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
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 material
[ ] 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.
(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 to which transaction applies:
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transaction 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.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 1999
- --------------------------------------------------------------------------------
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 27, 1999 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 six directors of the Company for the ensuing year.
3. To vote on a proposal by the Board of Directors to adopt the 1999 Stock
Option Incentive Plan.
4. To approve the convertibility of the Company's Series B Preferred Stock.
5. To approve the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent accountants for its
1999 fiscal year.
6. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Only stockholders of record shown on the books of the Company at the close of
business on March 18, 1999 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: April 7, 1999
Anoka, Minnesota
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
- --------------------------------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1999
- --------------------------------------------------------------------------------
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 27, 1999, 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 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 April 7, 1999.
1
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 18, 1999 as the record
date for determining stockholders entitled to vote at the Annual Meeting. At the
close of business on March 18, 1999, 6,310,782 shares of the Company's Common
Stock, 1,493,398 shares of the Company's Class B-1 Common Stock and 323,830.3
shares of the Company's Series B 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, LIH Holdings II, LLC and LIH Holdings III, LLC own 26.7%, 13.9%
and 9.3%, respectively, 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 18, 1999:
2
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class
- ---------------- ----------------------- ----------------
<S> <C> <C>
LIH Holdings LLC
280 Park Avenue
New York NY 10017 1,686,893(2) 26.7%
LIH Holdings II LLC
767 Third Avenue
New York NY 10017 874,400(2) 13.9%
LIH Holdings III LLC
280 Park Avenue
New York NY 10017 587,787(2) 9.3%
Old World Industries, Inc.
4065 Commercial Avenue
Northbrook, IL 60062 656,300(3) 10.4%
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019 599,950(4) 9.5%
</TABLE>
(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"), LIH Investors, L.P., LIH Management, L.P.,
LIH, Inc., LIH Holdings II, LLC ("LIH II"), LIH Investors II, L.P., LIH
Management II, L.P., Harvest Partners III, L.P., Harvest Partners III
Beteiligungsgesellschaft Burgerlichen Rechts (Mit Haftungsbeschrankung),
Harvest Associates III, LLC, LIH Holdings III, LLC("LIH III"; LIH, LIH II
and LIH III are hereinafter referred to as "LIH Entities"), LIH Investors
III, L.P., and LIH Management III, L.P., on behalf of themselves,
indicating shared voting and dispositive power with respect to a total of
3,149,080 shares, representing an aggregate of 49.99% of the Common Stock
outstanding. LIH Holdings, LLC holds 1,686,893 shares directly, LIH
Holdings II, LLC holds 874,400 shares directly, and LIH Holdings III, LLC
holds 587,787 shares directly. LIH Holdings II, LLC also owns 1,493,398
shares of nonvoting Class B-1 Common Stock and LIH Holdings III, LLC also
owns 226,935.6 shares of nonvoting Series B Preferred Stock. If Proposal 4
is approved, the Series B Preferred Stock would be convertible on a ten
for one basis into shares of voting Common Stock. Pursuant to a Second
Amended and Restated Governance Agreement, dated December 22, 1998, among
the Company, LIH, LIH II and LIH III, until September 9, 2000, the LIH
Entities have agreed that they may not own more than 49.9% of the
Company's Common Stock. LIH III has informed the Company that, if Proposal
4 is adopted, it intends to convert 78,023.6 shares of Series B Preferred
Stock into 780,236 shares of Common Stock. 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/A filed with the Securities and Exchange
Commission by Royce & Associates, Inc. and Charles M. Royce, on behalf of
themselves.
On September 9, 1997, 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 II purchased 874,400 shares of Common Stock and 1,493,398 shares of
Series A Preferred Stock from the Company. The Series A Preferred Stock was
converted to Class B-1 Common Stock at the 1998 Annual Stockholders Meeting. On
December 23,
3
<PAGE>
1998, LIH III purchased 587,787 shares of Common Stock and 179,316.6 shares of
Series B Preferred Stock from the Company. On January 28, 1999, LIH III
purchased an additional 47,619 shares of Series B Preferred Stock from the
Company.
Pursuant to the terms of the Second Amended and Restated Governance Agreement,
dated December 22, 1998 (the "Amended Agreement"), LIH, LIH II, LIH III and
their affiliates are restricted from taking certain actions, as more fully
described in Proposal 4.
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, 1999:
<TABLE>
<CAPTION>
Name of Persons or Amount and Nature of
Identity of Group Beneficial Ownership (1) Percent of Class
- ----------------- ------------------------ ----------------
<S> <C> <C>
David E. Dovenberg 14,300(2) **
Ira D. Kleinman 3,155,080(3) 49.9%
Robert R. Schoeberl 10,000(4) **
Dennis W. Vollmershausen 4,000(5) **
Harvey J. Wertheim 3,155,080(3) 49.9%
Lawrence C. Day 6,000(6) **
James T. Jurinak -- **
Kenneth L. Holbrook 8,000(7) **
Stephen S. Treichel 18,000(8) **
All directors, nominees and
executive officers as a group (12 3,228,380(9) 51.2%
persons)
</TABLE>
- --------------------------------------------------------------------------------
** 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 12,000 shares, 4,000 of which are exercisable
at $13.875 per share, 2,000 of which are exercisable at $13.50 per share,
2,000 of which are exercisable at $11.25 per share, 2,000 of which are
exercisable at $11.375 per share and 2,000 which are exercisable at $7.25.
(3) Includes options to purchase 6,000 shares, 2,000 of which are exercisable
at $13.875 per share, 2,000 of which are exercisable at $11.25 per share
and 2,000 which are exercisable at $7.25 per share. Messrs. Wertheim and
Kleinman are affiliates of the LIH Entities. LIH holds 1,686,893 shares
directly, LIH II holds 874,400 shares directly and LIH III holds 587,787
shares directly. LIH II also owns 1,493,398 shares of nonvoting Class B-1
Common Stock and LIH III also owns 226,935.6 shares of nonvoting Series B
Preferred Stock. If Proposal 4 is adopted, it intends to convert 78,023.6
shares of Series B Preferred Stock into 780,236 shares of Common Stock.
The shares of Common Stock issuable upon such conversion are not included
in the amounts set forth in the table.
(4) Includes options to purchase 8,000 shares, 2,000 of which are exercisable
at $11.50 per share, 2,000 of which are exercisable at $11.25 per share,
2,000 of which are exercisable at $11.375 per share and 2,000 which are
exercisable at $7.25 per share.
(5) Consists of options to purchase 4,000 shares, 2,000 of which are
exercisable at $14.00 per share and 2,000 of which are exercisable at
$11.375 per share.
(6) Consists of options to purchase 6,000 shares, 2,000 of which are
exercisable at $13.875 per share, 2,000 of which are exercisable at
$11.375 per share and 2,000 which are exercisable at $7.25.
4
<PAGE>
(7) Consists of options to purchase 8,000 shares which are exercisable at
$13.00 per share.
(8) Consists of options to purchase 18,000 shares which are exercisable at
$13.875 per share.
(9) Notes 2-9 are incorporated herein by reference. Includes options to
purchase 74,000 shares of Common Stock.
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 six nominees. It intends to
identify a seventh nominee shortly and, through Board action, to elect such
person to the vacant director position. The composition of the Company's Board
of Directors is subject to the Amended Agreement ("Amended Agreement"). The
Amended Agreement provides that LIH, LIH II, LIH III and the Company shall use
their best efforts to maintain a seven-member Board of Directors, consisting of
one LIH director (Mr.Kleinman); one LIH II director (Mr. Wertheim); the Company
director (Mr. Vollmershausen, Chief Executive Officer); and four independent
directors (currently, Messrs. Day, Dovenberg, and Schoeberl).
5
<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>
Lawrence C. Day 49 Director 1997 Chief Operating Officer of TBC Corp., a
distributor of tires to the automotive
industry, since April 1998; Chief Executive
Officer and Director of Monro Muffler and
Brake, an auto service retailer, from July
1993 to March 1998.
David E. Dovenberg 54 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 42 Director 1997 General Partner of Harvest Partners, Inc., a
private equity investment firm, since 1982.
Robert R. Schoeberl 63 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 55 Director 1997 President and Chief Executive Officer of Lund
International Holdings, Inc. and its
President and Chief 1998 subsidiaries, since October 1998; Chairman of
Executive Officer the Board of London Machinery, Inc., an
equipment manufacturing company, since
January 1990; Executive Vice President of
Champion Road Machinery Limited, a
construction equipment manufacturing
company, from August 1996 to June 1997 and,
from June 1997 to August 1998, President
and Chief Executive Officer.
Harvey J. Wertheim 59 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 year ended December 31, 1998.
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 Robert R. Schoeberl,
Lawrence C. Day and David E. Dovenberg. The Compensation Committee met one time
during the year ended December 31, 1998.
The Board does not have a nominating committee.
During the year ended December 31, 1998, the Board held eight meetings. 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.
6
<PAGE>
CERTAIN TRANSACTIONS
Messrs. Kleinman and Wertheim are affiliates of Harvest Partners, Inc.
("Harvest"), which has performed various financial advidory and investment
banking services to the Company pursuant to the terms of the Services Agreement,
dated as of September 9, 1997. In 1998, payment by the Company to Harvest
pursuant to the Management Services Agreement totaled $3,312,500, plus payment
by the Company to Harvest for the reimbursement of certain travel and other
expenses incurred on behalf of the Company. The $3,312,500 consisted of the
following fees: (1) $1,337,500 in closing fees for the Auto Ventshade Company
acquisition; (2) $175,000 in ongoing management fees; and (3) $1,800,000 in
closing fees related to the acquisition of Deflecta-Shield Corporation.
On December 22, 1998, LIH III, an affiliate of Harvest, purchased from the
Company 587,787 shares of Common Stock and 179,316.6 shares of Series B
Preferred Stock. On January 28, 1999, LIH III purchased an additional 47,619
shares of Series B Preferred Stock. Both transactions are 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 year
ended December 31, 1998.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company as of March 18, 1999 are
as follows:
DENNIS W. VOLLMERSHAUSEN, 55, joined the Company in October 1998 as President
and Chief Executive Officer. From August 1996 to June 1997, Mr. Vollmershausen
was the Executive Vice President of Champion Road Machinery, Ltd., a
manufacturer of construction equipment and from June 1997 to August 1998 was
President and Chief Executive Officer. Since January 1990, Mr. Vollmershausen
has also served as Chairman of London Machinery, Inc., a manufacturer of transit
mixers.
JAMES P. CHICK, 43, joined the Company in April 1998, following the acquisition
of Deflecta-Shield Corporation, as the President of Trailmaster Products, Inc.
In October 1998, he was named Vice President and General Manager of the
Company's Suspension Division. From February 1996 until February 1998, he was
the President of Trailmaster Products, Inc. From July 1994 until February 1996,
he was the Marketing Manager of Mr. Gasket Co., a performance automotive parts
company.
JOHN A. DANIELS, 62, joined the Company in March 1998, following the acquisition
of Deflecta-Shield, as the President of Belmor Autotron, the Heavy Truck
Division of the Company. From June 1990 until January 1996, he was the Vice
President and General Manager of Belmor Autotron, a subsidiary of
Deflecta-Shield and in January 1996 he was named President.
7
<PAGE>
RONALD C. FOX, 58, joined the Company in March 1998 and was named Chief
Financial Officer of the Company in May 1998. From October 1996 to March 1998,
he was Chief Financial Officer of Deflecta-Shield Corporation, a subsidiary of
the Company. From November 1994 to December 1996, Mr. Fox was the Chief
Financial Officer of SSDS, Inc., a systems integration firm. From August 1988 to
September 1994, Mr. Fox was the Chief Financial Officer of Bestop, Inc., a
manufacturer of automotive accessories.
KENNETH L. HOLBROOK, 43, 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.
JAMES T. JURINAK, 49, joined the Company in March 1998 as Vice President and
General Manager. From December 19, 1996 to March 1998, Mr. Jurinak was Vice
President and General Manager of Deflecta-Shield Corporation, a subsidiary of
the Company. From November 1994 to December 1996, Mr. Jurinak was Vice President
and General Manager of Menasha Corp., a manufacturer and distributor of polymer
plastics.
ASA R. PHILLIPS, 67, joined the Company in December 1998 as the President and
CEO of Auto Ventshade, following the acquisition of Auto Ventshade by the
Company. He has held the same position with Auto Ventshade since 1955.
STEPHEN S. TREICHEL, 54, joined the Company in October 1995 as Vice President of
Information Systems. From 1993 to October 1995, Mr. Treichel was the President
of Process Management International, a management consulting firm.
J. TIMOTHY YUNGERS, 42, joined the Company in September 1998 as Director of
Human Resources and in March 1999 was named Vice President of Human Resources.
From November 1995 to September 1998, Mr. Yungers was the Director of Human
Resources for Century Circuits & Electronics, Inc., a manufacturer of flexible
circuit boards. From 1988 to 1990, Mr. Yungers was the Assistant Controller for
Anagram, International, Inc., a manufacturer of consumer products and industrial
packaging and, from 1990 to 1995, he was the Manager of Human Resources.
8
<PAGE>
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 $100,000 in the year ended December 31,
1998. This information includes the dollar value of base salaries and bonus
awards and certain other compensation, if any. The Company changed its fiscal
year end from June 30 to December 31 of each year, beginning December 31, 1997.
Information is provided for the calendar years ended December 31, 1998 and 1997
and the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Restricted Securities All Other
Name and Principal Salary Bonus Stock Underlying Compensation
Position at 12/31/98 Year ($) ($) Awards ($) Options/SARs(#) ($)
- -------------------- ---- -------- ------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis W. Vollmershausen 1998 62,664(1) -- -- 250,000
President and Chief
Executive Officer
James T. Jurinak 1998 117,900(2) -- -- 40,000 61,813(3)
Vice President and General 1998
Manager
Kenneth L. Holbrook 1998 126,973(4) -- -- 40,000 51,066(3)
Vice President of Sales
Stephen S. Treichel 1998 107,945 -- -- --
Vice President of 1997 98,982 3,510(5) -- 30,000
Information Systems FY 1997 91,800 -- -- --
William J. McMahon 1998 167,307(6) -- -- -- 92,416(6)
President and Chief 1997 189,615 -- -- -- 5,988(7)
Executive Officer FY 1997 180,000 -- -- -- 5,366(7)
William H. Toms 1998 115,598(8) -- -- -- 61,950(8)
Vice President of 1997 120,749 2,950(5) -- -- 3,706(7)
Operations FY 1997 115,000 -- -- -- 1,084(7)
</TABLE>
(1) Mr. Vollmershausen joined the Company in October 1998.
(2) Mr. Jurinak joined the Company in March 1998.
(3) The Company reimbursed Messrs. Jurinak and Holbrook the amounts shown with
respect to moving and relocation expenses.
(4) Mr. Holbrook joined the Company in March 1998.
(5) The bonus amount shown was earned in 1996 but paid in 1997.
(6) Mr. McMahon resigned from the Company in September 1998 and entered into a
severance agreement. Pursuant to such agreement, Mr. McMahon received, and
will continue to receive, his normal compensation package for one year
from his date of resignation. In 1998, his employment compensation was
$167,307 and his severance compensation was $69,231. In addition, Mr.
McMahon received $17,511 in lieu of his vacation and the Company
contributed $5,674 to his retirement plan.
(7) The Company contributed the amounts shown to the retirement plans of
Messrs. McMahon and Toms in 1997 and 1996, respectively.
(8) Mr. Toms resigned from the Company in November 1998. Pursuant to a
settlement and release of claims agreement, Mr. Toms received a payment of
$60,375 and the Company contributed $1,575 to his retirement plan.
DIRECTOR COMPENSATION
In 1998, all non-employee directors (with the exception of Messrs. Kleinman and
Wertheim, who received only the reimbursement of their out-of-pocket expenses)
received $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.
Beginning in 1999, all non-employee directors (with the exception of Messrs.
Kleinman and Wertheim) will receive $2,500 per quarter, $700 for each meeting
they attend in person, $300 for each meeting they attend telephonically and $500
for each committee meeting they attend 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
9
<PAGE>
Director Stock Option Plan, as amended, directors who served 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.
EMPLOYMENT AND SEVERANCE
AGREEMENTS
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Dennis W. Vollmershausen, Ronald C.
Fox, James T. Jurinak, Stephen S. Treichel, Kenneth L. Holbrook and other
members of the Company's management team. 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 between
six and nine months' base salary. Mr. Vollmershausen's compensation package is
detailed in the Compensation Committee Report, below.
In connection with the commencement of his service as Chief Financial Officer,
Mr. Fox and the Company entered into an Employment Agreement dated as of May 27,
1998 (the "Fox Employment Agreement"). The Fox Employment Agreement provides for
(i) a base salary of $130,000 per annum; (ii) an annual bonus in accordance with
the Company's Short Term Incentive Plan for each year, as approved by the
Company's Board of Directors; (iii) three weeks of paid vacation per annum; (iv)
participation in the Company's employee benefit plans as applicable to its
executive officers; (v) an automobile allowance in accordance with the Company's
regular policy for senior executive officers; (vi) reimbursement for relocation
expenses in accordance with the Company's relocation policy; (vii) a grant of
options to purchase 40,000 shares of Company Common Stock at fair market value,
as defined in the Company's 1998 Stock Option Incentive Plan; and (viii)
relocation costs associated with a future move to Colorado if Mr. Fox's
employment with the Company is terminated, whether voluntarily or involuntarily,
prior to April 2, 2001.
In connection with the commencement of his service as Vice President and General
Manager, Mr. Jurinak and the Company entered into an Employment Agreement dated
as of March 26, 1998 (the "Jurinak Employment Agreement"). The Jurinak
Employment Agreement provides for (i) a base salary of $143,000 per annum; (ii)
an annual bonus in accordance with the Company's Short Term Incentive Plan for
each fiscal year, as approved by the Company's Board of Directors; (iii) three
weeks of paid for 1998 and four weeks of paid vacation per year beginning in
1999; (iv) participation in the Company's employee benefit plans as applicable
to its executive officers; (v) an automobile allowance in accordance with the
Company's regular policy for senior executive officers; (vi) reimbursement for
relocation expenses in accordance with the Company's relocation policy; (vii) a
grant of options to purchase 40,000 shares of Company Common Stock at fair
market value, as defined in the Company's 1998 Stock Option Incentive Plan; and
(viii) one year's base salary in the event of a "Change of Control" as defined
in the Jurinak Employment Agreement.
In connection with the commencement of his service as Vice President of Sales,
Mr. Holbrook and the Company entered into an Employment Agreement dated February
10, 1998 (the "Holbrook Employment Agreement"). The Holbrook Employment
Agreement provides for (i) a base salary of $150,000 per annum; (ii) an annual
bonus in accordance with the Company's Short Term Incentive Plan for each year,
as approved by the Company's Board of Directors; (iii) three weeks of paid
vacation per annum; (iv) participation in the Company's employee benefit plans
as applicable to its executive officers; (v) an automobile allowance in
accordance with the Company's regular policy for senior executive officers; (vi)
reimbursement for relocation expenses in accordance with the Company's
relocation policy; and (vii) a grant of options to purchase 40,000 shares of
Company Common Stock at fair market value, as defined in the Company's 1998
Stock Option Incentive Plan.
In connection with the commencement of his service as Vice President of
Strategic and Human Systems, and subsequently as Vice President of Information
Systems, Mr. Treichel and the Company entered into an Employment Agreement dated
October 4, 1995 (the "Treichel Employment Agreement"). The Treichel
10
<PAGE>
Employment Agreement provides for (i) a base salary of $90,000 per annum, which
amount increased to $110,000 per annum for 1998; (ii) ) an annual bonus in
accordance with the Company's Short Term Incentive Plan for each year, as
approved by the Company's Board of Directors; (iii) three weeks of paid vacation
per annum; and (iv) participation in the Company's employee benefit plans as
applicable to its executive officers.
SEVERANCE AGREEMENTS
In connection with William J. McMahon's resignation as Chief Executive Officer
and President of the Company, Mr. McMahon and the Company entered into a
Severance Agreement dated September 11, 1998. Under the agreement, Mr. McMahon
will receive severance compensation equal to his annual base compensation at the
rate then paid and any benefits that he was receiving at the time of this
resignation, for a period of one year, or an aggregate of $225,000.
In connection with Jay M. Allsup's resignation as Chief Financial Officer of the
Company, Mr. Allsup and the Company entered into a Complete and Permanent Waiver
Agreement and General Release of Claims dated September 7, 1998. Under the
agreement, Mr. Allsup received severance compensation equal to six months of his
annual base compensation at the rate then paid, or $65,000.
In connection with Richard Minehart Jr.'s resignation as Chief Operating Officer
of the Company, Mr. Minehart and the Company entered into a Complete and
Permanent Waiver Agreement and Release of Claims dated July 23, 1998. Under the
agreement, Mr. Minehart received $160,000 pursuant to a Change of Control
provision in his employment agreement with Deflecta-Shield Corporation, a
subsidiary of the Company, and $96,000 for settlement consideration.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Value Underlying Unexercised in-the-Money Options
Shares Acquired Realized Options at Fiscal Year End (#) at Fiscal Year-End ($)
Name on Exercise ($)(1) Exercised/Unexercisable Exercisable/Unexercisable(2)
- ---- ------------ ------ ----------------------- ----------------------------
(#)(1)
<S> <C> <C> <C> <C>
Dennis W. Vollmershausen -- -- 4,000 exercisable --
250,000 unexercisable --
-- --
Ronald C. Fox 0 exercisable --
40,000 unexercisable --
James T. Jurinak -- -- 0 exercisable --
40,000 unexercisable --
Kenneth L Holbrook -- -- 8,000 exercisable --
32,000 unexercisable --
Stephen S. Treichel -- -- 18,000 exercisable --
12,000 unexercisable --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No options were exercised by the named executive officers in the year
ended December 31, 1998.
(2) As of December 31, 1998, none of such options were in-the-money.
11
<PAGE>
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 1999,
including review of executive compensation levels, review of the short term
bonus plan and the development of a comprehensive option grant program.
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
weighting 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 competitive position, the risks and
rewards inherent in expanding the Company's product offering and any 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.
There were no awards given under the Company's 1998 Short Term Incentive Plan as
the Company did not achieve the threshold level for payment under the Plan.
LONG TERM INCENTIVE COMPENSATION
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
12
<PAGE>
the Company. Accordingly, options for 374,000 shares were granted to five
executives during the year ended December 31, 1998.
MR. VOLLMERSHAUSEN'S COMPENSATION
In connection with the commencement of his service as President and Chief
Executive Officer of the Company, the Compensation Committee recommended, and
the Board of Directors approved, a compensation package for Mr. Vollmershausen
which consists of the following provisions: (i) a three year term ("initial
term") with a base salary of $250,000 which may be increased at any time during
his employment term by approval by the Board of Directors; (ii) an annual bonus
which shall not be less than an amount equal to 10% of Mr. Vollmershausen's base
salary based upon certain minimum financial results achieved by the Company;
(iii) four weeks of paid vacation per year; (iv) participation in the Company's
employee benefit plans as applicable to its executive officers, with the Company
paying all premiums, co-payments and deductible expenses; (v) an automobile
allowance in accordance with the Company's regular policy for senior executive
officers; (vi) reimbursement for the costs of complete annual physical
examinations; (vii) reimbursement for the cost of preparing his income tax
returns for the U.S. and Canada, where Mr. Vollmershausen is a resident, and
one-time fees for estate planning consultation as a result of his U.S. and
Canadian tax status; (viii) the rental expense for a period of six months for
the use of an apartment in Minnesota; and (ix) a grant of options to purchase
250,000 shares of Company Common Stock at fair market value, as defined in the
Company's 1998 Stock Option Incentive Plan. Mr. Vollmershausen's employment
agreement also contains certain confidentiality and non-competition
restrictions. At the end of the initial term, the employment agreement will be
renewed automatically for successive periods of one (1) year.
In addition, the agreement provides that upon termination of Mr.
Vollmershausen's employment, other than by reason of his voluntary resignation,
non-renewal of his employment agreement or termination for Cause (as defined in
his agreement), he will be paid severance equal to his base salary for the
greater of the 12 month period immediately following the termination date, or
the remainder of the initial term or renewal term of the agreement. After
reviewing local, regional and national compensation ranges for Chief Executives
Officers of similarly sized companies, the Compensation Committee determined
that Mr. Volmershausen's 1998 base salary was competitive.
Robert R. Schoeberl, Chairman
Lawrence C. Day
David E. Dovenberg
13
<PAGE>
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 54 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.
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX/MARKET 12/31/1993 12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998
Lund Intl Holdings 100.00 82.50 60.00 61.25 59.38 42.50
SIC Code Index 100.00 84.47 92.66 114.33 147.69 147.18
NASDAQ Market Index 100.00 104.99 136.18 169.23 207.00 291.96
</TABLE>
14
<PAGE>
ADOPTION OF THE 1999 STOCK OPTION
INCENTIVE PLAN
PROPOSAL 3.
In February 1999, the Board of Directors (the "Board") adopted, subject to
stockholder approval, the Company's 1999 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 5,336 options were available for future grant. The
acquisition by the Company of Ventshade Holdings, Inc. and Smittybilt, Inc. in
December 1998 and February 1999, respectively, greatly increased the size of the
Company and the Board wanted to ensure 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.
o 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 incentives to key employees upon
whose efforts the success of the Company will depend to a significant
degree.
o TERM. The term of the Plan expires on February 24, 2009, ten years from the
date the Plan was approved by the Board of Directors, unless earlier
suspended or discontinued by the Board of Directors.
o ADMINISTRATION. The Plan is administered by the Compensation Committee of
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.
o 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 16, 1999, the Company employed 1,265 people on a full-time basis and
contracted for the services of 54 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.
o 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.
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
15
<PAGE>
(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 Second Amended and Restated Governance Agreement, dated as of
December 22, 1998, among the Company, LIH, LIH II, and LIH III 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
retirement or death, the option typically is exercisable until its original
stated expiration or until the 12-month anniversary of the optionee's
retirement or 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.
o 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 the applicable
rules of an exchange or the Nasdaq Stock Market or required to meet the
requirements of incentive stock options under the Code.
o 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 or she 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
16
<PAGE>
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
1999 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 CONVERTIBILITY OF SERIES B PREFERRED STOCK
PROPOSAL 4.
The Company sold, in the aggregate, 323,830.3 shares of non-voting Series B
Preferred Stock to LIH III, an entity affiliated with Harvest Partners, Inc.
("Harvest"), Massachusetts Mutual Life Insurance Company ("MMLIC"), MassMutual
Corporate Investors ("MMCI"), MassMutual Participation Investors ("MMPI"),
MassMutual Corporate Value Partners Limited ("MMCVPL"), Liberty Mutual Insurance
Company ("Liberty"), and BancBoston Capital Inc. ("BancBoston") (collectively,
the "Investors"). The shares were issued in two transactions. The first issuance
was on December 22, 1998 and provided part of the financing for the acquisition
of Ventshade Holdings, Inc. ("Ventshade"), the parent company of Auto Ventshade
Company ("AVS"). The second issuance was on January 27, 1999 and provided part
of the financing for the acquisition of Smittybilt, Inc. ("Smittybilt"). The
non-voting Series B Preferred Stock is convertible with certain limitations into
shares of Common Stock. upon approval by the stockholders of the Company. The
Board of Directors recommends the approval of the convertibility of the Series B
Preferred Stock into Common Stock. The purchase transaction, the terms of the
Series B Preferred Stock, and the approval requirement are described below.
Background
On December 23, 1998, the Company purchased all of the issued and outstanding
capital stock of Ventshade for an aggregate purchase price of $66,875,000
excluding direct transaction costs and final adjustments. On January 28, 1999,
the Company purchased all of the issued and outstanding capital stock of
Smittybilt for an aggregate purchase price of $18,000,000 excluding direct
transaction costs.
In order to finance the acquisitions of Ventshade and Smittybilt, the Company
used several financing sources: bank borrowings of $34,500,000 from its primary
lender; the issuance of subordinated notes of $25,000,000 and warrants to
purchase 704,839 of Common Stock, or 70,483.9 shares of Series B Preferred
Stock; and $30,000,000 through the sale of equity to the Investors (the
"Investor Financing"). Pursuant to the Amended and Restated Governance Agreement
among LIH, LIH II and the Company, the approval of the Company's Independent
Directors was required for the sale of voting securities by the Company to
Harvest or its affiliates. An Independent Directors 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 the LIH Entities, the Company or its
respective affiliates or associates (other than as directors, 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
in any person who shall have served in any such capacity within the three-year
period immediately preceding the date such determination is made.
17
<PAGE>
Accordingly, under the Governance Agreements, when the Company decided to raise
$30,000,000 in acquisition financing by selling additional equity to the
Investors, the approval of the Independent Directors was required.
Independent Director Consideration of the Investor Financing
The Independent Directors of the Company's Board of Directors, consisting of
Messrs. Day, Dovenberg and Schoeberl, met twice to consider the Investor
financing. The Board of Directors retained Piper Jaffray Inc. to assist it 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 Investor 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 have been greater
than the costs associated with the Investor Financing. The delays inherent in
raising financing through alternative means, coupled with the merits of the
Investor Financing, led the Independent Directors to conclude that the Investor
Financing was the most efficient means to successfully finance the acquisitions
of Ventshade and Smittybilt.
However, the Independent Directors placed certain conditions on the Investor
Financing. First, they determined that LIH III would only be permitted to
purchase shares of voting Common Stock in an amount such that it, together with
LIH and LIH II, would have less than 50% of the outstanding voting shares at the
date of issuance. The balance of the equity to be purchased would be non-voting
Series B Preferred Stock. Each share of Series B Preferred Stock would be
convertible into ten shares of Common Stock upon the satisfaction of certain
conditions (described below). Also, the Independent Directors determined that
the per-share price of the non-voting Series B Preferred Stock, $70.00 per
share, would be ten times the price of the voting Common Stock, $7.00 per share.
On December 22, 1998, the day preceding the financing transaction., the closing
price for the Common Stock was $4.75 per share.
Accordingly, the Independent Directors agreed to recommend that the Company sell
to the Investors that number of shares of voting Common Stock which would give
the Harvest affiliates an aggregate of 49.9% of the voting Common Stock and
shares of a new class of non-voting Series B Preferred Stock that would be
convertible into shares of Common Stock if stockholders approve the conversion
feature.
The NASD's Stockholder Approval Requirement.
The Company's Common Stock is listed on The Nasdaq Stock Market's National
Market ("NM") and the Company has agreed as a condition of its NM listing to
comply 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 an
acquisition, stockholder approval for such issuance must be obtained. There was
not sufficient time for the Company to call a stockholder meeting and obtain
stockholder approval for the financing. Accordingly, the Company discussed with
NASD an interpretation of the stockholder approval requirements, pursuant to
which:
o the Company could issue voting Common Stock to the Investors in an amount
not to exceed 19.9% of the number of such shares outstanding; and
o the Company could issue non-voting preferred stock to the Investors, rather
than non-voting Common Stock, which would be convertible into voting Common
Stock only upon shareholder approval.
The Investor Financing
On December 22, 1998, the Company entered into two Investment Agreements with
the Investors, one for the Ventshade acquisition and one for the Smittybilt
acquisition, pursuant to which the Investors agreed to purchase
18
<PAGE>
1,047,412 shares of the Company's Common Stock and 252,401.8 shares of the
Company's non-voting Series B Preferred Stock. On January 27, 1999, the Company
entered into a First Amendment To Investment Agreement with the Investors,
pursuant to which the Investors agreed to purchase 71,428.5 shares of the
Company's non-voting Series B Preferred Stock. The Series B Preferred Stock (in
the circumstances described herein) is convertible into ten shares of voting
Common Stock. The Investors purchased the Series B Preferred Stock at a price of
$70.00 per share and the Common Stock at a price of $7.00 per share. The closing
price of a share of Common Stock on December 22, 1998 was $4.75. The Company,
LIH, LIH II, and LIH III also agreed that, upon the closing of the Investor
Financing, they would execute a Second Amended and Restated Governance Agreement
(the "Amended Agreement"). The Investment Agreement and First Amendment to
Investment Agreement were recommended unanimously by the Independent Directors
and approved unanimously by the Board, with Messrs. Kleinman and Wertheim not
participating in the vote. On December 18, 1998, Piper Jaffray Inc., a
nationally recognized investment bank, issued its opinion that the terms of the
Investor Financing were fair to the Company from a financial point of view.
On January 27, 1999, the Investor Financing was closed. As a result of such
purchases, LIH, LIH II and LIH III entities currently own in the aggregate
3,149,080 shares of Common Stock, or 49.9% of the voting Common Stock of the
Company, and 226,935.6 shares of non-voting Series B Preferred Stock. In
addition, an LIH entity, LIH II, owns 1,493,398 shares of non-voting Class B-1
Common Stock, which was purchased in a financing transaction in December 1997.
In connection with the closing, the Company filed a Certificate of Designation
and Amendment No.1 To Certificate of Designation of the Series B Preferred
Stock, which includes a provision that such stock will become convertible into
voting Common Stock on a ten-for-one basis upon shareholder approval. Certain
terms of the Amended Agreement and the Series B Preferred Stock are summarized
below. A copy of the Certificate of Designation and Amendment No. 1 To
Certificate of Designation of the Series B Preferred Stock are attached hereto
as Appendices A and B.
The Second Amended and Restated Governance Agreement
The Amended Agreement provides that the LIH Entities will not, and will not
permit any of their Associates or Affiliates (as defined in the Amended
Agreement) to, beneficially own collectively more than 3,306,792 shares (the
"Permitted Shares") of the Company's voting Common Stock until the expiration of
the agreement in September 2000 or its earlier termination in accordance with
its terms; provided, however, that this restriction will not apply in the event
of a tender or exchange offer for 50% or more 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 and Series B
Preferred Stock are ultimately converted, if and when such shares of Class B-1
Common Stock and Series B Preferred Stock are converted. The Amended 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 Amended
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 Amended Agreement, will not transfer
beneficial ownership of such shares to any other Affiliate or Associate unless
it becomes a signatory to the Amended Agreement.
The Amended 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 Amended 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
19
<PAGE>
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 and LIH II's right to nominate one 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 and LIH II's
right to nominate an individual to the Company's Board of Directors terminates.
Finally, the Amended 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 Amended Agreement terminates on September 9, 2000.
The Series B Preferred Stock
The Series B Preferred Stock is non-voting and coverts on a ten-for-one basis to
voting Common Stock only upon the approval by the Company's stockholders of such
conversion. Harvest has informed the Company that LIH, LIH II and LIH III will
vote their aggregate of 49.9% of the Company's outstanding Common Stock in favor
of the proposal.
The Series B Preferred Stock entitles the holders to receive cumulative
quarterly cash dividends, when, as and if declared by the Company's Board of
Directors, at an annual rate of 15%. Dividends will begin to accrue on April 30,
1999. However, the accrual of the 15% dividends will terminate upon approval by
stockholders of the convertibility of the Series B Preferred Stock into Common
Stock, as described below.
The Series B Preferred Stock has a stated value of $70.00 per share, may be
redeemed by the Company at any time on or after December 29, 2007 and must be
redeemed by the Company at the request of a majority of the holders of shares of
Series B Preferred Stock then outstanding given at any time on and after the
earliest of (i) December 29, 2007, (ii) the first date on which any person or
group (as such term is defined in Section 13(d)(3) under the Securities and
Exchange Act of 1934) other than LIH, LIH II, LIH III 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, LIH III or any of their
respective affiliates or associates (a "Change of Control"), (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.
Under the terms of the Series B Preferred Stock, if stockholder approval for
convertibility is obtained after April 30, 1999, at the time of conversion, such
holder will be entitled to receive a cash payment of all accrued and unpaid
dividends on the shares of Series B Preferred Stock then being converted for the
period from April 30, 1999 through the date of stockholder approval.
In addition, from and after the earlier of (a) the date on which such
stockholder approval is received, and (b) the date on which stockholder approval
is not received due to the opposition or abstention from voting with respect to
the conversion by any of LIH, LIH II, LIH III or any of their affiliates or
associates, (1) dividends on the Series B Preferred Stock will cease to accrue,
and the Company will have no obligations to pay any dividends
20
<PAGE>
after such date, except with respect to dividends which accrued prior to such
date and (2) the Company will have no obligation or right to redeem the Series B
Preferred Stock.
Under the terms of the Series B Preferred Stock, even if stockholder approval
for convertibility has been received, none of LIH III, any affiliate or
associate thereof, (including without limitation, LIH and LIH II) or their
respective transferees may convert shares of Series B Preferred Stock into
shares of Common Stock until the earliest to occur of (1) September 9, 2000, (2)
a Change of Control, (3) the date on which, by the affirmative vote of a
majority of the Company's independent directors, such conversion is approved,
(4) the date of any transfer of shares of Series B Preferred Stock by LIH III or
any of its affiliates or associates (but the conversion right described in this
clause (4) shall apply only with respect to the shares transferred), other than
any such transfer (a) by LIH III or any of its affiliates or associates to any
person or entity, or immediately after giving effect to such transfer and
conversion, the transferee and its affiliates and associates would hold more
that 49% of the outstanding Common Stock or (b) to LIH, LIH II, LIH III or any
of their respective affiliates and associates, and (5) the first date as of
which the LIH, LIH II or LIH III 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 Agreement; provided,
however, LIH III and its affiliates and associates may, at any time after the
stockholders approve the conversion of the Series B Preferred Stock, convert
shares of Series B Preferred Stock into Common Stock, at their option, in order
to attain or maintain a percentage of outstanding shares of Common Stock held in
the aggregate by the LIH, LIH II or LIH III and their respective affiliates or
associates that does not exceed 49.9%.
Finally, upon the liquidation of the Company, the holders of the outstanding
shares of the Series B Preferred Stock will be entitled to receive a cash amount
for each share out of the Company's assets available for distribution to
stockholders, before any payment or distribution to stockholders and before any
payment or distribution is made to the holders of Common Stock, Class B-1 Common
Stock or any other class of preferred stock which ranks junior to the Series B
Preferred Stock. If this liquidation occurs on or before the earlier of the date
this approval is not received because any of LIH, LIH II or LIH III votes
against or abstains from voting for this conversion, holders of the Series B
Preferred Stock will be entitled to receive $70.00 plus all accrued and unpaid
dividends to the date of final distribution. If the liquidation occurs after the
stockholders approve the conversion or after the stockholders fail to approve
the conversion because any of LIH, LIH II or LIH III votes against or abstains
from voting for the conversion, then the holders of the Series B Preferred Stock
will be entitled to receive upon liquidation only any accrued and unpaid
dividends to the date of final distribution. If the liquidation occurs after
either of such events, the holders of the Series B Preferred Stock also will
continue to have a right to any claim on the Company's assets remaining after
discharge of its liabilities on an equal basis with the holders of the Company's
various classes of common stock.
The terms of the Series B Preferred Stock are described in greater detail in the
Certificates of Designation, attached as Exhibits hereto, and stockholders
should carefully review these documents.
Other Provisions
Other than as set forth above, no provisions in the Amended Agreement or the
Certificates of Designation restrict transferability or discriminate against
LIH, LIH II, or LIH III 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
CONVERTIBILITY OF THE SERIES B PREFERRED STOCK INTO VOTING COMMON STOCK ON A
TEN-FOR-ONE BASIS. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES REPRESENTED
IN PERSON OR BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR APPROVAL OF PROPOSAL
4.
21
<PAGE>
LIH, LIH II and LIH III hold in the aggregate 49.9% 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 PricewaterhouseCoopers LLP as the Company's independent accountants for
the current year. PricewaterhouseCoopers LLP has served as the Company's
independent accountants since 1996.
Representatives of PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP
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 PRICEWATERHOUSECOOPERS LLP 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 ANNUAL MEETING
IS REQUIRED FOR APPROVAL.
STOCKHOLDER PROPOSALS
Any appropriate proposal submitted by a stockholder of the Company and intended
to be presented at the 2000 Annual Meeting must be received by the Company at
its office by February 21, 2000, to be considered for inclusion in the Company
proxy statement and related proxy for the 2000 Annual Meeting.
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 year ended December
31, 1998, 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: April 7, 1999
Anoka, Minnesota
22
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B PREFERRED STOCK
LUND INTERNATIONAL HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Dennis W. Vollmershausen, hereby certifies that:
A. He is the duly elected and acting Chief Executive Officer of LUND
INTERNATIONAL HOLDINGS, 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 December 18, 1998, creating a new series of 362,709
shares of Preferred Stock designated as "Series B 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 362,709 shares and shall be designated as Series B Preferred Stock
(the "Series B Preferred Stock"), as follows:
4D. Series B Preferred Stock.
(i) Designation: Stated Value. There shall be a series of Preferred
Stock designated as "Series B Preferred Stock." The number of shares initially
constituting such series shall be 362,709. The Series B Preferred Stock shall
have a stated value of $70.00 per share (the "Stated Value").
(ii) Rank. The Series B Preferred Stock shall, with respect to dividend
and other distribution rights, and rights on liquidation, dissolution and
winding up, rank (a) prior to the Trigger Date (as defined in Part (vi)(a)
below), (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
<PAGE>
the Series B 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 B 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 or series of Preferred Stock hereafter
created which does not expressly provide that it ranks PARI PASSU with the
Series B Preferred Stock as to dividends, other distributions, liquidation
preference and/or otherwise (collectively, the "Junior Securities"), and (b)
from and after the Trigger Date, (i) PARI PASSU with the Parity Securities, and
senior to the Common Stock Instruments and the Junior Securities, but only in
the case of dividends accrued pursuant to Part (iii) hereof, and (ii) in all
other cases, PARI PASSU with the Common Stock Instruments, provided that, for
purposes of this clause (b)(ii), each share of Series B Preferred Stock shall be
deemed to constitute the equivalent of the number of shares of Common Stock
which the holder of such share would receive if such share were converted into
shares of Common Stock at the Series B Conversion Ratio as then in effect. 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 that it ranks (i) PARI PASSU with or (ii) not PARI PASSU
with, as applicable, the Series B Preferred Stock with respect to dividends,
other distributions, liquidation preference or otherwise. Prior to the Trigger
Date, the Corporation shall not issue any capital stock or other equity
securities ranking senior to the Parity Securities with respect to dividends,
distributions, liquidation preference or otherwise.
(iii) Dividends.
(a) Subject to Part (vi)(a) hereof:
(x) The holders of shares of Series B 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, 1999 (each such date
hereinafter referred to as 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 B Preferred Stock of the
Corporation five Business Days prior to such Dividend Payment
Date (the "Dividend Record Date").
(y) Dividends on the Series B Preferred Stock shall
accrue and be paid at a rate per annum equal to 15% percent of
the Stated Value of each share of Series B Preferred Stock
outstanding on the Dividend Record Date with respect to a
Dividend Payment Date.
(b) Dividends on the Series B Preferred Stock shall be
cumulative and shall accrue from (and including) April 30, 1999, to but
excluding the Trigger Date, whether or not such dividends have been
declared. Accrued but unpaid dividends, whether or not declared, shall
compound quarterly at a rate per annum equal to 15% of the aggregate
amount thereof' from the Dividend Payment Date on which such dividend
was payable as herein provided until payment of such dividend.
Notwithstanding anything to the contrary contained herein, dividends
shall cease to accrue on the Trigger Date, and the Corporation shall
have no obligation to pay any dividends subsequent to the Trigger Date,
except as provided for herein with respect to dividends which accrued
prior to the Trigger Date.
(c) For so long as any shares of Series B Preferred Stock
shall be outstanding, no dividend or distribution, whether in cash,
stock or other property, shall be paid, declared and set
<PAGE>
apart for payment or made on any date on or in respect of any Common
Stock Instruments or Junior Securities and no payment on account of the
redemption, purchase or other acquisition or retirement for value by
the Corporation of any Common Stock Instruments or Junior Securities
shall be made on any date unless, in each case, the full amount of
unpaid dividends accrued on all outstanding shares of Series B
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 Common
Stock Instruments or Junior Securities, or (ii) the acquisition of any
Common Stock Instruments or Junior Securities upon conversion or
exchange thereof into or for any shares or units of any other class of
Common Stock Instruments or Junior Securities.
In the event that the dividend to be paid to any holder of shares of
Series B Preferred Stock shall be a fractional interest in a share of Series B
Preferred Stock then a fractional share of Series B Preferred Stock shall be
issued to such holder of shares of Series B Preferred Stock.
(iv) Redemption. Subject to Part (vi)(a) hereof:
(a) Redemption by Corporation. To the extent funds are legally
available therefor, the Corporation may, at any time on or after
December 29, 2007 redeem for the Redemption Price each share of Series
B Preferred Stock then outstanding; provided, however, that the
Corporation may not redeem any shares of Series B Preferred Stock as to
which the holder thereof, prior to the expiration of the relevant
30-day notice period, has advised the Corporation that the conversion
of such shares into shares of Common Stock would result in such holder
or any of its Affiliates being subject to a Regulatory Problem. To the
extent funds are legally available therefor, the Corporation shall, at
the request of a majority of the holders of shares of Series B
Preferred Stock then outstanding given at any time on and after the Put
Date, redeem for the Series Redemption Price each share of Series B
Preferred Stock then outstanding. The date on which shares are redeemed
pursuant to this Part iv(a) of Section 4D is referred to herein as the
"Series Redemption Date." If on the Series Redemption Date there shall
be insufficient funds of the Corporation legally available for such
redemption, such amount of funds as is legally available shall be used
to discharge 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 in full. The redemption price (the
"Series Redemption Price") for each outstanding share of Series B
Preferred Stock to be redeemed pursuant to this Part (iv)(a) of Section
4D shall be the sum (payable in cash) of (x) the Stated Value plus (y)
an amount equal to all accrued and unpaid dividends thereon to the
Series Redemption Date.
(b) Payment of Series Redemption Price. On the Series
Redemption Date, the Corporation shall pay to the holder of each share
of Series B 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 Redemption
Price.
(c) Redeemed or Otherwise Acquired Shares Not to be Reissued.
All shares of Series B Preferred Stock redeemed pursuant to this Part
(iv) of Section 4D or otherwise acquired by the Corporation shall be
retired and shall not thereafter be reissued.
<PAGE>
(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 B Preferred Stock are to be redeemed pursuant to Part (iv)(a)
of this Section 4D, the Corporation shall determine the shares held by
each holder of Series B 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 B Preferred Stock
then held by such holder and the denominator of which shall be the
total number of shares of Series B Preferred Stock then outstanding.
(e) Notice of Redemption. Notice of any redemption of Series B
Preferred Stock pursuant to Part (iv)(a) of this Section 4D, specifying
the time and place of redemption and the Series 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 30 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 B 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
Redemption Price in respect of a share of Series B Preferred Stock is
not paid in full to the holder thereof, from and after the Series
Redemption Date, such share of Series B 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 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 B 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 Instruments or any Junior
Securities upon liquidation, an amount in cash equal to the sum of (x)
in the event that such liquidation, dissolution or winding up occurs on
or prior to the Trigger Date, the Stated Value, plus (y) all accrued
and unpaid dividends in respect of such share to the date of final
distribution (the "Liquidation Preference"). If the holders are not
entitled to receive the Stated Value on a preferential basis because
the liquidation, dissolution or winding up of the Corporation occurs on
or after the Trigger Date, then such holders shall continue to have a
right and claim to the remaining assets of the Corporation on a PARI
PASSU basis with the holders of the Common Stock Instruments, as
contemplated by clause (b)(ii) of Part (ii) above.
<PAGE>
(b) Subject to paragraph (a) above, after the payment to the
holders of the Series B Preferred Stock of the full preferential
amounts provided for in this Part (v) of Section 4D, the holders of the
Series B 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
Liquidation Preference for each share of Series B Preferred Stock then
outstanding, then the assets of the Corporation remaining shall be
ratably distributed among the holders of Series B Preferred Stock 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) At any time after the Stockholder Approval has been
obtained, each share of Series B Preferred Stock shall be convertible
into 10 shares of Common Stock (as adjusted from time to time pursuant
to paragraph (g) below, the "Series B Conversion Ratio"), in each case
at the option of the holder thereof, so long as none of it or its
Affiliates will be subject to a Regulatory Problem as a result of such
conversion; provided, however, that in the event that Stockholder
Approval occurs after April 30, 1999, upon the conversion of any shares
of Series B Preferred Stock pursuant to this Part (vi)(a), in addition
to the shares of Common Stock to be received by the holder of such
shares of Series B Preferred Stock, such holder shall receive a cash
payment of all accrued and unpaid dividends on the shares of Series B
Preferred Stock then being converted by it; and provided, further, that
from and after the earlier of (x) the date on which Stockholder
Approval is received, and (y) the date on which a stockholders' meeting
is held but Stockholder Approval is not received due to the fact that
any of LIH Holdings, LLC, LIH Holdings II, LLC, LIH Holdings III, LLC,
or their respective Associates, cast votes in opposition to or abstain
from voting on the conversion of the Series B Preferred Stock (such
earlier date, the "Trigger Date"), (i) the provisions of Article Four,
Section 4D, Part (iv) shall be null and void and of no further force
and effect and (ii) dividends on the Series B Preferred Stock shall
cease to accrue pursuant to Part (iii)(a)(y) above, it being understood
that the holders of shares of Series B Preferred Stock shall continue
to be entitled to receive accrued but unpaid dividends as contemplated
by Part (iii)(b) above. Except for its right to receive such accrued
but unpaid dividends, from and after the Trigger Date, each holder of
shares of Series B Preferred Stock shall, with respect to dividends and
liquidation, be treated as if such holder held the number of shares of
Common Stock into which such shares of Series B Preferred Stock are
then convertible.
(b) Each conversion of shares of Series B Preferred Stock into
shares of Common Stock will be effected by the surrender of the
certificate or certificates representing the shares to
<PAGE>
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 B 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 B Preferred Stock (in its
capacity as such) will cease and the person or persons 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.
(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 Common Stock issuable upon such
conversion, and (y) any cash payment required to be made pursuant to
Part (vi)(a) of Section 4D.
(d) The issuance of certificates representing shares of Common
Stock upon conversion of any shares of Series B 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 Common Stock.
(e) 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 the conversion
hereunder, at the Series B Conversion Ratio as then in effect, of all
the shares of Series B Preferred Stock then outstanding.
(f) The Corporation will not close its books against the
transfer of Common Stock in any manner which would interfere with the
timely conversion of any shares of Series B Preferred Stock.
(g) If the Corporation at any time or from time to time after
the Issue Date declares any dividend payable in shares of Common Stock
or effects a subdivision of the outstanding Common Stock or combines
the outstanding shares of the Common Stock, then, in each such case,
the Series B Conversion Ratio in effect immediately prior to such event
shall be adjusted so that each holder of shares of Series B Preferred
Stock shall have the right to convert its shares of Series B Preferred
Stock into the number of shares of the Common Stock which it would have
owned after the event had such shares of Series B Preferred Stock been
converted immediately before the happening of such event. Any
adjustment under this Part (vi)(g) of Section 4D 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 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 a majority of the holders
of the then outstanding shares of Series B Preferred Stock voting as a
separate class, all holders of Series B 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 B Preferred Stock
had been converted into shares of Common Stock at the
<PAGE>
Series B Conversion Ratio then in effect ) 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,
1999, all accrued and unpaid dividends with respect to such shares of
Series B Preferred Stock.
(i) Notwithstanding the provisions of Part (vi)(a) hereof, but
provided that the Stockholder Approval has been received, none of LIH
Holdings III, LLC, nor any Associate thereof, or their respective
transferees may convert shares of Series B Preferred Stock into shares
of Common Stock until the earliest to occur of (a) September 9, 2000;
(b) the first date as of which any person 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, LIH
Holdings III, LLC or any of their respective 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 or group from LIH Holdings, LLC, LIH Holdings
II, LLC, LIH Holdings III, LLC, or any of their respective Associates;
(c) the date on which, by the affirmative vote of a majority of the
Independent Directors, such conversion is approved; (d) the date of any
transfer of shares of Series B Preferred Stock by LIH Holdings III, LLC
or any of its Associates (but the conversion right provided by this
clause (d) shall apply only with respect to the shares transferred)
other than any such transfer (A) by LIH Holdings III, LLC or any of its
Associates to any person if, immediately after giving effect to such
transfer and conversion, the transferee and such transferee's
Associates would hold more than 49% of the outstanding Common Stock, or
(B) to LIH Holdings, LLC, LIH Holdings II, LLC, LIH Holdings III, LLC
or any of their respective Associates; and (e) the first date as of
which LIH Holdings, LLC, LIH Holdings II, LLC, LIH Holdings III, LLC
and their respective 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 Second Amended and Restated Governance
Agreement; provided, however, that LIH Holdings III, LLC and its
Associates may, at any time after the Stockholder Approval has been
obtained, convert shares of Series B Preferred Stock into Common Stock,
at their option, in order to attain or maintain a percentage of
outstanding shares of Common Stock held in the aggregate by LIH
Holdings, LLC, LIH Holdings II, LLC, LIH Holdings III, LLC and their
respective Associates that does not exceed 49.9%.
(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 B Preferred Stock will
be entitled to no voting rights.
(viii) Certain Defined Terms. As used in Section 4D, the following
capitalized terms shall have the following meanings:
"Affiliate" means, as applied to any person, (i) any other
person directly or indirectly controlling, controlled by or
under common control with that person, (ii) any other person
that owns or controls 5% or more of any class of equity
securities (including any equity securities issuable upon the
exercise of any right to acquire securities) of that person or
any of its Affiliates, or (iii) any member, director, partner,
officer, agent, employee or relative of that person. For the
purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled
by," and "under common
<PAGE>
control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that
person, whether through ownership of voting securities or by
contract or otherwise.
"Associate" means an affiliate or associate of a person, as
such terms are defined in Section 203 of the Delaware General
Corporation Law.
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of New York or the
State of Minnesota are authorized or obligated to close.
"Equity Equivalents" means (a) the Class B-l Common Stock, (b)
the Series B Preferred Stock and (c) 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, LIH
Holdings III, LLC, the Corporation or any of their respective
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, LIH Holdings III,
LLC, or their respective 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.
"Issue Date" means, as to any share of Series B Preferred
Stock, the date of original issuance thereof by the
Corporation.
"Person" or "person" means any individual, corporation, joint
stock corporation, limited liability company or partnership,
general partnership, limited partnership, proprietorship,
joint venture, other business organization, trust, union,
association, governmental authority or other entity of any
kind.
"Put Date" means the earlier of (a) December 29, 2007, (b) the
first date as of which any person 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, LIH Holdings III, LLC or any of their respective
Associates owns, beneficially and of record, securities
representing at least 50% of the Common Stock, excluding any
securities acquired by such person or group from LIH Holdings,
LLC, LIH Holdings II, LLC, LIH Holdings III, LLC, or any of
their respective Associates, and (c) the first date as of
which
<PAGE>
(and immediately prior to) the occurrence of any of the events
described in Part (vi)(h) of Section 4D.
"Regulatory Problem" means, with respect to any holder of
shares of Series B Preferred Stock, any set of facts or
circumstances wherein such holder has made a good faith
determination that such holder or such holder's Affiliates
own, control or have power over a quantity of securities of
any kind issued by the Corporation which exceeds any
limitation to which it is (or they are) subject, or which is
otherwise not permitted, under any law, rule or regulation of
any governmental authority (including any position to that
effect taken by such governmental authority).
"Second Amended and Restated Governance Agreement" means the
Second Amended and Restated Governance Agreement, dated as of
December 22, 1998, among LIH Holdings, LLC, LIH Holdings II,
LLC, LIH Holdings III, LLC, and the Corporation, as amended,
supplemented or otherwise modified from time to time in
accordance with its terms.
"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
conversion of shares of Series B Preferred Stock into shares
of 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 Dennis W. Vollmershausen,
its Chief Executive Officer, and attested by Ron Fox, its Assistant Secretary,
this 22nd day of December, 1998.
LUND INTERNATIONAL HOLDINGS, INC.
By: /s/ Dennis W. Vollmershausen
Name: Dennis W. Vollmershausen
Title: Chief Executive Officer
Attest:
/s/ Ron Fox
Name: Ron Fox
Title: Assistant Secretary
<PAGE>
AMENDMENT NO. 1
TO
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B PREFERRED STOCK
LUND INTERNATIONAL HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned, Dennis W. Vollmershausen, hereby certifies that:
A. He is the duly elected and acting Chief Executive Officer of LUND
INTERNATIONAL HOLDINGS, 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
resolutions on December 18, 1998, creating a new series of 362,709 shares of
Preferred Stock designated as "Series B Preferred Stock" and authorizing the
filing of a Certificate of Designation, Preferences and Rights of Series B
Preferred Stock.
C. Pursuant to authority given by the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation duly adopted
resolutions on January 26, 1999 to amend the Certificate of Designation,
Preferences and Rights of Series B Preferred Stock to increase the number of
shares of the Series B Preferred Stock to 394,315 (the "Amending Resolutions").
D. The Amending 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 amends in its entirety Section
4D(i) of the Certificate of Designation, Preferences and Rights of Series B
Preferred Stock, to read in its entirety as follows:
4D. Series B Preferred Stock.
(i) Designation: Stated Value. There shall be a series of Preferred
Stock designated as "Series B Preferred Stock." The number of shares
constituting such series shall be 394,315. The Series B Preferred Stock shall
have a stated value of $70.00 per share (the "Stated Value").
FURTHER RESOLVED, This Amendment is effective as of the date hereof,
and is limited to matters expressly set forth herein and that in all other
respects the Certificate of Designation, Preferences and Rights of Series B
Preferred Stock shall remain unchanged and all terms thereof shall remain in
full force and effect.
<PAGE>
FURTHER 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 Dennis W. Vollmershausen,
its Chief Executive Officer, and attested by Ron Fox, its Assistant Secretary,
this 26th day of January, 1999.
LUND INTERNATIONAL HOLDINGS, INC.
By: /s/ Dennis W. Vollmershausen
Name: Dennis W. Vollmershausen
Title: Chief Executive Officer
Attest:
/s/ Ron Fox
Name: Ron Fox
Title: Assistant Secretary
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LUND INTERNATIONAL HOLDINGS, INC.
ANNUAL MEETING OF STOCKHOLDERS, APRIL 27, 1999
The undersigned hereby appoints Ronald C. Fox and Kathy R. Smith, 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 27, 1999 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
--- ------- --------
2. ELECTION OF DIRECTORS: To elect Ira D. Kleinman, David E. Dovenberg, Robert
R. Schoeberl, Dennis W. Vollmershausen, Harvey J. Wertheim and Lawrence C.
Day.
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD (INSTRUCTION: To withhold authority to vote for
listed (except as AUTHORITY any individual nominee, write that nominee's name
marked to the to vote for all in the space provided below)
contrary) nominees listed
--------------- --------------- --------------------------------------------------
</TABLE>
3. TO ADOPT THE 1999 STOCK OPTION INCENTIVE PLAN.
FOR AGAINST ABSTAIN
--- ------- --------
4. TO APPROVE THE CONVERTIBILITY OF SERIES B PREFERRED STOCK.
FOR AGAINST ABSTAIN
--- ------- --------
5. TO APPROVE THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
FOR AGAINST ABSTAIN
--- ------- --------
In their discretion, the Proxies are authorized
to vote upon such other business as may properly
come before the meeting.
<PAGE>
The undersigned hereby acknowledges receipt of Notice of said
Annual Meeting and the accompanying Proxy Statement, each
dated April 7, 1999.
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: _____________________________________________, 1999
__________________________________________________________
Signature
__________________________________________________________
Signature if held jointly
Please mark, sign, date and return the Proxy Card promptly
using the enclosed envelope.
