- --------
Operating expenses
General and administrative 5,507 2,207
Selling and marketing 6,689 3,267
Research and development 1,450 659
Amortization of intangibles 1,167 62
-------- --------
Total operating expenses 14,813 6,195
-------- --------
Income from operations 2,445 1,549
-------- --------
Other income (expense)
Interest expense (2,725) (151)
Interest income 81 355
Other, net (13) (35)
-------- --------
Other income (expense), net (2,657) 169
-------- --------
Income (loss) before income taxes (212) 1,718
Income tax expense (benefit) (114) 447
-------- --------
Net income (loss) $ (98) $ 1,271
======== ========
Net income per share:
Basic $ (0.02) $ 0.29
======== ========
Diluted $ (0.02) 0.29
======== ========
Weighted average common shares 5,841 4,375
======== ========
Weighted average common and
common equivalent shares 5,841 4,394
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (98) $ 1,271
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation 1,762 544
Amortization 1,371 123
Deferred income taxes 286 72
Provision for (reduction in) doubtful accounts 126 (43)
Provision for obsolete inventories 74 69
Other 50 1
Changes in operating assets and liabilities:
Accounts receivable (1,869) (365)
Inventories 417 381
Other assets (1,279) 155
Accounts payable, trade (896) (73)
Accrued expenses (6,480) 86
Other liabilities (41) --
-------- --------
Net cash (used in) provided by operating activities (6,577) 2,221
-------- --------
Cash flows from investing activities:
Purchase of Deflecta-Shield common stock (2,840) --
Purchases of property and equipment (1,602) (572)
Change in restricted cash and marketable securities 719 (285)
Purchase of marketable securities -- (6,877)
Proceeds from sales and redemptions of marketable securities -- 5,290
Other investing activities -- (119)
-------- --------
Net cash used in investing activities (3,723) (2,563)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (48,994) --
Proceeds from long-term debt 54,502 --
Change in book overdraft 853 --
Proceeds from issuance of common stock -- 11
Payment of other liabilities (140) (69)
Debt issuance costs (1,061) --
-------- --------
Net cash provided by (used in) financing activities 5,160 (58)
-------- --------
Net decrease in cash and
temporary cash investments (5,140) (400)
Cash and temporary cash investments:
Beginning of period 6,790 678
-------- --------
End of period $ 1,650 $ 278
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
A - Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Lund
International Holdings, Inc. and its wholly-owned subsidiaries, Deflecta-Shield
Corporation (and its subsidiaries), Lund Industries, Incorporated, Lund
Acquisition Corp., and Lund FSC, Inc. (collectively referred to as "Holdings" or
the "Company"). The consolidated balance sheet as of June 30, 1998, the
consolidated statements of operations for the three and six months ended June
30, 1998 and 1997, and the consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal recurring items.
The results of operations for any interim period are not necessarily indicative
of results for the full year.
The December 31, 1997 condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and related notes for the six month period ended December 31, 1997, which were
included in the Company's Transition Annual Report on Form 10-K for the six
month period ended December 31, 1997.
The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the Company's annual financial
statements and notes.
B - Acquisition of Deflecta-Shield Corporation
Effective December 30, 1997, Holdings, through a wholly-owned subsidiary,
acquired Deflecta-Shield Corporation ("Deflecta-Shield"), a manufacturer of
fiberglass, plastic and aluminum appearance accessories and supplier of
suspension systems for light trucks. Deflecta-Shield also supplies accessories
to the heavy truck market. The aggregate purchase price of $78,919 represents
cash paid of $76,800 for 100% of the outstanding shares of Deflecta-Shield
common stock at $16 per share and direct acquisition costs of $2,119. As of
December 31, 1997, the Company had paid $75,879 in cash to acquire 98.8% of the
outstanding shares of Deflecta-Shield. During the three months ended March 31,
1998, the Company made payments of $2,840 to purchase the remaining 1.2% of
Deflecta-Shield common stock and related direct acquisition costs.
In connection with the acquisition, the Company obtained $42,000 in bridge
financing in the form of a tender loan facility to acquire 98.8% of the
outstanding shares of Deflecta-Shield. On February 27, 1998, Holdings refinanced
its tender loan facility with a new consolidated $87,000 loan facility. The
consolidated loan facility includes two long-term notes totaling $41,600, a
revolving credit facility of $30,000 and an acquisition facility of $15,000.
6
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of Lund and Deflecta-Shield as if the
acquisition had occurred as of January 1, 1997, giving effect to purchase
accounting adjustments. The pro forma data is for informational purposes only
and may not necessarily reflect the results of operations of Holdings had the
acquired business operated as part of the Company for the period presented.
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------- -------
Net sales $30,537 $57,871
Net income 736 768
Basic and diluted net income per share .17 .18
C - Inventories
Inventories consisted of the following:
June 30, December 31,
1998 1997
------- -------
Raw materials $ 9,210 $ 9,949
Finished goods and work in process 7,703 8,045
======= =======
$16,913 $17,994
======= =======
D - Earnings per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", and has disclosed basic and
diluted net income (loss) per share for the three and six months ended June 30,
1998 and 1997, in accordance with this standard. The Company incurred a net loss
for the six months ended June 30, 1998 and, accordingly, excluded common
equivalent shares from the diluted earnings per share computation as their
effect is anti-dilutive. The Company was profitable for the three months ended
June 30, 1998 and 1997 and the six months ended June 30, 1997, consequently, the
calculation of diluted income per share includes 349,000, 18,000 and 19,000,
respectively, of common equivalent shares representing the dilutive impact of
stock options. At June 30, 1998, the Company had 737,000 stock options
outstanding that may be dilutive in future periods.
E - Contingencies
Discussion of legal matters is cross-referenced to this Form 10-Q, Part II, Item
1, Legal Proceedings and should be considered an integral part of the
consolidated financial statements and notes thereto.
7
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
F - New Accounting Standards
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting of
Comprehensive Income". This standard requires the display and reporting of
comprehensive income, which includes all changes in stockholders' equity with
the exception of additional investments by or distributions to stockholders.
Comprehensive income for the Company includes net income (loss), and the changes
in unrealized holding gains (losses) on marketable securities that are charged
or credited to the respective account within stockholders' equity. Comprehensive
income for the three and six months ended June 30, 1998 and 1997 was as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net (loss) income $ 163 $ 804 $ (98) $1,271
Changes in unrealized holding gains
on marketable securities 0 23 0 25
------ ------ ------ ------
Comprehensive (loss) income $ 163 $ 827 $ (98) $1,296
====== ====== ====== ======
</TABLE>
The Financial Accounting Standards Board issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
standards for reporting operating segment information in both annual reports and
interim financial reports issued to shareholders. The Company is reviewing the
requirements of SFAS No. 131, but has not determined if it will present segment
information beyond the one segment currently presented. SFAS No. 131 is required
to be adopted effective with year-end 1998 reporting.
G - Stock Transaction
In April 1998, the 1,493,398 of Series A Preferred Stock outstanding at December
31, 1997 was converted on a one-to-one basis to Class B-1 common stock.
H - Credit Agreement
As of June 30, 1998, the Company was not in compliance with one of the financial
covenants of its credit agreement between the Company and Heller Financial, Inc.
("Lender"). The Company has received a waiver from the Lender for the covenant
violation.
* * * * *
PricewaterhouseCoopers LLP, the Company's independent accountants, have
performed a review of the unaudited interim consolidated financial statements
included herein and their report thereon accompanies this filing.
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lund International Holdings, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Lund
International Holdings, Inc. (the Company) as of June 30, 1998, the related
consolidated statements of operations for the three months and six months ended
June 30, 1998 and 1997, and consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997. These consolidated financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for the financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the six month period then ended (not presented herein); and
in our report dated March 17, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1997,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
July 29, 1998
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL OVERVIEW:
Lund International Holdings, Inc. ("Holdings" or the "Company"), through its
wholly-owned subsidiaries, Lund Industries, Incorporated ("Lund") and
Deflecta-Shield Corporation and its subsidiaries ("Deflecta-Shield"), designs,
manufactures, markets and distributes appearance automotive aftermarket
accessories and other products for light trucks, sport utility vehicles and vans
("light trucks") and for heavy trucks. The products directed at the light truck
market include visors, bug shields/hood protectors, running boards, tonneau
covers and other appearance accessories. In addition, Deflecta-Shield is a
leading original equipment manufacturer ("OEM") of accessories for the light
truck and heavy truck markets and also supplies suspension systems for light
trucks.
The Company acquired 98.8% of the outstanding common stock of Deflecta-Shield in
December 1997 and the balance of its shares in February 1998 (the
"Acquisition"). The Company paid $76.8 million for the outstanding shares of
Deflecta-Shield, approximately $2.1 million for direct transaction costs, and
$9.4 million to retire Deflecta-Shield's long-term debt. The Acquisition was
accounted for under the purchase method of accounting, which required the
Company to recognize a $572,000 increase in cost of goods sold in the first
quarter of 1998 to reflect the write-up of Deflecta-Shield's finished goods and
work-in-process acquired by the Company. Effective January 1, 1998, the Company
began reporting consolidated results of operations, which include the results of
Deflecta-Shield's operations.
In connection with the Acquisition, the Company entered into a credit facility
syndicated to ten financial institutions for an aggregate of $87 million. At
June 30, 1998, the Company had drawn down $41.6 million outstanding against the
term loan component and $14.14 million against the $30 million revolver
component of the credit facility. The credit facility also includes an
acquisition facility of $15 million.
In September 1997, the Company's Board of Directors approved a change in fiscal
year end from June 30 to December 31.
RESULTS OF OPERATIONS:
(In thousands, except earnings per share)
Certain pro forma information is included for comparative purposes. The pro
forma information assumes the Acquisition was completed on January 1, 1997.
10
<PAGE>
The following tables set forth the percentage relationship to net sales of
certain items in the Company's consolidated statements of operations for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------
June 30, 1998 June 30, 1997 Pro Forma June 30, 1997
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 29,897 100.0% $ 12,112 100.0% $30,537 100.0%
Gross profit 9,294 31.1 4,214 34.8 10,496 34.4
General and administrative 2,940 9.8 1,075 8.9 2,721 8.9
Selling and marketing 3,413 11.4 1,790 14.8 3,718 12.2
Research and development 694 2.3 333 2.7 641 2.1
Amortization of intangibles 586 2.0 31 0.3 601 2.0
Income from operations 1,661 5.6 985 8.1 2,815 9.2
Other income (expense), net (1,366) (4.6) 105 0.9 (1,366) (4.5)
Income tax (benefit) expense 132 0.4 286 2.4 713 2.3
Net (loss) income 163 0.5 804 6.6 736 2.4
Six Months Ended
-----------------------------------------------------------------------------------------------
June 30, 1998 June 30, 1997 Pro Forma June 30, 1997
----------------------------- ----------------------------- ----------------------------
Net sales $ 57,082 100.0% $ 22,553 100.0% $57,871 100.0%
Gross profit 17,258 30.2 7,744 34.3 18,976 32.8
General and administrative 5,507 9.6 2,207 9.8 5,490 9.5
Selling and marketing 6,689 11.7 3,267 14.5 6,892 11.9
Research and development 1,450 2.5 659 2.9 1,259 2.2
Amortization of intangibles 1,167 2.0 62 0.3 1,221 2.1
Income from operations 2,445 4.3 1,549 6.9 4,114 7.1
Other income (expense), net (2,657) (4.7) 169 0.7 (2,602) (4.5)
Income tax (benefit) expense (114) (0.2) 447 2.0 744 1.3
Net (loss) income (98) (0.2) 1,271 5.6 768 1.3
The following tables set forth the Company's net sales by product line:
Three Months Ended
-----------------------------------------------------------------------------------------------
June 30, 1998 June 30, 1997 Pro Forma June 30, 1997
----------------------------- ----------------------------- ----------------------------
Hood Shields/Bug
Deflectors $ 7,734 25.9% 3,164 26.1% $ 8,544 28.0%
Running Boards 3,618 12.2 2,487 20.6 4,645 15.2
External Visors 3,028 10.1 3,223 26.6 3,461 11.3
Suspension Products 2,908 9.7 N/A N/A 2,546 8.3
Tool Boxes 2,494 8.3 N/A N/A 1,253 4.1
Tonneau Covers 1,264 4.2 925 7.6 1,240 4.1
Other External Light Truck
Appearance Accessories 4,401 14.7 2,313 19.1 5,194 17.0
Heavy Truck 4,450 14.9 N/A N/A 3,654 12.0
-------- ----- -------- ----- -------- -----
Total $ 29,897 100.0% $ 12,112 100.0% $ 30,537 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------------------------------------
June 30, 1998 June 30, 1997 Pro Forma June 30, 1997
---------------------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Hood Shields/Bug
Deflectors $ 14,324 25.1% $ 5,387 23.9% $ 14,873 25.7%
Running Boards 7,335 12.9 4,618 20.5 9,491 16.4
External Visors 6,420 11.2 6,569 29.1 6,980 12.1
Suspension Products 5,425 9.5 N/A N/A 5,275 9.1
Tool Boxes 4,791 8.4 N/A N/A 2,739 4.7
Tonneau Covers 2,382 4.2 1,538 6.8 2,102 3.6
Other External Light Truck
Appearance Accessories 7,993 14.0 4,441 19.7 9,494 16.4
Heavy Truck 8,412 14.7 N/A N/A 6,917 12.0
-------- ----- -------- ----- -------- -----
Total $ 57,082 100.0% $ 22,553 100.0% $ 57,871 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
(ACTUAL AND PRO FORMA):
NET SALES: Net sales for the three month period ended June 30, 1998 were
$29,897, an increase of $17,785 over net sales of $12,112 for the three month
period ended June 30, 1997, reflecting the consolidation of Deflecta-Shield's
results in 1998. Compared to 1997 pro forma, net sales for the three month
period ended June 30, 1998 decreased $640, or 2.1%. Net sales of heavy truck
products, aluminum products, suspension systems, and OEM products increased
$3,014, or 25.8%, while net sales of custom and aftermarket plastic and
fiberglass products were $3,654, or 19.4%, below last year's pro forma
comparable period. The majority of plastic and fiberglass products were below
the comparable pro forma period with the largest product line shortfall in
fiberglass running boards. The decline in the plastic and fiberglass product
lines corresponded to a drop in sales to warehouse distributors that are
realizing more competition from original equipment manufactures and retail
chains. During the same period, net sales of toolboxes and heavy truck products
were up 99.0% and 21.8%, respectively, as a result of new product lines and new
customers.
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the three
months ended June 30, 1998 was 31.1% compared to 34.8% for the three months
ended June 30, 1997. The gross profit margin for the three months ended June 30,
1997 on a pro forma basis was 34.4%. The 3.3 percentage points decrease in gross
margin in 1998 compared to pro forma 1997 was attributable to product promotions
for aftermarket plastic and fiberglass products, a shift in product sales mix,
raw material and labor rate increases, absorbing fixed warehouse, distribution,
and manufacturing costs that do not immediately decrease with a corresponding
drop in sales, and the added costs of new facilities in Illinois and Indiana.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$2,940, or 9.8% of net sales for the three month period ended June 30, 1998,
compared to $1,075 or 8.9% of net sales for the comparable three month period
ended June 30, 1997. On a pro forma basis for 1997, general and administrative
expenses were $2,721 or 8.9% of net sales. The increase of $219 for the three
months ended June 30, 1998 over the 1997 comparable pro forma period was due to
salary increases, training and implementation of a new information system,
personnel recruiting and relocations, relocation of the Oklahoma tonneau
production to Illinois, and a contractual indemnification of a legal judgment
against a former shareholder on the sale of his stock. These increases have been
partially offset by reduced professional fees and bonuses.
12
<PAGE>
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $3,413 or
11.4% of net sales for the three month period ended June 30, 1998, compared to
$1,790, or 14.8% of net sales, for the three month period ended June 30, 1997.
Selling and marketing expenses were $3,718, or 12.2% of net sales for the 1997
comparable pro forma period. The decrease of $305 in 1998 from the 1997 pro
forma period is the result of reductions in variable selling expenses such as
cooperative customer advertising and commissions that decreased proportionately
with a commensurate drop in aftermarket plastic and fiberglass net sales.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $694,
or 2.3% of net sales for the three months ended June 30, 1998, compared to $333
or 2.7% of net sales for the three month period ended June 30, 1997. On a pro
forma basis, research and development expenses were $641, or 2.1% of net sales
for the three months ended June 30, 1997. The increase of $53 between the three
month period ended June 30, 1998 and the pro forma three month period ended June
30, 1997 was due to increased personnel and development costs for new products
and applications.
AMORTIZATION OF INTANGIBLES: Amortization expense was $586 for the three month
period ended June 30, 1998, compared to $31 for the three month period ended
June 30, 1997. On a pro forma basis, amortization was $601 for the three months
ended June 30, 1997. The increase in amortization in 1998 and pro forma 1997
over actual 1997 reflects the increased goodwill associated with the
Acquisition.
OTHER INCOME (EXPENSE), NET: Other income (expense), net, was $1,366 of expense
for the three month period ended June 30, 1998, compared to $105 of income for
the three month period ended June 30, 1997. On a pro forma basis for 1997, other
income (expense), net, was $1,366 of expense. The increase in expense in 1998
and pro forma 1997 over actual 1997 reflects the increased interest on
borrowings related to the Acquisition and the reduction of interest income due
to the use of the Company's cash reserves to help fund the Acquisition.
INCOME TAX EXPENSE (BENEFIT): The Company recorded a tax expense for the three
months ended June 30, 1998, resulting in an effective income tax rate of 44.7%
compared to 26.2% for the three months ended June 30, 1998. The Company's
effective tax rate is substantially higher than the comparable prior period and
higher than the statutory federal income tax rate of 34% due to amortization of
non-deductible goodwill recorded in connection with the Acquisition and the
elimination of tax exempt interest generated from marketable securities in the
prior year.
NET INCOME PER SHARE: The Company's net income for the three months ended June
30, 1998 decreased $641 to $163, or $.02 per share, from a net income of $804,
or $.18 per share, for the three months ended June 30, 1997. On a pro forma
basis, net income was $736, or $.17 per share, for the comparable period of
1997.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
(ACTUAL AND PRO FORMA):
NET SALES: Net sales for the six month period ended June 30, 1998 were $57,082,
an increase of $34,529 over net sales of $22,553 for the six month period ended
June 30, 1997, reflecting the consolidation of Deflecta-Shield's results in
1998. Compared to 1997 pro forma, net sales for the six month period ended June
30, 1998 decreased $789, or 1.4%. While net sales improved by $4,848, or 21.2%,
in heavy truck products, aluminum products, suspension systems, and OEM
products, net sales of custom and aftermarket plastic and fiberglass products
were $5,637, or 16.1%, below last year's pro forma comparable period. The
majority of plastic and fiberglass products were below the comparable pro forma
period with the largest decline in fiberglass running boards. The decline in the
plastic and fiberglass product lines corresponded to a drop in sales to
warehouse distributors that are realizing more competition from original
equipment manufactures and retail chains. During the same period, net sales of
toolboxes and heavy truck products were up 74.9% and 21.6%, respectively, as a
result of new product lines and new customers.
COST OF GOODS SOLD AND GROSS PROFIT: The gross profit margin for the six months
ended June 30, 1998 was 30.2% compared to 34.3% for the six months ended June
30, 1997. The gross profit margin for the six months ended June 30, 1997 on a
pro forma basis was 32.8%. The 2.6 percentage points decrease in gross margin in
1998 compared to pro forma 1997 was attributable to product promotions for
aftermarket plastic and fiberglass products, absorbing fixed warehouse,
distribution, and manufacturing costs that do not immediately decrease with a
corresponding drop in sales, added costs of new facilities, and the incremental
impact of inventory write-offs from recording inventories at fair market value
as a result of the acquisition and merger with Deflecta-Shield.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$5,507, or 9.6% of net sales for the six month period ended June 30, 1998,
compared to $2,207 or 9.8% of net sales for the comparable six month period
ended June 30, 1997. On a pro forma basis for 1997, general and administrative
expenses were $5,490, or 9.5% of net sales. The slight increase of $17 for the
six months ended June 30, 1998 over the 1997 comparable pro forma period is due
to salary increases, training and implementation of a new information system,
personnel recruiting and relocations, relocation of the Oklahoma tonneau
production to Illinois, and a contractual indemnification of a legal judgment
against a former shareholder on the sale of his stock. These increases have been
partially offset by reductions in expenses for professional fees, headcount, and
bonuses.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $6,689 or
11.7% of net sales for the six month period ended June 30, 1998, compared to
$3,267, or 14.5% of net sales for the six month period ended June 30, 1997.
Selling and marketing expenses were $6,892, or 11.9% of net sales for the 1997
comparable pro forma period. The decrease in 1998 of $203 from the 1997 pro
forma period was the result of reductions in variable selling expenses such as
cooperative customer advertising and commissions that decrease proportionately
with sales volumes primarily in aftermarket plastic and fiberglass net sales.
14
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were
$1,450, or 2.5% of net sales for the six months ended June 30, 1998, compared to
$659 or 2.9% of net sales for the six month period ended June 30, 1997. On a pro
forma basis, research and development expenses were $1,259, or 2.2% of net sales
for the six months ended June 30, 1997. The increase of $191 between the six
month period ended June 30, 1998 and the pro forma six month period ended June
30, 1997 was due to increased personnel and development costs for new products
and applications.
AMORTIZATION OF INTANGIBLES: Amortization expense was $1,167 for the six month
period ended June 30, 1998, compared to $62 for the six month period ended June
30, 1997. On a pro forma basis, amortization was $1,221 for the six months ended
June 30, 1997. The increase in amortization in 1998 and pro forma 1997 over
actual 1997 reflects the increased goodwill associated with the Acquisition.
OTHER INCOME (EXPENSE), NET: Other income (expense), net, was $2,657 of expense
for the six month period ended June 30, 1998, compared to $169 of income for the
six month period ended June 30, 1997. On a pro forma basis for 1997, other
income (expense), net, was $2,602 of expense. The increase in expense in 1998
and pro forma 1997 over actual 1997 reflects the increased interest on
borrowings related to the Acquisition and the reduction of interest income due
to the use of the Company's cash reserves to help fund the Acquisition.
INCOME TAX EXPENSE (BENEFIT): The Company recorded a tax benefit for the six
months ended June 30, 1998, resulting in an effective income tax rate of 53.8%
compared to 26.0% for the six months ended June 30, 1998. The Company's
effective tax rate is substantially higher than the comparable prior period and
higher than the statutory federal income tax rate of 34.0% due to amortization
of non-deductible goodwill recorded in connection with the Acquisition and the
elimination of tax exempt interest generated from marketable securities in the
prior year.
NET INCOME PER SHARE: The Company's net income for the six months ended June 30,
1998 decreased $1,369 to a net loss of $98, or $.02 per share, from a net income
of $1,271, or $.29 per share, for the six months ended June 30, 1997. On a pro
forma basis, net income was $768, or $.18 per share, for the comparable period
of 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Cash used in operating activities for the six months ended June 30, 1998 was
$6,577 compared to cash provided by operating activities of $2,221 for the six
months ended June 30, 1997. The significant cash used in operating activities in
1998 reflects the net loss for the six months and the payment of Acquisition
related liabilities in 1998, such as the settlement of Deflecta-Shield stock
options and acquisition fees.
Cash used in investing activities were $3,723 and $2,563 for the six months
ended June 30, 1998 and 1997, respectively. The 1998 amount principally reflects
aggregate payments of $2,840 to purchase the remaining 1.2% of Deflecta-Shield
common stock on February 27, 1998 and the payment of direct acquisition costs.
In addition, the Company purchased property and equipment of $1,602 in the first
six months of 1998.
15
<PAGE>
Net cash provided by financing activities for the six months ended June 30, 1998
was $5,150. Cash provided by financing activities reflected the increased
borrowings under the Company's $87,000 loan facility to pay off its "interim" or
"short-term" tender loan facilities and Deflecta-Shield's revolving credit loan,
and finance the remaining Acquisition costs and Acquisition-related expenses.
The Company expects to fund its operations through operating cash flow and the
use of a $30,000 revolving credit line based on an eligible percentage of
inventories and receivables. As of June 30, 1998, the Company had borrowed
$14,140 and had availability of $15,860 under the credit facility.
The Company believes that its revolving credit facility and operating cash flows
will be sufficient to satisfy its working capital requirements, required debt
principal payments and operating capital expenditures. As of June 30, 1998, the
Company was not in compliance with one of the financial covenants of its credit
agreement between the Company and Heller Financial, Inc. ("Lender"). The Company
has received a waiver from the Lender for the covenant violation. The Company
anticipates that certain financial covenants will be modified prior to the end
of third quarter 1998.
In addition, individual acquisitions of less than $5,000 can be financed under
the $15,000 Acquisition line. For any significant future acquisitions or capital
expenditures, the Company will be required to raise funds through re-negotiation
of the current facility, a new credit facility or new equity offerings. While
the Company remains committed to continued growth through acquisitions and
continues to evaluate acquisitions, the Company currently is not actively
engaged in negotiations regarding any acquisitions.
In July 1998, the Company issued a press release announcing that it will
construct a 104,000 square foot addition to its corporate headquarters in Anoka,
Minnesota with a completion date in early 1999. The expansion which will be
financed from its revolving credit facility at a cost of approximately $4.2
million will allow for the consolidation of its 130,000 square foot distribution
facility currently located in Indianola, Iowa.
The Company is currently underway with the necessary software conversion and
programming modifications to comply with the Year 2000 computer software issues
for significant portions of its software and computer systems. Costs to be
incurred for Year 2000 compliant systems were estimated at approximately
$700,000 over 1998 and 1999 of which a portion will be capitalized and the
remainder charged to earnings in the respective years. The Company does not
expect these activities to materially impact earnings.
OUTLOOK:
The acquisition of Deflecta-Shield brings to the Company significant new product
lines and operational strengths to address new market channels. Historically,
Lund had distributed its products principally through warehouse distributors.
With increased sales of light trucks over the past few years, both the national
automotive retailers and OEMs are participating in the distribution of
automotive appearance accessories. The consolidation of Lund and Deflecta-Shield
provides the Company with the ability to integrate Lund's design and marketing
strengths with Deflecta-Shield's operational and engineering strengths,
ultimately allowing the Company to effectively participate with the traditional
warehouse distributors as well as the automotive retail and OEM channels.
16
<PAGE>
The shifting of a portion of sales away from warehouse distributors to retail
and OEM channels has resulted in increased competition within the warehouse
distributor channel and created pricing pressures, especially as it relates to
the Company's plastic and fiberglass product lines. The Company currently has a
strong presence with the majority of the warehouse distributors and is looking
to maintain its relationships with them by responding to their need for
competitively priced products. This may require some changes in the Company's
product lines and product mix. The Deflecta-Shield acquisition brings an
increased OEM presence in both the light truck and heavy truck markets,
especially in key product lines such as bug shields/hood protectors. The Company
is currently rolling out a retail sales program to the major retail automotive
chains, which are integrating accessories into their product offerings.
Management believes future growth will come from both OEM and retail channels,
while maintaining a leadership position with the warehouse distributors.
The automotive accessory market is currently going through significant
consolidation in both the manufacturing and distribution areas. The Company
expects to take advantage of this consolidation with both new product
development and acquisitions to become the market leader in all product
categories in which it competes. The long-term goal of the Company is to become
the low cost producer by increasing product line sales volume through
acquisition, product line rationalization and facility consolidation to improve
capacity utilization. This effort will be enhanced by improved plant
efficiencies, consolidation of purchasing and quality improvements through
improved engineering and QS9000 initiatives.
During 1998, the Company will incur expenditures to maximize the synergistic
benefits it hopes to obtain from the Deflecta-Shield acquisition by
consolidating and internalizing bug shield production, consolidating operations
with Deflecta-Shield's existing cut and sew operations, integrating information
systems into a single platform, centralizing accounting and combining the
aftermarket marketing and sales functions. The full potential of the Acquisition
savings will not be realized until 1999 at the earliest.
EFFECTS OF INFLATION:
Although increases in costs of certain materials and labor could adversely
affect operations, the Company generally has been able to increase its selling
prices to offset increased costs. Price competition, however, particularly in
the plastic and fiberglass product lines, could affect the ability of the
Company to increase its selling prices and thus such increased costs may be
absorbed by the Company and have an impact on gross profit.
17
<PAGE>
FORWARD LOOKING STATEMENTS:
Statements made herein relating to future financial results, the effects of the
Acquisition, company operations, trends and market analysis, Year 2000
compliance, among others, and statements which use the words "believe",
"anticipate", "expect", or similar words, are forward-looking statements made
under the Private Securities Litigation Reform Act of 1995. These statements
involve risks and uncertainties which could cause results to differ materially
from those anticipated. Among the factors that could cause anticipated results
of the Acquisition to differ materially are the following: inability to obtain
expected efficiencies, or to obtain them in a timely manner; inability to
effectively manage a larger enterprise, to integrate Lund and Deflecta-Shield or
to control costs associated with such integration; and the representations,
warranties and covenants made in the merger agreement proving to be materially
untrue. In addition, both Lund's and Deflecta-Shield's business and operations
(and anticipated results) include the following risk factors: consumer
preference changes; risk of expansion into new distribution channels; delays in
designing, developing, testing or shipping of products; increased competition;
general economic developments and trends; developments and trends in the light
truck and automotive accessory market; sales of heavy trucks, which are
cyclical; the timely development and introduction of competitive new products by
the Company and acceptance of those products; and increased costs. This is not
an exhaustive list and the Company may supplement this list in future filings or
releases or in connection with the making of forward-looking statements.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
On April 21, 1998, the Company held its annual meeting of
stockholders. At the meeting, Lawrence C. Day, David E.
Dovenberg, Ira D. Kleinman, William J. McMahon, Robert R.
Schoeberl, Dennis W. Vollmershausen and Harvey J. Wertheim
were elected to serve as directors of the Company for 1998.
The Company's 1998 Stock Option Incentive Plan and the
conversion of the Company's Series A Preferred Stock and terms
of the Class B-1 Common Stock were approved. The appointment
of PricewaterhouseCoopers LLP (Coopers & Lybrand L.L.P. prior
to its July 1, 1998 merger with Price Waterhouse LLP) as the
Company's independent accountants for 1998 was also approved.
The following table provides the number of votes for, against,
withheld, as well as the number of abstentions and broker
non-votes as to each matter submitted to a vote of
stockholders at the meeting.
Matter:
<TABLE>
<CAPTION>
Withheld Broker
Election of Directors For Authority Against Abstention Non-Votes
- ----------------------------------- ------------------- ---------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Lawrence C. Day 4,511,543 25,793
David E. Dovenberg 4,512,483 24,853
Ira D. Kleinman 4,511,383 25,953
William J. McMahon 4,513,043 24,293
Robert R. Schoeberl 4,512,643 24,693
Dennis W. Vollmershausen 4,511,443 25,893
Harvey J. Wertheim 4,513,083 24,253
Approval of the 1998 Stock Option 3,517,441 238,703 10,433 770,759
Incentive Plan
Approval of the Conversion of 3,694,649 57,810 14,118 770,759
Series A Preferred Stock and
Terms of the Class B-1 Common
Stock
Approval of Independent 4,516,353 7,540 13,443
Accountants
</TABLE>
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
15 An awareness letter from the Company's independent
accountants regarding unaudited interim financial
statements.
10.63 Employment letter between the Company and Richard D.
Minehart, Jr.
10.64 Employment letter between the Company and Ronald C.
Fox.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1998
LUND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By: /s/ William J. McMahon
---------------------------------------------
William J. McMahon
President and Chief Executive Officer
By: /s/ Ronald C. Fox
---------------------------------------------
Ronald C. Fox
Chief Financial Officer
21
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street N.W.
Washington D.C. 20549
RE: Lund International Holdings, Inc.
Registrations on Form S-8 and Form S-3
We are aware that our report dated July 29, 1998 on our reviews of the interim
consolidated financial information of Lund International Holdings, Inc. (the
Company) for the three and six month periods ended June 30, 1998 and 1997, and
included in the Company's Quarterly Report on Form 10-Q for the six months ended
June 30, 1998, is incorporated by reference in the Company's Registration
Statements on Form S-8 (Registration Nos. 333-46263, 33-64083 and 33-37160).
Pursuant to Rule 436(c), under the Securities Act of 1933, this report should
not be considered part of the Registration Statements prepared or certified by
us within the meaning of Section 7 and 11 of that Act.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
August 14, 1998
EXHIBIT 10.63
March 10, 1998
Richard Minehart, Jr.
c/o Belmor Autotron
6460 W. Cortland Avenue
Chicago IL 60707
RE: POSITION WITH LUND INTERNATIONAL HOLDINGS, INC.
Dear Dick:
As per our recent discussion, Lund International Holdings, Inc. ("LIH")
is offering you the position of Chief Operating Officer. This correspondence
sets out the terms of our offer to you, except for the terms of our employee
handbook, Insider Trading Policy, Insider Trading Compliance Program, and the
Relocation Reimbursement Policy, which reflect the current policies and
procedures of LIH, which are subject to change, and apply to you. A copy of the
employee handbook, Insider Trading Policy, Insider Trading Compliance Program,
and the Relocation Reimbursement Policy have been provided to you under separate
cover.
If the terms offered in this letter are acceptable to you, please sign
the letter at the bottom. We hope that you will accept our offer and look
forward to making you part of our management team.
POSITION: Chief Operating Officer. You will perform duties as directed by, and
report to, the Chief Executive Officer and/or President of the Company. LIH
reserves the right to modify your job responsibilities at its discretion.
EFFECTIVE EMPLOYMENT START DATE: March 23, 1998
- --------------------------------
BASE SALARY: $160,000 on an annual basis
- ------------
BONUS: You will be eligible for any bonus plan offered by LIH and will be in the
sixty percent (60%) bonus bracket for the current Short Term Incentive Plan for
1998. Lund International Holdings, Inc. reserves the right to change the bonus
plan at the end of any plan year as applied to the following or next plan year.
Also, each bonus plan will be evaluated for any particular year, and it is
understood that future bonus plans have not been adopted and have yet to be
determined or approved.
BENEFITS: You are entitled to all current benefits offered to other employees
who are in an equivalent position with LIH. In addition, you will continue to
receive the special medical coverage, "Exec-u-care", provided to you as a member
of the Senior Management Team.
STOCK OPTION PLAN: After you are hired, you will be eligible, effective as of
March 1, 1998, or your first day of actual employment, to receive a total Fifty
Thousand
<PAGE>
(50,000) stock options of Lund International Holdings, Inc., with Ten Thousand
(10,000) vesting on the anniversary date of your first full year of employment,
and Ten Thousand (10,000) vesting on your successive anniversary dates of
employment thereafter, until all options have vested. You must be employed on
each anniversary date with no break in service for the stock options to vest.
The vesting schedule would be accelerated in the event of a "Change of Control",
as defined and set forth in the stock option plan. The stock options are subject
to, and will be issued according to, our stock option plan and may require board
and/or stockholder approval.
VACATIONS: You will be eligible for a three (3) week paid vacation, accruing
according to LIH current vacation benefits.
RELOCATION EXPENSES: You will be eligible for LIH's relocation program, as
modified from time to time by LIH. A copy of LIH's relocation policy has been
provided to you. In addition, you are entitled to the following benefits related
to your move to Minnesota:
1. All of your reimbursed relocation expenses will be "grossed up" on
your year-end W-2 statement.
2. In the event you have not sold your home in Illinois following your
purchase of a home in Minnesota, the Company will pay up to six (6) months of an
equivalent mortgage amount, exclusive of taxes, as compared to your mortgage
payment in Illinois on your home in Minnesota. After the six (6) month period,
if you have not sold your home in Illinois, you will be responsible for all
mortgage payments for your Minnesota home and your Illinois home.
3. You agree that you will make every good faith effort to sell your
home in Illinois, accepting any fair market value offer in an arm's length
transaction from prospective buyers. In the event you are unable to sell your
home in Illinois, as described in this letter, for an amount that is not a net
loss to you, and you have a good faith arm's length offer that will result in a
net loss to you, you shall provide all documentation to LIH to prove the net
loss to you. Once this documentation has established that you will suffer a net
loss, you agree that LIH has the right of first refusal on any good faith offer
from an arm's length buyer, which means that LIH has the right to buy your home
rather than the buyer offering an amount that results in a net loss to you, or
pay the documented net loss amount to you. If you fail to allow LIH the right of
first refusal, you agree that LIH will have no further obligation to pay any
mortgage payments, as set-out in this letter, or any net loss amounts to you, as
described in this paragraph. Further, LIH has no obligation and is not bound by
the terms of this letter, as those relate to the sale of your Illinois home, in
the event you sell your Illinois home in a transaction that is not at arm's
length, and not at a fair market value price.
4. You will not be required to move to Minnesota until June of 1998.
LIH will pay reasonable and previously authorized travel expenses for you to
travel to your home in Illinois every weekend. LIH will pay for your reasonable
and previously authorized living expenses in Minnesota until you have purchased
your home in Minnesota.
5. The minimum brokerage fee associated with selling your current
residence (and additional lot in Illinois) will be paid by LIH (if you so desire
to sell the lot).
2
<PAGE>
AUTOMOBILE: During your term of employment with LIH, you will be provided with a
late model light truck or sport utility vehicle for your use, subject to the
approval of the President of LIH.
In the position of Chief Operating Officer, you will be provided with
confidential, trade secret, and/or proprietary information of Lund International
Holdings, Inc., and its subsidiaries, Deflecta-Shield Corporation, and its
subsidiaries, whether actually merged or not, which includes Lund Industries,
Incorporated and/or any company acquired by Lund International Holdings, Inc. or
its subsidiaries, or any restructured entities, (collectively referred to in
this letter as the "Company"). This includes, but is not limited to, the
following confidential, trade secret and/or proprietary information:
1. Sales activities, sales records, sales histories and/or how
sales have developed or changed in a particular geographical
area or market or for a particular product; customer lists
and/or vendor lists; and
2. The quantity of products purchased from the Company by its
customers and the prices paid, the Company's purchasing
activities, advertising and promotional activities, past and
present, potential sales and/or markets, market strategies;
and
3. Products' specifications, materials, costs; development of new
products; inventions, modifications of current products, and
information pertaining to all aspects of the Company's
research and development; and
4. The quantity of various products purchased from the Company
and/or the product mix as they relate to overall sales of all
products and/or a particular product; and
5. The reasons for the use by the Company of certain methods of
attachment of its products to the vehicles; manufacturing
processes and/or costs and/or time and/or labor studies; the
products' designs, dimensions, and tolerances; and
6. The quantity of materials purchased from suppliers and/or the
reason for the use of certain materials; and
7. Shipping methods, pricing, profit margins per products; and
8. The financial information which is not made public in the
Company's press releases, quarterly reports, Securities and
Exchange Filings and/or the Company's annual reports; and
9. Information concerning the Company's management, financial
conditions, financial operations, purchasing activities,
marketing plans, strategic plans, information systems,
communication systems, planning activities, operational
activities and plans, investor relations activities,
interdepartmental communication or operational communication
activities and business plans; and
3
<PAGE>
10. All other types and categories of information which are
generally understood by persons involved in the automotive
industry and any manufacturing operations to be trade secrets,
and/or confidential information and/or proprietary
information.
You agree that you will not disclose or use at any time, only as
limited by law, in any manner any confidential trade secret and/or proprietary
information as defined in this letter, or elsewhere, or subsequently revealed to
you to be confidential, a trade secret or proprietary information.
You agree in the event your employment with LIH is terminated, whether
voluntarily or otherwise, and/or your are separated from your employment with
LIH, that you, for a period of nine (9) months from the date of separation of
your employment, shall not engage or participate in (whether as an employee,
shareholder, owner, officer, director, partner, consultant, advisor, principal,
agent, or in any other capacity) any business which engages in the invention,
design, development, marketing, and/or selling, and/or distributing, and/or
manufacturing of products competitive with those which are then listed in the
Company's current catalogs or marketing materials, and/or such products which
the Company has, in the preceding one (1) year before your separation, or at
your separation from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
You further agree that you will not, for a period of nine (9) months
from the date of your separation of employment with LIH, whether voluntarily or
otherwise, engage in or participate in, in any capacity, the solicitation of or
the attempt to solicit any potential or actual product designer, supplier,
customer, and/or distributor, and/or manufacturer of the Company's that you have
had contact with for the two (2) years preceding your separation from
employment. This restriction encompasses any business which engages in the
invention, design, development, marketing, and/or selling, and/or distributing,
and/or manufacturing of products competitive with those which are then listed in
the Company's current catalogs or marketing materials, and/or such products
which the Company has, in the preceding one (1) year before your separation, or
at your separation from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
You also agree that for a period of nine (9) months from your
separation from employment with LIH, whether voluntarily or otherwise, that you
will not hire or offer to hire any of the Company's directors, officers,
employees, and/or agents, or attempt to and/or entice them to discontinue their
relationship with the Company, and/or attempt to divert and/or divert any
potential or actual product designer, customer, distributor, manufacturer,
and/or supplier of the Company's that you have had contact with for the two (2)
years preceding your separation from employment.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operations, promotional, sales,
distribution, or marketing activities, or has otherwise established its good
will, business reputation, or
4
<PAGE>
any potential or actual product designer, or customer, or supplier, or
distributor or manufacturing relations during the two (2) years preceding your
separation from employment.
These confidentiality and non-compete terms of this agreement extend
beyond the termination and/or separation of your employment and shall continue
in full force and effect after the termination and/or separation of your
employment or this agreement. You agree to always keep confidential and to not
use any trade secret and/or proprietary information, as limited by applicable
law.
You agree that at the time of your termination and/or separation of
employment with LIH, that you will promptly deliver to the Company all
confidential, trade secret, or proprietary information and all Company property,
equipment and materials.
This agreement refers to Lund International Holdings, Inc. and its
subsidiaries, and Deflecta-Shield Corporation, and its subsidiaries, and any
restructured entities, because you will be privy to all operations of Lund
International Holdings, Inc. and its subsidiaries', or restructured entities'
confidential information, operations and trade secret or proprietary
information.
If you accept Lund International Holdings, Inc.'s offer of employment,
you understand that it is not for a particular time period, and that either you
or Lund International Holdings, Inc. may terminate the employment relationship
at any time for any reason or no reason. This agreement is not to be interpreted
as an agreement for continued employment, because either party may terminate it
at any time. In the event you are terminated without cause, you shall be paid,
exclusive of any bonuses or other remuneration, one (1) year of your base salary
effective on the date of termination, if you sign a full and complete release of
all claims against the Company. However, you will not be entitled in any way to
one (1) year of your base salary, if you voluntarily terminate your employment
with the Company, or you are terminated for cause, or you decline to execute the
full and final release. LIH will pay to you any and all vacation benefits you
have earned under the LIH's then current vacation policy.
CHANGE IN CONTROL OF DEFLECTA-SHIELD CORPORATION
LIH recognizes that under the terms of your prior employment agreement
with Deflecta-Shield Corporation (which is voided as set forth below in this
letter), you had the benefit of change in control provisions, which LIH
recognizes have been triggered by the funding of the Tender Offer Credit
Facility, as of December 30, 1997. Consequently, LIH agrees that you will be
paid a lump sum Severance Payment equal to one (1) year's base salary. In
addition, LIH will pay you Severance Payment equal to 100% of one (1) year's
potential bonus, which is equal to 60% of your base salary. These Severance
Payments will be paid in the event either you or LIH terminate your employment
with LIH any time during the time period of December 30, 1997 through and
including December 30, 1999. As of December 31, 1999, the "Change of Control"
provisions set forth below with respect to a "Change of Control" of LIH will
then govern any change of control benefits to which you may be entitled. You
understand and agree that you shall not be allowed to receive concurrent
severance benefits under the change of control provisions in this paragraph and
the "Change in Control" provisions of LIH below, because you
5
<PAGE>
understand and agree that you are entitled to only one severance benefit from
December 30, 1997 through December 30, 1999, and a different severance benefit
after December 31, 1999.
CHANGE IN CONTROL OF LIH
In the event there is a "Change in Control" as defined in this letter,
a lump sum severance payment equal to one (1) year's base pay will be paid to
you in the event of a "Change of Control" of LIH and your subsequent termination
of employment within six (6) months of such "Change of Control". This
termination of employment may be effected at either the discretion of LIH or at
your discretion. The lump sum severance payment will be made within thirty (30)
days of the termination date.
A "Change of Control" of Lund International Holdings, Inc. shall be
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 Lund International Holdings, Inc.
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 Lund International Holdings, Inc.; or
(y) any affiliates or associates identified in (x) 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) Lund
International Holdings sells or otherwise disposes of all or substantially all
of its assets , Inc. 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 Lund International Holdings, Inc., at the
end of such period cease to constitute a majority of the Board of Directors of
Lund International Holdings, Inc. 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 Lund International Holdings,
Inc., LIH Holdings, LLC and LIH Holdings II, LLC, or otherwise); (iv) Lund
International Holdings, Inc. merges or combines with or into any other person or
entity and the stockholders of Lund International Holdings, Inc. 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.
It is Lund International Holdings, Inc.'s understanding that you are
not subject to any agreements or restrictions arising out of any prior
employment or consulting relationship, and that by accepting this offer of
employment, you will not be breaching or violating any other obligations. If any
breach of a prior obligation occurs, LIH reserves the right to withdraw this
offer of employment.
This agreement may be severed, if any portion is determined to be
unenforceable or void, with the other terms remaining in full force and effect.
Also, this agreement will
6
<PAGE>
be interpreted under the laws of the State of Minnesota and the United States of
America, and is binding on the parties, their heirs, successors, personal
representative and assigns.
This agreement supersedes, revokes, or voids all other offers, or
agreements, oral or written made by Lund International Holdings, Inc., or its
subsidiaries, regarding any position with Lund International Holdings, Inc., or
any position with any of its subsidiaries. This agreement also supersedes,
revokes, or voids all other offers, or agreements, oral or written you may have
or have had with Deflecta-Shield Corporation or its subsidiaries, which you
agree shall be null, void, and superseded by this employment agreement with Lund
International Holdings, Inc. when you sign at the bottom of this letter. This
letter does not effect the terms of your stock option plan accelerating the
vesting of your stock options with Deflecta-Shield Corporation as a result of
the November 25, 1997, Merger Agreement between Lund International Holdings,
Inc. and Deflecta-Shield Corporation.
Further, as to the use by you of Lund's apartment for employees in
Minnesota, you agree the use of the apartment prior to the execution of this
letter was and is in your capacity as an employee of Deflecta-Shield
Corporation.
Please accept our offer for the position of Chief Operating Officer by
executing this agreement at the bottom. Thank you for your time and interest in
employment with Lund International Holdings, Inc. Please feel free to call me at
your convenience if you have any questions. I look forward to your response in
the very near future.
Sincerely,
William J. McMahon William J. McMahon
-------------------------
President and Chief Executive Officer
Accepted by: /s/ Richard D. Minehart, Jr.
-----------------------------
Richard D. Minehart, Jr.
Dated: March 10, 1998
---------------
7
EXHIBIT 10.64
May 27, 1998
Ronald C. Fox
c/o Lund International Holdings, Inc.
911 Lund Boulevard
Anoka MN 55303-1090
RE: POSITION WITH LUND INTERNATIONAL HOLDINGS, INC.
Dear Ron:
As per our recent discussion, Lund International Holdings, Inc. ("LIH") is
offering you the position of Chief Financial Officer. This correspondence sets
out the terms of our offer to you, except for the terms of our employee
handbook, Insider Trading Policy, Insider Trading Compliance Program, and the
Relocation Reimbursement Policy, which reflect the current policies and
procedures of LIH, which are subject to change, and apply to you. A copy of the
employee handbook, Insider Trading Policy, Insider Trading Compliance Program,
and the Relocation Reimbursement Policy have been provided to you, prior to
April 1, 1998, under separate cover.
If the terms offered in this letter are acceptable to you, please sign the
letter at the bottom.
POSITION: Chief Financial Officer. Under the current organizational structure,
you will perform duties as directed by, and report to, the Chief Executive
Officer of the LIH. LIH reserves the right to modify your job responsibilities
at its discretion.
EMPLOYMENT START DATE IN POSITION OF VICE PRESIDENT OF FINANCE: April 2, 1998
If your employment with LIH is terminated, whether voluntarily or involuntarily,
within three (3) years of the above Employment Start Date, LIH will pay your
reasonable moving expenses back to Colorado. Costs to relocate your private
residence to Colorado are as outlined in the terms of the relocation paragraph
in this letter. In other words, the terms and conditions that apply to your
moving to Minnesota will apply to your move to Colorado. If your employment with
LIH is voluntarily terminated within three (3) years of the above Employment
Start Date, you will be entitled to three (3) months of your base salary.
Separate severance or settlement amounts are outlined on pages 5-6 of this
letter.
APPOINTMENT TO CHIEF FINANCIAL OFFICER POSITION DATE: May 27, 1998
- -----------------------------------------------------
BASE SALARY: $130,000 on an annual basis.
- ------------
BONUS: You will be eligible for any bonus plan offered by LIH and will be in the
thirty-five percent (35%) bonus bracket for the current Short Term Incentive
Plan for
<PAGE>
1998. LIH reserves the right to change the bonus plan at the end of any plan
year as applied to the following or next plan year. Also, each bonus plan will
be evaluated for any particular year, and it is understood that future bonus
plans have not been adopted and have yet to be determined or approved.
BENEFITS: You are entitled to all benefits offered to other employees who are in
an equivalent position with LIH. In addition, you will continue to receive the
special medical coverage, "Exec-u-care", provided to you as a member of the
Senior Management Team.
STOCK OPTION PLAN: In addition to the Thirty Thousand (30,000) LIH stock options
you received at the time of employment with LIH on April 2, 1998, you will
receive an additional Ten Thousand (10,000) LIH stock options, according to the
terms of the stock option plan. For all stock options, none vest on either April
2, 1998 or May 27, 1998, but a certain number vest on the first anniversary date
of the grant of options, and each year thereafter on the grant date, as follows:
The Thirty Thousand (30,000) stock options will vest at a rate of Six Thousand
(6,000) per year on each April 2 (excluding 1998) until all options have vested;
the Ten Thousand (10,000) stock options will vest at a rate of Two Thousand
(2,000) per year on each May 27 (excluding 1998) until all options have vested.
In addition, before any stock options vest, you must be employed on each
anniversary date of the grant of the stock options with no break in service. The
vesting schedule would be accelerated in the event of a "Change of Control", as
defined and set forth in the stock option plan. The stock options are subject
to, and will be issued according to, our stock option plan and may require board
and/or stockholder approval.
VACATIONS: You will be eligible for a three (3) week paid vacation, accruing
according to LIH's current vacation benefits.
RELOCATION EXPENSES: You will be eligible for LIH's relocation program, as
modified from time to time by LIH. A copy of LIH's relocation policy has been
provided to you. In addition, you are entitled to the following benefits related
to your move to Minnesota:
1. All reimbursed relocation expenses will be "grossed up" on your
year-end W-2 statement.
2. In the event you have not sold your home in Colorado following your
purchase of a home in Minnesota, LIH will pay up to six (6) months of an
equivalent mortgage amount, exclusive of taxes, as compared to your mortgage
payment in Colorado, on your home in Minnesota. After the six (6) month period,
if you have not sold your home in Colorado, you will be responsible for all
mortgage payments for your Minnesota home and your Colorado home.
3. You agree that you will make every good faith effort to sell your
home in Colorado, accepting any fair market value offer in an arm's length
transaction from prospective buyers. In the event you are unable to sell your
home in Colorado, as described in this letter, for an amount that is not a net
loss to you, and you have a good faith arm's length offer that will result in a
net loss to you, you shall provide all documentation to LIH to prove the net
loss to you. Once this documentation has
2
<PAGE>
established that you will suffer a net loss, you agree that LIH has the right of
first refusal on any good faith offer from an arm's length buyer offering an
amount that results in a net loss to you, or pay the documented net loss amount
to you. If you fail to allow LIH the right of first refusal, you agree that LIH
will have no further obligation to pay any mortgage payments, as set out in this
letter, or any net loss amounts to you, as described in this paragraph. Further
LIH has no obligation and is not bound by the terms of this letter, as those
relate to the sale of your Colorado home, in the event you sell your Colorado
home in a transaction that is not at arm's length, and not at a fair market
value price.
4. You will not be required to move to Minnesota until June of 1998.
LIH will pay reasonable and previously authorized travel expenses for you to
travel to your home in Colorado every weekend. LIH will pay for your reasonable
and previously authorized living expenses in Minnesota until you have purchased
your home in Minnesota.
AUTOMOBILE: During your employment with LIH, you will be provided with a late
model light truck or sport utility vehicle for your use, subject to the approval
of the Chief Executive Officer of LIH.
In the position of Chief Financial Officer of LIH, you will be provided
with confidential, trade secret, and/or proprietary information of Lund
International Holdings, Inc., and its subsidiaries, Deflecta-Shield Corporation,
and its subsidiaries, whether actually merged or not, which includes Lund
Industries, Incorporated and/or any company acquired by Lund International
Holdings, Inc. or its subsidiaries, or any restructured entities, (collectively
referred to in this letter as the "Company"). This includes, but is not limited
to, the following confidential, trade secret and/or proprietary information:
1. Sales activities, sales records, sales histories and/or how
sales have developed or changed in a particular geographical
area or market or for a particular product; customer lists
and/or vendor lists; and
2. The quantity of products purchased from the Company by its
customers and the prices paid, the Company's purchasing
activities, advertising and promotional activities, past and
present, potential sales and/or markets, market strategies;
and
3. Products' specifications, materials, costs; development of new
products; inventions, modifications of current products, and
information pertaining to all aspects of the Company's
research and development; and
4. The quantity of various products purchased from the Company
and/or the product mix as they relate to overall sales of all
products and/or a particular product; and
5. The reasons for the use by the Company of certain methods of
attachment of its products to the vehicles; manufacturing
processes and/or costs and/or time and/or labor studies; the
products' designs, dimensions, and tolerances; and
3
<PAGE>
6. The quantity of materials purchased from suppliers and/or the
reason for the use of certain materials; and
7. Shipping methods, pricing, profit margins per products; and
8. The financial information which is not made public in the
Company's press releases, quarterly reports, Securities and
Exchange Filings and/or the Company's annual reports; and
9. Information concerning the Company's management, financial
conditions, financial operations, purchasing activities,
marketing plans, strategic plans, information systems,
communication systems, planning activities, operational
activities and plans, investor relations activities,
interdepartmental communication or operational communication
activities and business plans; and
10. All other types and categories of information which are
generally understood by persons involved in the automotive
industry and any manufacturing operations to be trade secrets,
and/or confidential information and/or proprietary
information.
You agree that you will not disclose or use at any time, only as
limited by law, in any manner any confidential trade secret and/or proprietary
information as defined in this letter, or elsewhere, or subsequently revealed to
you to be confidential, a trade secret or proprietary information.
You agree in the event your employment with LIH is terminated, whether
voluntarily or otherwise, and/or your are separated from your employment with
LIH, that you, for a period of six (6) months from the date of separation of
your employment, shall not engage or participate in (whether as an employee,
shareholder, owner, officer, director, partner, consultant, advisor, principal,
agent, or in any other capacity) any business which engages in the invention,
design, development, marketing, and/or selling, and/or distributing, and/or
manufacturing of products competitive with those which are then listed in the
Company's current catalogs or marketing materials, and/or such products which
the Company has, in the preceding one (1) year before your separation, or at
your separation from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
You further agree that you will not, for a period of six (6) months
from the date of your separation of employment with LIH, whether voluntarily or
otherwise, engage in or participate in, in any capacity, the solicitation of or
the attempt to solicit any potential or actual product designer, supplier,
customer, and/or distributor, and/or manufacturer of the Company's that you have
had contact with for the two (2) years preceding your separation from
employment. This restriction encompasses any business which engages in the
invention, design, development, marketing, and/or selling, and/or distributing,
and/or manufacturing of products competitive with those which are then listed in
the Company's current catalogs or marketing materials, and/or such products
which the
4
<PAGE>
Company has, in the preceding one (1) year before your separation, or at your
separation from employment, under design, development, modification, alteration,
or purchase from another company, or for which conception has occurred.
You also agree that for a period of six (6) months from your separation
from employment with the LIH, whether voluntarily or otherwise, that you will
not hire or offer to hire any of the Company's directors, officers, employees,
and/or agents, or attempt to and/or entice them to discontinue their
relationship with the Company, and/or attempt to divert and/or divert any
potential or actual product designer, customer, distributor, manufacturer,
and/or supplier of the Company's that you have had contact with for the two (2)
years preceding your separation from employment.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operations, promotional, sales,
distribution, or marketing activities, or has otherwise established its good
will, business reputation, or any potential or actual product designer, or
customer, or supplier, or distributor or manufacturing relations during the two
(2) years preceding your separation from employment.
These confidentiality and non-compete terms of this agreement extend
beyond the termination and/or separation of your employment and shall continue
in full force and effect after the termination and/or separation of your
employment or this agreement. You agree to always keep confidential and to not
use any trade secret and/or proprietary information, as limited by applicable
law.
You agree that at the time of your termination and/or separation of
employment with LIH, that you will promptly deliver to the Company all
confidential, trade secret, or proprietary information and all Company property,
equipment and materials.
This agreement refers to LIH and its subsidiaries, Deflecta-Shield
Corporation and its subsidiaries, and any restructured entities, because you
will be privy to all operations of LIH and its subsidiaries', or restructured
entities' confidential information, operations and trade secret or proprietary
information.
If you accept LIH's offer of the position of Chief Financial Officer,
you understand that your employment is not for a particular time period, and
that either you or LIH may terminate the employment relationship at any time for
any reason or no reason. This agreement is not to be interpreted as an agreement
for continued employment, because either party may terminate it at any time.
In the event you are terminated without cause, you shall be paid,
exclusive of any bonuses or other remuneration, six (6) months of your base
salary effective on the date of termination, if you sign a full and complete
release of all claims against the Company. However, you will not be entitled in
any way to six (6) months of your base salary, if you voluntarily terminate your
employment with the LIH, or you are terminated for cause, or you decline to
execute the full and final release. Payment of any base salary under this
paragraph does not alter LIH's agreement to pay you three (3) months base salary
under the "Employment Start Date in Position of Vice President of Finance"
provision on the
5
<PAGE>
first page of this letter, if you voluntarily terminate your employment within
three (3) years of April 2, 1998.
At your separation from employment, for whatever reason, LIH will pay
to you any and all vacation benefits you have earned under LIH's then current
vacation policy.
It is LIH's understanding that you are not subject to any agreements or
restrictions arising out of any prior employment or consulting relationship, and
that by accepting this offer of employment, you will not be breaching or
violating any other obligations. If any breach of a prior obligation occurs, LIH
reserves the right to withdraw this offer of the position of Chief Financial
Officer.
This agreement may be severed, if any portion is determined to be
unenforceable or void, with the other terms remaining in full force and effect.
Also, this agreement will be interpreted under the laws of the State of
Minnesota and the United States of America, and is binding on the parties, their
heirs, successors, personal representative and assigns.
This agreement supersedes, revokes, or voids all other offers, or
agreements, oral or written made by LIH, or its subsidiaries, regarding any
position with LIH, or any position with any of its subsidiaries. This agreement
also supersedes, revokes, or voids all other offers, or agreements, oral or
written you may have or have had with Deflecta-Shield Corporation, or any or its
subsidiaries, which you agree shall be null, void, and superseded by this
employment letter agreement with LIH when you sign at the bottom of this letter.
Further, as to the use by you of LIH's apartment for employees in
Minnesota, you agree the use of the apartment prior to the execution of this
letter was and is in your capacity as an employee of Deflecta-Shield
Corporation.
If you have any questions, please feel free to contact me.
Sincerely,
/s/ William J. McMahon
- -----------------------
William J. McMahon
President and Chief Executive Officer
Accepted by: /s/ Ronald C. Fox
----------------
Ronald Fox
Dated: May 27, 1998
------------
6
<PAGE>
POLICY/PROCEDURE
Process: Employee Transfer/Relocation Expenses
Policy No.: HR0008
Revision No.: 1
Date 8/20/97
Authorization
1.0 OBJECTIVE
To provide assistance to an employee when transferred.
2.0 SCOPE
The area senior manager secures approval from the CEO prior to any
relocation. The Human Resources Department coordinates activities.
Accounting is provided a budget from the area senior manager and Human
Resources. This policy applies to any transfers when the distance is
greater than 100 miles.
3.0 POLICY
3.1 The company pays a seller's reasonable and customary closing costs
in the case of a home sale.
3.2 The company pays a reasonable and customary Realtor's fee in the
case of a home sale.
3.3 The company pays reasonable moving expenses including packaging
and unpackaging of household goods. The moving company is
contracted for by the company.
3.4 The company pays for reasonable temporary housing for up to three
months duration.
3.5 The company pays a meal per diem of $25 while the employee is
provided temporary housing.
3.6 The company provides for two visits per month to the employee's
home at the company's authorized and reasonable expense.
3.7 The company provides for two home buying/rental trips for the
employee and spouse at the company's authorized and reasonable
expense.
3.8 The company provides up to 1% in loan commitment fees when the
employee purchases a home.
3.9 The company may provide a bridge loan under certain circumstances
and at current market rates to assist an employee in the purchase
of a home.
3.10 The company provides a flat payment of 2% of base annual salary
for incidental moving and relocation expenses paid at closing or
equivalent time.
7
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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