SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-16319
LUND INTERNATIONAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1568618
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
911 LUND BOULEVARD, ANOKA MINNESOTA 55303
(ADDRESS OF PRINCIPAL EXECUTIVES OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (763) 576-4200
COMMON STOCK, $.10 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS
BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At the close of business on March 10, 2000, 7,874,381 shares of the Company's
Common Stock, 1,493,398 shares of the Company's nonvoting Class B-1 Common Stock
and 167,470.4 shares of nonvoting Series B Preferred Stock were issued and
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 16, 2000, was approximately
$20,218,458 based upon the last sale price of the registrant's Common Stock on
such date.
Documents incorporated by reference:
Portions of the registrant's Proxy Statement are incorporated by reference into
Part III.
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PART I.
Item 1. BUSINESS
GENERAL
Lund International Holdings, Inc. ("Holdings" or "the Company") was incorporated
on November 10, 1986, pursuant to the Delaware General Corporation Law. Lund
Industries, Incorporated ("Lund") was incorporated as a Minnesota corporation in
1965 and first engaged in its present business in 1974. Lund is a manufacturer,
marketer and distributor of aftermarket accessories for the automotive market.
In October 1987, Holdings acquired Lund as a wholly-owned operating subsidiary.
In July 1992, Lund FSC, Inc., formerly Lund International FSC, Inc. ("FSC"), was
incorporated as a wholly-owned foreign sales corporation of Holdings. In April
1996, Lund Acquisition Corp. ("Acquisition") was incorporated as a Minnesota
corporation. In June 1996, Acquisition acquired certain assets of Innovative
Accessories, Inc., an Oklahoma corporation.
In September 1997, Allan W. Lund, the founder of Lund and the Chairman of the
Board and principal stockholder of Holdings, together with the Lund Family
Limited Partnership, the Lois and Allan Lund Family Foundation and certain
members of Mr. Lund's family (collectively, the "Lund Interests") sold their
aggregate 38% interest in Holdings to LIH Holdings, LLC, a Delaware limited
liability company ("LIH"), a company affiliated with Harvest Partners, Inc., a
private investment firm ("Harvest Partners").
In a two-step transaction on December 30, 1997 and February 27, 1998, a
wholly-owned subsidiary of Holdings acquired all of the issued and outstanding
stock of Deflecta-Shield Corporation ("Deflecta-Shield"), a manufacturer and
distributor of appearance accessories for the automobile and heavy truck market,
for per share consideration of $16.00 or total consideration of $76,800,000,
excluding direct transaction costs. The acquisition was financed by several
financing sources: approximately $10,000,000 of its own cash reserves; bank
borrowings of approximately $42,000,000; and $30,000,000 through the sale of
equity to LIH II, a second entity affiliated with Harvest Partners. The sale of
equity to LIH II is hereinafter referred to as the "LIH II Financing."
Deflecta-Shield was founded in 1961 as a partnership and was reorganized as a
corporation in 1994. Deflecta-Shield conducted its business through wholly-owned
direct and indirect subsidiaries which it acquired. The direct subsidiaries are
Belmor Autotron Corporation ("Belmor"), acquired in 1988 and DFM Corp. ("DFM"),
acquired in 1990. The indirect subsidiaries, wholly-owned by DFM, are BAC
Acquisition Co. ("Fibernetics"), acquired in 1993 and Trailmaster Products, Inc.
("Trailmaster") and Delta III, Inc. ("Delta III"), both acquired in 1994. On
February 1, 1999, the company sold the assets of Fibernetics, a company it had
acquired as a part of the Deflecta-Shield acquisition, for approximately $1
million. Fibernetics is a specialty and custom manufacturer of fiberglass and
plastic products.
On December 23, 1998, a wholly-owned subsidiary of the Company acquired all of
the issued and outstanding capital stock of Ventshade Holdings, Inc.
("Ventshade") for an aggregate purchase price of $66,875,000, excluding direct
transaction costs and final adjustments. Ventshade was a holding company with
one subsidiary, Auto Ventshade Company ("AVS"), located in Lawrenceville,
Georgia. AVS was founded in 1935 as a manufacturer and supplier to the
automotive aftermarket of shades, visors, deflectors and light covers used on
pick-up trucks, sport utility vehicles, minivans (collectively, "light trucks")
and passenger cars. In 1999, Ventshade was merged into AVS with AVS remaining as
the surviving corporation.
On January 28, 1999, the Company purchased all of the issued and outstanding
capital stock of Smittybilt, Inc. ("Smittybilt") for the purchase price of
$16,887,127 including direct transaction costs of $989,000.
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The Company also assumed debt of $1,950,000. Smittybilt is a leading
manufacturer of tubular accessory products, including tubular steps, brush
guards, bumpers and nerf bars, for light trucks.
The Company sold, in the aggregate, 1,047,412 shares of Common Stock and
323,830.3 shares of non-voting Series B Preferred Stock to LIH Holdings III, LLC
("LIH III"), an entity affiliated with Harvest Partners, 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. The second
issuance was on January 27, 1999 and provided part of the financing for the
acquisition of Smittybilt. The non-voting Series B Preferred Stock is
convertible with certain limitations into shares of Common Stock. The aggregate
share price was $30,000,000.
In order to finance the acquisitions of Ventshade and Smittybilt, the Company
used several additional financing sources: $34,500,000 from its primary lender
and a subordinated note of $25,000,000 with warrants to purchase 704,839 shares
of Common Stock, or 70,483.9 shares of Series B Preferred Stock. Upon the
conversion of the non-voting Series B Preferred Stock to Common Stock by LIH III
and the Investors, the transaction will increase the combined ownership of the
Harvest Partners' affiliates to 49.9% of the Company's voting Common Stock.
PRODUCTS
The Company currently has over 70 product lines which allow consumers the
ability to customize the appearance of vehicles with functional and stylish
accessories that are engineered and designed to give an original equipment look
and fit. The Company's products are designed to fit a wide range of makes,
models and years of light and heavy trucks and automobiles.
Major product categories offered by the Company consist of:
LIGHT TRUCK AND AUTOMOBILE ACCESSORIES, which include hood shields/bug
deflectors, running boards and steps, window vent visors, external visors,
tonneau covers, aluminum storage boxes, tubular products including side bar
steps, front-end protection guards and other appearance accessories;
HEAVY TRUCK ACCESSORIES, which consist of bug deflectors, bug screens and rock
guards, vinyl grille coverings and interior trim parts for the heavy truck
market; and
SUSPENSION PRODUCTS, which are used as an appearance enhancing product to lift
or lower a vehicle.
Light Truck and Automobile Accessories
Products produced for the light truck and automobile accessory segment of the
market are generally manufactured from fiberglass or plastic sheets composed of
polyester, ABS plastic, acrylic polycarbonate, aluminum, or steel material.
Virtually all of the Company's products are molded or formed for an exact fit to
each vehicle.
HOOD SHIELDS/BUG DEFLECTORS. Deflecta-Shield entered the hood shield/bug
deflector market in 1961. With the combination of Lund's hood shield/bug
deflector lines and the acquisition of Ventshade, the Company significantly
increased its offering in this category. The Company currently offers about ten
styles of hood shields, ranging from the standard upright hood shield to the
patented wrap-around shield.
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RUNNING BOARDS AND STEPS. Lund entered the running board and step board market
in 1991 when it developed a line of fiberglass running boards. The Company
currently sells ten styles of running boards and step boards, manufactured from
fiberglass, ABS plastic, or aluminum material.
WINDOW VENT VISORS. Ventshade introduced its window vent shade in 1935. The
Company currently markets five styles of window vent visors, manufactured from
reinforced acrylic or stainless steel material.
EXTERNAL VISORS. Lund entered the light truck accessory market by introducing
the Lund SunVisor(R) in 1977. The Company currently offers four styles of
external visors. The Company manufactures its visor line from fiberglass or ABS
plastic material and include lighted and non-lighted styles.
TONNEAU COVERS. The Company entered the tonneau cover market in 1994 with the
acquisition of certain assets of Innovative Accessories, Inc. It currently
markets four styles of tonneau covers, each designed to cover the bed of a
pickup truck. Three of the Company's tonneau cover lines are manufactured from
vinyl and one is manufactured from fiberglass.
ALUMINUM STORAGE BOXES. Deflecta-Shield entered the aluminum storage box market
when it acquired Delta III, Inc. in 1994. The Company currently markets five
lines of aluminum storage boxes, each of which is available in various box sizes
and configurations to fit primarily pickup truck beds.
TUBULAR PRODUCTS. The Smittybilt acquisition completed in January 1999 added a
tubular products line to the Company's Light Truck product offering. The Company
markets three styles of tubular products. The product offering includes grill
and brush guards, tail light guards, "Sure-Step(TM)" side bars, as well as other
complimentary accessories for light trucks and SUV's.
OTHER APPEARANCE ACCESSORIES. The Company, through its subsidiaries, also
manufactures and markets a variety of other appearance accessories, including
cab extenders, styling covers for taillights and headlights, tailgate
protectors, fender extensions, custom grille inserts, rear window air or sun
deflectors, door sill protectors, side window covers, wiper cowls, rear
valances, cargo trays, floor mats, pickup bed rail protectors, side rails, mud
flaps, splash guards and tie downs.
Heavy Truck Accessories
The Company's heavy truck accessories are developed, manufactured and marketed
at its Belmor facility in Chicago, Illinois. The heavy truck market consists of
over-the-road trucks in the Class 8 weight category (trucks with a gross vehicle
weight over 33,000 pounds). Management believes Belmor is the largest supplier
of winterfronts, bug screens, bug deflectors and rock guards for heavy trucks in
the United States. Each of these product lines is (i) designed and developed in
cooperation with major heavy truck manufacturers; (ii) built to individual model
year specifications; and (iii) with few exceptions, the exclusive original
equipment manufacturer ("OEM") approved accessory sold to the OEMs in that
product category. These products are sold for substantially all makes and models
of U.S.-made heavy trucks. Function is emphasized to a great degree in the
manufacturing of Belmor heavy truck products.
HEAVY TRUCK BUG DEFLECTORS. The Company manufactures six styles of bug
deflectors for the heavy truck market. Each product line is manufactured from
either Lexan(R) or ABS plastic. Products include the Aeroshield(R) traditional
flat deflector and the Aeroshield-Plus(R), an aerodynamically designed shield.
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BUG SCREENS AND ROCK GUARDS. Bug screens are used primarily during the warmer
months of the year to keep bugs and road debris from reaching the radiator of a
truck. Bug screens are constructed of light weight aluminum or fiberglass screen
mesh and are often included in a new truck package. They are snapped on the
front of the truck and are generally replaced about every other year at a heavy
truck dealer.
Rock guards are heavy fabricated metal screens installed inside the truck engine
compartment in front of the radiator and designed to protect the radiator and
engine against damage from rocks and other road debris. Rock guards are
installed on many truck models as a standard part. Belmor is the largest
supplier of bug screens and rock guards in the United States.
WINTERFRONTS. Winterfronts are snap-on vinyl covers for the radiator grille on
the front of a truck and are used to regulate the air intake of the truck's
engine during cold weather. By installing a winterfront, a driver can maintain
proper engine operating temperature in cold weather and increase the amount of
heat available to warm the cab of the truck. Belmor is the largest supplier of
winterfronts in the United States.
Three basic styles of winterfronts are offered: fixed opening winterfronts,
adjustable opening winterfronts and "V" opening winterfronts. The style of
winterfront selected for a heavy truck depends on the manufacturer, model and
engine type of the truck. The Company has a United States patent on its center
opening winterfront, an innovative product developed to reduce engine wear.
Fixed center opening winterfronts were developed in response to technological
changes in heavy truck engines. In some cases, hardware to attach the
winterfronts to the truck is sold separately. Winterfronts are sold in standard
white vinyl or can be custom silk screened with company names, fleet logos or
with truck manufacturers' logos.
INTERIOR TRIM PARTS. Belmor also manufactures and sells interior panels and trim
items to certain manufacturers of heavy trucks and replacement trim kits for
certain models to heavy truck dealers. Interior trim products sold to heavy
truck manufacturers include door panels, roof panels, side panels, sleeping
curtains, door pockets, dash boards, headliners, carpets and floor mats.
Suspension Products
The 1994 acquisition of Trailmaster Products, Inc. ("Trailmaster") by
Deflecta-Shield resulted in the addition of a full line of suspension products
for lifting or lowering vehicles. Trailmaster is best known for its Matched
Systems Technology approach, under which each Streetmaster(TM) brand lift kit is
engineered to include all the system's components. In 1996, Trailmaster
introduced the SSV(TM) self-adjusting shock absorber that provides "on-the-fly"
ride adjustability.
MARKETING AND SALES
Light Truck and Automobile Accessories
The Company sells its Light Truck and Automobile Accessories under the trade
names Lund(R), Deflecta-Shield(R), Autotron(TM) Products, Auto Ventshade(R) and
Smittybilt(R). The Company sells light truck and automotive accessories through
its Light Truck Accessory Division ("LTAD") and its subsidiary, Auto Ventshade
("AVS").
The LTAD's products are sold through a national distribution system that
utilizes in-house sales staff and independent manufacturer's representatives.
The LTAD currently has five factory employed regional sales managers who oversee
13 independent manufacturer's representative organizations employing
approximately 90 sales representatives. The Company's staff and independent
manufacturer's
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representatives sell the LTAD's products to warehouse distributors, dealer
expeditors, automotive specialty chain stores, converters, catalog companies and
OEMs.
While the light truck accessory market is highly fragmented, the Company
believes there is a trend among distributors and retailers to prefer suppliers
who provide well-recognized brand names, strong customer service and a broad
product line that accommodates "one-stop shopping".
Currently, the majority of the LTAD's sales are generated from products sold in
the United States and Canada. The LTAD delivers a majority of its products to
warehouse distributors, retailers and OEMs by truck from its manufacturing and
warehouse facilities in Corona, California; Lawrenceville, Georgia; Anoka,
Minnesota; Howe, Indiana; and Longmont, Colorado, as well as from independent
warehouses in Toronto, Ontario.
In the light truck accessory market, warehouse distributors and performance
warehouse distributors have traditionally been the primary channel of
distribution for aftermarket accessories. Warehouse distributors often stock a
broad line of aftermarket products in multiple warehouse locations and sell to
independent auto parts stores, auto repair stores and service stations.
Performance warehouse distributors specialize in aftermarket products designed
to improve the performance of the vehicle and sell to similar retailers and
installers.
Additionally, the LTAD sells its products to a variety of other customers,
including: (i) dealer expeditors, who provide aftermarket accessories and
installation services to automotive dealers; (ii) automotive specialty chain
stores, which are larger multi-location retail auto parts stores that frequently
purchase aftermarket product on a direct basis from manufacturers; (iii) catalog
companies, which purchase accessories directly from manufacturers and sell
through catalogs distributed to a variety of customers, including consumers and
automotive dealers; and (iv) automobile and light truck OEMs, including
customers such as Ford, Chrysler, General Motors and Toyota, which purchase
aftermarket accessories directly from manufacturers and sell these products
through their parts distribution divisions to their automotive and light truck
dealer networks.
Consumers purchase light truck accessories through a variety of distribution
channels. The majority of the LTAD's products are purchased by consumers at
retail auto parts stores. These stores may be independent or part of an
automotive parts store chain. In most retail stores, the consumer has a choice
of one or two manufacturers' product lines in the categories in which the
Company competes. Some retailers offer installation services for accessories,
other retailers refer consumers to body shops or garages for installation or the
consumer may install the products personally. Consumers also purchase light
truck accessories through mail-order catalogs, at automotive dealers' parts
departments or at automotive dealers as an add-on accessory installed at the
time of a new vehicle purchase.
The Company believes an increasing percentage of light truck accessories sales
are being made by automotive parts stores and that the Company needs to
intensify marketing efforts for the LTAD's products to such chains. The Company
intends to continue to focus marketing efforts in the LTAD to the automotive
chains, while maintaining its traditional strong relationships with warehouse
distributors.
The LTAD's sales and marketing programs are focused on educating its customers
about its broad product offerings, expanding distribution for its product
offerings, developing new profitable products and building brand name loyalty.
In 1999, the Company went on line with its new website:
www.lundinternational.com.
The LTAD's in-house marketing department is located at the Anoka, Minnesota
facility and manages all light truck aftermarket accessory marketing programs
and policies. The LTAD Marketing Department's
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responsibilities include: (1) managing and supporting the factory and
manufacturers' sales managers and representatives; (2) creating and implementing
marketing and promotional campaigns; (3) developing and implementing sales
programs and promotions; (4) designing and creating product catalogs, price
lists and other marketing materials; (5) managing trade shows and other
marketing materials; (6) designing and coordinating retail packaging materials;
and (7) providing market research and input on the design and development of new
product programs.
A variety of marketing tools are utilized to increase trade and consumer
awareness of the LTAD's products and brands. The LTAD designs and develops
catalogs, price and application guides and other product literature and
materials which it distributes directly to its independent manufacturer's
representatives for use in promoting its products to trade customers. In
addition, point-of-purchase displays are developed and provided to retailers of
the division's products. The displays feature miniature versions of various
products and highlight product features and benefits. Consumer and trade
advertising campaigns are also conducted in light truck trade and enthusiast
magazines such as FOUR WHEELER, 4-WHEEL AND OFFROAD and SPORT TRUCK. Cooperative
advertising programs are offered to retailers which feature accessory products
in their advertising.
Auto Ventshade
AVS division products are sold to the automotive accessory aftermarket in a
manner similar to the LTAD's. The Company believes trends in the industry have
been and should continue to be, favorable for the sale of AVS produced products.
In addition, approximately 80% of the AVS division's products are currently sold
for applications for light trucks, including SUV's, the fastest growing segment
of the automotive industry.
AVS has a broad distribution system for its products in the automotive
aftermarket and currently sells its products through all major distribution
channels for light truck and car accessories including mass merchants, auto
parts retailers (national and independent), three-step warehouse distributors,
mail order catalogs and custom installers. Due to its long history as a
supplier, AVS products are widely known throughout the aftermarket and the
products are sold to the growing mass merchants and national automotive parts
chains as well as the more traditional specialty automotive retailers.
AVS manages its sales effort through a sales organization consisting of six
factory sales managers, who manage a national network of approximately 150
independent manufacturer's sales representatives. The Company believes the AVS
division's focus on aggressive management of accounts and constant interaction
with its independent sales representatives have established AVS's reputation as
an industry leader in customer service. In addition to ordering directly though
a customer service representative, customers can order through EDI.
AVS markets and promotes its products through several programs targeted at motor
sports and outdoor enthusiasts. AVS advertises aggressively to build awareness
of the AVS brand and AVS products. The AVS division's marketing programs consist
of consumer media programs including print and television advertising, as well
as sponsorship of the NASCAR(R) Craftsman Truck Racing Series. AVS also
advertises in popular trade and consumer magazines, including FOUR WHEELER,
TRUCKIN, SPORT TRUCK and 4-WHEEL AND OFF ROAD. Cooperative advertising programs
are also offered to retailers which feature accessory products in their
advertising.
Heavy Truck Division
The Company's Heavy Truck Division (the "HTD"), sells its Belmor products
primarily in the U.S. and Canada to (i) approximately 2,800 heavy truck dealers
on direct ship programs; (ii) OEM heavy truck
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manufacturers; and (iii) heavy truck OEM parts distribution centers. The HTD's
customers include every major heavy truck manufacturer in the United States,
including Freightliner, Navistar, Paccar (including both Kenworth and
Peterbilt), Volvo, Sterling, Mack, Marmon and Western Star.
Participation in direct ship programs allows telephone sales representatives to
speak directly to heavy truck dealers on a frequent basis. Heavy truck dealers
order accessories directly from the Belmor facility and the products are shipped
directly to the dealers. Invoices for the orders are sent to the heavy truck
OEMs parts divisions, which pay for their dealers' orders and bill the dealers
separately. The HTD ships its accessory products directly to heavy truck dealers
who in turn include the products in new truck accessory packages and sell the
products as replacement parts. An outbound telemarketing program and inbound
customer service staff located in the Belmor Chicago, Illinois facility provide
service to the heavy truck dealer customer base.
The HTD division also sells and ships its heavy truck products directly to heavy
truck OEMs, which install these products on or include them with new trucks.
Products are sold to heavy truck OEM parts distribution centers which stock
accessories and supply the OEM's dealers. A manufacturer's representative is
engaged in connection with sales to certain of the HTD's accounts.
Suspension Division
Trailmaster, the Company's Suspension Division (the "SD"), promotes and sells
Trailmaster products principally in the U.S. and Canada and utilizes
distribution similar to the LTAD.
MANUFACTURING PROCESS
The LTAD manufacturing centers, or product supply facilities, are located in
Anoka, Minnesota; Longmont, Colorado; Howe, Indiana; and Corona, California.
These facilities manufacture, warehouse and distribute LTAD products for the
LTAD's trade channels.
The Company's LTAD products are generally manufactured from fiberglass or
plastic sheets composed of polyester, ABS plastic, acrylic, polycarbonate,
aluminum and tubular steel. Product lines representing a majority of Lund's
sales are manufactured from laminated fiberglass and polyester resin, making
these the predominant raw materials currently used by the LTAD. It is also one
of the largest purchasers of General Electric Plastics Lexan(R) polycarbonate
sheet plastic in the United States and uses the Lexan brand name in its
advertising and packaging. The raw materials used by the LTAD are available from
a number of suppliers, except for Lexan, which is only available from General
Electric Plastics. Management believes that in the event of a shortage or
significant delay in the delivery of any raw materials used in its manufacturing
processes, alternative vendors could be found to supply such materials or
alternative materials (including alternatives for Lexan plastic) and that the
shortage or delay would not be expected to have a significant impact on the
Company's financial condition or results of operations.
Fiberglass products are manufactured largely by hand using production molds to
form a 1/8" fiberglass laminate into product shapes. The edges are then machine
trimmed and hand sanded for a smooth finish.
Plastic products are manufactured from plastic sheets utilizing drape-forming,
vacuum-forming and injection molding processes. In the drape-forming process, a
plastic sheet is cut into custom flat shapes, known as blanks. These blanks are
heated in a computerized conveyor oven and formed into products by draping the
heated blanks over molds. In the vacuum-forming process, a plastic sheet is
heated and formed over a mold using vacuum pressure in a thermo-forming machine.
In the injection molding
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process, plastic resin is heated to a forming temperature and then injected into
a temperature-controlled mold under pressure, forming the desired part.
Tonneau covers are manufactured from a reinforced vinyl material and aluminum
extrusion. The material is cut and sewn to fit each application and the aluminum
is cut to size to match.
The Anoka, Minnesota product supply facility houses fiberglass manufacturing
capabilities. In addition, research, design, product testing, assembly,
warehousing and distribution for product manufactured at this and other
facilities occurs at Anoka. The Anoka supply facility produces fiberglass
running boards, visors and cab extenders in addition to other light truck
accessories. During the fourth quarter in 1999, the plastic manufacturing
operations at Anoka were transferred to the Company's Auto Ventshade facility in
Lawrenceville, Georgia.
To supplement its internal manufacturing at its Anoka, Minnesota facility, the
Company relies on independent contract manufacturers. The Company qualifies each
manufacturer and works closely with it to assure the timely delivery of products
meeting Company specifications. The Company generally retains ownership of the
tooling used to produce a product line, with the understanding that it will
remove the tooling from the manufacturer's plant at the termination of the
manufacturing relationship.
The Longmont, Colorado product supply facility is the primary facility for the
manufacture of hood shields. The facility also houses research, product design,
product testing and distribution. Longmont is a thermo-former of Lexan, modified
acrylic and acrylics employing state-of-the-market Computer Numerically
Controlled ("CNC") fabrication and oven processes to provide high-quality
products. The facility manufactures all of its own molds. This product supply
facility has been awarded the quality standard ISO 9000 and QS9000 certification
and holds Ford Q1 certification from Ford and a Gold Pentastar award from
Chrysler.
The Howe, Indiana facility manufactures aluminum tool storage boxes, aluminum
running boards and extruded accessory products. The facility employs
state-of-the-market CNC manufacturing technology and precision, process
controlled welding capabilities. Howe has full product design and testing
capabilities on site and routinely brings out new ideas for all channels of
distribution.
The Corona, California facility manufactures powder painted, chrome plated and
polished stainless steel products. Both flat sheet and tubular steel is
purchased and flame cut, pierced, bent formed and welded into final product
using state-of-the-art Whitney CNC Plasma/Punch technology. The Corona facility
has in-house engineering, design and product development capabilities.
AVS's manufacturing process, which involves thermo-forming, drape-forming and
injection molding of plastics, also includes the regrinding of all scrap
plastics for reuse in the production process. This internal recycling process
has resulted in significant cost savings and an environmentally friendly
product. AVS earned quality standard QS-9000/ISO 9001 certification, thereby
making AVS one of the few competitors to earn this certification.
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CUSTOMER SERVICE
The Company maintains separate customer service departments for each of its
divisions.
The LTAD has four customer service departments. An inbound-outbound customer
service department located in the Anoka, Minnesota facility services the light
truck accessory customers. This customer service department manages inbound
orders and order processing for both customers and consumers of Lund(R) and
Deflecta-Shield(R) brand accessory products. Light truck accessory customers who
purchase Deflecta-Shield Aluminum products are serviced by an inbound-outbound
customer service department located in the Howe, Indiana facility. LTAD
customers who purchase Smittybilt products are serviced by an inbound-outbound
customer service department located in the Corona, California facility. A
customer service department is located at the Longmont, Colorado facility, which
services the OEM's which purchase products primarily produced at that facility.
The Heavy Duty Truck and Suspension Divisions as well as AVS maintain separate
inbound-outbound customer service and telemarketing departments in their
facilities located in Chicago, Illinois; Coldwater, Michigan; and Lawrenceville,
Georgia.
PRODUCT DEVELOPMENT
Enhancement of its existing products and the development of new products are
essential for the Company's long-term growth and success in the light truck,
heavy truck and suspension product markets. New product ideas are generated by
senior management, the marketing and product development staffs, manufacturer's
representatives and through suggestions from customers and outside consultants.
Development of new products is managed by a team of engineers located at each
division. The product development team is responsible for designing, engineering
and developing new products, including assessing feasibility, manufacturing cost
parameters and lead times.
Moldmakers are employed at the manufacturing facilities in Anoka, Minnesota;
Longmont, Colorado; and Lawrenceville, Georgia. The moldmaking staff is
responsible for the manufacture, repair and maintenance of the tooling used in
the manufacture of the thermo-formed, vacuum-formed, injection molded and
fiberglass products. The Company believes that the size and capabilities of its
moldmaking staff contribute significantly to the ability to quickly bring new
product ideas to market. The length of the new product development cycle for the
Company's products (from concept to initial production) varies, but is typically
between nine and 18 months. Product applications for new vehicles are introduced
as they are released from the OEMs.
The Company has invested in state-of-the-market computer aided design equipment
in order to reduce development time across all product categories.
RETURNS AND WARRANTY CLAIMS
The Company has a return to stock policy which generally limits returns to three
percent of prior year's sales. For returns above this percentage, customers are
typically required to pay a restocking fee or place significant offsetting
orders. The Company has product warranty programs which vary according to
product lines and divisions. In 1999, 1998 and 1997, the Company had return and
warranty expenses of $3,529,452, $1,824,742 and $1,110,440, respectively, which
represented 1.8%, 1.6% and 2.6% of net sales, respectively.
10
<PAGE>
SEASONALITY AND BACKLOG
The Company's sales pattern is slightly seasonal, with approximately 53.2% of
the sales for 1999 taking place during the second and third calendar quarters.
The Company does not consider its backlog as of any given date as a meaningful
measure of future business, because its customers generally require rapid
shipment of orders.
COMPETITION
The Company believes the industry is highly competitive for products sold by all
Company divisions and that competition is based on brand name recognition,
quality, design, breadth of product line, price, service and packaging. Certain
of the Company's competitors and potential competitors, including the
manufacturers of light and heavy trucks, have greater financial or other
resources than the Company. There are no significant technological or
manufacturing barriers for entry into the Company's business. While the Company
has many competitors for most of its products lines, it believes that in the
U.S. it has one of the broadest offerings of appearance accessories in the light
and heavy truck markets along with the strongest brand names and that it
occupies a leading position in its major product categories.
INTELLECTUAL PROPERTY
The Company generally seeks to obtain patent protection, shape/design trademarks
and brand trademarks for its products. The Company owns numerous domestic and
foreign trademarks and trade names used in its business, including Lund(R),
Deflecta-Shield(R), Trailmaster(R), Auto Ventshade(R) and Smittybilt(R). The
Company also holds numerous patents which expire at various dates through 2017.
The Company believes that the reputation attached to such patents, trademarks
and trade names as a whole is of material importance to the businesses in which
they are used. The Company has aggressively enforced its patents and trademarks
and intends to do so in the future. The Company believes that by aggressively
enforcing its patents and trademarks, it deters other manufacturers from
attempting to copy its products or to sell lesser quality products at lower
prices.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company, like all manufacturers of consumer products, is subject to federal,
state and local regulations concerning consumer products and occupational safety
and health. The Company believes that its operations currently comply in all
material respects with these laws and regulations. In general, the Company has
not experienced any difficulty complying with such regulations and compliance
has not had a material effect on the Company's business.
The Company is subject to various federal, state and local environmental laws
and regulations. The Company believes that the trend in environmental litigation
and regulation is toward stricter standards that may result in higher costs for
the Company and its competitors. Such changes in the law and regulations may
require additional capital expenditures which, while not presently estimable
with certainty, are not presently expected to be of material amounts. Costs for
environmental compliance and waste disposal have not been material to the
Company in the past.
11
<PAGE>
EMPLOYEES
As of February 29, 2000, the Company employed 1,352 people, none of whom are
represented by a labor union. The Company believes its employee relations are
good and that its future success will depend in large part upon the continued
service of its key production, sales, marketing and management personnel and its
ability to identify and hire additional appropriately skilled, highly qualified
technical, marketing and managerial personnel. The Company has not suffered a
work stoppage or slowdown in the last ten years.
RELATIONSHIP WITH HARVEST PARTNERS, INC.
The Company is party to a Second Amended and Restated Governance Agreement (the
"Amended Agreement") with LIH, LIH II and LIH III, affiliates of Harvest
Partners (the "LIH Entities") and is party to a Services Agreement with Harvest
Partners (the "Services 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 the aggregate number of shares of the
Company's Common Stock owned by the LIH Entities and any of their Affiliates or
Associates falls below 50% of the number of shares of such stock originally
acquired by LIH, LIH and LIH II's right to each 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 each 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
12
<PAGE>
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 Services Agreement provides that Harvest Partners will provide the Company
with services from time to time as requested by the Company's Board of
Directors. Such services shall include, but not be limited to, (i) generally
assisting the Company with respect to financial and business matters as the
Company's financial advisor; (ii) recommending and assisting the Company in
implementing a general strategy in connection with the Company's accomplishing
its business plan and anticipated growth; (iii) assisting the Company in its
efforts to structure and negotiate acquisitions and dispositions of assets or
business units; (iv) if necessary, locating equity partners and structuring the
terms of any such equity investment; (v) communicating with the Company's
lenders and stockholders, including assisting the Company in the coordination of
its investor relations services; (vi) structuring and negotiating refinancings
and other lending or borrowing transactions relating to the Company financial
services as Harvest Partners and the Company shall deem necessary and
appropriate. In addition, the Services Agreement provides that Harvest Partners
will provide the Company with two designees with financial or management
expertise to serve on the Company's Board of Directors. As full payment for all
services provided by Harvest Partners under the Services Agreement, the Company
has agreed to pay Harvest Partners a fee, subject to the Company achieving
certain levels of quarterly earnings before interest, taxes, depreciation and
amortization. (Refer to Note 6 in the Notes to the Consolidated Financial
Statements).
The Services Agreement terminates on September 9, 2000.
13
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company are as follows:
DENNIS W. VOLLMERSHAUSEN, 56, 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, 44, joined the Company in March 1998, following the acquisition
of Deflecta-Shield Corporation. In July 1999, he was appointed Vice President of
Smittybilt, Inc. Mr. Chick was appointed President of Trailmaster Products,
Inc., the Company's Suspension Division, in February 1996, a position he
continues to hold. From July 1994 until February 1996, he was the Marketing
Manager of Mr. Gasket Co., a performance automotive parts company.
JOHN A. DANIELS, 63, joined the Company in March 1998, following the acquisition
of Deflecta-Shield Corporation, 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.
CAROLE B. GROSSMAN, 49, joined the Company in 1990 as Corporate Counsel on a
part-time basis and was named full-time Corporate Counsel in September 1999.
Prior to her full-time appointment, Ms. Grossman also worked as an attorney for
Grossman & Millard and in 1997 she was hired by Burk & Seaton, P.A. Both law
firms exclusively represent corporations and other business entities for
employment and labor law matters.
KENNETH L. HOLBROOK, 44, joined the Company in March 1998 as Vice President of
Sales and in June 1999, was named President of the Light Truck Division. 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.
EDMUND J. SCHWARTZ, 50, joined the Company in August 1999 as its Chief Financial
Officer. Prior to joining the Company, Mr. Schwartz was with Electrolux
Corporation, a manufacturer of floor care products from 1984 to 1999 and served
as its Chief Financial Officer from 1990 to 1999.
STEPHEN S. TREICHEL, 55, 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, 43, 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.
14
<PAGE>
Item 2. PROPERTIES
The Company manufacturers its products in a mix of owned and leased facilities.
The Company believes that the existing facilities have more than sufficient
capacity to meet its needs and continually reviews the feasibility of
consolidating facilities. In that regard, the Company has closed facilities in
Oklahoma City, Oklahoma; Sturgis, Michigan; and Chicago, Illinois. The Company
closed the Indianola, Iowa facility in 1999 and consolidated its operations in
Minnesota. The following chart details the facilities of the Company:
<TABLE>
<CAPTION>
- ------------------------------ ----------------- --------- ------- ------------------
SIZE LEASED/
PRINCIPAL USE OF FACILITY LOCATION (SQ. FT.) OWNED LEASE EXPIRES
- ------------------------------ ----------------- --------- ------- ------------------
<S> <C> <C> <C> <C>
Manufacturing, Corporate
Offices and Warehouse Anoka, MN 331,000 Own N/A
- ------------------------------ ----------------- --------- ------- ------------------
Distribution and Offices(1) Indianola, IA 129,200 Own N/A
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing and Distribution Longmont, CO 42,900 Lease November 1, 2000
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing Longmont, CO 6,628 Lease May 1, 2001
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing Longmont, CO 12,600 Lease Monthly
- ------------------------------ ----------------- --------- ------- ------------------
Offices and Engineering Longmont, CO 4,200 Lease October 31, 2000
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing, Distribution
and Offices Chicago, IL 92,800 Own N/A
- ------------------------------ ----------------- --------- ------- ------------------
Assembly, Distribution
and Offices (3) Coldwater, MI 44,400 Lease Monthly
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing, Distribution
and Offices Howe, IN 95,100 Own N/A
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing, Distribution
and Offices Corona, CA 207,000 Lease September 30, 2007
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing Corona, CA 10,151 Lease September 30, 2000
- ------------------------------ ----------------- --------- ------- ------------------
Manufacturing, Distribution
and Offices Lawrenceville, GA 157,500 Lease February, 2005
- ------------------------------ ----------------- --------- ------- ------------------
Office Logan, UT 359 Lease Monthly
- ------------------------------ ----------------- --------- ------- ------------------
Warehouse (2) Lawrenceville, GA 44,000 Lease March 31, 2000
- ------------------------------ ----------------- --------- ------- ------------------
Warehouse and Distribution Lawrenceville, GA 100,800 Lease November, 2002
- ------------------------------ ----------------- --------- ------- ------------------
</TABLE>
(1) The Company is in the process of selling this facility.
(2) The Company does not intend to renew this lease.
(3) In the summer of 2000, the Company intends to relocate this operation
to Corona, California and does not intend to renew this lease.
The Company anticipates no difficulty in retaining occupancy of any of its
leased facilities through lease renewals prior to expiration or through
month-to-month occupancy or in replacing them with equivalent facilities.
Item 3. LEGAL PROCEEDINGS
The Company is currently involved in two legal proceedings in which it is a
defendant.
SCOTT FORD V. FORD MOTOR COMPANY, ET AL. The Company's Trailmaster Products,
Inc. subsidiary is one of several defendants in a drunk driving/roll over case
initially filed on or about December 6, 1995 in the Court of Common Pleas of
Allegheny County Pennsylvania. Plaintiff generally alleges the Trailmaster
components installed on his Ford Ranger pick-up were defective and either caused
or enhanced the serious personal injuries plaintiff sustained in a one-car roll
over accident. Plaintiffs demand monetary
15
<PAGE>
compensation in excess of $1.0 million from all defendants. The Company believes
it has valid defenses and in cooperation with its insurers is vigorously
defending the claim.
WOODS V. NATIONWIDE MUTUAL INSURANCE CO. ET AL. The Company's Trailmaster
Products, Inc. subsidiary is one of several defendants in a wrongful death
action filed on or about June 4, 1999 in the Circuit Court of Kanawha County,
West Virginia. The case arises from a tragic highway collision between a Ford
pickup, decedent's General Motors sedan and a tractor-trailer rig alleged to
have been driven by an employee of Kroger's grocery chain. Plaintiff alleges
that the Ford pickup was illegally modified by use of Trailmaster parts or parts
supplied by other aftermarket manufacturers. Plaintiff generally alleges that
the aftermarket parts were defective and that such parts caused the Ford pickup
to cause or enhance plaintiff's injuries during the subject accident. Plaintiff
further alleges that the Ford pickup was "overly aggressive" and that decedent's
General Motors sedan was uncrashworthy.
Plaintiff demands compensatory damages and punitive damages against all
defendants in an unspecified amount. The Company believes it has valid defenses
to these claims, including plaintiff's failure to properly identify the
aftermarket parts allegedly installed on the Ford pickup. In cooperation with
its insurers the Company is vigorously defending the claim.
The Company is also subject to additional litigation in the ordinary course of
its business, but the Company believes that none of such matters are likely to
have a material impact on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common stock is traded on the national-over-the-counter market and
quoted on the Nasdaq Market's National Market(R) ("NASDAQ/NM") under the symbol
LUND. The following table sets forth, for the periods indicated, the range of
closing prices per share for the Company as reported on the NASDAQ/NM.
Years ended December 31,
------------------------------------------------------
1999 1998 1997
Closing Prices Closing Prices Closing Prices
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter $8.500 $6.000 $14.000 $11.625 $13.500 $11.250
Second Quarter 6.875 5.000 13.875 11.250 12.875 9.750
Third Quarter 6.750 5.750 11.625 6.375 14.156 10.000
Fourth Quarter 6.750 5.438 8.500 4.750 14.000 11.500
As of March 10, 2000, there were 175 stockholders of record. The Company
estimates that an additional 1,300 stockholders own stock held for their account
at brokerage firms and financial institutions.
On March 21, 2000, the Company received notification from The Nasdaq Stock
Market that its stock had failed to maintain a minimum bid price of $5.00 per
share over the past thirty consecutive days, thereby placing the Company in
non-compliance with Nasdaq's Maintenance Standard 2. If at any time before
16
<PAGE>
June 19, 2000, the Company's Common Stock bid price reaches $5.00 for ten
consecutive trading days the Company will regain compliance with Maintenance
Standard 2. If the Company is unable to demonstrate compliance with Maintenance
Standard 2 on or before June 19, 2000, it will not qualify for continued listing
on the Nasdaq National Market and will submit an application to Nasdaq
requesting transfer to The Nasdaq SmallCap Market.
Holdings has never paid cash dividends on its Common Stock. Payment of dividends
is within the discretion of the Company's Board of Directors.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended
December 31, Six months ended Years ended June 30,
---------------------- December 31 --------------------------------------
1999 1998 1997 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 194,368,967 $ 112,593,558 $ 19,523,308 $ 43,304,927 $ 46,423,208 $ 47,383,663
Income (loss) before
income taxes (4,558,345) (5,685,479) (484,513) 3,129,520 7,054,916 10,656,750
Income tax
(benefit) expense (726,000) (1,615,323) (120,928) 933,786 2,432,754 3,676,579
Net income (loss) (3,832,345) (4,070,156) (363,585) 2,195,734 4,622,162 6,980,171
Basic and diluted net
income (loss) per
share (.46) (.64) (.08) .50 1.05 1.58
Total assets 226,669,361 221,356,704 144,027,462 41,444,706 40,319,605 36,706,198
Long-term liabilities 101,704,808 107,002,546 56,506,169 4,395,178 4,942,225 5,030,000
Total stockholders'
equity 88,323,069 85,887,035 62,513,640 32,852,922 30,507,269 25,504,025
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998,
Six-Months Ended December 31, 1997 and
For the Year Ended June 30, 1997
(dollars in thousands, except per share amounts)
GENERAL OVERVIEW
Lund International Holdings, Inc. ("Holdings" or the "Company"), through its
wholly-owned subsidiaries, Lund Industries, Incorporated ("Lund"),
Deflecta-Shield Corporation ("Deflecta-Shield"), Smittybilt, Inc. and Auto
Ventshade Company ("AVS") designs, manufactures, markets and distributes
appearance automotive aftermarket accessories for light trucks, sport utility
vehicles and vans (collectively, "light trucks") and heavy trucks, and designs,
markets and distributes suspension systems.
On January 28, 1999, the Company purchased all of the issued and outstanding
capital stock of Smittybilt, Inc. ("Smittybilt") for the purchase price of
$16,887,127, including direct transaction costs of $ 989,000 and the assumption
of $1,950,000 in debt. With 1999 sales of over $17,000,000, Smittybilt is a
leading manufacturer of tubular accessory products, including tubular steps,
brush guards, bumpers and nerf bars for light trucks and SUV's.
17
<PAGE>
In September 1997, the Company's Board of Directors approved a change in its
year end from June 30, to December 31, with a six-month transition period ending
on December 31, 1997.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net revenue of
certain items in the Company's consolidated statements of operations for the
periods indicated:
PERCENTAGE OF NET SALES
-----------------------
Years ended Six months
December 31, ended Year ended
-------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 27.6 27.3 33.7 34.1
General and administrative expenses 8.3 10.4 10.7 9.8
Selling and marketing expenses 10.5 12.2 15.9 14.6
Research and development expenses 1.8 2.6 3.7 3.0
Non-recurring transaction expenses -- -- 6.0 --
Amortization of intangibles 2.7 2.2 .3 .3
----- ----- ----- -----
(Loss) income from operations 4.3 (.1) (2.9) 6.4
Other (expense) income, net (6.7) (4.9) .4 .8
Income tax (benefit) expense (.4) (1.4) (.6) 2.1
----- ----- ----- -----
Net (loss) income (2.0)% (3.6)% (1.9)% 5.1%
===== ===== ===== =====
The following table sets forth the consolidated statements of operations for the
year ended December 31, 1999, compared to the pro forma consolidated statements
of operations for the year ended December 31, 1998. The 1998 pro forma
information gives effect to the Company's acquisitions of Auto Ventshade and
Smittybilt, Inc. as if they occurred on January 1, 1998 and February 1, 1998,
respectively and excludes Fibernetics which was disposed of on February 1, 1999.
The pro forma information is for comparison purposes and is not necessarily
indicative of the results of operations that would have actually been achieved.
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------------
Pro Forma (in thousands)
December 31, 1999 December 31, 1998 December 31, 1998
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 194,369 100.0% $ 177,946 100.0% $ 112,594 100.0%
Gross profit 53,691 27.6 52,431 29.5 30,769 27.3
General and administrative expenses 16,162 8.3 15,801 8.9 11,800 10.4
Selling and marketing expenses 20,340 10.5 19,796 11.1 13,736 12.2
Research and development expenses 3,444 1.8 3,220 1.8 2,970 2.6
Amortization of intangibles 5,303 2.7 5,317 3.0 2,424 2.2
--------- ---- --------- ---- --------- ----
(Loss) income from operations 8,442 4.3 8,297 4.7 (161) (.1)
Other (expense) income, net (13,000) (6.7) (12,730) (7.2) (5,524) (4.9)
Income tax (benefit) expense (726) (.4) (1,259) (.7) (1,615) (1.4)
--------- ---- --------- ---- --------- ----
Net (loss) income $ (3,832) (2.0)% $ (3,175) (1.8)% $ (4,070) (3.6)%
========= ===== ========= ===== ========= =====
</TABLE>
18
<PAGE>
NET SALES: Net sales for the year ended December 31, 1999 were $194,369, an
increase of $81,775 over net sales for 1998, an increase of $174,846 over net
sales for the six-months ended December 31, 1997 and an increase of $151,064
over net sales for the year ended June 30, 1997. The increased net sales reflect
the inclusion of Auto Ventshade and Smittybilt's operations in 1999 as well as
comparing a twelve month period to the six month period ended December 31, 1997.
Compared to 1998 pro forma, net sales for the year ended December 31, 1999
increased $16,423, or 9.2%. In 1999, net sales of Auto Ventshade, heavy truck
and suspension products exceeded 1998 pro forma by $10,522 (18.9%), $2,018
(12.0%) and $2,485 (23.2%), respectively. Net sales of light truck exceeded 1998
pro forma by $1,127 (1.2%). Within light truck, tubular and aluminum products
net sales grew 11.7% and 9.8% respectively, while net sales of fiberglass
running boards, external visors and certain other plastic hood shield products
declined 7.5%. The plastic and fiberglass products are marketed mainly through
the warehouse distributor market channel, which is realizing more competition
from mass merchandisers, retail chains and OEMs. In addition, fiberglass running
boards are facing more competition from interchangeable metal tubular products.
COST OF GOODS SOLD AND GROSS PROFIT: Gross profit for the year ended December
31, 1999 was 27.6%, compared to 29.5% in pro forma 1998 and 27.3% in actual
1998. The gross profit margins for the six months ended December 31, 1997 and
year end June 30, 1997 were 33.7% and 34.1%, respectively. The decline in gross
profit in both 1998 and 1999 compared to the 1997 periods was attributable to
product promotions for aftermarket plastic and fiberglass products, increased
reserves established for the collectability of doubtful accounts, product
returns and obsolete inventories resulting from rationalizing product lines
between Lund and Deflecta-Shield, added overhead costs of new facilities in
Illinois and Indiana, shift in sales mix to lower margin products, unanticipated
costs associated with the consolidation of an Iowa warehouse into Anoka,
Minnesota and reduced fixed overhead absorption due to lower production levels
in aftermarket plastic and fiberglass products.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$16,162, or 8.3% of net sales, for the year ended December 31, 1999, compared to
$11,800, or 10.4% of net sales, for the year ended December 31, 1998. On a pro
forma basis for the year ended December 31, 1998, general and administrative
expenses were $15,801 or 8.9% of net sales. When compared to pro forma 1998,
general and administrative expense increased by $361, due to increased spending
on Y2K compliance matters and non-recurring personnel severance costs. When
compared to the period ended June 30, 1997 general and administrative expenses
were 9.8% of net sales compared to 8.3% and 10.4% in the years ended December
31, 1999 and 1998, respectively.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $20,340, or
10.5% of net sales, for the year ended December 31, 1999 compared to $13,736, or
12.2% of net sales, for the year ended December 31, 1998. Selling and marketing
expenses were $19,796 or 11.1% of net sales for pro forma 1998. When compared to
pro forma 1998, selling and marketing expenses increased by $544, which was
primarily the result of increased selling costs related to increased sales
volume of $16,423. Selling and marketing expenses were 15.9% and 14.6% of net
sales, for the six months ended December 31, 1997 and the year ended June 30,
1997, respectively.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were
$3,444, or 1.8% of net sales, for the year ended December 31, 1999, compared to
$2,970, or 2.6% of net sales, for the year ended December 31, 1998. On a pro
forma basis, research and development expenses were $3,220 or 1.8% of net sales
in 1998 and 3.7% of net sales for the six months ended June 30, 1997. When
compared to pro forma 1998, research and development expenses increased by $224.
For the year ended June 30, 1997, research and development expense was 3.0% of
net sales.
19
<PAGE>
AMORTIZATION OF INTANGIBLES: Amortization expense was $5,303 for the year ended
December 31, 1999, compared to $2,424, $61 and $122 for the year ended December
31, 1998, the six months ended December 31, 1997 and the year ended June 30,
1997. The increase in amortization in 1999 reflects intangibles amortization
associated with the acquisitions of Smittybilt, Auto Ventshade and
Deflecta-Shield.
NON-RECURRING TRANSACTION EXPENSES: On September 19, 1997, Harvest Partners
purchased 38% of the Company's outstanding shares of Common Stock from the
former Chairman of the Board and his family. In connection with the transaction,
the Company recorded a pre-tax non-recurring charge of $1,174. This charge
included $600 paid to the former Chairman of the Board, Allan Lund, for a
covenant not to compete and severance and $574 for investment banking, legal,
accounting and other related expenses.
OTHER (EXPENSE) INCOME, NET: Other (expense) income, net, was $13,000 of
expense, primarily interest expense, for the year ended December 31, 1999,
compared to $5,524 of expense in 1998 and $12,730 to pro forma 1998. This
$13,000 compares to $84 and $364 for the six months ended December 31, 1997 and
the year ended June 30, 1997. This significant increase in interest expense is
the direct result of incurring substantial long-term debt to finance
acquisitions.
INCOME TAX EXPENSE (BENEFIT): The Company recorded a tax benefit of $726 for the
year ended December 31, 1999, or a tax benefit of 15.9% compared to a tax
benefit of 28.4% in the year ended December 31, 1998. For the six-months ended
December 31, 1997, the tax benefit was 25.0% and for the year ended June 30,
1997, the Company recorded an effective tax rate of 29.8%. The effective tax
benefit for the years ended December 31, 1999 and 1998 and the six-months ended
December 31, 1997 was less than the statutory effective tax benefit due to the
non-deductibility for tax purposes of acquisition-related goodwill in 1999 and
1998 and the non-deductibility for tax purposes in 1997 of certain of the costs
incurred related to the non-recurring transaction described previously.
NET INCOME/LOSS PER SHARE: The Company's net loss for the twelve months ended
December 31, 1999 was $3,832, or $.46 per share, compared to a net loss of
$4,070 or $.64 per share for the year ended December 31, 1998, a net loss per
share of $.08 for the six-months ended December 31, 1997 and net income per
share of $.50 for the year ended June 30, 1997.
OUTLOOK
During 1999, the Company began to integrate its newest acquisitions, Auto
Ventshade (December 1998) and Smittybilt (January 1999) into its operations
while continuing to absorb and reposition its Deflecta-Shield acquisition made
in 1997. Although the integration process was more costly and lengthy than
anticipated, these acquisitions brought to the Company significant new product
lines, outstanding customer service levels, operational strengths to address new
production methods, enhanced design and engineering capabilities and new market
channels. Historically, the Company distributed its products principally through
warehouse distributors. With increased sales of light trucks over the past few
years, mass merchandisers, national automotive retailers and original equipment
manufacturers ("OEMs") are participating more and more in the distribution of
automotive appearance accessories.
The impact of increased channel competition is shifting a portion of sales away
from warehouse distributors to national automotive retailers, mass merchandisers
and OEM channels. This shift has resulted in increased competition within the
warehouse distributor channel and created pricing pressures, especially as it
relates to the plastic product lines. The Company had a strong presence with the
majority of the warehouse distributors. The Deflecta-Shield acquisition brought
an increased OEM presence in
20
<PAGE>
both the light truck and heavy truck markets, especially in key product lines
such as bug shields/hood protectors and aluminum products. AVS strengthened the
light truck markets with its key product lines such as bugflectors, ventshades
and ventvisors. In addition, Auto Ventshade contributed an increased presence in
the mass merchandiser and retail specialty markets. Smittybilt introduced a
tubular product line that has given the Company entry into a new market
primarily within its existing customer base.
The automotive accessory market is currently going through significant
consolidation in both the manufacturing and distribution areas. The Company
experienced continued evidence of this consolidation in 1999 as large warehouse
distributors purchased smaller competitors. The Company expects to take
advantage of this consolidation with both new product development and
acquisitions to become the market leader in all product categories in which it
competes. The long-term goal of the Company is to become the low cost producer
by increasing product line sales volume and customer service levels through
acquisition, product line rationalization and facility consolidation to improve
capacity utilization. This effort will be enhanced by improved plant
efficiencies, consolidation of purchasing and quality improvements through
improved engineering and QS9000 initiatives.
However, during 1999, the Company continued to experience delays in maximizing
the synergistic benefits it hoped to obtain from the Deflecta-Shield acquisition
by consolidating and internalizing operations. Notwithstanding these delays, the
consolidation of Deflecta-Shield's operations led to (i) the closure of the
tonneau cover cut and sew operation in Oklahoma, with production transferred to
the heavy truck division, (ii) the merging of the sales and marketing functions,
(iii) the integration of information systems into a single platform, (iv) the
consolidation in the summer of 1999 of Deflecta-Shield's Iowa warehouse into
Minnesota and (v) the divestiture of an unprofitable custom fiberglass operation
in January 1999.
The Auto Ventshade acquisition which occurred in December 1998 proved to be an
important addition to the Company. Auto Ventshade recorded record sales and
profits in 1999 and continues to be recognized as a benchmark in its industry
for quality products and customer service. Auto Ventshade was recognized for its
performance and received several awards at the Specialty Equipment Market
Association ("SEMA") national trade show in November 1999, which is the largest
aftermarket accessories gathering in North America.
While the acquisition of Smittybilt continues to strengthen the Company's light
truck product categories with its key product lines of stainless, chromed and
painted steel tubular light truck accessories, the Company experienced various
problems with the integration of this business in 1999. These problems resulted
in the write-off of excess inventories that materially impacted its
profitability. It is expected that the Smittybilt business will be fully
integrated into the corporate information systems database by May 2000. This
integration will offer significant benefits in the accuracy and control of its
inventory in 2000.
The Company remains committed to growth through acquisitions and will continue
to review potential candidates that it perceives will strengthen both the
Company's competitive position and earnings capability, which will ultimately
increase shareholder value.
EFFECTS OF INFLATION: Although increases in costs of certain materials and labor
could adversely affect operations, the Company generally has been able to
increase its selling prices to offset increased costs. Price competition,
however, particularly in the plastic and fiberglass product lines, could affect
the ability of the Company to increase its selling prices to reflect such
increased costs. In general, management believes that the relatively moderate
inflation over the last few years did not have a significant impact on the
Company's net sales, but that increasing raw material prices and labor costs had
an impact on gross profit. However, since the Company is a heavy user of
petroleum based raw materials
21
<PAGE>
in its production processes, it is difficult to project the impact cost
increases for these products might have on overall profitability.
FINANCIAL CONDITION
The Company's consolidated balance sheet at December 31, 1999, reflects the
acquisition of 100% of the capital stock of Smittybilt. The Company's
consolidated balance sheet at December 31, 1998 reflects the Company's
acquisition of 100% of the outstanding Common Stock of Ventshade.
December 31,
-------------------------
1999 1998
---- ----
Cash and marketable securities
(including restricted cash) $ 3,834 $ 1,191
Total current assets 67,088 63,203
Total assets 226,669 221,357
Total current liabilities 36,641 28,467
Total long-term debt
(excluding current maturities) 95,118 99,796
Working capital 30,447 34,736
Current ratio 1.8 to 1 2.2 to 1
Stockholders' equity 88,323 85,887
Stockholders' equity to total liabilities .6 to 1 .6 to 1
LIQUIDITY: Net cash provided by operating activities was $16,207 for the year
ended December 31, 1999. Net cash used by operating activities was $7,122 for
the year ended December 31, 1998 and net cash provided by operating activities
was $363 and $4,528 for the six-month period ended December 31, 1997 and for the
year ended June 30, 1997, respectively. The significant use of cash from
operating activities in 1998 was principally due to payment of liabilities
assumed in the Deflecta-Shield acquisition.
Net cash used in investing activities during the year ended December 31, 1999
was $20,773, reflecting the acquisition of Smittybilt and the purchases of
planned capital, offset by proceeds received from the sale of Fibernetics and
certain equipment. Net cash used in investing activities during the year ended
December 31, 1998 was $75,933, reflecting the acquisition of Ventshade, the
remaining costs related to the acquisition of Deflecta-Shield and the
construction of a new 104,000 square foot warehouse addition in Minnesota. Net
cash used in investing activities during the six months ended December 31, 1997
was $63,945, reflecting the impact of the acquisition of Deflecta-Shield. Net
cash used in investing activities for the year ended June 30, 1997 of $5,378
primarily reflected the net purchase of marketable securities.
Net cash provided by financing activities for the year ended December 31, 1999
was $3,823, primarily resulting from the issuance of common and preferred stock
to finance the Smittybilt acquisition offset by changes in cash accounts and
debt issuance costs related to the acquisition. Net cash provided by financing
activities for the year ended December 31, 1998 was $77,456 and included $45,000
of proceeds from the Company's senior and subordinated lenders and $25,000 of
proceeds from the issuance of common and preferred stock to finance the
acquisition of Ventshade. Net cash provided by financing activities for the
six-month period ended December 31, 1997 was $70,094 which reflects $40,879
proceeds from the Company's tender loan facility with Heller Financial, Inc. and
$30,000 of proceeds from the issuance of common and preferred stock to finance
the acquisition of Deflecta-Shield.
At the end of the third quarter in 1999, the Company was in default of certain
financial covenants of the loan agreement with its senior lenders. On November
2, 1999, the Company received a limited waiver letter from senior lenders
waiving such events of default. On January 28, 2000, the Company received a
Waiver and Third Amendment to its Credit Agreement with its senior lenders.
Simultaneously, the
22
<PAGE>
Company received a Waiver and First Amendment to its Securities Purchase
Agreement with its subordinated lenders. These documents waived any events of
default with the financial covenants contained therein up through and including
December 31, 1999. These amendments also amended the financial covenants that
are contained in the agreements for the year 2000. The Company anticipates that,
based on current economic conditions and its expectations for 2000, it will be
able to comply with the amended financial covenants in these documents in the
year ending December 31, 2000. The Company's debt was not restructured and there
were no other adjustments made to any other components of either of these
agreements.
CAPITAL
For the terms and definitions of the Company's credit facilities including its
revolving line of credit please refer to Note 4 in the Notes to the Consolidated
Financial Statements. With respect to financing related to the acquisitions of
Smittybilt, Ventshade and Deflecta-Shield refer to Notes 2 and 4 in the Notes to
the Consolidated Financial Statements.
On December 29, 1998, the Company defeased its Industrial Development Revenue
Bonds (the "Bonds") by placing restricted cash and marketable securities held
pursuant to the Bond agreement as of that date and an additional deposit of
$3,182 in escrow sufficient to meet the remaining principal and interest
payments of the Bonds. The funds held in escrow could be used only for the
purpose of satisfying the debt service requirements of the Bonds. Under the
terms of the Bond agreement, the Company guaranteed the repayment of the Bonds
through January 2000. Accordingly, the Bonds and the related restricted cash and
marketable securities continued to be presented as assets and obligations of the
Company until such guarantee expired in January 2000. In January 2000, the Bonds
and the related restricted cash and marketable securities were removed from the
Company's Balance Sheet.
Management believes that cash generated from operations and amounts available
under its revolving credit facility will be sufficient to fund working capital
growth, anticipated capital expenditures not financed through operating leases
and required debt repayments for the foreseeable future. The amount available
for borrowing under the Revolver (refer to Note 4 in the Notes to the
Consolidated Financial Statements) at December 31, 1999 was $21,881.
FINANCIAL INSTRUMENTS MARKET RISK
The Company's financial instruments include cash, accounts receivable, accounts
payable and long-term debt. The Company is exposed to interest rate risk arising
from transactions that are entered into during the normal course of business.
The Company's borrowings and its Revolving Line of Credit are dependent upon the
prime interest and LIBOR rates. The estimated fair value of long-term debt
approximates its carrying value as of December 31, 1999. The Company does not
enter into hedging or derivative instruments.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 137, which delays the adoption
date of SFAS No. 133 and was issued in July, 1999, requires adoption of SFAS No.
133 for annual periods beginning after June 15, 2000. SFAS No. 133 establishes
standards for recognition and measurement of derivatives and hedging activities.
The Company will implement this statement in 2001 as required. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
financial position or results or operations.
23
<PAGE>
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". This SOP provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The Company
adopted SOP 98-1 beginning on January 1, 1999. The adoption did not have a
material impact on the Company's financial position or results of operations.
YEAR 2000 COMPLIANCE
The Company's program to address the Year 2000 issue consisted of the following
phases: awareness, assessment, remediation, testing and contingency planning. As
of December 31, 1999, all phases were completed. The Company did not experience
any disruption of business as a result of the Year 2000 and no known issues have
resulted since the conversion on January 1, 2000.
The Company made every effort to assess its Year 2000 risks related to
significant relationships with its critical third party suppliers and customers.
Despite these efforts, the Company can provide no assurance that all supplier
and customer Year 2000 compliance plans were successfully completed in a timely
manner. However, the Company is not currently aware of any problems which would
significantly impact its operation.
State Of Readiness
As background, in April 1998, the Company upgraded its central processor in its
Minnesota headquarters to an AS/400, model 640/2237 running OS/400 v4r2 and by
June 1998, the Company had implemented a century-dated version of its new BPCS
software. Consequently, by June of 1998, the central processor and the business
operating system of the Company in its Minnesota headquarters were Y2K compliant
for its main information technology ("IT") system. Simultaneously, in the first
quarter of 1998, the Company embarked on Y2K planning dedicated to
systematically integrating the operations that were acquired with the
acquisition of Deflecta-Shield. At the time of the acquisition, each
Deflecta-Shield entity operated its own business system, none of which were Y2K
compliant. During 1998 and 1999, all of the five Deflecta-Shield entities were
converted to the Company's IT systems for Y2K compliance. At the same time, with
each conversion to the Company's IT system, network topology and desktop
computing was upgraded. The central processor is accessed through a wide-area
network (WAN) accomplished through a frame relay. All equipment purchased to
effect the WAN is Y2K compliant. As each operation was converted to BPCS, all
prior business system's equipment was replaced through the central processor and
the WAN. PC compliance was accomplished through BIOS upgrades or replacement of
equipment. A local area network was established at each site utilizing equipment
purchased for that specific purpose. All servers and software are Y2K compliant.
Thus, with each conversion and cut over to BPCS, the business operating system,
the WAN/LAN topology and desktop computing of each operating entity became Y2K
compliant.
Cost
The Company spent approximately $900 to convert its systems to become Y2K
compliant. These costs were incurred during 1998 and 1999, of which a portion
was capitalized and the remainder charged to earnings in the respective years.
These charges did not materially impact the Company's results of operations.
24
<PAGE>
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company.
Statements made in this Form 10-K and the Annual Report to Shareholders,
including the Chief Executive Officer's letter, relating to future financial
results, the effects of the acquisitions, company operations, developments,
trends and market analysis, among others, are forward-looking statements. These
statements involve risks and uncertainties which could cause results to differ
materially from those anticipated. Management believes that all statements that
express expectations and projections with respect to future matters related to
the Company's acquisitions could result in differences, including: inability to
obtain expected efficiencies, or to obtain them in a timely manner; inability to
effectively manage a larger enterprise, to integrate acquired companies or to
control costs associated with such integration; and the representations,
warranties and covenants in the merger and purchase agreements proving to be
materially untrue. In addition, the business and operations of Lund,
Deflecta-Shield, Auto Ventshade, Belmor, Trailmaster, Delta III, Autotron and
Smittybilt (and projected results) include the following risk factors: consumer
preference changes; risk of expansion into new distribution channels; delays in
designing, developing, testing or shipping of products; increased competition;
general economic developments and trends; developments and trends in the light
truck and automotive accessory market; sales of heavy trucks, which are
cyclical; the timely development and introduction of competitive new products by
the Company and acceptance of those products; and increased costs. This is not
an exhaustive list and the Company may supplement this list in future filings or
releases or in connection with the making of forward-looking statements.
However, the Company believes that these are forward-looking statements within
the meaning of the Act.
25
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 447,727 $ 1,191,029
Restricted cash 3,386,704 --
Accounts receivable, net 32,836,186 33,389,494
Inventories 24,214,468 21,770,696
Deferred income taxes 5,300,451 4,300,229
Other current assets 902,198 2,552,218
------------ ------------
Total current assets 67,087,734 63,203,666
Property and equipment, net 31,331,339 29,568,206
Intangibles, net 124,502,106 119,833,969
Restricted cash and marketable securities -- 3,911,047
Other assets 3,748,182 4,839,816
------------ ------------
Total assets $226,669,361 $221,356,704
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 10,995,265 $ 6,466,129
Accrued expenses 16,054,910 17,750,298
Long-term debt, current portion 9,591,309 4,250,696
------------ ------------
Total current liabilities 36,641,484 28,467,123
Long-term debt, less current portion 95,117,585 99,795,705
Deferred income taxes 5,931,002 6,599,715
Other liabilities 656,221 607,126
Commitments and Contingencies (Note 7)
Stockholders' equity:
Preferred stock-Series A, $.01 par value; authorized
2,000,000 shares; none issued and outstanding -- --
Preferred stock-Series B, $.01 stated value; authorized
362,709 shares; 167,470.4 and 252,401.8 issued and
outstanding at December 31, 1999 and December 31,
1998, respectively 1,675 2,524
Common stock, $.10 par value; authorized 25,000,000
shares; 7,874,381 and 6,310,782 issued and outstanding
at December 31, 1999 and 1998, respectively 787,438 631,078
Class B-1 Common Stock, $.01 par value;
authorized 3,000,000 shares; 1,493,398 issued and
outstanding at December 31, 1999 and 1998 14,934 14,934
Additional paid-in capital 64,276,863 58,163,995
Retained earnings 23,242,159 27,074,504
------------ ------------
Total stockholders' equity 88,323,069 85,887,035
------------ ------------
Total liabilities and stockholders' equity $226,669,361 $221,356,704
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended Six months
December 31 ended Year ended
------------------------------- December 31 June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 194,368,967 $ 112,593,558 $ 19,523,308 $ 43,304,927
Cost of goods sold 140,678,089 81,824,529 12,946,258 28,531,370
------------- ------------- ------------- -------------
Gross profit 53,690,878 30,769,029 6,577,050 14,773,557
Operating expenses:
General and administrative 16,161,655 11,799,611 2,085,184 4,264,320
Selling and marketing 20,340,409 13,736,184 3,103,005 6,332,003
Research and development 3,444,021 2,970,007 722,234 1,289,655
Amortization of intangibles 5,302,711 2,424,186 60,636 121,984
Non-recurring transaction -- -- 1,174,299 --
------------- ------------- ------------- -------------
Total operating expenses 45,248,796 30,929,988 7,145,358 12,007,962
------------- ------------- ------------- -------------
Income (loss) from operations 8,442,082 (160,959) (568,308) 2,765,595
Other (expense) income:
Interest expense (12,746,791) (5,483,994) (159,511) (293,289)
Interest income 67,057 105,851 306,433 694,857
Other, net (320,693) (146,377) (63,127) (37,643)
------------- ------------- ------------- -------------
Other (expense) income, net (13,000,427) (5,524,520) 83,795 363,925
------------- ------------- ------------- -------------
Income/loss before income taxes (4,558,345) (5,685,479) (484,513) 3,129,520
Income tax (benefit) expense (726,000) (1,615,323) (120,928) 933,786
------------- ------------- ------------- -------------
Net (loss) income $ (3,832,345) $ (4,070,156) $ (363,585) $ 2,195,734
============= ============= ============= =============
Basic and diluted (loss) earnings
per share $ (0.46) $ (0.64) $ (0.08) $ 0.50
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998, six months ended
December 31, 1997 and year ended June 30, 1997
<TABLE>
<CAPTION>
Preferred Stock-Series A Preferred Stock-Series B Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 -- -- -- -- 4,391,970 4,391,997
Options exercised -- -- -- -- 2,000 200
Net income -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- --
Amortization of deferred
compensation -- -- -- -- -- --
------------ ------------ --------- ------------ ------------ ------------
Total comprehensive income
Balance, June 30, 1997 -- -- -- -- 4,393,970 439,397
Issuance of preferred stock 1,493,398 $ 14,934 -- -- -- --
Issuance of Common Stock -- -- -- -- 874,400 87,440
Net loss -- -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- -- --
Amortization of deferred
compensation -- -- -- -- -- --
------------ ------------ --------- ------------ ------------ ------------
Total comprehensive loss
Balance, December 31, 1997 1,493,398 14,934 -- -- 5,268,370 526,837
Conversion of preferred stock (1,493,398) (14,934) -- -- -- --
Issuance of preferred stock -- -- 252,401.8 $ 2,524 -- --
Issuance of Common Stock, net
of issuance costs -- -- -- -- 1,047,412 104,741
Net loss -- -- -- -- -- --
Amortization of deferred
Compensation -- -- -- -- -- --
Cancellation of restricted stock -- -- -- -- (5,000) (500)
Issuance of warrants in connection
with senior subordinated notes -- -- -- -- -- --
------------ ------------ --------- ------------ ------------ ------------
Total comprehensive loss
Balance, December 31, 1998 -- -- 252,401.8 2,524 6,310,782 631,078
Issuance of preferred stock -- -- 71,428.5 714 -- --
Conversion of preferred stock -- -- (156,359.9) (1,563) 1,563,599 156,360
Issuance of warrants in connection with
senior subordinated notes -- -- -- -- -- --
Net Loss -- -- -- -- -- --
------------ ------------ --------- ------------ ------------ ------------
Total comprehensive loss
Balance, December 31, 1999 -- -- 167,470.4 $ 1,675 7,874,381 $ 787,438
============ ============ ========= ============ ============ ============
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Additional Unearned Other
Common Stock-Class B-1 Paid-In Deferred Comprehensive
Shares Amount Capital Compensation Income (loss)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 -- -- 975,875 (159,872) (60,442)
Options exercised -- -- 10,800 -- --
Net income -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- 70,339
Amortization of deferred
compensation -- -- -- 68,520 --
------------ ------------ ----------- ----------- ----------
Total comprehensive income
Balance, June 30, 1997 -- -- 986,675 (91,352) 9,957
Issuance of preferred stock -- -- 18,906,418 -- --
Issuance of Common Stock -- -- 10,991,208 -- --
Net loss -- -- -- -- --
Change in unrealized holding gains
(losses) on marketable securities -- -- -- -- (9,957)
Amortization of deferred
compensation -- -- -- 34,260 --
------------ ------------ ----------- ------------ ------------
Total comprehensive loss
Balance, December 31, 1997 -- -- 30,884,301 (57,092) --
Conversion of preferred stock 1,493,398 $ 14,934 -- -- --
Issuance of preferred stock -- -- 17,665,593 -- --
Issuance of Common Stock, net
of issuance costs -- -- 7,042,143 -- --
Net loss -- -- -- -- --
Amortization of deferred
Compensation -- -- (28,542) 57,092 --
Cancellation of restricted stock -- -- 500 -- --
Issuance of warrants in connection
with senior subordinated notes -- -- 2,600,000 -- --
------------ ------------ ----------- ------------ ------------
Total comprehensive loss
Balance, December 31, 1998 1,493,398 14,934 58,163,995 -- --
Issuance of preferred stock -- -- 4,999,286 -- --
Conversion of preferred stock -- -- (154,797) -- --
Issuance of warrants in connection with
senior subordinated notes -- -- 1,268,379 -- --
Net Loss -- -- -- -- --
------------ ------------ ----------- ------------ ------------
Total comprehensive loss
Balance, December 31, 1999 1,493,398 $ 14,934 64,276,863 -- --
============ ============ =========== ============ ============
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Total
Retained Comprehensive
Earnings Total Income (loss)
<S> <C> <C> <C>
Balance, June 30, 1996 29,312,511 30,507,269
Options exercised -- 11,000
Net income 2,195,734 2,195,734 $ 2,195,734
Change in unrealized holding gains
(losses) on marketable securities -- 70,339 70,339
Amortization of deferred
compensation -- 68,520
----------- ------------ ------------
Total comprehensive income $ 2,266,133
============
Balance, June 30, 1997 31,508,245 32,852,922
Issuance of preferred stock -- 18,921,352
Issuance of Common Stock -- 11,078,648
Net loss (363,585) (363,585) (363,585)
Change in unrealized holding gains
(losses) on marketable securities -- (9,957) (9,957)
Amortization of deferred
compensation -- 34,260
------------ ------------ ------------
Total comprehensive loss $ (373,542)
============
Balance, December 31, 1997 31,144,660 62,513,640
Conversion of preferred stock -- --
Issuance of preferred stock -- 17,668,117
Issuance of Common Stock, net
of issuance costs -- 7,146,884
Net loss (4,070,156) (4,070,156) (4,070,156)
Amortization of deferred
Compensation -- 28,550
Cancellation of restricted stock -- --
Issuance of warrants in connection
with senior subordinated notes -- 2,600,000
------------ ------------ ------------
Total comprehensive loss $ (4,070,156)
============
Balance, December 31, 1998 27,074,504 85,887,035
Issuance of preferred stock -- 5,000,000
Conversion of preferred stock -- --
Issuance of warrants in connection with
senior subordinated notes -- 1,268,379
Net Loss (3,832,345) (3,832,345) (3,832,345)
------------ ------------ ------------
Total comprehensive loss $ (3,832,345)
============
Balance, December 31, 1999 23,242,159 $ 88,323,069
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months
Years ended ended Year ended
December 31, December 31, June 30,
-------------------
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,832,345) $ (4,070,156) $ (363,585) $ 2,195,734
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 6,337,581 3,790,331 624,352 1,039,887
Amortization 6,492,998 2,842,112 122,120 284,164
Deferred income taxes (753,059) (1,168,254) 77,850 71,700
(Gain) loss on disposal of property and equipment 483,260 29,702 (11,984) (38,000)
Provision for (reduction in) doubtful accounts reserves 1,388,639 212,483 78,447 (43,248)
Provision for inventory reserves 1,928,648 1,542,222 190,479 150,077
Changes in operating assets and liabilities, net of impact of
acquisitions:
Accounts receivable 1,423,014 1,271,277 (1,284,618) 1,650,875
Inventories (764,793) (854,551) (382,708) (410,559)
Other current and other assets 2,637,599 98,087 (645,970) 321,329
Accounts payable, trade 2,643,465 (3,277,372) 925,424 (428,317)
Accrued expenses (1,778,423) (7,537,650) 1,033,169 (265,188)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities 16,206,584 (7,121,769) 362,976 4,528,454
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Smittybilt capital stock, net of cash acquired (16,748,816) -- -- --
Purchase of Deflecta-Shield Common Stock, net of cash acquired -- (3,155,683) (76,078,599) --
Purchase of Ventshade Common Stock, net of cash acquired -- (65,095,878) -- --
Purchase of marketable securities -- -- (2,496,978) (12,365,349)
Proceeds from the sale of Fibernetics 937,786 -- -- --
Proceeds from sales of marketable securities -- -- 13,761,900 4,963,330
Proceeds from redemptions of marketable securities -- -- 998,284 3,829,904
Purchases of property and equipment (6,070,984) (5,548,606) (866,888) (1,487,432)
Proceeds from sales of property and equipment 584,693 76,725 11,984 81,634
Change in restricted cash and marketable securities 524,343 (2,192,791) 255,132 (98,760)
Other investing activities -- (17,253) 470,336 (301,410)
------------- ------------- ------------- -------------
Net cash used in investing activities (20,772,978) (75,933,486) (63,944,829) (5,378,083)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 44,004,252 110,030,124 40,878,576 --
Debt issuance costs (315,250) (1,172,068) (300,000) --
Proceeds from issuance of common and preferred stock 5,000,000 25,000,000 30,000,000 11,000
Payment of long-term debt (44,515,041) (58,018,653) (460,000) (440,000)
Checks issued in excess of cash balances (350,869) 1,757,117 -- --
Payment of other liabilities -- (140,366) (24,333) (87,047)
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities 3,823,092 77,456,154 70,094,243 (516,047)
------------- ------------- ------------- -------------
Net (decrease) increase in cash and temporary cash investments (743,302) (5,599,101) 6,512,390 (1,365,676)
CASH AND TEMPORARY CASH INVESTMENTS:
Beginning of period 1,191,029 6,790,130 277,740 1,643,416
------------- ------------- ------------- -------------
End of period $ 447,727 $ 1,191,029 $ 6,790,130 $ 277,740
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Lund International Holdings, Inc. ("Holdings" or "Company"), through its
wholly-owned subsidiaries, Lund Industries, Incorporated ("Lund"),
Deflecta-Shield Corporation ("Deflecta-Shield"), Ventshade Company ("Ventshade")
and Smittybilt, Inc. ("Smittybilt"), designs, manufactures and distributes
aftermarket automotive accessories for light and heavy duty trucks, sport
utility vehicles, vans and passenger cars. The following is a summary of the
significant accounting policies used in the preparation of the Company's
consolidated financial statements:
Effective on December 31, 1997, the Company changed its year end from June 30 to
December 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holdings and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
TEMPORARY CASH INVESTMENTS
Temporary cash investments consist of money market funds and certificates of
deposit, which are stated at cost which approximates market. The Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be temporary cash investments.
RESTRICTED CASH AND MARKETABLE SECURITIES
Restricted cash consists of cash held by a trustee, to which access by the
Company is restricted in accordance with the Industrial Development Revenue
Bonds (the "Bonds") loan agreement (Note 4).
MARKETABLE SECURITIES
Marketable securities consist of debt securities. Marketable securities are
classified as available-for-sale securities and are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary results in a charge to
earnings resulting in the establishment of a new cost basis for the security.
Cost is determined on a specific identification basis.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method. The Company has established a reserve to record
inventories at estimated net realized value. Inventory reserves are determined
based on the Company's continuing analysis of inventory levels in excess of
current requirements or considered to be obsolete.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product. The Company estimates and
records provisions for sales returns and allowances based on its historical
experience.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line or accelerated methods over
their estimated useful lives. The useful lives of buildings, machinery and
equipment and furniture and fixtures are 25-32 years, 5-7 years and 3 years,
30
<PAGE>
respectively. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations for the period. The cost of maintenance
and repairs is charged to operations as incurred. Significant renewals and
betterments are capitalized.
INTANGIBLES
Intangibles consist of goodwill, customer lists, patents, workforce-in-place and
a non-compete agreement. Goodwill is amortized over twenty to forty years and
all other intangibles are amortized on a straight-line basis over their
estimated lives. Costs incurred in applications for new patents and purchases of
patents are capitalized and amortized over the life of the patent. Costs of
defending and protecting company patents are expensed when incurred.
LONG LIVED ASSETS
Long-lived assets are analyzed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The basis to value assets found to be impaired is determined by
calculating the sum of the undiscounted expected future cash flows less than the
carrying amount (depreciated value) of the asset. If the sum of these cash flows
is less than the carrying amount, an impairment loss is recognized.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Income tax expense
(benefit) is the tax payable (receivable) for the period and the change in
deferred income tax assets and liabilities during the period.
PRODUCT WARRANTY
The Company warrants its products with a limited lifetime warranty of varying
terms according to product line which covers actual product failure. The Company
accrues a liability for estimated warranty claims associated with products sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables and accrued expenses approximate
their fair value. The estimated fair value of long-term debt, which approximates
the carrying value, was determined using current rates offered to the Company of
issues with the same remaining maturity and approximate the carrying value.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 137, which delays the adoption
date of SFAS No. 133 and was issued in July, 1999, requires adoption of SFAS No.
133 for annual periods beginning after June 15, 2000. SFAS No. 133 establishes
standards for recognition and measurement of derivatives and hedging activities.
The Company will implement this statement in 2001 as required. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
financial position or results or operations.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". This SOP provides guidance on accounting for the
costs of computer software developed or obtained for internal
31
<PAGE>
use. The Company adopted SOP 98-1 beginning on January 1, 1999. The adoption did
not have a material impact on the Company's financial position or results of
operations.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant areas which require the use of management's estimates relate to
allocation of purchase price of acquisitions to fair values of assets and
liabilities, provision for doubtful accounts reserves, reserves for inventory
obsolescence and accruals for warranty claims, customer rebates and advertising.
NOTE 2. ACQUISITIONS
- --------------------------------------------------------------------------------
SMITTYBILT, INC.
On January 28, 1999, the Company, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital stock of Smittybilt, Inc. for an
aggregate purchase price of $16,887,127, consisting of an initial purchase price
of $15,898,127 and direct transaction costs of $989,000. The Company also
assumed certain liabilities of $1,950,000 in capital lease obligation and notes
payable. The funds for the acquisition were obtained from: (i) the issuance of
common and preferred stock for the aggregate gross proceeds of $5 million; (ii)
proceeds from a new term loan of $9.5 million; and (iii) $5 million gross
proceeds from the issuance of 12.5% senior subordinated notes.
Smittybilt, headquartered in Corona, California, is a manufacturer and supplier
to the automotive aftermarket of tubular products such as grill and brush
guards, tail light guards and step bars, as well as other complimentary
accessories for light trucks and SUV's. Smittybilt is a supplier to leading
warehouse distributors and automotive retailers supplying the automotive
aftermarket. This acquisition gives the Company an opportunity to participate in
the tubular products market in which it did not previously sell.
This acquisition has been accounted for by the purchase method of accounting and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed and additional purchase obligations based on the
estimated fair values at the date of acquisition.
The estimated fair values of assets acquired and liabilities assumed are
summarized as follows (in thousands):
Cash $ 138
Accounts receivable 2,805
Inventories 4,050
Other current assets 557
Property and equipment 3,637
Non-compete agreement 1,000
Goodwill 9,641
Other assets 101
Accounts payable (1,854)
Other current liabilities (1,011)
Capital lease obligations (1,930)
Notes payable (20)
Deferred income taxes (227)
---------
$ 16,887
=========
32
<PAGE>
Non-Compete Agreement valued at $1,000,000 will be amortized over a six year
period. Goodwill, representing the excess of the purchase price over the net
identifiable tangible and intangible assets of $9,641,000, will be amortized
over 40 years. The results of operations of Smittybilt are included in the
accounts of the Company commencing as of January 28, 1999, the date of the
acquisition.
VENTSHADE HOLDINGS, INC.
On December 23, 1998, the Company, through a wholly-owned subsidiary, acquired
all of the issued and outstanding capital stock of Ventshade for an aggregate
purchase price of $69,367,619 consisting of an initial purchase price of
$66,875,000, direct transaction costs of $1,758,361 and a working capital
adjustment of $734,258. The funds for the acquisition were obtained from: (i)
issuance of common and preferred stock for aggregate gross proceeds of $25
million, (ii) proceeds from a new term loan to the Company of $25 million, (iii)
$20 million gross proceeds from the issuance of 12.5% senior subordinated notes
and (iv) seller financing of $875,000. In 1999, AVS was merged into Ventshade
Holdings, Inc. with AVS becoming the surviving corporation.
AVS is a manufacturer and supplier to the automotive aftermarket of shades,
visors, deflectors and light covers used on pick-up trucks, sport utility
vehicles, minivans (collectively "light trucks") and passenger cars. AVS is a
supplier to all major channels of distribution for automotive accessories,
including automotive retailers, mass merchandisers, leading warehouse
distributors and original equipment manufacturers. The Company intends to
utilize management expertise, assets and distribution channels obtained in
connection with the acquisition for the continued production and distribution of
accessories for light trucks and passenger cars.
The acquisition has been accounted for by the purchase method of accounting and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed and additional purchase obligations based on the
estimated fair values at the date of acquisition.
The estimated fair values of assets acquired and liabilities assumed are
summarized as follows (in thousands):
Cash $ 904
Accounts receivable 4,465
Inventories 13,423
Other current assets 3,069
Property and equipment 7,296
Goodwill 41,544
Customer list, non-compete agreement and
work force-in-place 12,201
Other assets 87
Accounts payable (2,228)
Other current liabilities (5,435)
Other liabilities (5,958)
-------
$69,368
=======
Customer list, non-compete agreement and work force-in-place valued at an
aggregate of $12,201,000 will be amortized over ten years, six years and five
years, respectively. Goodwill, representing the excess of the purchase price
over the net identifiable tangible and other intangible assets of $41,544,000,
will be amortized over 40 years. The results of operations of Ventshade are
included in the accounts of the Company commencing as of December 23, 1998, the
date of acquisition.
33
<PAGE>
DEFLECTA-SHIELD CORPORATION
Effective December 30, 1997, the Company, through a wholly-owned subsidiary,
acquired 98.8% of the outstanding shares of Deflecta-Shield. The remaining 1.2%
of outstanding shares were acquired on February 27, 1998. Deflecta-Shield
manufactures fiberglass, plastic and aluminum appearance accessories for light
and heavy trucks and also supplies suspension systems for light trucks.
The aggregate purchase price of $78,919,000 represents cash paid of $76,800,000
for 100% of the outstanding shares of Deflecta-Shield at $16 per share and
direct transaction costs of $2,119,000. The acquisition was financed using the
Company's available unrestricted cash and investments, borrowings under the
Company's tender loan facility and new consolidated loan facility and proceeds
from the issuance of common and preferred stock. The aggregate purchase price
excludes Deflecta-Shield's outstanding long-term debt on the date of acquisition
of $9,354,000 which was paid off on February 27, 1998 using proceeds from the
Company's new consolidated loan facility.
As of December 31, 1997, the Company had paid $75,879,000 in cash to acquire
98.8% of the outstanding shares of Deflecta-Shield and incurred direct
transaction costs of $2,119,000. On February 27, 1998, the Company acquired the
remaining 1.2% of outstanding shares for $921,000. The remaining amount of the
payment of $921,000 for the outstanding shares is included as a component of
other liabilities at December 31, 1997.
The acquisition has been accounted for by the purchase method of accounting and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed and additional purchase obligations based on the
estimated fair values at the date of acquisition. Additional purchase
obligations recorded include $2,489,000 for severance and other restructuring
costs associated with the shut down and consolidation of certain acquired
facilities. At December 31, 1998, aggregate remaining accruals relating to these
obligations were $1,536,000.
The estimated fair values of assets acquired and liabilities assumed which
reflects adjustments to estimated fair values recorded in 1998 are summarized as
follows (in thousands):
Cash $ 392
Accounts receivable and other current assets 16,863
Inventories 11,190
Property and equipment 12,966
Goodwill 61,295
Customer lists and patents 5,126
Accounts payable (6,109)
Accrued settlement of stock options (3,451)
Accrued severance and restructuring costs (2,489)
Long-term debt (9,354)
Other liabilities (7,510)
-------
$78,919
=======
Customer lists and patents valued at an aggregate amount of $5,126,000 will be
amortized over ten years for customer lists and six years for patents. Goodwill,
representing the excess of the purchase price over the net identifiable tangible
and other intangible assets of $61,295,000, will be amortized over 40 years.
34
<PAGE>
The results of operations of Deflecta-Shield are included in the accounts of the
Company commencing as of December 30, 1997, the date of acquisition.
Deflecta-Shield's results of operations from the date of acquisition to December
31, 1997 were not material.
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of the Company as if the acquisitions
of Smittybilt and Ventshade had occurred as of January 1, 1998, giving effect to
purchase accounting adjustments. The pro forma data is for informational
purposes only and may not necessarily reflect the results of operations of the
Company had the acquired businesses operated as part of the Company for the
periods presented (in thousands, except per-share amounts).
Years ended December 31,
------------------------
1999 1998
---- ----
Net sales $195,549 $183,905
Net loss (4,120) (5,510)
Basic and diluted loss per share (.49) (.87)
NOTE 3. OTHER FINANCIAL STATEMENT DATA
- --------------------------------------------------------------------------------
ADVERTISING
The Company expenses the production and space costs of advertising the first
time the advertising takes place, except for costs of direct response
advertising, product catalogs and brochures, which are capitalized and amortized
over the expected period of future benefits, generally over periods not
exceeding one year.
At December 31, 1998, $265,500 of direct response advertising costs, product
catalogs and brochures were reported as other current assets, net of accumulated
amortization. There were no capitalized costs at December 31, 1999. Advertising
expense was $8,668,204, $5,489,284, $1,518,260 and $2,738,285 for the years
ended December 31, 1999 and 1998, six-months ended December 31, 1997 and the
year ended June 30, 1997, respectively.
MARKETABLE SECURITIES
Net realized (losses) gains included in net (loss) income for the six-month
period ended December 31, 1997 and the year ended June 30, 1997 were ($28,815)
and $11,125, respectively.
35
<PAGE>
SELECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade accounts receivable $ 35,728,154 $ 35,623,839
Less allowance for doubtful accounts (2,891,968) (2,234,345)
------------ ------------
$ 32,836,186 $ 33,389,494
============ ============
INVENTORIES
Raw materials 12,285,363 11,083,980
Work-in-process 4,701,629 1,350,946
Finished goods 7,227,476 9,335,770
------------ ------------
$ 24,214,468 $ 21,770,696
============ ============
PROPERTY AND EQUIPMENT
Land 137,388 197,493
Buildings 15,926,250 15,794,838
Machinery and equipment 24,603,866 17,387,045
Furniture and fixtures 4,494,625 3,599,109
------------ ------------
45,162,129 36,978,485
Less accumulated depreciation (13,830,790) (7,410,279)
------------ ------------
$ 31,331,339 $ 29,568,206
============ ============
INTANGIBLES
Goodwill 116,449,425 104,741,672
Customer lists, patents and other 16,229,831 17,966,831
------------ ------------
132,679,256 122,708,503
Less accumulated amortization (8,177,150) (2,874,534)
------------ ------------
$124,502,106 $119,833,969
============ ============
ACCRUED EXPENSES
Acquisition transaction costs -- 3,375,258
Severance and other restructuring costs 278,366 1,563,011
Payroll and payroll related costs 4,130,447 3,683,968
Customer rebates 3,107,664 1,290,46
Warranty 3,153,347 3,236,683
Advertising 685,034 1,338,539
Checks issued in excess of cash balances 1,406,248 1,757,117
Other, principally property taxes and accrued interest 3,293,704 1,505,253
------------ ------------
$ 16,054,910 $ 17,750,298
============ ============
</TABLE>
The following provides supplemental disclosures of cash flow activity:
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended Year ended
------------------ December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash paid during the period for:
Income taxes $ 424,000 $ 572,500 $ 19,515 $1,102,187
Interest 10,259,481 5,134,616 143,471 301,209
</TABLE>
36
<PAGE>
Significant non-cash investing and financing activities include the following:
Year ended December 31, 1999:
* In connection with the financing of the 12.5% senior subordinated notes,
warrants were issued to purchase 18,409 shares of Series B Preferred Stock
or 184,090 shares of Common Stock. The warrants were valued at $1,268,379
and charged to additional paid in capital.
* In connection with the acquisition of Smittybilt (Note 2), the Company
assumed liabilities of $5,042,000.
* The Company has reflected in its Statement of Changes in Stockholder's
Equity the conversion of 156,359.9 Series B Preferred Shares into 1,563,599
Common Shares.
Year ended December 31, 1998:
* In connection with the financing of the 12.5% senior subordinated notes,
warrants were issued to purchase either 52,074.9 shares of series B
preferred stock or 520,749 shares of Common Stock (Note 4). The warrants
were valued at $2,600,000 and charged to additional paid-in capital.
* In connection with the equity investment (Note 11) on December 23, 1998,
transaction costs of $185,000 were charged to additional paid-in capital.
* In connection with the acquisition of Ventshade (Note 2), the Company
assumed liabilities of $13,621,000 and obtained seller financing of
$875,000.
* Accrued acquisition transaction costs of the Company included in the
purchase price of Ventshade were $1,758,361.
Six months ended December 31, 1997:
* In connection with the acquisition of Deflecta-Shield (Note 2), the Company
assumed liabilities of $28,288,000.
* Accrued acquisition transaction costs of the Company included in the
purchase price of Deflecta-Shield were $1,526,233.
* The change in unrealized holding gains on marketable securities was $9,957.
Year ended June 30, 1997:
* The change in unrealized holding gains on marketable securities was
$70,399.
37
<PAGE>
NOTE 4. FINANCING ARRANGEMENTS
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
December 31,
--------------------------
1999 1998
---- ----
Revolving credit facility $8,118,584 $16,957,842
Term loan A 15,560,200 18,875,000
Term loan B 21,558,618 21,925,000
Term loan C 33,007,255 25,000,000
12.5% senior subordinate notes, net of unamortized
discount of $3,376,970 and $2,592,137 at
December 31, 1999 and 1998, respectively 21,623,030 17,407,863
Industrial Development Revenue Bonds 3,105,657 3,630,000
Capital lease obligations 1,484,750
Other 250,800 250,696
----------- -----------
104,708,894 104,046,401
Less current maturities (9,591,309) (4,250,696)
----------- -----------
Long-term debt $95,117,585 $99,795,705
=========== ===========
At December 31, 1999, long-term debt maturities, excluding the unamortized
discount of $3,376,970, are as follows:
2000 $ 9,591,309
2001 8,509,647
2002 18,396,394
2003 14,540,425
2004 15,212,709
Thereafter 41,835,380
------------
$108,085,864
============
REVOLVING CREDIT LOAN AND TERM LOANS
On January 28, 2000, the Company received a Waiver and Third Amendment
("Amendment") to its consolidated $106.5 million loan facility which waived the
Company's defaults that existed up through and including December 31, 1999, for
the financial covenants established in the original agreements. In addition, the
Amendment changed the Company's financial performance covenants contained in
these agreements for the year 2000. The Amendment also provided that a
one-quarter percent increase was made to the floating rate interest pricing
tables, as described in the following paragraphs, in the event the Company's
indebtedness to earnings before interest, taxes, depreciation and amortization
("EBITDA") ratio is greater than 5.50:1.00. The Company incurred a fee of
$250,000 in connection with the Amendment.
In connection with the Company's December 23, 1998 acquisition of Ventshade, the
Company amended its then existing consolidated loan facility that was originally
closed on February 27, 1998. The amended credit agreement includes three
long-term notes ("Term A", "Term B" and "Term C"), with balances aggregating
$76,500,000 and a revolving credit facility of $30,000,000 (the "Revolver"). The
Term C note was added to the consolidated loan facility based on the occurrence
of two events: (i) the acquisition of Ventshade that occurred on December 23,
1998, and (ii) the acquisition of Smittybilt, Inc. that occurred on January 28,
1999 (Note 2). As a result of the Ventshade acquisition on December 23, 1998,
the
38
<PAGE>
Company drew down $25,000,000 against the Term C note and as a result of the
Smittybilt acquisition on January 28, 1999, the Company drew down the remaining
$9,500,000 against the Term C note.
Interest rates float between the prime rate plus 1.50% to 2.00% for Term A and
the Revolver, the prime rate plus 2.00% to 2.50% for Term B and the prime rate
plus 2.50% to 3.00% for Term C, with the actual interest rates based on a grid
determined by the ratio of total indebtedness to EBITDA, as defined by the
credit agreement. At the option of the Company, borrowings may also bear
interest at London Inter-Bank Offering Rates ("LIBOR") plus 2.75% to 3.25% for
Term A and the Revolver, LIBOR plus 3.25% to 3.75% for Term B and LIBOR plus
3.75% to 4.25% for Term C, with the actual pricing based on the ratio of total
indebtedness to EBITDA. As indicated above, the Amendment provides for a
one-quarter percent increase to these floating rate interest pricing tables in
the event the Company's indebtedness to EBITDA ratio is greater than 5.50:1.00.
The Revolver also requires an unused commitment fee at the annual rate of .50%
payable quarterly. At December 31, 1999, the prime rate was 8.50% and rates on
LIBOR borrowings ranged from 6.188% to 6.50%.
Interest rates under the credit agreement prior to the amendment on December 23,
1998, floated between the prime rate plus .50% to 1.50% for Term A and the
Revolver and the prime rate plus 1.00% to 1.75% for Term B with actual pricing
based on the ratio of total indebtedness to EBITDA. The credit agreement also
allowed for borrowings bearing interest at LIBOR plus 1.75% to 2.75% for Term A
and the Revolver and LIBOR plus 2.25% to 3.25% for Term B with actual pricing
based on the ratio of total indebtedness to EBITDA.
Term A requires principal payments in installments through 2002, Term B requires
principal payments in installments through 2004 and Term C requires principal
payments in installments through 2005. The Company may voluntarily prepay any of
the term loans without penalty. The Company must prepay borrowings in an amount
equal to 75% of excess cash flow, as defined by the amended credit agreement,
within one hundred days of each year-end.
The consolidated loan facility contains certain restrictive financial covenants,
including limitations on incurring debt, capital expenditures, operating leases,
mergers or consolidations, acquisitions and transactions with affiliates. In
addition, the Company must maintain minimum EBITDA levels and meet certain fixed
charge, interest and indebtedness to EBITDA ratios. In the event the fixed
charge coverage ratio, as defined, drops below a minimum level for the year
ending December 31, 1999, or for any quarterly period thereafter and upon
request of the Company's senior lenders, the loan facility also requires an
affiliate of Harvest Partners (Note 6) to contribute $5,000,000 in additional
equity. As described above, the Amendment waived the Company's violation of
certain financial covenants during the third and fourth quarters of 1999. In
addition, the Company's fixed charge coverage dropped below the minimum level in
1999.
The amended credit agreement is collateralized by all of the consolidated assets
of the Company, excluding those assets which collateralize the Bonds.
Additionally, the amended credit agreement is collateralized by all of the
capital stock of the subsidiaries of the Company.
Borrowings under the Revolver are subject to limitations based on the lesser of
$30,000,000 less any issued letters of credit or a percentage of eligible
receivables and inventories also adjusted for any issued letters of credit. The
amount available for borrowing under the Revolver as of December 31, 1999, was
$21,881,416. The Revolver terminates on December 31, 2002.
39
<PAGE>
12.5% SENIOR SUBORDINATED NOTES
On December 23, 1998, the Company entered into a Securities Purchase Agreement
under which it issued 12.5% Senior Subordinated Notes (the "Notes") due December
31, 2006 in the aggregate amount of $25,000,000. Under terms of the Securities
Purchase Agreement, the Company received $20,000,000 upon the acquisition of
Ventshade on December 23, 1998 (Note 2) and drew the remaining $5,000,000 upon
the acquisition of Smittybilt, Inc. on January 29, 1999 (Note 2). Interest on
the Notes is payable semi-annually. Prior to January 1, 2004, the Company may
prepay all or any part of the Note upon the concurrent payment of a premium
ranging from 1% to 3% of the principal amount prepaid. On January 1, 2004 and
thereafter, the Company may prepay all or any part of the Note without incurring
a prepayment premium. The Securities Purchase Agreement contains certain
restrictive financial covenants, including limitations on incurring debt,
capital expenditures, operating leases, merger or consolidation, acquisitions
and transactions with affiliates. In addition, the Company must maintain minimum
EBITDA levels and meet certain interest coverage ratios. The Company was in
violation of certain financial covenants during the third and fourth quarters of
1999. In January 2000, the Company obtained a waiver of these violations from
the subordinated lenders and received a Waiver and First Amendment to the
Securities and Purchase Agreement which changed the financial performance
covenants for the year 2000.
In connection with the issuance of the Notes on December 23, 1998, the Company
issued warrants to the subordinated lenders for the purchase of 520,749 shares
of the Company's Common Stock at $.11 per share, or 52,074.9 shares of Series B
Preferred Stock under certain circumstances. Upon the funding of $5,000,000 in
connection with the purchase of Smittybilt, Inc. in January 1999, the Company
issued an additional warrant giving the subordinated lenders the right to
purchase 184,090 shares of the Company's Common Stock at $.11 per share, or
18,409 shares of Series B Preferred Stock under certain circumstances. The
warrant issued December 23, 1998 was valued at $2,600,000 and the warrant issued
January 29, 1999 was valued at $1,268,379. The value of the two warrants is
reflected as a component of additional paid-in capital. The amount is also
presented as a discount on the Note and is being amortized to interest expense
through December 31, 2006 using the straight-line method, which approximates the
effective interest method.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The Bonds were issued to provide the Company with funding to finance the
constructing and equipping of its manufacturing facility, completed in 1995. The
loan agreement contains certain minimum and maximum compliance covenant ratios,
limitations related to mergers or acquisitions and restricts certain cash and
marketable securities in accordance with the terms of the agreement.
On December 29, 1998, the Company defeased the Bonds by placing its restricted
cash and marketable securities held pursuant to the Bond agreement as of that
date and an additional deposit of $3,181,560 in escrow sufficient to meet the
remaining principal and interest payments of the Bonds. The funds held in escrow
could be used only for the purpose of satisfying the debt service requirements
of the Bonds. Under the terms of the Bond agreement, the Company guaranteed the
repayment of the Bonds through January 2000. Accordingly, the Bonds and the
related restricted cash and marketable securities continued to be presented as
assets and obligations of the Company until such guarantee expired in January
2000. In January 2000, the Bonds and the related restricted cash and marketable
securities were removed from the Company's balance sheet.
40
<PAGE>
Total restricted cash and marketable securities held pursuant to the Bond
agreement at December 31, 1999 and 1998 were as follows:
December 31,
------------------------
1999 1998
---- ----
Restricted cash - current $ 3,386,704 --
Restricted cash and marketable securities, non-current -- $ 3,911,047
----------- -----------
Total restricted cash and marketable securities $ 3,386,704 $ 3,911,047
=========== ===========
NOTE 5. BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". The Company's business activities are
organized around three (3) primary business units: light truck, suspension and
heavy truck. Internal reporting conforms to this organizational structure with
no significant differences in accounting policies applied. The Company allocates
resources to each business unit based on net sales and net employed capital
which is defined as current assets; property, plant and equipment, net; other
assets excluding deferred taxes and goodwill and other intangibles; less current
liabilities and other liabilities excluding deferred taxes and debt. The
Company's business is the design, manufacture, marketing and distribution of
automotive and heavy truck accessories. In so doing, the Company's business
units are divided into automotive appearance accessories for light trucks, sport
utility vehicles and vans; appearance accessories for heavy trucks; and
suspension systems for light trucks and sport utility vehicles. Prior to
December 31, 1997 and the acquisition of Deflecta-Shield, the Company's line of
business was solely appearance accessories for light trucks, sport utility
vehicles and vans. Heavy truck accessories and suspension systems were
introduced with the acquisition of Deflecta-Shield. A summary of the Company's
business activities reported by its three business segments follows:
41
<PAGE>
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended Year ended
-------------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Light truck $ 162,290,659 $ 85,018,286 $ 19,523,308 $ 43,304,927
Heavy truck 18,871,823 16,853,704 -- --
Suspension 13,206,485 10,721,568 -- --
------------- ------------- ------------- -------------
Total $ 194,368,967 $ 112,593,558 $ 19,523,308 $ 43,304,927
------------- ------------- ------------- -------------
(LOSS) INCOME FROM OPERATIONS:
Light truck 1,952,306 (4,952,933) (568,308) 2,765,595
Heavy truck 4,682,568 3,873,692 -- --
Suspension 1,807,208 918,282 -- --
------------- ------------- ------------- -------------
Total 8,442,082 (160,959) (568,308) 2,765,595
------------- ------------- ------------- -------------
Interest expense (12,746,791) (5,483,994) (159,511) (293,289)
Interest income 67,057 105,851 306,433 694,857
Other, net (320,693) (146,377) (63,127) (37,643)
------------- ------------- ------------- -------------
(LOSS) INCOME BEFORE TAXES $ (4,558,345) $ (5,685,479) $ (484,513) $ 3,129,520
------------- ------------- ------------- -------------
IDENTIFIABLE ASSETS EMPLOYED:
Light truck 73,419,297 75,286,399 69,009,425 36,391,544
Heavy truck 7,747,440 9,257,280 --
Suspension 4,566,283 4,913,058 -- --
Corporate (a) 140,963,341 131,899,967 75,018,037 5,053,162
------------- ------------- ------------- -------------
Total $ 226,669,361 $ 221,356,704 $ 144,027,462 $ 41,444,706
------------- ------------- ------------- -------------
DEPRECIATION & AMORTIZATION:
Light truck 10,527,058 5,320,771 738,626 1,308,360
Heavy truck 921,899 796,190 -- --
Suspension 222,092 153,380 -- --
Corporate (b) 1,159,530 362,103 7,846 15,691
------------- ------------- ------------- -------------
Total $ 12,830,579 $ 6,632,443 $ 746,472 $ 1,324,051
------------- ------------- ------------- -------------
PURCHASE OF PROPERTY
AND EQUIPMENT:
Light truck 5,855,021 4,964,945 866,888 1,487,432
Heavy truck 155,133 521,272 -- --
Suspension 60,830 62,389 -- --
------------- ------------- ------------- -------------
Total $ 6,070,984 $ 5,548,606 $ 866,888 $ 1,487,432
============= ============= ============= =============
</TABLE>
(a) Corporate assets not allocated to the Company's business segments are
restricted cash and marketable securities, goodwill and intangibles,
deferred income taxes and certain other assets.
(b) Corporate depreciation and amortization consists of amortization of
deferred financing costs and discount on the 12.5% senior subordinated
notes which are included in interest expense.
42
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. RELATED PARTY TRANSACTIONS
The Company is a party to a Second Amended and Restated Governance Agreement
(the "Governance Agreement") with LIH Holdings, LLC, LIH Holdings II, LLC and
LIH Holdings III, LLC, affiliates of Harvest Partners, Inc. ("Harvest Partners")
and is party to a Services Agreement with Harvest Partners. Harvest Partners
owns 49.9% of the Company's voting Common Stock and 63% of the Company's equity.
Under the Services Agreement, the Company paid Harvest Partners $287,500,
$175,000 and $37,500 for the years ended December 31, 1999 and 1998 and the six
months ended December 31, 1997, respectively. In addition, the Company paid
Harvest Partners $415,009 and $1,525,949 in the years ended December 31, 1999
and 1998, respectively, for fees and out-of-pocket expenses for assisting the
Company in negotiating the acquisition of Ventshade and Smittybilt, locating
equity partners, structuring and negotiating debt refinancings and locating and
negotiating with subordinated lenders. Under the Services Agreement, Harvest
Partners is entitled to service advisory fees of $300,000 for the three quarters
ending September 30, 2000. The Services Agreement expires on September 9, 2000.
Former members of the Company's Board of Directors had an ownership interest in
another entity from which the Company purchased products in the amounts of
$1,030,768 and $1,460,998, during the six-month period ended December 31, 1997
and the year ended June 30, 1997, respectively.
NOTE 7. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
OPERATING LEASE COMMITMENTS
The Company has various non-cancellable operating leases for certain facilities
and certain equipment related to the Company's manufacturing facilities and
computer system. Total lease expense for the years ended December 31, 1999 and
1998, the six-month period ended December 31, 1997 and for the year ended June
30, 1997 was $2,603,357, $1,599,367, $404,903 and $886,919, respectively.
At December 31, 1999, future minimum lease payments required under
non-cancellable operating leases for the next five years are as follows:
2000 $2,736,451
2001 1,827,119
2002 1,681,555
2003 1,821,835
2004 1,697,037
-----------
$9,763,997
==========
LITIGATION
Certain legal claims, suits and complaints have been filed or are pending
against the Company arising out of the normal course of business. These claims
are in various stages of discovery and the ultimate outcome cannot be
determined; however, the maximum amount of the claims are generally considered
to be within the Company's insurance limits. While the results of litigation
cannot be predicted with certainty, management believes the final outcome of
such litigation will not have a material adverse effect on the Company's
consolidated financial position.
43
<PAGE>
NOTE 8. SIGNIFICANT CUSTOMERS
- --------------------------------------------------------------------------------
During the six-month period ended December 31, 1997 and the year ended June 30,
1997, one of the Company's customers represented approximately 13.4% and 15.1%,
respectively, of net sales. During the years ended December 31, 1999 and 1998,
none of the Company's customers represented over 10% of net sales.
At December 31, 1999 and 1998, one of the Company's customers represented
approximately 16.8 % and 19.7%, respectively, of the Company's accounts
receivable.
NOTE 9. INCOME TAXES
- --------------------------------------------------------------------------------
Income tax (benefit) expense is summarized as follows:
Years ended Six months
December 31, ended Year ended
------------------ December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
Current:
Federal $ (58,839) $ (453,669) $ (183,778) $ 734,186
Foreign -- -- -- 26,900
State 85,898 6,600 (15,000) 101,000
----------- ----------- ----------- -----------
27,059 (447,069) (198,778) 862,086
Deferred:
Federal (639,082) (1,050,734) 70,550 65,300
State (113,977) (117,520) 7,300 6,400
----------- ----------- ----------- -----------
(753,059) (1,168,254) 77,850 71,700
----------- ----------- ----------- -----------
$ (726,000) $(1,615,323) $ (120,928) $ 933,786
=========== =========== =========== ===========
The effective tax rate differs from the statutory federal income tax rate as
follows:
Years ended Six months
December 31, ended Year ended
--------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
Statutory federal income
tax rate (34.0)% (34.0)% (34.0)% 34.0%
State income taxes,
net of federal tax effect (0.6) (2.6) (1.2) 2.3
Non-deductible Goodwill 19.4 9.3 -- --
Tax exempt interest (0.2) (0.5) 15.8 (6.3)
Non-recurring transaction
expenses -- -- (15.7) --
Foreign Sales Corporation -- -- -- (1.7)
Other, net (0.5) (0.6) 10.1 1.5
---- ---- ---- ----
(15.9)% (28.4)% (25.0)% 29.8%
==== ==== ==== ====
44
<PAGE>
The tax effects of temporary differences that give rise to current and
non-current deferred income tax assets and liabilities are as follows:
December 31,
1999 1998
---- ----
Allowance for doubtful
Accounts $ 1,058,460 $ 654,900
Inventory capitalization 324,318 328,674
Accruals not currently
deductible for tax purposes 3,337,572 2,868,714
Other, net 580,101 447,941
----------- -----------
Current deferred income
tax asset $ 5,300,451 $ 4,300,229
=========== ===========
Depreciation $(2,342,077) $(1,597,515)
Amortization of intangibles (4,198,256) (5,515,409)
Other, net 609,331 513,209
----------- -----------
Non-current deferred income
tax liability $(5,931,002) $(6,599,715)
=========== ===========
There is no valuation allowance related to the deferred tax asset as of December
31, 1999 or December 31, 1998.
NOTE 10. STOCK OPTIONS
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OPTIONS
The Company adopted Stock Option Incentive Plans (the "Plans"), which authorize
grants of options to purchase up to an aggregate of 1,650,000 shares of the
Company's Common Stock, respectively. The option prices may not be less than the
fair market value of the Common Stock at the time the option is granted. Options
expire ten years after the date granted or on a prior date as fixed by the Board
of Directors or appropriate committee. Under the Plans, the option may become
exercisable at the date of grant or as determined by the Board of Directors or
appropriate committee.
On October 15, 1997, the Company's Board of Directors approved the repricing to
the then current fair market value of $13.875 of 396,000 of the total 436,000
employee incentive stock options outstanding as of that date. Such repriced
options had original exercise prices ranging from $16.00 to $21.25.
45
<PAGE>
Stock option activity is summarized as follows:
Number Weighted Average
of Shares Exercise Price Per Share
------------ ------------
Balance, June 30, 1995 390,168 $ 17.290
Granted 120,000 15.670
Cancelled (45,600) 16.125
Exercised (19,068) 11.580
------------ ------------
Balance, June 30, 1996 445,500 17.220
Cancelled (9,500) 16.125
------------ ------------
Balance, June 30, 1997 436,000 17.240
Granted 32,500 12.625
Cancelled (7,500) 13.875
------------ ------------
Balance, December 31, 1997 461,000 13.750
Granted 490,000 9.619
Cancelled (318,000) 13.804
------------ ------------
Balance, December 31, 1998 633,000 10.528
------------ ------------
Granted 629,500 6.515
Cancelled (351,500) 10.915
------------ ------------
Balance, December 31, 1999 911,000 $ 7.606
============ ============
At December 31, 1999, the weighted average exercise price and remaining life of
the stock options are as follows:
<TABLE>
<CAPTION>
Range of exercise price $6.125 $6.625 $12.625-$13.875
- ------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Total options outstanding 388,500 360,000 162,500
Weighted average exercise price $6.125 $6.625 $13.317
Weighted average remaining life
in years 9.07 9.15 7.13
Options exercisable 50,000 -- 74,500
Weighted average price of
exercisable options 6.125 -- 13.551
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
The Company has a Non-Employee Director Stock Option Plan, as amended, which
authorizes grants of options to purchase up to 100,000 shares of the Company's
Common Stock.
The option price must be 100% of the fair market value of the Common Stock at
the time the option is granted. Options expire five years from the date of
grant. Options become exercisable at the date of grant or as determined by the
Board of Directors or appropriate committee. During the year ended December 31,
1999, 10,000 options were issued, 14,000 were cancelled and no options were
exercised. Options outstanding at December 31, 1999 were 50,000 shares at $5.875
to $14.00 per share. Total shares exercisable at December 31, 1999 were 50,000
shares, which have a weighted average exercise price of $10.86 and a weighted
average remaining life of 3.4 years.
46
<PAGE>
On October 15, 1997, the Company's Board of Directors approved the repricing to
the then current fair market value of $13.875 of 12,000 of the total 34,000
non-employee director stock options outstanding as of that date.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
The Company measures compensation cost for its stock option plans using the
intrinsic value method of accounting. Had the Company used the fair-value-based
method of accounting for its stock option plans and charged compensation cost
against income over the vesting period, net (loss) income and basic and diluted
net (loss) income per share for the years ended December 31, 1999 and 1998, the
six months ended December 31, 1997 and the year ended June 30, 1997 would have
been the following pro-forma amounts:
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended Year ended
--------------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income:
As reported $ (3,832,345) $ (4,070,156) $ (363,585) $ 2,195,734
Pro forma (4,852,050) (4,623,010) (965,447) 2,072,488
Basic and diluted (loss) earnings per share
As reported (.46) (.64) (.08) .50
Pro forma (.58) (.73) (.22) .47
</TABLE>
The weighted-average grant-date fair value of options granted during the years
ended December 31, 1999 and 1998, the six-month period ended December 31, 1997
and the year ended June 30, 1997 was $3.18, $4.48, $6.31 and $5.02,
respectively. The weighted-average grant-date fair value of options was
determined by using the fair value of each option grant on the date of grant,
utilizing the Black-Scholes option-pricing model and the following key
assumptions:
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended Year ended
---------------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Risk-free interest rates 5.22% - 6.51% 4.11% - 5.68% 5.81% - 6.21% 6.21% - 6.29%
Expected life 5 years 5 years 5 years 4 years
Expected volatility 47.54% 45.54% 47.76% 47.47%
Expected dividends None None None None
</TABLE>
NOTE 11. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Capital Structure and Preferred Stock
The authorized stock of the Company consists of 25,000,000 shares of Common
Stock, par value $0.10 (the "Common Stock"), 3,000,000 shares of nonvoting Class
B-1 Common Stock, par value $0.01 (the "Class B Common Stock"), 2,000,000 shares
of Series A Preferred Stock, par value $0.01 (the "Series A Preferred Stock")
and 362,709 shares of nonvoting Series B Preferred Stock, par value $.01 (the
"Series B Preferred Stock").
Prior to the equity investment on December 23, 1998, there were 5,268,370 shares
of Common Stock and 1,493,398 shares of Class B Common Stock issued and
outstanding. In connection with the $25,000,000 equity investment on December
23, 1998, 1,047,412 shares of Common Stock were issued and 362,709
47
<PAGE>
shares of Series B Preferred Stock were authorized with 252,401.8 shares issued.
The Common Stock was issued at a price of $7.00 per share and the Series B
Preferred Stock was issued at a price of $70.00 per share. In connection with
the $5,000,000 equity investment on January 29, 1999, 71,428.5 shares of Series
B Preferred Stock were issued at a price of $70.00 per share.
In connection with the issuance of the Notes (Note 4) on December 23, 1998 and
January 29, 1999, the Company issued warrants to the subordinated lenders for
the purchase of 520,749 and 184,900 shares, respectively, of the Company's
Common Stock at $.11 per share, or 52,074.9 and 18,404 shares, respectively, of
Series B Preferred Stock under certain circumstances. The warrants are
exercisable in whole, or in part, through December 31, 2006.
The approval of the convertability of the Series B Preferred Stock was confirmed
by a positive shareholder vote on April 27, 1999. The Company has reflected on
its books the conversion of 156,359.9 shares of Series B Preferred on a ten for
one basis into 1,563,599 shares of its Common Stock. This conversion was
pursuant to the provisions of the Amended and Restated Governance Agreement
which restrict Harvest Partners and its affiliates from owning more than 49.9%
of the Company's Common Stock. The Class B Common Stock automatically converts
to Common Stock on September 9, 2000, or earlier if approved by the
non-management members of the Company's Board of Directors or as a result of a
change in the ownership structure.
NET INCOME (LOSS) PER SHARE
Basic EPS is calculated as net (loss) income divided by weighted average common
shares outstanding. The Company's dilutive securities are primarily issuable
under the Stock Option Incentive Plans, the Non-Employee Director Stock Option
Plan, stock warrants, preferred stock and restricted stock. Diluted EPS is
calculated as net income divided by weighted average common shares outstanding,
increased to include the assumed conversion of dilutive securities. Dilutive
securities are excluded from the calculation of weighted average common and
common equivalent shares outstanding in all loss periods, as their inclusion
would be anti-dilutive. If the Company did not have a net loss in the year ended
December 31, 1999, the weighted average common and common equivalent shares
outstanding would have been 9,078,691.
The following provides information related to the calculation of the Company's
basic and diluted EPS:
<TABLE>
<CAPTION>
Years ended Six months
December 31, ended Year ended
---------------- December 31, June 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 8,382,497 6,325,568 4,390,923 4,382,584
Potential common shares assuming
conversion of dilutive securities -- -- -- 982
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 8,382,497 6,325,568 4,390,923 4,383,566
========= ========= ========= =========
</TABLE>
48
<PAGE>
NOTE 12. RETIREMENT SAVINGS PLAN AND 401(K) PLAN
- --------------------------------------------------------------------------------
Prior to 1999, the Company had two 401(k) Retirement Savings Plans covering
substantially all of the employees of Lund and Deflecta-Shield. In addition, the
acquisitions of Auto Ventshade and Smittybilt added two additional plans in
1999. These four plans were merged during 1999 to form a single plan, the Lund
International 401(k) Retirement Plan. The Company sponsored plan provides for
employer matching and profit sharing contributions determined on a discretionary
basis by the compensation committee of the Board of Directors. The Company's
contributions to the plans for the years ended December 31, 1999 and 1998, the
six months ended December 31, 1997 and the year ended June 30, 1997 were
$373,315, $549,156, $75,761 and $93,227, respectively.
NOTE 13. TRANSITION PERIOD COMPARATIVE DATA
- --------------------------------------------------------------------------------
The following table presents certain financial information for the six-month
period ended December 31, 1997 and 1996, (in thousands, except per share
amounts):
Six months ended
Six months ended December 31, 1996
December 31, 1997 (unaudited)
----------------- -----------
Net sales $19,523 $20,752
Gross profit 6,577 7,030
(Loss) income before income taxes (485) 1,412
Income tax (benefit) expense (121) 487
Net (loss) income (364) 925
Basic and diluted (loss) earnings
per share (.08) .21
Weighted average common and
common equivalent shares
outstanding 4,390,923 4,377,671
NOTE 14. NON-RECURRING TRANSACTION
- --------------------------------------------------------------------------------
On September 9, 1997, Harvest Partners purchased 38% of the Company's
outstanding shares of Common Stock from the Company's former Chairman of the
Board and his family. In connection with this transaction, the Company recorded
a non-recurring charge of $1,174,299 which is not tax deductible. This charge
included $600,000 paid to the former Chairman of the Board for a covenant not to
compete and severance and $574,299 for investment banking, legal, accounting and
other related expenses.
49
<PAGE>
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Year ended
- ----------
December 31, 1999
- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 44,402 $ 54,239 $ 49,418 $ 46,310
Gross Profit 12,452 15,826 13,973 11,440
Net income (loss) (600) 540 (1,435) (2,337)
Basic (loss) earnings per share (.08) .07 (.17) (.25)
Diluted (loss) earnings per share (.08) .06 (.17) (.25)
<CAPTION>
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Year ended
- ----------
December 31, 1998
- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 27,185 $ 29,897 $ 29,342 $ 26,170
Gross Profit 7,964 9,294 8,016 5,495
Net income (loss) (261) 163 (1,229) (2,743)
Basic (loss) earnings per share (.05) .03 (.18) (.40)
Diluted (loss) earnings per share (.05) .02 (.18) (.40)
<CAPTION>
September 30 December 31
------------ -----------
Six months ended
- ----------------
December 31, 1997
- -----------------
<S> <C> <C>
Net sales $ 10,028 $ 9,495
Gross profit 3,404 3,173
Net (loss) income (519) 155
Basic and diluted earnings (loss) per share (.12) .04
<CAPTION>
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Year ended
- ----------
June 30, 1997
- -------------
<S> <C> <C> <C> <C>
Net sales $ 10,406 $ 10,346 $ 10,441 $ 12,112
Gross profit 3,346 3,684 3,530 4,214
Net income 462 463 467 804
Basic and diluted earnings per share .11 .11 .11 .18
</TABLE>
The summation of quarterly net income per share may not equate to the
calculation for the full year as quarterly calculations are performed on a
discrete basis.
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lund International Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the consolidated financial
position of Lund International Holdings, Inc. (the "Company") at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1998, the six months ended December 31, 1997 and for
the year ended June 30, 1997, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 3, 2000
51
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III.
Item 10. EXECUTIVE OFFICERS AND DIRECTORS
The information required by Item 10 concerning the executive officers and
directors of the Company is incorporated herein by reference to the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders ("Proxy Statement")
which will be filed with the Securities and Exchange Commission (the
"Commission") pursuant to Regulation 14A within 120 days after the close of the
year for which this report is filed.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
Company's Proxy Statement, which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the year for which this report
is filed.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
Company's Proxy Statement, which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the year for which this report
is filed.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to the
Company's Proxy Statement, which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the year for which this report
is filed.
52
<PAGE>
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Consolidated Financial Statements.
<TABLE>
<CAPTION>
Pages in this
Form 10-K
---------
<S> <C>
Report of Independent Accountants................................................................................51
Consolidated Balance Sheets as of December 31, 1999 and 1998 ....................................................26
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998,
the six months ended December 31, 1997 and the year ended June 30, 1997 ...................................27
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999 and 1998, the six months ended December 31, 1997 and the year
ended June 30, 1997.........................................................................................28
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998,
the six months ended December 31, 1997 and the year ended June 30, 1997 ....................................29
Notes to Consolidated Financial Statements....................................................................30-50
</TABLE>
(2) Financial Statement Schedules.
<TABLE>
<CAPTION>
Pages in this
Form 10-K
---------
<S> <C>
Report of Independent Accountants on Financial Statement Schedule................................................55
Schedule II: Valuation and Qualifying Accounts for the years ended December 31, 1999
and 1998, the six months ended December 31, 1997 and the year ended June 30, 1997 .........................56
</TABLE>
All other schedules are omitted because they are not required or not applicable
or the information is otherwise shown in the Consolidated Financial Statements
or notes thereto.
(3) Exhibits. See "Exhibit Index" on the pages following the
signatures.
(b) Reports on Form 8-K.
None.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LUND INTERNATIONAL HOLDINGS, INC.
By /s/ Dennis W. Vollmershausen
Dennis W. Vollmershausen
Chief Executive Officer and President
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Dennis W. Vollmershausen Chief Executive Officer March 27, 2000
- --------------------------- President (Principal Executive
Dennis W. Vollmershausen Officer)
/s/ Edmund J. Schwartz Chief Financial Officer March 27, 2000
- ---------------------------- (Principal Financial Officer)
Edmund J. Schwartz
/s/ Lawrence C. Day Director March 27, 2000
- ---------------------------
Lawrence C. Day
/s/ David E. Dovenberg Director March 27, 2000
- ---------------------------
David E. Dovenberg
/s/ Ira D. Kleinman Director March 27, 2000
- ---------------------------
Ira D. Kleinman
/s/ Robert R. Schoeberl Director March 27, 2000
- ---------------------------
Robert R. Schoeberl
/s/ Harvey J. Wertheim Director March 27, 2000
- ---------------------------
Harvey J. Wertheim
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Lund International Holdings, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 3, 2000, appearing in this Annual Report on Form 10-K for Lund
International Holdings, Inc. also included an audit of the financial statement
schedule listed in item 14(a)2 of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 3, 2000
55
<PAGE>
LUND INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998, SIX MONTHS ENDED
DECEMBER 31, 1997 AND FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of cost and Charged to end of
Description year expenses other accounts Deductions year
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1999:
Allowance for doubtful accounts $ 2,234,000 $ 1,389,000 $ 185,000 (2) $ (916,000)(1) $ 2,892,000
Sales returns and warranty reserves 3,237,000 119,000 370,000 (3) (572,000)(1) 3,154,000
Inventory reserve 2,054,000 1,929,000 79,000 (3) (1,095,000)(1) 2,967,000
Year ended
December 31, 1998:
Allowance for doubtful accounts $ 1,539,000 $ 212,000 $ 575,000 (3) $ (92,000)(1) $ 2,234,000
Sales returns and warranty reserves 1,345,000 567,000 1,525,000 (3) (200,000)(1) 3,237,000
Inventory reserve 1,020,000 1,542,000 120,000 (3) (628,000)(1) 2,054,000
Six months ended
December 31, 1997:
Allowance for doubtful accounts $ 589,000 $ 78,000 $ 896,000 (3) $ (24,000)(1) $ 1,539,000
Sales returns and warranty reserves 324,000 22,000 1,132,000 (3) (133,000)(1) 1,345,000
Inventory reserve 206,000 190,000 935,000 (3) (312,000)(1) 1,019,000
Year ended
June 30, 1997:
Allowance for doubtful accounts $ 720,000 $ (131,000)(1) $ 589,000
Sales returns and warranty reserves 196,000 $ 128,000 324,000
Inventory reserve 108,000 150,000 (52,000)(1) 206,000
</TABLE>
(1) Represents write-offs against the accounts.
(2) Represents the acquisition of Smittybilt's allowance for uncollectible
accounts of $300,000, less the disposal of the Fibernetics' allowance
for uncollectible accounts of $115,000.
(3) Represents addition to the accounts due to acquisition of business.
56
<PAGE>
EXHIBIT INDEX TO FORM 10-K
For the year ended December 31, 1999 Commission File No: 0-16319
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number or Incorporation by Reference to
- ------ ------------------------------------------------------------- --------------------------------------------
<S> <C> <C>
10.18 1992 Non-Employee Director Stock Option Plan Exhibit 10.18 of the Registrant's Form
10-K for the fiscal year ended June 30, 1992
10.29 1994 Incentive Stock Option Plan Exhibit 10.29 of the Registrant's Form
10-Q for the quarter ended December 31, 1994
10.33 Master Lease Agreement between LMI Funding Corporation Exhibit 10.33 of the Registrant's Form
and Lund Industries, Incorporated, dated August 1, 1995 10-Q for the quarter ended September 30, 1995
10.44 Asset Purchase Agreement by and between Lund Acquisition Exhibit 10.44 of the Registrant's Form
Corp., Innovative Accessories, Incorporated, Lund 10-K for the fiscal year ended June 30, 1996
International Holdings, Inc., James A. Nett and Ramona C.
Friar, dated March 29, 1996
10.46 Assignment of Intellectual Property Rights from Innovative Exhibit 10.46 of the Registrant's Form
Accessories, Incorporated and James A. Nett to Lund 10-K for the fiscal year ended June 30, 1996
Acquisition Corp., dated June 3, 1996
10.47 Stock Purchase Agreement, dated September 9, 1997, by and Exhibit 10.1 of the Registrant's Form
between LIH Holdings, LLC, Allan W. Lund, the Lund Family 8-K dated September 9, 1997
Limited Partnership, Lois and Allan Lund Family Foundation
and Certain Lund Family Members
10.49 Services Agreement, dated September 9, 1997, by and between Exhibit 10.3 of the Registrant's Form
Harvest Partners, Inc. and Lund International Holdings, Inc. 8-K dated September 9, 1997
10.50 Severance and Noncompetition Agreement, dated September 9, Exhibit 10.4 of the Registrant's Form
1997, by and between Lund International Holdings, Inc. and 8-K dated September 9, 1997
Allan W. Lund
10.51 Employment Agreement with Ken Holbrook, dated March 1, 1998 Exhibit 10.51 of the Registrant's Form
10-K dated March 20, 1998
10.52 Investment Agreement, dated November 25, 1997, by and between Exhibit 10.1 of the Registrant's Form 8-K
LIH Holdings II, LLC and Lund International Holdings, Inc. dated November 26, 1997
10.54 Agreement and Plan of Merger, dated as of November 25, 1997, Exhibit (c)(1) of the Registrant's Schedule
by and between Lund International Holdings, Inc., Zephyros 14D-1, dated November 28, 1997
Acquisition Corporation and Deflecta-Shield Corporation
10.55 Stockholders Agreement, dated as of November 25, 1997, by and Exhibit (c)(2) of the Registrant's
between Lund International Holdings, Inc. and Mark C. Mamolen Schedule 14D-1, dated November 28, 1997
10.56 Stockholders Agreement, dated as of November 25, 1997, by and Exhibit (c)(3) of the Registrant's
between Lund International Holdings, Inc. and Charles S. Meyer Schedule 14D-1, dated November 28, 1997
10.57 Tender Offer Loan Agreement, dated as of December 30, 1997, Exhibit (c)(4) of the Registrant's Form
by and between Lund International Holdings, Inc., Zephyros 8-K, dated December 30, 1997
Acquisition Corp. and Heller, as agent and as lender
10.58 Guaranty of Payment, dated as of December 30, 1997, by Lund Exhibit (c)(5) of the Registrant's Form
International Holdings, Inc., in favor of Heller, as agent 8-K, dated December 30, 1997
for the benefit of the lender
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
10.59 Pledge Agreement, dated as of December 30, 1997, by Lund Exhibit (c)(6) of the Registrant's Form
International Holdings, Inc., in favor of Heller, as agent 8-K, dated December 30, 1997
for the benefit of the lenders
10.60 Borrower Pledge Agreement, dated as of December 30, 1997, Exhibit (c)(7) of the Registrant's Form
by Zephyros Acquisition Corp., in favor of Heller, as agent 8-K, dated December 30, 1997
for the benefit of the lenders
10.61 Warrant to Purchase Common Stock of Lund International Exhibit (c)(8) of the Registrant's Form
Holdings, Inc., dated December 30, 1997 8-K, dated December 30, 1997
10.62 Tender Offer Note, dated as of December 30, 1997, by Exhibit (c)(9) of the Registrant's Form
Zephyros Acquisition Corp., for the maximum amount of 8-K, dated December 30, 1997
$41 million
10.63 1998 Employee Incentive Stock Option Plan Exhibit 10.63 of the Registrant's Form
S-8 filed on February 13, 1998
10.64 Credit Agreement Exhibit 1. of the Registrant's Form 8-K
filed on March 18, 1998
10.65 Term A Note made by each of Industries, Deflecta, Belmor Exhibit 2. of the Registrant's Form 8-K
and DFM in favor of Heller filed on March 18, 1998
10.66 Term B Note made be each of Industries, Deflecta, Belmor Exhibit 3. of the Registrant's Form 8-K
and DFM in favor of Heller filed on March 18, 1998
10.67 Revolving Note made by each of Industries, Deflecta, Belmor Exhibit 4. of the Registrant's Form 8-K
and DFM in favor of Heller filed on March 18, 1998
10.68 Acquisition Note made by each of Industries, Deflecta, Belmor Exhibit 5. of the Registrant's Form 8-K
and DFM in favor of Heller filed on March 18, 1998
10.69 Term A Note made be each of Industries, Deflecta, Belmor Exhibit 6. of the Registrant's Form 8-K
and DFM in favor of Dresdner filed on March 18, 1998
10.70 Term B Note made by each of Industries, Deflecta, Belmor Exhibit 7. of the Registrant's Form 8-K
and DFM in favor of Dresdner filed on March 18, 1998
10.71 Revolving Note made by each of Industries, Deflecta, Belmor Exhibit 8. of the Registrant's Form 8-K
and DFM in favor of Dresdner filed on March 18, 1998
10.72 Acquisition Note made by each of Industries, Deflecta, Belmor Exhibit 9. of the Registrant's Form 8-K
and DFM in favor of Dresdner filed on March 18, 1998
10.73 Corporate Guaranty by Holdings, Borrowers and Active Exhibit 10. of the Registrant's Form 8-K
Subsidiaries filed on March 18, 1998
10.74 Pledge Agreement by Holdings, Deflecta and DFM Exhibit 11. of the Registrant's Form 8-K
filed on March 8, 1998
10.75 Security Agreement by Holdings, Borrowers and Active Exhibit 12. of the Registrant's Form 8-K
Subsidiaries filed on March 18, 1998
10.76 Assignment for Security of Trademark, Patent and Copyright Exhibit 13. of the Registrant's Form 8-K
filed on March 8, 1998
10.77 Environmental Indemnity Agreement Exhibit 14. of the Registrant's Form 8-K
filed on March 18, 1998
10.79 Employment Agreement between the Company and Exhibit 10.64 of the Registrant's Form
Ronald C. Fox 10-Q filed on August 14, 1998
10.80 Complete and permanent waiver agreement and general Exhibit 10.65 of the Registrant's Form
release of claims between the Company and Richard D. 10-Q filed on November 16, 1998
Minehart, Jr.
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
10.81 Complete and permanent waiver agreement and general Exhibit 10.66 of the Registrant's Form
release of claims between the Company and Jay M. Allsup 10-Q filed on November 16, 1998
10.82 Resignation and severance agreement between the Company and Exhibit 10.67 of the Registrant's Form
William J. McMahon 10-Q filed on November 16, 1998
10.83 Employment agreement between the Company and Exhibit 10.68 of the Registrant's Form
Dennis W. Vollmershausen 10-Q filed on November 16, 1998
10.84 Stock Purchase Agreement dated December 11, 1998, by and Exhibit 10.1 of the Registrant's Form
among Ventshade Holdings, Inc., the Persons listed on 8-K filed on January 6, 1999
Schedule A to the Agreement,Lund International Holdings, Inc.
and New Holdings, Inc.
10.85 Investment Agreement, dated December 22, 1998, among Exhibit 10.2 of the Registrant's Form
LIH Holdings,III, LLC, Massachusetts Mutual Life Insurance 8-K filed on January 6, 1999
Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners
Limited, Liberty Mutual Insurance Company, BancBoston Capital
Inc. and Lund International Holdings, Inc.
10.86 Amendment No. 2 to Credit Agreement, dated December 23, Exhibit 10.3 of the Registrant's Form
1998, among Lund International Holdings, Inc., Deflecta-Shield 8-K filed on January 6, 1999
Corporation, Lund Industries, Incorporated, Belmor Autotron
Corp., DFM Corp., Lund Acquisition Corp., BAC Acquisition Co.,
Trailmaster Products, Inc., Delta III, Inc., Auto Ventshade
Company, New Holdings, Inc., Ventshade Holdings, Inc. and
Heller Financial, Inc.
10.87 Securities Purchase Agreement, dated December 23, 1998, Exhibit 10.4 of the Registrant's Form
among Deflecta-Shield Corporation, Lund Industries, 8-K filed on January 6, 1999
Incorporated, Belmor Autotron Corp.,DFM Corp. and Auto
Ventshade Company
10.88 Rights Agreement, dated December 22, 1998, with LIH Holdings, Exhibit 10.5 of the Registrant's Form 8-K
LLC, LIH Holdings, II, LLC, LIH Holdings III, LLC, BancBoston filed on January 6, 1999
Capital Inc., Liberty Mutual Insurance Company, Massachusetts
Mutual Life Insurance Company, MassMutual Corporate Value
Partners Limited, MassMutual Corporate Investors, MassMutual
Participation Investors and National City Venture Corporation
10.89 Second Amended and restated Governance Agreement, dated Exhibit 10.6 of the Registrant's Form
December 22, 1997 among Lund International Holdings, Inc., 8-K filed on January 6, 1999
LIH Holdings, LLC, LIH Holdings II, LLC and LIH Holdings
III, LLC
10.90 Escrow Agreement, dated December 29, 1998, by and between Exhibit 10.7 of the Registrant's Form
Bank Trust National Association and Lund Industries, 8-K filed on January 6, 1999
Incorporated
10.91 Cancellation and Discharge of Indenture and Termination of Exhibit 10.8 of the Registrant's Form
Loan Agreement, dated December 29, 1998, executed and issued 8-K filed on January 6, 1999
by U.S. Bank Trust National Association
10.92 Form of Promissory Note issued pursuant to the Securities Exhibit 10.9 of the Registrant's Form
Purchase Agreement 8-K filed on January 6, 1999
10.93 Form of Warrant issued pursuant to the Securities Purchase Exhibit 10.10 of the Registrant's Form
Agreement 8-K filed on January 6, 1999
10.94 Stock Purchase Agreement, dated January 7, 1999, among Exhibit 10.1 of the Registrant's Form
Smittybilt, Inc.,Tom G. Smith, Debbie Smith, Tom Smith and 8-K filed on February 12, 1999
Debbie Smith as Trustees of The Tom and Debbie Smith Family
Trust Dated February 7, 1991, Tom Smith and Debbie Smith as
Trustees of The Tom and Debbie Smith Charitable Remainder
Unitrust Dated July 8, 1998 and Lund International Holdings,
Inc.
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
10.95 Investment Agreement, dated December 22, 1998, among LIH Exhibit 10.2 of the Registrant's Form
Holdings III, LLC, Massachusetts Mutual Life Insurance 8-K filed on February 12, 1999
Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners
Limited, Liberty Mutual Insurance Company, BancBoston Capital
Inc. and Lund International Holdings, Inc.
10.96 First Amendment to Investment Agreement, dated January 27, Exhibit 10.3 of the Registrant's Form
1999, among LIH Holdings III, LLC, Massachusetts Mutual Life 8-K filed on February 12, 1999
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners
Limited, Liberty Mutual Insurance Company, BancBoston Capital
Inc. and Lund International Holdings, Inc.
10.97 First Amendment to Rights Agreement, dated January 27, 1999, Exhibit 10.4 of the Registrant's Form
among LIH Holdings, LLC, LIH Holdings II, LLC, LIH Holdings 8-K filed on February 12, 1999
III, LLC, BancBoston Capital Inc., Liberty Mutual Insurance
Company, Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Value Partners Limited, MassMutual
Corporate Investors, MassMutual Participation Investors,
National City Venture Corporate and Lund International
Holdings, Inc.
10.98 Supplement to Credit Agreement, dated January 28, 1999, by Exhibit 10.5 of the Registrant's Form
Smittybilt, Inc. and Heller Financial, Inc. and Agent for the 8-K filed on February 12, 1999
benefit of all Lenders.
10.99 The Company's 1998 Stock Option Incentive Plan
10.100 The Company's 1999 Stock Option Incentive Plan
10.101 Employment Agreement between the Company's wholly owned
Subsidiary Auto Ventshade Company and Richard Tucker.
10.102 Employment Agreement between the Company's wholly owned
subsidiary Auto Ventshade Company and James Stan Scarborough.
10.103 Employment Agreement between the Company's wholly owned
subsidiary Belmor Autotron Corporation and John Daniels.
10.104 Employment Agreement between the Company and Edmund J.
Schwartz.
10.105 Waiver and First Amendment to Securities Purchase Agreement
dated December 23, 1999, among Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners,
Limited, National City Venture Corporation, Great Lakes Capital
Investments I, L.L.C. and the Company.
10.106 Waiver and Third Amendment to Credit Agreement dated January 28,
2000, among Deflecta-Shield Corporation, Lund Industries,
Incorporated, Belmor Autotron Corp., DFM Corp., Auto Ventshade
Company, Smittybilt, Inc., Lund International Holdings, Inc.,
Lund Acquisition Corp., BAC Acquisition Co., Trailmaster
Products, Inc. and Delta III, Inc., Heller Financial, Inc. and
the Lenders as defined therein.
</TABLE>
60
<PAGE>
21 Subsidiaries of the registrant:
Name State or Jurisdiction of Incorporation
------------ --------------------------------------
Lund Industries, Incorporated Minnesota
Lund FSC, Inc. Barbados
Lund Acquisition Corp. Minnesota
Deflecta-Shield Corporation Delaware
Belmor Autotron Corporation Delaware
DFM Corp. Iowa
Delta III, Inc. Delaware
Trailmaster Products, Inc. Delaware
BAC Acquisition Company Delaware
Auto Ventshade Company Delaware
Smittybilt, Inc. Delaware
23.1 Consent of Independent Accountants
27 Financial Data Schedule
61
<PAGE>
[LOGO] LUND
NASDAQ
LISTED
INFORMATION For Our Investors
- --------------------------------------------------------------------------------
STOCKHOLDER INFORMATION
- --------------------------------------------------------------------------------
Lund International Holdings, Inc. ("Lund") issues all of its corporate news
releases through PR Newswire. You may obtain a fax copy of any Lund news release
issued during the past twelve months by calling Company News On Call at (800)
758-5804. This electronic, menu-driven system will request a six digit code
(518375) and allow you to request specific Lund releases to be sent to your fax
for automatic retrieval. This service is accessible 24 hours a day, seven days a
week.
- --------------------------------------------------------------------------------
ANNUAL STOCKHOLDERS' MEETING
- --------------------------------------------------------------------------------
The 2000 annual meeting of stockholders will be held Thursday, April 27, 2000,
at 11:00 a.m. Central Daylight Time at The Hotel Sofitel, 5601 West 78th Street,
Bloomington, Minnesota.
- --------------------------------------------------------------------------------
STOCK DATA
- --------------------------------------------------------------------------------
Lund stock is traded in the United States on the Nasdaq Market's National
Market(R) ("NASDAQ/NM") under the trading symbol LUND.
- --------------------------------------------------------------------------------
CORPORATE HEADQUARTERS
- --------------------------------------------------------------------------------
Lund International Holdings, Inc.
911 Lund Boulevard
Anoka, MN 55303-9876
Phone: (763) 576-4200
Fax: (763) 576-4297
www.lundinternational.com
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
- --------------------------------------------------------------------------------
ChaseMellon Shareholder Services, LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Phone: (888) 213-0965
www.chasemellon.com
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
Park Building
650 Third Avenue South
Suite 1300
Minneapolis, MN 55402-4333
- --------------------------------------------------------------------------------
CORPORATE OFFICERS
- --------------------------------------------------------------------------------
DENNIS W. VOLLMERSHAUSEN, Chief Executive Officer and President
EDMUND J. SCHWARTZ, Chief Financial Officer and Treasurer
KENNETH L. HOLBROOK, President of Light Truck Division
CAROLE B. GROSSMAN, Corporate Counsel and Assistant Corporate Secretary
STEPHEN S. TREICHEL, Vice President of Information Systems
J. TIMOTHY YUNGERS, Vice President of Human Resources
- --------------------------------------------------------------------------------
DIRECTORS
- --------------------------------------------------------------------------------
LAWRENCE C. DAY, Chief Operating Officer, TBC Corp.
DAVID E. DOVENBERG, Chief Executive Officer, Universal Hospital Services, Inc.
IRA D. KLEINMAN, General Partner, Harvest Partners, Inc.
ROBERT R. SCHOEBERL, retired Executive Vice President, Montgomery Ward Home and
Automotive Division
DENNIS W. VOLLMERSHAUSEN, Chief Executive Officer and President, Lund
International Holdings, Inc.
HARVEY J. WERTHEIM, Managing General Partner, Harvest Partners, Inc.
62
EXHIBIT 10.99
LUND INTERNATIONAL HOLDINGS, INC.
1998 STOCK OPTION INCENTIVE PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated below:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means a Committee of three or more persons who may be
appointed by, and serve at the pleasure of, the Board and shall have
such powers and authority as are granted to it by the Board. Each of
the members of the Committee shall be a "non-employee director" within
the meaning of Rule 16b-3, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(c) "Common Stock" means the Common Stock of the Company, subject to
adjustment as described in Section 11.
(d) "Company" means Lund International Holdings, Inc., a Delaware
corporation.
(e) "Fair Market Value" means with respect to the Common Stock, (i) if such
stock is then reported in the national market system or is listed upon
an established exchange or exchanges, the closing price of such stock
in such national market system or on such stock exchange or exchanges
on the date the option is granted or, if no sale of such stock shall
have occurred on that date, on the next preceding day on which there
was a sale of stock; (ii) if such stock is not so reported in the
national market system or listed upon an exchange, the average of the
"bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; (iii) if such stock is not publicly traded
as of the date the option is granted, an amount determined by the
Board, or the Committee if so empowered by the Board, in its sole
discretion by applying principles of valuation with respect to such
Options.
(f) "Incentive Stock Option" means a right to purchase Common Stock granted
pursuant to the Plan that qualifies and is intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code.
(g) "Internal Revenue Code" means the Internal Revenue Code of 1986 as
amended from time to time.
(h) "Non-Qualified Stock Option" means a right to purchase Common Stock
granted pursuant to the Plan that does not qualify as an Incentive
Stock Option.
<PAGE>
(i) "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
(j) "Optionee" means an employee of the Company or any Subsidiary to whom
an Option has been granted under the Plan.
(k) "Plan" means the Lund International Holdings, Inc. 1998 Stock Option
Incentive Plan, as amended hereafter from time to time, including the
forms of Option Agreements as they may be modified by the Board from
time to time.
(l) "Subsidiary" means any corporation of which fifty percent (50%) or more
of the total voting power of outstanding stock is owned, directly or
indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the employment and retention of competent
personnel and by furnishing incentive to key employees upon whose efforts the
success of the Company and its Subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of Incentive Stock Options and Non-Qualified Stock Options. Adoption of
this Plan shall be and is expressly subject to the condition of approval by the
shareholders of the Company within twelve (12) months after the adoption of the
Plan by the Board of Directors.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board
of Directors of the Company.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board or, to the extent empowered
by the Board, by the Committee, which may be appointed by the Board from time to
time. The Board shall have all of the powers vested in it under the provisions
of the Plan, including but not limited to exclusive authority (where applicable
and within the limitations described herein) to determine, in its sole
discretion, whether an Option shall be granted, the individuals to whom, and the
time or times at which Options shall be granted, the number of shares subject to
each Option, the Option exercise price, whether such Option will be an Incentive
Stock Option or Non-Qualified Stock Option and any other terms and conditions of
each Option. The Committee shall have such powers as are granted to
2
<PAGE>
it by the Board. The Board, or the Committee if so empowered by the Board, shall
have full power and authority to administer and interpret the Plan, to make and
amend rules, regulations and guidelines for administering the Plan, to prescribe
the form and conditions of the respective stock option agreements (which may
vary from Optionee to Optionee) evidencing each Option and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board's interpretation of the Plan, or the Committee's interpretation if so
empowered by the Board, and all actions taken and determinations made by the
Board pursuant to the power vested in it hereunder, or by the Committee to the
extent empowered by the Board, shall be conclusive and binding on all parties
concerned. No member of the Board or the Committee shall be liable for any
action taken or determination made in good faith in connection with the
administration of the Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Board, or the Committee if so empowered by the Board, shall from
time to time, at its discretion and without approval of the shareholders,
designate those employees of the Company or of any Subsidiary to whom Options
shall be granted. The Board, or the Committee if so empowered by the Board, may
grant additional Options to some or all participants then holding Options or may
grant such Options solely or partially to new participants. In designating
participants, the Board, or the Committee if so empowered by the Board, shall
also determine the number of shares to be optioned to each such participant.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Common Stock. Five Hundred Thousand (500,000) shares of
Common Stock shall be reserved and available for Options under the Plan;
provided, however, that the total number of shares of Common Stock reserved for
Options under this Plan shall be subject to adjustment as provided in Section 11
of the Plan. In the event that any outstanding Option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Common Stock allocable to the unexercised portion of such Option shall continue
to be reserved for Options under the Plan and may be optioned hereunder.
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SECTION 7.
DURATION OF PLAN
Options may be granted pursuant to this Plan from time to time during a
period of ten (10) years from the earlier of the date the Plan is approved by
the Board of Directors or the date it is approved by the shareholders of the
Company.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of Options granted pursuant
to this Plan with cash, certified check or with the consent of the Board of
Directors, Common Stock of the Company valued at such stock's then Fair Market
Value.
SECTION 9.
TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to the Plan shall be evidenced by a
written stock option agreement (the "Option Agreement"). The Option Agreement
shall be in such form as may be approved from time to time by the Board or the
Committee (if so empowered by the Board) and may vary from Optionee to Optionee;
provided, however, that each Optionee and each Option Agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of Shares and Option Exercise Price. The Option
Agreement shall state the total number of shares covered by
the Option. The option exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value
of the Common Stock per share on the date the Board, or the
Committee if so empowered by the Board, grants the Option;
provided, however, that, if the Option granted is an Incentive
Stock Option and the Optionee owns stock possessing more than
ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any
Subsidiary, the option exercise price per share of such
Incentive Stock Option granted to such Optionee shall not be
less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock per share on the date of the grant
of the Option. The Board, or the Committee if so empowered by
the Board, shall have full authority and discretion in
establishing the option exercise price and shall be fully
protected in so doing.
(b) Term and Exercisability of Options. The term during which any
Option granted under the Plan may be exercised shall be
established in each case by the Board, or the Committee if so
empowered by the Board, but in no event shall any Incentive
Stock Option be exercisable during a term of more than ten
(10) years after the date on which it is granted (or five (5)
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years from the date of grant for Incentive Stock Options
granted to an Optionee who owns, directly or indirectly, more
than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary). The
Option Agreements shall state when the Options become
exercisable and shall also state the maximum term during which
the Options may be exercised. In the event an Option is
exercisable immediately, the manner of exercise of the Option
in the event it is not exercised in full immediately shall be
specified in the Option Agreement. The Board, or the Committee
if so empowered by the Board, may accelerate the exercise date
of any Option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Board, or
the Committee if so empowered by the Board, shall deem
advisable. Any Option Agreement relating to an Incentive Stock
Option shall contain such limitations and restrictions upon
the exercise of the Option as shall be necessary to ensure
that such Option will be considered as an Incentive Stock
Option. Any Option Agreement relating to a Non-Qualified Stock
Option shall expressly provide that such Option shall not be
treated as an Incentive Stock Option.
(d) Holding Period/Withholding. The disposition of any shares of
Common Stock acquired by an Optionee pursuant to the exercise
of an Option described above shall not be eligible for the
favorable taxation treatment of Section 422 of the Internal
Revenue Code unless any shares so acquired are held by the
Optionee for at least two (2) years from the date of the
granting of the Option under which the shares were acquired
and at least one (1) year after the acquisition of such shares
pursuant to the exercise of such Option, or such other periods
as may be prescribed by the Internal Revenue Code (the
"Holding Periods"). Prior to making a disposition (as defined
in Section 424(c) of the Code) of any shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option
granted under the Plan before the expiration of the Holding
Periods, the Optionee shall send written notice to the Company
of the proposed date of such disposition, the number of shares
to be disposed of, the amount of proceeds to be received from
such disposition and any other information relating to such
disposition that the Company may reasonably request. The right
of an Optionee to make any such disposition shall be
conditioned on the receipt by the Company of all amounts
necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to such
disposition. The Board shall have the right, in its sole
discretion, to endorse the certificates representing such
shares with a legend restricting transfer and to cause a stop
transfer order to be entered with the Company's transfer agent
until such time as the
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Company receives the amounts necessary to satisfy such
withholding and employment-related tax requirements or until
the expiration Holding Periods.
SECTION 10.
TRANSFER OF OPTION
No Option shall be transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution and, during the
Optionee's lifetime, the Option may be exercised only by the Optionee. If the
Optionee shall attempt any transfer of any Option granted under the Plan during
the Optionee's lifetime, such transfer shall be void and the Option, to the
extent not fully exercised, shall terminate.
SECTION 11.
RECAPITALIZATION, SALE, MERGER, EXCHANGE,
CONSOLIDATION OR LIQUIDATION
(a) In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Common Stock covered by each outstanding Option and the
price per share thereof shall be equitably adjusted by the Board of Directors to
reflect such change. Additional shares which may be credited pursuant to such
adjustment shall be subject to the same restrictions as are applicable to the
shares with respect to which the adjustment relates.
(b) Upon a "Change of Control" of the Company, all outstanding Options
shall immediately vest and become exercisable. A "Change of Control" shall be
deemed to have occurred if (i) any person or entity becomes the beneficial
owner, directly or indirectly, of securities representing in excess of fifty
percent (50%) of the voting securities of the Company except for (x) persons
who, on March 1, 1998, together with their respective affiliates or associates
(as such terms are defined under Section 203 of the Delaware General Corporation
Law) own securities representing in excess of forty percent (40%) of the voting
securities of the Company; or (y) any affiliates or associates identified in (x)
to which any person identified in (x) transfers all or any portion of such
voting securities (the persons in (x) and (y) being referred to herein as a "40%
Holder"); (ii) 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%
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Holder to exercise such approval (either pursuant to that certain Amended and
Restated Governance Agreement, dated as of November 25, 1997, among the Company,
LIH Holdings, LLC and LIH Holdings II, LLC, or otherwise), or (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.
SECTION 12.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of the Company's counsel,
with all applicable legal requirements, including without limitation, those
relating to securities laws and stock exchange listing requirements. As a
condition to the issuance of Common Stock to an Optionee, the Board, or the
Committee if so empowered by the Board, may require the Optionee to (a)
represent that the shares of Common Stock are being acquired for investment and
not resale and to make such other representations as the Board, or the Committee
if so empowered by the Board, shall deem necessary or appropriate to qualify the
issuance of the shares as exempt from the Securities Act of 1933 and any other
applicable securities laws, and (b) represent that the Optionee shall not
dispose of the shares of Common Stock in violation of the Securities Act of 1933
and any other applicable securities laws. The Company reserves the right to
place a legend on any stock certificate issued upon exercise of an option
granted pursuant to the plan to assure compliance with this Section 12.
SECTION 13.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an Option until
the date of the issuance of a stock certificate evidencing such shares (except
as otherwise provided in Section 11 above). No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued (except as otherwise provided
in Section 11).
SECTION 14.
AMENDMENT OF THE PLAN
The Board of Directors of the Company may from time to time, insofar as
permitted by law, suspend or discontinue the Plan or review or amend it in any
respect; provided, however, that no such revision or amendment shall impair the
terms and conditions of any Option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee.
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Notwithstanding the foregoing, no such revision or amendment shall be effective,
without approval of the stockholders of the Company, if approval of stockholders
is then required pursuant to Rule 16b-3 under the Exchange Act or any successor
rule or Section 422 of the Code or under the applicable rules or regulations of
any securities exchange or the Nasdaq Stock Market.
SECTION 15.
NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option. Further, the granting of an Option hereunder shall not
impose upon the Company, or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
SECTION 16.
RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES
The Company is entitled to (a) withhold and deduct from future wages of
the Optionee (or from other amounts which may be due and owing to the Optionee
from the Company) or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements (i) attributable to the
grant or exercise of an Option or to a disqualifying disposition of stock
received upon exercise of an Incentive Stock Option, or (ii) otherwise incurred
with respect to an Option, or (b) require the Optionee promptly to remit the
amount of such withholding to the Company before taking any action with respect
to the exercise of an Option or the issuance of any stock certificate either to
the Optionee or any transferee.
8
EXHIBIT 10.100
LUND INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION INCENTIVE PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated below:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means a Committee of three or more persons who may be
appointed by, and serve at the pleasure of, the Board and shall have
such powers and authority as are granted to it by the Board. Each of
the members of the Committee shall be a "non-employee director" within
the meaning of Rule 16b-3, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(c) "Common Stock" means the Common Stock of the Company, subject to
adjustment as described in Section 11.
(d) "Company" means Lund International Holdings, Inc., a Delaware
corporation.
(e) "Fair Market Value" means with respect to the Common Stock, (i) if such
stock is then reported in the national market system or is listed upon
an established exchange or exchanges, the closing price of such stock
in such national market system or on such stock exchange or exchanges
on the date the option is granted or, if no sale of such stock shall
have occurred on that date, on the next preceding day on which there
was a sale of stock; (ii) if such stock is not so reported in the
national market system or listed upon an exchange, the average of the
"bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; (iii) if such stock is not publicly traded
as of the date the option is granted, an amount determined by the
Board, or the Committee if so empowered by the Board, in its sole
discretion by applying principles of valuation with respect to such
Options.
(f) "Incentive Stock Option" means a right to purchase Common Stock granted
pursuant to the Plan that qualifies and is intended to quality as an
"incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code.
(g) "Internal Revenue Code" means the Internal Revenue Code of 1986 as
amended from time to time.
(h) "Non-Qualified Stock Option" means a right to purchase Common Stock
granted pursuant to the Plan that does not qualify as an Incentive
Stock Option.
<PAGE>
(i) "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
(j) "Optionee" means an employee of the Company or any Subsidiary to whom
an Option has been granted under the Plan.
(k) "Plan" means the Lund International Holdings, Inc. 1999 Stock Option
Incentive Plan, as amended hereafter from time to time, including the
forms of Option Agreements as they may be modified by the Board from
time to time.
(l) "Subsidiary" means any corporation of which fifty percent (50%) or more
of the total voting power of outstanding stock is owned, directly or
indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the employment and retention of competent
personnel and by furnishing incentive to key employees upon whose efforts the
success of the Company and its Subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of Incentive Stock Options and Non-Qualified Stock Options. Adoption of
this Plan shall be and is expressly subject to the condition of approval by the
shareholders of the Company within twelve (12) months after the adoption of the
Plan by the Board of Directors.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board
of Directors of the Company.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board or, to the extent empowered
by the Board, by the Committee, which may be appointed by the Board from time to
time. The Board shall have all of the powers vested in it under the provisions
of the Plan, including but not limited to exclusive authority (where applicable
and within the limitations described herein) to determine, in its sole
discretion, whether an Option shall be granted, the individuals to whom, and the
time or times at which Options shall be granted, the number of shares subject to
each Option, the Option exercise price, whether such Option will be an Incentive
Stock Option or Non-Qualified Stock Option and any other terms and conditions of
each Option. The Committee shall have such powers as are granted to it by the
Board. The Board, or the Committee if so empowered by the Board, shall have full
power and authority to administer and interpret the Plan, to make and amend
rules, regulations and guidelines for administering the Plan, to prescribe the
form and conditions of the respective stock option agreements (which may vary
from Optionee to Optionee)
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evidencing each Option and to make all other determinations necessary or
advisable for the administration of the Plan. The Board's interpretation of the
Plan, or the Committee's interpretation if so empowered by the Board, and all
actions taken and determinations made by the Board pursuant to the power vested
in it hereunder, or by the Committee to the extent empowered by the Board, shall
be conclusive and binding on all parties concerned. No member of the Board or
the Committee shall be liable for any action taken or determination made in good
faith in connection with the administration of the Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Board, or the Committee if so empowered by the Board, shall from
time to time, at its discretion and without approval of the shareholders,
designate those employees of the Company or of any Subsidiary to whom Options
shall be granted. The Board, or the Committee if so empowered by the Board, may
grant additional Options to some or all participants then holding Options or may
grant such Options solely or partially to new participants. In designating
participants, the Board, or the Committee if so empowered by the Board, shall
also determine the number of shares to be optioned to each such participant.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Common Stock. Five Hundred Thousand (500,000) shares of
Common Stock shall be reserved and available for Options under the Plan;
provided, however, that the total number of shares of Common Stock reserved for
Options under this Plan shall be subject to adjustment as provided in Section 11
of the Plan. In the event that any outstanding Option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Common Stock allocable to the unexercised portion of such Option shall continue
to be reserved for Options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Options may be granted pursuant to this Plan from time to time during a
period of ten (10) years from the earlier of the date the Plan is approved by
the Board of Directors or the date it is approved by the shareholders of the
Company.
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SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of Options granted pursuant
to this Plan with cash, certified check or with the consent of the Board of
Directors, Common Stock of the Company valued at such stock's then Fair Market
Value.
SECTION 9.
TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to the Plan shall be evidenced by a
written stock option agreement (the "Option Agreement"). The Option Agreement
shall be in such form as may be approved from time to time by the Board or the
Committee (if so empowered by the Board) and may vary from Optionee to Optionee;
provided, however, that each Optionee and each Option Agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of Shares and Option Exercise Price. The Option
Agreement shall state the total number of shares covered by
the Option. The option exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value
of the Common Stock per share on the date the Board, or the
Committee if so empowered by the Board, grants the Option;
provided, however, that, if the Option granted is an Incentive
Stock Option and the Optionee owns stock possessing more than
ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any
Subsidiary, the option exercise price per share of such
Incentive Stock Option granted to such Optionee shall not be
less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock per share on the date of the grant
of the Option. The Board, or the Committee if so empowered by
the Board, shall have full authority and discretion in
establishing the option exercise price and shall be fully
protected in so doing.
(b) Term and Exercisability of Options. The term during which any
Option granted under the Plan may be exercised shall be
established in each case by the Board, or the Committee if so
empowered by the Board, but in no event shall any Incentive
Stock Option be exercisable during a term of more than ten
(10) years after the date on which it is granted (or five (5)
years from the date of grant for Incentive Stock Options
granted to an Optionee who owns, directly or indirectly, more
than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary). The
Option Agreements shall state when the Options become
exercisable and shall also state the maximum term during which
the Options may be exercised. In the event an Option is
exercisable immediately, the manner of exercise of the Option
in the event it is not exercised in full immediately shall be
specified in the Option
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Agreement. The Board, or the Committee if so empowered by the
Board, may accelerate the exercise date of any Option granted
hereunder which is not immediately exercisable as of the date
of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Board, or
the Committee if so empowered by the Board, shall deem
advisable. Any Option Agreement relating to an Incentive Stock
Option shall contain such limitations and restrictions upon
the exercise of the Option as shall be necessary to ensure
that such Option will be considered as an Incentive Stock
Option. Any Option Agreement relating to a Non-Qualified Stock
Option shall expressly provide that such Option shall not be
treated as an Incentive Stock Option.
(d) Holding Period/Withholding. The disposition of any shares of
Common Stock acquired by an Optionee pursuant to the exercise
of an Option described above shall not be eligible for the
favorable taxation treatment of Section 422 of the Internal
Revenue Code unless any shares so acquired are held by the
Optionee for at least two (2) years from the date of the
granting of the Option under which the shares were acquired
and at least one (1) year after the acquisition of such shares
pursuant to the exercise of such Option, or such other periods
as may be prescribed by the Internal Revenue Code (the
"Holding Periods"). Prior to making a disposition (as defined
in Section 424(c) of the Code) of any shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option
granted under the Plan before the expiration of the Holding
Periods, the Optionee shall send written notice to the Company
of the proposed date of such disposition, the number of shares
to be disposed of, the amount of proceeds to be received from
such disposition and any other information relating to such
disposition that the Company may reasonably request. The right
of an Optionee to make any such disposition shall be
conditioned on the receipt by the Company of all amounts
necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to such
disposition. The Board shall have the right, in its sole
discretion, to endorse the certificates representing such
shares with a legend restricting transfer and to cause a stop
transfer order to be entered with the Company's transfer agent
until such time as the Company receives the amounts necessary
to satisfy such withholding and employment-related tax
requirements or until the expiration Holding Periods.
SECTION 10.
TRANSFER OF OPTION
No Option shall be transferable, in whole or in part, by the Optionee
other than by will or by the laws of descent and distribution and, during the
Optionee's lifetime, the Option
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may be exercised only by the Optionee. If the Optionee shall attempt any
transfer of any Option granted under the Plan during the Optionee's lifetime,
such transfer shall be void and the Option, to the extent not fully exercisable,
shall terminate.
SECTION 11.
RECAPITALIZATION, SALE, MERGER, EXCHANGE,
CONSOLIDATION OR LIQUIDATION
(a) In the event of an increase or decrease in the number of
shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or
any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the
Company, the number of shares of Common Stock covered by each
outstanding Option and the price per share thereof shall be
equitably adjusted by the Board of Directors to reflect such
change. Additional shares which may be credited pursuant to
such adjustment shall be subject to the same restrictions as
are applicable to the shares with respect to which the
adjustment relates.
(b) Upon a "Change of Control" of the Company, all outstanding
Options shall immediately vest and become exercisable. A
"Change of Control" shall be deemed to have occurred if (i)
any person or entity becomes the beneficial owner, directly or
indirectly, of securities representing in excess of fifty
percent (50%) of the voting securities of the Company except
for (x) persons who, on March 1, 1998, together with their
respective affiliates or associates (as such terms are defined
under Section 203 of the Delaware General Corporation Law) own
securities representing in excess of forty percent (40%) of
the voting securities of the Company; or (y) any affiliates or
associates identified in (x) to which any person identified in
(x) transfers all or any portion of such voting securities
(the persons in (x) and (y) being referred to herein as a "40%
Holder"); (ii) the Company sells or otherwise disposes of all
or substantially all of its assets in a single transaction or
series of related transactions; (iii) persons who, at the
beginning of any twelve (12) consecutive month period,
constitute the Board of Directors of the Company, at the end
of such period cease to constitute a majority of the Board of
Directors of the Company, unless (a) prior to September 9,
2000, the nomination or appointment of each new Director was
approved by a vote of at least two thirds (2/3) of the
Directors then still in office who were Directors at the
beginning of such period or (b) on or after September 9, 2000,
the nomination or appointment of each new Director was
approved or is ratified by a then 40% Holder or by any
Director authorized by such 40% Holder to exercise such
approval (either pursuant to that certain Amended and Restated
Governance Agreement, dated as of November 25, 1997, among the
Company, LIH Holdings, LLC and LIH Holdings II, LLC, or
otherwise), or (iv) the Company merges or combines with or
into any other person or
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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.
SECTION 12.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of the Company's counsel,
with all applicable legal requirements, including without limitation, those
relating to securities laws and stock exchange listing requirements. As a
condition to the issuance of Common Stock to an Optionee, the Board, or the
Committee if so empowered by the Board, may require the Optionee to (a)
represent that the shares of Common Stock are being acquired for investment and
not resale and to make such other representations as the Board, or the Committee
if so empowered by the Board, shall deem necessary or appropriate to qualify the
issuance of the shares as exempt from the Securities Act of 1933 and any other
applicable securities laws, and (b) represent that the Optionee shall not
dispose of the shares of Common Stock in violation of the Securities Act of 1933
and any other applicable securities laws. The Company reserves the right to
place a legend on any stock certificate issued upon exercise of an option
granted pursuant to the plan to assure compliance with this Section 12.
SECTION 13.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an Option until
the date of the issuance of a stock certificate evidencing such shares (except
as otherwise provided in Section 11 above). No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued (except as otherwise provided
in Section 11).
SECTION 14.
AMENDMENT OF THE PLAN
The Board of Directors of the Company may from time to time, insofar as
permitted by law, suspend or discontinue the Plan or review or amend it in any
respect; provided, however, that no such revision or amendment shall impair the
terms and conditions of any Option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall be effective, without approval of the stockholders of the
Company, if approval of stockholders is then required pursuant to Rule 16b-3
under the Exchange Act or any successor rule or Section 422 of the Code or
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under the applicable rules or regulations of any securities exchange or the
Nasdaq Stock Market.
SECTION 15.
NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option. Further, the granting of an Option hereunder shall not
impose upon the Company, or any Subsidiary any obligations to retain the
Optionee as an employee of the Company.
SECTION 16.
RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES
The Company is entitled to (a) withhold and deduct from future wages of
the Optionee (or from other amounts which may be due and owing to the Optionee
from the Company) or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements (i) attributable to the
grant or exercise of an Option or to a disqualifying disposition of stock
received upon exercise of an Incentive Stock Option, or (ii) otherwise incurred
with respect to an Option, or (b) require the Optionee promptly to remit the
amount of such withholding to the Company before taking any action with respect
to the exercise of an Option or the issuance of any stock certificate either to
the Optionee or any transferee.
8
EXHIBIT 10.101
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of the 1st day of July, 1998, by and between AUTO VENTSHADE COMPANY, a
Delaware corporation ("AVC") and RICHARD TUCKER, an individual ("Executive");
WITNESSETH:
WHEREAS, Executive has been actively involved in the business of AVC
and its predecessor, Liberty Specialties, Inc., a Delaware corporation
("Liberty"), as an employee;
WHEREAS, AVC and Executive previously entered into an Employment and
Non-Competition Agreement dated as of November 21, 1994 in connection with that
certain Agreement for Purchase and Sale of Assets by and between AVC and
Liberty;
WHEREAS, Executive has agreed to be employed and not to compete with
AVC to the extent set forth below; and
WHEREAS, AVC desires to retain the services of Executive and Executive
desires to be retained by AVC;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements contained herein, and in consideration of the payments by AVC to
Executive required below, the parties hereto agree as follows:
1. Employment. Subject to the termination provisions of Section 5, AVC
shall employ Executive as the Vice President - Manufacturing of AVC for a period
of eighteen (18) months from the date hereof. Executive shall be responsible for
doing and performing all services, acts or things necessary or advisable to
fulfill the duties associated with such position in a manner consistent with
past practice of Executive on behalf of AVC and shall report to the Chief
Executive Officer. Executive shall diligently, faithfully and competently
perform all his duties and shall devote as much of his productive time and
abilities to the performance of such duties as is required to accomplish such
duties.
2. Ongoing Payments. While Executive is employed pursuant to this
Agreement, AVC will pay Executive a salary at a rate of One Hundred and Fifteen
Thousand Dollars ($115,000) per annum, payable in substantially equal monthly or
more frequent installments.
3. Bonuses.
(a) Regular Bonus. In addition to the salary set forth in
Section 2 above, AVC shall pay Executive a bonus equal to 2.0% of AVC's adjusted
operating profit for the respective fiscal year, before acquisition interest
expense (but after working capital interest expense), interest income, other
income and expenses, amortization expense and income taxes of AVC, and before
management fees or general corporate overhead charges (which charges do not
reflect actual operating costs of AVC's business) allocated to AVC by The Jordan
Company LLC or its affiliates ("EBITA"). Such amount, if any, to which Executive
is entitled under this Section 3(a) shall be payable not later than 90 days
following the end of each fiscal year of AVC during which this Agreement is in
effect and shall be based upon the audited financial statements of AVC for each
such fiscal year. Nothwithstanding the foregoing, effective upon a Change of
Control (defined below), the bonus shall be reduced from 2.0% of EBITA to
<PAGE>
1.0% of EBITA. Accordingly, the bonus payable for the fiscal year during which a
such Change of Control occurs shall be calculated in two segments based upon the
number of calendar days elapsed before and after the Change of Control as set
forth below:
(i) 2.0% multiplied by the EBITA for the full fiscal year,
multiplied by a quotient determined by dividing the number of calendar
days in such fiscal year prior to the Change of Control by 365; plus
(ii) 1.0% multiplied by the EBITA for the full fiscal year,
multiplied by a quotient determined by dividing the number of calendar
days in such fiscal year after the Change of Control (plus one) by 365.
The term "Change of Control" shall mean either (i) an arm's
length sale of 80% or more of the then outstanding voting capital stock or
Ventshade Holdings, Inc. ("Holdings"), the parent corporation of AVC (a "Stock
Sale") or (ii) the sale of all or substantially all of the assets of AVC (an
"Asset Sale"), in either case, to a third party that is not an affiliate (as
such term is used in the Federal securities laws) of The Jordan Company LLC.
(b) Change of Control Bonus. In the event of a Change of
Control of Holdings, AVC shall pay to Executive an additional bonus equal to
$200,000 plus 21.25% multiplied by the Applicable Net Shareholder Proceeds
(defined below) resulting from the Change of Control. The bonus payable to
Executive pursuant to this Section 3(b) shall be due and payable by AVC upon a
Change of Control, except to the extent that any of the proceeds are held in
escrow (the "Escrowed Funds") and not paid on the date of the Change of Control,
an amount equal to 21.25% of such Escrowed Funds, multiplied by the maximum
Applicable Percentage set forth below, shall not be paid concurrently with the
Change of Control, but shall be due and payable by AVC only if, and to the
extent and subject to any adjustments in accordance with the related purchase
agreement, within 10 days after the date(s) the Escrowed Funds are released to
the Shareholders of AVC in the event of a Stock Sale or such Escrowed Funds are
released to AVC in the event of an Asset Sale. The term "Applicable Net
Shareholder Proceeds" shall mean $2,350,000 plus the percentage of Net
Shareholder Proceeds (defined below), in excess of the levels set forth below
and determined on a cumulative basis:
Applicable Net Shareholder
Percentage Proceeds
---------- --------
5% $30,000,000 - $34,999,999
10% $35,000,000 - $39,999,999
15% $40,000,000 - $44,999,999
20% $45,000,000 - $49,999,999
25% $50,000,000 or more
The term "Net Shareholder Proceeds" means (i) in the case of a
Stock Sale, the cash consideration actually received by the shareholders of
Holdings; or (ii) in the case of an Asset Sale, the cash consideration actually
received less the liabilities of AVC retained by AVC, in each case, subject to
adjustment pursuant to the related purchase agreement and after deducting all of
the following expenses:
(i) all principal, interest and other amounts payable in
connection with the Revolving Credit and Term Loan Agreement dated
November 21, 1994, as
2
<PAGE>
amended, among AVC, Holdings and BankBoston, N.A., as agent for itself
and the other lending institutions a party thereto;
(ii) all principal, interest and other amounts payable in
connection with the MCIT Purchase Agreement, dated November 21, 1994,
as amended, between Holdings and MCIT PLC;
(iii) the redemption price, including all accrued and unpaid
dividends, payable to the holders of the Nonvoting Preferred Stock and
Special Voting Preferred Stock issued by Holdings;
(iv) all amounts payable pursuant to the Management Consulting
Agreement, dated November 21, 1994, between Holdings and TJC Management
Corporation;
(v) all amounts payable to Bowles Hollowell Conner & Co. in
connection with the Change of Control;
(vi) the $550,000 Non-Competition payment to Asa R. Phillips;
(vii) the general bonus actually paid, if any, to other
employees of AVC in connection with the Change of Control in an amount
to be determined by AVC; and
(viii) all other expenses incurred by Holdings or AVC in
connection with the Change of Control including, without limitation,
all attorneys' fees, accounting fees and other out of pocket costs to
the extent not set forth above.
4. Benefits. While Executive is employed, AVC will provide for
Executive's participation in benefit programs identified on Exhibit A to this
Agreement.
5. Term of Employment; Termination.
(a) The "Term of Employment" shall commence on the date hereof
and shall continue for a term of eighteen (18) months; provided that (i) such
term shall continue for the twelve (12) month period following such eighteen
(18) month period, and for each twelve (12) month period thereafter; unless at
least 180 days prior to the scheduled expiration date, either the Executive or
AVC notifies the other of its decision not to continue such term; and (ii)
should the Executive's employment by AVC be earlier terminated pursuant to
Section 5(b), the Term of Employment shall end on the date of such earlier
termination.
(b) Executive agrees and understands that the Term of
Employment may be terminated at any time by AVC: (i) upon the death ("Death") of
the Executive; (ii) in the event that because of physical or mental disability
the Executive is unable to perform, and does not perform, Executive's duties
hereunder for a continuous period of 180 days ("Disability"); (iii) for Cause
(as defined in Section 5(c)); or (iv) for any other reason or no reason, it
being understood that no reason is required ("Without Cause"). Executive
acknowledges that no representations or promises have been made concerning the
grounds for termination or the future operation of AVC's business, and that
nothing contained herein or otherwise stated by or on behalf of AVC modifies or
amends the right of AVC to terminate the employment of Executive at any time,
with or without cause. Termination shall become effective upon the delivery by
AVC to the Executive of five (5) business days' notice specifying such
termination and the reasons therefor.
3
<PAGE>
(c) For the purposes of this Section 5, "Cause" shall mean any
of the following: (i) Executive's conviction of any crime or criminal offense
involving monies or other property, or any felony involving moral turpitude;
(ii) Executive's conviction of fraud or embezzlement; (iii) Executive's willful
breach of any of Executive's fiduciary duties to AVC or its stockholders or
making of a willful misrepresentation or willful omission which breach,
misrepresentation or omission might reasonably be expected to materially
adversely affect the business, properties, assets, condition (financial or
other) or prospects of AVC after written notice from AVC and 30 day opportunity
for Executive to cure such breach, misrepresentation or omission; (iv)
Executive's willful neglect or failure to discharge Executive's duties,
responsibilities or obligations prescribed in Section 1 after written notice
from AVC and 30 day opportunity for Executive to cure such neglect or failure to
discharge such duties, responsibilities or obligations; (v) Executive's habitual
drunkenness or substance abuse after written notice from AVC and 30 day
opportunity for Executive to cure such habitual drunkenness or substance abuse;
(vi) Executive's gross incompetence or gross insubordination after written
notice from AVC and 30 day opportunity for Executive to cure such gross
incompetence or gross insubordination; (vii) Executive's willful and material
breach or violation of this Agreement including without limitation, those
provisions set forth in Sections 6 and 7 of this Agreement; of (viii)
Executive's voluntary resignation due to any circumstance other than is
described in Sections 5(d)(aa)(ii) and 5(d)(aa)(iii) below.
(d) (aa) In the event Executive's employment is terminated (i)
by AVC Without Cause as described in Section 5(b)(iv), or (ii) by Executive as a
result of resignation or voluntary termination due to a material and willful
breach of its obligations under this Agreement (any of such circumstances
hereinafter referred to as "Good Reason"), or (iii) by Executive as a result of
a relocation by Holdings of its principal offices to a location more than 100
miles from its current location (unless such relocation is recommended by the
management of AVC), AVC will nevertheless pay to Executive the amounts to which
he would be entitled under Sections 2 and 3(a) through December 31, 1999, but
only as and when said amounts would be due during the initial term hereof as if
termination had not occurred. AVC shall not pay any amounts under Sections 3(b)
or 4 except that AVC shall continue to maintain at its expense the benefits
identified on Exhibit A (except that no car or car phone shall be provided), for
Executive from the effectiveness of the termination through December 31, 1999.
AVC shall have the right to offset and deduct from any amounts or benefits due
or owing to Executive under this Section 5(d)(aa) an amount or benefit equal to
that earned by Executive from other employment or consulting activities during
the period payments or benefits are due him under this Section 5(d)(aa), except
for amounts or benefits earned by Executive from personal investment activities.
(bb) In the event that Executive's employment is
terminated by AVC for Disability as described in Section 5(b)(ii), AVC will pay
to Executive the amounts to which he would be entitled under Sections 2 and 3(a)
for the period from effectiveness of termination through the earlier of (x) the
first anniversary date of such terminations, or (y) December 31, 1999, but only
as and when said amounts would be due during the initial term hereof as if said
termination had not occurred, with the bonus to be paid on a Pro Rata Basis for
any period which is less than a full fiscal year; and AVC will not pay any
amount under Sections 3(b) or 4, except that AVC shall continue to maintain at
its expense the benefits identified on Exhibit A (except that no car or car
phone shall be provided), for Executive from the effectiveness of the
termination through the earlier of (x) one year following such termination, or
(y) December 31, 1999. AVC shall have the right to offset and deduct from any
amounts or benefits due or owing to Executive under this Section 5(d)(bb), but
only against payments due under Section 2 hereof,
4
<PAGE>
the amount of the benefit (monthly or otherwise) which Executive actually
realizes from the group long-term disability insurance payment provided on
Exhibit A hereto.
(cc) In the event Executive's employment is terminated by
AVC for Death as described in Section 5(b)(i), there will be no amounts owing by
AVC to the Executive under Sections 2, 3 or 4 from and after the effectiveness
of termination; except that (i) AVC shall pay Executive's estate a bonus 90 days
after the end of the fiscal year after such termination, calculated in
accordance with the formula set forth in Section 3(a), and said bonus to paid on
a Pro Rata Basis for that number of months between January 1 of the year and
last day of the month in which the terminations occurs, and (ii) AVC shall pay
Executive's estate the amounts specified under Section 2 for the period from the
effectiveness of termination through December 31, 1999, but only as and when
said amounts would be due during the initial term hereof, as if termination had
not occurred.
(dd) In the event Executive's employment is terminated by
AVC for Cause as described in Section 5(b)(iii), or by Executive as a result of
resignation or voluntary termination due to any circumstance other than for Good
Reason as described in Section 5(d)(aa)(ii) or as a result of a relocation as
described in Section 5(d)(aa)(iii) above, there will be no amounts owing by AVC
to the Executive under Sections 2, 3 or 4, or any other part of this Agreement
(except any Mandatory Non-Competition Payment or Optional Non-Competition
Payment as defined below), from and after the effectiveness of termination;
except that (i) in any event AVC shall pay Executive a bonus within 90 days
after the end of the fiscal year after such termination, calculated in
accordance with the formula set forth in Section 3(a), and (ii) said bonus to be
paid on a Pro Rata Basis for that number of months between January 1 or the year
and last day of the month in which the termination occurs.
(ee) For purposes of this Section 5(d), the computation of
a bonus on a Pro Rata Basis shall mean an amount of EBITA resulting from
Executive's bonus percentage set forth in Section 3(a) multiplied time an amount
equal to that fraction of AVC's EBITA for the full fiscal year with respect to
which such bonus is to be paid (as reflected in AVC's audited financial
statements), the numerator of such fraction being the number of months from
January 1 of the year of which such bonus is to be paid to the end of the month
in which the last payment is to occur, and the denominator being twelve (12).
(e) All determinations pursuant to this Section 5 shall be
made by AVC's Board of Directors (not including Executive), in its reasonable
discretion; provided, however, unless such coverage is not in effect, that the
determination whether Executive suffers from Disability shall be made by the
insurer providing the group long-term disability coverage set forth in Exhibit A
in accordance with the terms of the policy providing such coverage, after notice
to Executive from AVC which shall require Executive to submit a claim for
disability benefits under such policy. In the event Executive disagrees with
such determination or any other determination under this Section 5, such dispute
shall be submitted immediately to arbitration as described in Section 12 to
allow the arbitrator(s) to make an independent determination of the matter in
dispute, which determination shall be conclusive. Until such dispute is settled
by arbitration, Executive shall continue to be paid all amounts due under this
Agreement as if such determination had not been made; provided, however, in the
event that the arbitrator(s) agrees with AVC's determination, Executive shall
reimburse AVC for any amounts and benefits that would not have been paid to
Executive pursuant to the terms hereof if Executive had not disagreed with the
determination made by the Board of Directors.
5
<PAGE>
6. Restrictive Covenants; Payments.
(a) For the period with respect to which AVC is making any
payments to Executive under Section 2 of this Agreement, and during any
subsequent Quarter Year Time Periods, for which periods AVC actually makes
consecutive Mandatory Non-Competition Payments (defined below) or Optional
Non-Competition Payments (defined below) to Executive, Executive shall not:
(i) directly or indirectly, either individually or as a
principal, partner, agent, employee, employer, consultant, stockholder,
joint venturer, or investor, or as a director or officer of any
corporation or association, or in any other ownership, executive or
management position, engage or assist in activities, or have any active
interest, of an ownership, executive, management or consulting nature
in a business located anywhere in (a) the United States of America, (b)
the Republic of Mexico, (c) the Dominion of Canada, or (d) any other
country in North, Central or South America where AVC currently
distributes or, as of the date hereof has definite plans to commence
distribution within one (1) year of execution of this Agreement, that
competes with the business of manufacturing, distributing or marketing
golf cart roofs and other golf cart parts, visors and shades and other
similar products used on motor vehicles, including, but not limited to
window visors and shades, window deflectors, sunroof deflectors,
hood-mounted stone and bug deflectors, door sill protectors, and
headlight and taillight covers and sun visors or any business that as
of the date hereof AVC has definite plans to commence or any product
that AVC has definite plans to manufacture, distribute or market,
within one (1) year of the execution of this Agreement. Notwithstanding
the above, this paragraph shall not be construed to prohibit Executive
from owning less than five percent (5%) of the outstanding securities
of a corporation which is publicly traded on a securities exchange or
over-the-counter;
(ii) directly or indirectly, whether as principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or
investor, or as a director or officer of any corporation or
association, or in any other ownership, executive or management
position whatsoever, (i) divert or attempt to divert from AVC any
business with any customer or account or prospective customer or
account with which Executive had any business contact or business
association, which was under the supervision of Executive, or the
identity of which was learned by Executive as a result of Executive's
employment with AVC or Liberty, or (ii) induce any salesman,
distributor, supplier, vendor, manufacturer, representative, agent,
jobber or other person transacting business with AVC to represent,
distribute or sell services or products in competition with services or
products of AVC, or (iii) induce or cause any employee of AVC to leave
the employ of AVC, other than in the course of loyal discharge of his
duties as an executive of AVC. Notwithstanding the above, this
paragraph shall not be construed to prohibit Executive from owning less
than five percent (5%) of the outstanding securities of a corporation
which is publicly traded on a securities exchange or over-the-counter.
(b) For purposes of this Agreement, "Quarter Year Time Period"
shall mean any three month period of a calendar year; "Mandatory Non-Competition
Payments" shall mean four consecutive payments required to be paid by AVC to the
Executive and equal to one hundred percent (100%) of Executive's quarterly
salary being paid under Section 2 hereof, which payments are to be made
quarterly within ten (10) days of the start of each Quarter Year
6
<PAGE>
Time Period and the first such payment is to be made within ten (10) days after
the termination of Executive's employment; and "Optional Non-Competition
Payments" shall mean optional payments made by AVC to the Executive equal to
eight percent (80%) of Executive's quarterly salary being paid under Section 2
hereof, which payments, if made, shall be paid quarterly within ten (10) days of
the start of each Quarter Year Time Period following the four Quarter Year Time
Periods during which the Mandatory Non-Competition Payments are made, except for
the first Optional Non-Competition Payment which shall be due as provided below.
In order for AVC to elect to commence the Optional Non-Competition Payments, AVC
shall deliver to Executive within fifteen (15) business days prior to the
expiration of the fourth Quarter Year Time Period relating to the last Mandatory
Non-Competition Payment, a written notice of such election, together with the
payment of the first Optional Non-Competition Payment.
7. Non-Disclosure. Executive shall not, except in connection with the
loyal discharge of his duties as an executive of AVC, at any time or in any
manner, directly or indirectly, knowingly disclose to any party other than AVC
any trade secrets or other Confidential Information (as defined below) learned
or obtained by him while a stockholder, officer, director or employee of AVC or
Liberty. As used herein, the term "Confidential Information" means information
disclosed to or known by Executive as a consequence of his position with AVC or
Liberty and not generally known in the industry in which AVC is engaged and that
in any way related to AVC's products, processes, services, inventions (whether
patentable or not), formulas, techniques or know-how, including, but not limited
to, information relating to distribution systems and methods, research,
development, manufacturing, purchasing, accounting, engineering, marketing,
merchandising and selling (all of which is referred to herein as "Confidential
Information").
8. Affiliate Transactions. Except for reimbursement of travel expenses
of Executive's spouse in connection with assistance provided at trade shows at
which AVC participates, use of services of family members of Executive on a
part-time or piece-work contract basis, at reasonable arm's length compensation
rates, or as approved by the Board of Directors of AVC, for as long as Executive
is employed by AVC, or Executive or any member of his family is the beneficial
owner of any stock of AVC, neither Executive, any member of his family nor any
affiliate (as such term is used in the Federal securities laws) of Executive
shall engage, directly or indirectly, in any business transaction with AVC or
any of its affiliates.
9. Business Expenses. Executive is authorized to incur reasonable
expenses for promoting the business of AVC, including expenses for
entertainment, travel, and similar items. AVC shall reimburse Executive for all
reasonable expenses upon the presentation by Executive, from time to time, of an
itemized account of such expenditures.
10. Specific Performance. The parties hereto agree that their rights
hereunder are special and unique and that any violation thereof would not be
adequately compensated by money damages, and each grants the other the right to
specifically enforce (including injunctive relief where appropriate) the terms
of this Agreement.
11. Notices. Any notice, request, consent or communication
(collectively a "Notice") under this Agreement shall be effective only if it is
in writing and (i) personally delivered, (ii) sent by a national recognized
overnight delivery service, with delivery confirmed, or (iii) telexed or
telecopied, with receipt confirmed, addressed as follows:
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(a) If to Executive:
Mr. Richard Tucker
2979 Jonquil Drive
Smyrna, Georgia 30080
(b) If to AVC to:
Mr. Asa R. Phillips, President
655 Raco Drive
Lawrenceville, Georgia 30045
with a copy to:
Jonathon F. Boucher
c/o The Jordan Company
767 Fifth Avenue, 48th Floor
New York, New York 10153
with a second copy to:
G. Robert Fisher, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) when receipt of a Notice sent by an
overnight delivery service is confirmed by such overnight delivery service, or
(iii) when receipt of the telex or telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
12. Arbitration. Any controversy or claim arising out of or under this
Agreement, or the alleged breach therof, including, but not limited to, any
question as to the arbitrability of any such controversy or claim, shall be
immediately submitted and settled by an arbitration administered by the American
Arbitration Association ("AAA") in accordance with the Commercial Arbitration
Rules of AAA, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Any arbitration pursuant
hereto shall be conducted in Atlanta, Georgia, and any award rendered by the
arbitrator(s) shall be in strict accordance with the terms and provisions of
this Agreement.
13. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations here under shall be assigned by
Executive.
14. Governing Law. This Agreement shall be governed by the law of the
state of Georgia as to all matters, including, but not limited to, matters of
validity, construction, effect and
8
<PAGE>
performance, except that no doctrine of choice of law shall be used to apply any
law other than that of Georgia.
15. Severability. AVC and Executive believe the covenants against
competition contained in this Agreement are reasonable and fair in all respects,
and are necessary to protect the interests of AVC. However, in case any one or
more of the provisions or parts of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement or
any other jurisdiction, but this Agreement shall be reformed and construed in
any such jurisdiction as if such invalid or illegal or unenforceable provision
or part of a provision had never been contained herein and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent permitted in such jurisdiction. Without limiting the foregoing,
the parties intend that the covenants and agreements contained in Section 6
shall be deemed to be a series of separate covenants and agreements, one for
each state in the United States of America and for each country in North,
Central or South America then covered by the provisions of Section 6. If, in any
judicial or arbitration proceeding, a court or arbitrator shall refuse to
enforce all the separate covenants and agreements deemed to be included in
Section 6, it is it the intention of the parties hereto that the covenants and
agreements which, if eliminated, would permit the remaining separate covenant
and agreements to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of Section 6.
16. Miscellaneous. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. This Agreement
embodies the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings (whether oral or written) between the parties with
respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
AVC:
AUTO VENTSHADE COMPANY
By: /s/ Jonathon F. Bocher
--------------------------
Jonathon F. Boucher, Vice President
EXECUTIVE:
By: /s/ Richard Tucker
----------------------
Richard Tucker
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EXHIBIT A
AVC-furnished car and all related expenses
100% medical/dental insurance paid
All non-insurance medical expenses paid (up to $10,000 per
year)
$50,000 Life Insurance
$30,000 Life Insurance attached to medical insurance
Continued group long-term disability, short-term disability
and accidental death and dismemberment
Car phone
Annual Physical
10
EXHIBIT 10.102
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of the 1st day of July, 1998, by and between AUTO VENTSHADE COMPANY, a
Delaware corporation ("AVC") and STAN SCARBOROUGH, an individual ("Executive");
WITNESSETH:
WHEREAS, Executive has been actively involved in the business of AVC
and its predecessor, Liberty Specialties, Inc., a Delaware corporation
("Liberty"), as an employee;
WHEREAS, AVC and Executive previously entered into an Employment and
Non-Competition Agreement dated as of November 21, 1994 in connection with that
certain Agreement for Purchase and Sale of Assets by and between AVC and
Liberty;
WHEREAS, Executive has agreed to be employed and not to compete with
AVC to the extent set forth below; and
WHEREAS, AVC desires to retain the services of Executive and Executive
desires to be retained by AVC;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements contained herein, and in consideration of the payments by AVC to
Executive required below, the parties hereto agree as follows:
1. Employment. Subject to the termination provisions of Section 5, AVC
shall employ Executive as the Vice President - Sales and Marketing of AVC for a
period of eighteen (18) months from the date hereof. Executive shall be
responsible for doing and performing all services, acts or things necessary or
advisable to fulfill the duties associated with such position in a manner
consistent with past practice of Executive on behalf of AVC and shall report to
the Chief Executive Officer. Executive shall diligently, faithfully and
competently perform all his duties and shall devote as much of his productive
time and abilities to the performance of such duties as is required to
accomplish such duties.
2. Ongoing Payments. While Executive is employed pursuant to this
Agreement, AVC will pay Executive a salary at a rate of One Hundred and Fifteen
Thousand Dollars ($115,000) per annum, payable in substantially equal monthly or
more frequent installments.
3. Bonuses.
(a) Regular Bonus. In addition to the salary set forth in
Section 2 above, AVC shall pay Executive a bonus equal to 2.0% of AVC's adjusted
operating profit for the respective fiscal year, before acquisition interest
expense (but after working capital interest expense), interest income, other
income and expenses, amortization expense and income taxes of AVC, and before
management fees or general corporate overhead charges (which charges do not
reflect actual operating costs of AVC's business) allocated to AVC by The Jordan
Company LLC or its affiliates ("EBITA"). Such amount, if any, to which Executive
is entitled under this Section 3(a) shall be payable not later than 90 days
following the end of each fiscal year of AVC during which this Agreement is in
effect and shall be based upon the audited financial statements of AVC for each
such fiscal year. Nothwithstanding the foregoing, effective upon a Change of
Control (defined below), the bonus shall be reduced from 2.0% of EBITA to
<PAGE>
1.0% of EBITA. Accordingly, the bonus payable for the fiscal year during which a
such Change of Control occurs shall be calculated in two segments based upon the
number of calendar days elapsed before and after the Change of Control as set
forth below:
(i) 2.0% multiplied by the EBITA for the full fiscal year,
multiplied by a quotient determined by dividing the number of calendar
days in such fiscal year prior to the Change of Control by 365; plus
(ii) 1.0% multiplied by the EBITA for the full fiscal year,
multiplied by a quotient determined by dividing the number of calendar
days in such fiscal year after the Change of Control (plus one) by 365.
The term "Change of Control" shall mean either (i) an arm's
length sale of 80% or more of the then outstanding voting capital stock or
Ventshade Holdings, Inc. ("Holdings"), the parent corporation of AVC (a "Stock
Sale") or (ii) the sale of all or substantially all of the assets of AVC (an
"Asset Sale"), in either case, to a third party that is not an affiliate (as
such term is used in the Federal securities laws) of The Jordan Company LLC.
(b) Change of Control Bonus. In the event of a Change of
Control of Holdings, AVC shall pay to Executive an additional bonus equal to
$200,000 plus 21.25% multiplied by the Applicable Net Shareholder Proceeds
(defined below) resulting from the Change of Control. The bonus payable to
Executive pursuant to this Section 3(b) shall be due and payable by AVC upon a
Change of Control, except to the extent that any of the proceeds are held in
escrow (the "Escrowed Funds") and not paid on the date of the Change of Control,
an amount equal to 21.25% of such Escrowed Funds, multiplied by the maximum
Applicable Percentage set forth below, shall not be paid concurrently with the
Change of Control, but shall be due and payable by AVC only if, and to the
extent and subject to any adjustments in accordance with the related purchase
agreement, within 10 days after the date(s) the Escrowed Funds are released to
the Shareholders of AVC in the event of a Stock Sale or such Escrowed Funds are
released to AVC in the event of an Asset Sale. The term "Applicable Net
Shareholder Proceeds" shall mean $2,350,000 plus the percentage of Net
Shareholder Proceeds (defined below), in excess of the levels set forth below
and determined on a cumulative basis:
Applicable Net Shareholder
Percentage Proceeds
---------- --------
5% $30,000,000 - $34,999,999
10% $35,000,000 - $39,999,999
15% $40,000,000 - $44,999,999
20% $45,000,000 - $49,999,999
25% $50,000,000 or more
The term "Net Shareholder Proceeds" means (i) in the case of a
Stock Sale, the cash consideration actually received by the shareholders of
Holdings; or (ii) in the case of an Asset Sale, the cash consideration actually
received less the liabilities of AVC retained by AVC, in each case, subject to
adjustment pursuant to the related purchase agreement and after deducting all of
the following expenses:
(i) all principal, interest and other amounts payable in
connection with the Revolving Credit and Term Loan Agreement dated
November 21, 1994, as
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amended, among AVC, Holdings and BankBoston, N.A., as agent for itself
and the other lending institutions a party thereto;
(ii) all principal, interest and other amounts payable in
connection with the MCIT Purchase Agreement, dated November 21, 1994,
as amended, between Holdings and MCIT PLC;
(iii) the redemption price, including all accrued and unpaid
dividends, payable to the holders of the Nonvoting Preferred Stock and
Special Voting Preferred Stock issued by Holdings;
(iv) all amounts payable pursuant to the Management Consulting
Agreement, dated November 21, 1994, between Holdings and TJC Management
Corporation;
(v) all amounts payable to Bowles Hollowell Conner & Co. in
connection with the Change of Control;
(vi) the $550,000 Non-Competition payment to Asa R. Phillips;
(vii) the general bonus actually paid, if any, to other
employees of AVC in connection with the Change of Control in an amount
to be determined by AVC; and
(viii) all other expenses incurred by Holdings or AVC in
connection with the Change of Control including, without limitation,
all attorneys' fees, accounting fees and other out of pocket costs to
the extent not set forth above.
4. Benefits. While Executive is employed, AVC will provide for
Executive's participation in benefit programs identified on Exhibit A to this
Agreement.
5. Term of Employment; Termination.
(a) The "Term of Employment" shall commence on the date hereof
and shall continue for a term of eighteen (18) months; provided that (i) such
term shall continue for the twelve (12) month period following such eighteen
(18) month period, and for each twelve (12) month period thereafter; unless at
least 180 days prior to the scheduled expiration date, either the Executive or
AVC notifies the other of its decision not to continue such term; and (ii)
should the Executive's employment by AVC be earlier terminated pursuant to
Section 5(b), the Term of Employment shall end on the date of such earlier
termination.
(b) Executive agrees and understands that the Term of
Employment may be terminated at any time by AVC: (i) upon the death ("Death") of
the Executive; (ii) in the event that because of physical or mental disability
the Executive is unable to perform, and does not perform, Executive's duties
hereunder for a continuous period of 180 days ("Disability"); (iii) for Cause
(as defined in Section 5(c)); or (iv) for any other reason or no reason, it
being understood that no reason is required ("Without Cause"). Executive
acknowledges that no representations or promises have been made concerning the
grounds for termination or the future operation of AVC's business, and that
nothing contained herein or otherwise stated by or on behalf of AVC modifies or
amends the right of AVC to terminate the employment of Executive at any time,
with or without cause. Termination shall become effective upon the delivery by
AVC to the Executive of five (5) business days' notice specifying such
termination and the reasons therefor.
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(c) For the purposes of this Section 5, "Cause" shall mean any
of the following: (i) Executive's conviction of any crime or criminal offense
involving monies or other property, or any felony involving moral turpitude;
(ii) Executive's conviction of fraud or embezzlement; (iii) Executive's willful
breach of any of Executive's fiduciary duties to AVC or its stockholders or
making of a willful misrepresentation or willful omission which breach,
misrepresentation or omission might reasonably be expected to materially
adversely affect the business, properties, assets, condition (financial or
other) or prospects of AVC after written notice from AVC and 30 day opportunity
for Executive to cure such breach, misrepresentation or omission; (iv)
Executive's willful neglect or failure to discharge Executive's duties,
responsibilities or obligations prescribed in Section 1 after written notice
from AVC and 30 day opportunity for Executive to cure such neglect or failure to
discharge such duties, responsibilities or obligations; (v) Executive's habitual
drunkenness or substance abuse after written notice from AVC and 30 day
opportunity for Executive to cure such habitual drunkenness or substance abuse;
(vi) Executive's gross incompetence or gross insubordination after written
notice from AVC and 30 day opportunity for Executive to cure such gross
incompetence or gross insubordination; (vii) Executive's willful and material
breach or violation of this Agreement including without limitation, those
provisions set forth in Sections 6 and 7 of this Agreement; of (viii)
Executive's voluntary resignation due to any circumstance other than is
described in Sections 5(d)(aa)(ii) and 5(d)(aa)(iii) below.
(d) (aa) In the event Executive's employment is terminated (i)
by AVC Without Cause as described in Section 5(b)(iv), or (ii) by Executive as a
result of resignation or voluntary termination due to a material and willful
breach of its obligations under this Agreement (any of such circumstances
hereinafter referred to as "Good Reason"), or (iii) by Executive as a result of
a relocation by Holdings of its principal offices to a location more than 100
miles from its current location (unless such relocation is recommended by the
management of AVC), AVC will nevertheless pay to Executive the amounts to which
he would be entitled under Sections 2 and 3(a) through December 31, 1999, but
only as and when said amounts would be due during the initial term hereof as if
termination had not occurred. AVC shall not pay any amounts under Sections 3(b)
or 4 except that AVC shall continue to maintain at its expense the benefits
identified on Exhibit A (except that no car or car phone shall be provided), for
Executive from the effectiveness of the termination through December 31, 1999.
AVC shall have the right to offset and deduct from any amounts or benefits due
or owing to Executive under this Section 5(d)(aa) an amount or benefit equal to
that earned by Executive from other employment or consulting activities during
the period payments or benefits are due him under this Section 5(d)(aa), except
for amounts or benefits earned by Executive from Scarborough Properties or other
personal investment activities.
(bb) In the event that Executive's employment is
terminated by AVC for Disability as described in Section 5(b)(ii), AVC will pay
to Executive the amounts to which he would be entitled under Sections 2 and 3(a)
for the period from effectiveness of termination through the earlier of (x) the
first anniversary date of such terminations, or (y) December 31, 1999, but only
as and when said amounts would be due during the initial term hereof as if said
termination had not occurred, with the bonus to be paid on a Pro Rata Basis for
any period which is less than a full fiscal year; and AVC will not pay any
amount under Sections 3(b) or 4, except that AVC shall continue to maintain at
its expense the benefits identified on Exhibit A (except that no car or car
phone shall be provided), for Executive from the effectiveness of the
termination through the earlier of (x) one year following such termination, or
(y) December 31, 1999. AVC shall have the right to offset and deduct from any
amounts or benefits due or owing to Executive under this Section 5(d)(bb), but
only against payments due under Section 2 hereof,
4
<PAGE>
the amount of the benefit (monthly or otherwise) which Executive actually
realizes from the group long-term disability insurance payment provided on
Exhibit A hereto.
(cc) In the event Executive's employment is terminated by
AVC for Death as described in Section 5(b)(i), there will be no amounts owing by
AVC to the Executive under Sections 2, 3 or 4 from and after the effectiveness
of termination; except that (i) AVC shall pay Executive's estate a bonus 90 days
after the end of the fiscal year after such termination, calculated in
accordance with the formula set forth in Section 3(a), and said bonus to paid on
a Pro Rata Basis for that number of months between January 1 of the year and
last day of the month in which the terminations occurs, and (ii) AVC shall pay
Executive's estate the amounts specified under Section 2 for the period from the
effectiveness of termination through December 31, 1999, but only as and when
said amounts would be due during the initial term hereof, as if termination had
not occurred.
(dd) In the event Executive's employment is terminated by
AVC for Cause as described in Section 5(b)(iii), or by Executive as a result of
resignation or voluntary termination due to any circumstance other than for Good
Reason as described in Section 5(d)(aa)(ii) or as a result of a relocation as
described in Section 5(d)(aa)(iii) above, there will be no amounts owing by AVC
to the Executive under Sections 2, 3 or 4, or any other part of this Agreement
(except any Mandatory Non-Competition Payment or Optional Non-Competition
Payment as defined below), from and after the effectiveness of termination;
except that (i) in any event AVC shall pay Executive a bonus within 90 days
after the end of the fiscal year after such termination, calculated in
accordance with the formula set forth in Section 3(a), and (ii) said bonus to be
paid on a Pro Rata Basis for that number of months between January 1 or the year
and last day of the month in which the termination occurs.
(ee) For purposes of this Section 5(d), the computation of
a bonus on a Pro Rata Basis shall mean an amount of EBITA resulting from
Executive's bonus percentage set forth in Section 3(a) multiplied time an amount
equal to that fraction of AVC's EBITA for the full fiscal year with respect to
which such bonus is to be paid (as reflected in AVC's audited financial
statements), the numerator of such fraction being the number of months from
January 1 of the year of which such bonus is to be paid to the end of the month
in which the last payment is to occur, and the denominator being twelve (12).
(e) All determinations pursuant to this Section 5 shall be
made by AVC's Board of Directors (not including Executive), in its reasonable
discretion; provided, however, unless such coverage is not in effect, that the
determination whether Executive suffers from Disability shall be made by the
insurer providing the group long-term disability coverage set forth in Exhibit A
in accordance with the terms of the policy providing such coverage, after notice
to Executive from AVC which shall require Executive to submit a claim for
disability benefits under such policy. In the event Executive disagrees with
such determination or any other determination under this Section 5, such dispute
shall be submitted immediately to arbitration as described in Section 12 to
allow the arbitrator(s) to make an independent determination of the matter in
dispute, which determination shall be conclusive. Until such dispute is settled
by arbitration, Executive shall continue to be paid all amounts due under this
Agreement as if such determination had not been made; provided, however, in the
event that the arbitrator(s) agrees with AVC's determination, Executive shall
reimburse AVC for any amounts and benefits that would not have been paid to
Executive pursuant to the terms hereof if Executive had not disagreed with the
determination made by the Board of Directors.
5
<PAGE>
6. Restrictive Covenants; Payments.
(a) For the period with respect to which AVC is making any
payments to Executive under Section 2 of this Agreement, and during any
subsequent Quarter Year Time Periods, for which periods AVC actually makes
consecutive Mandatory Non-Competition Payments (defined below) or Optional
Non-Competition Payments (defined below) to Executive, Executive shall not:
(i) directly or indirectly, either individually or as a
principal, partner, agent, employee, employer, consultant, stockholder,
joint venturer, or investor, or as a director or officer of any
corporation or association, or in any other ownership, executive or
management position, engage or assist in activities, or have any active
interest, of an ownership, executive, management or consulting nature
in a business located anywhere in (a) the United States of America, (b)
the Republic of Mexico, (c) the Dominion of Canada, or (d) any other
country in North, Central or South America where AVC currently
distributes or, as of the date hereof has definite plans to commence
distribution within one (1) year of execution of this Agreement, that
competes with the business of manufacturing, distributing or marketing
golf cart roofs and other golf cart parts, visors and shades and other
similar products used on motor vehicles, including, but not limited to
window visors and shades, window deflectors, sunroof deflectors,
hood-mounted stone and bug deflectors, door sill protectors, and
headlight and taillight covers and sun visors or any business that as
of the date hereof AVC has definite plans to commence or any product
that AVC has definite plans to manufacture, distribute or market,
within one (1) year of the execution of this Agreement. Notwithstanding
the above, this paragraph shall not be construed to prohibit Executive
from owning less than five percent (5%) of the outstanding securities
of a corporation which is publicly traded on a securities exchange or
over-the-counter;
(ii) directly or indirectly, whether as principal, partner,
agent, employee, employer, consultant, stockholder, joint venturer, or
investor, or as a director or officer of any corporation or
association, or in any other ownership, executive or management
position whatsoever, (i) divert or attempt to divert from AVC any
business with any customer or account or prospective customer or
account with which Executive had any business contact or business
association, which was under the supervision of Executive, or the
identity of which was learned by Executive as a result of Executive's
employment with AVC or Liberty, or (ii) induce any salesman,
distributor, supplier, vendor, manufacturer, representative, agent,
jobber or other person transacting business with AVC to represent,
distribute or sell services or products in competition with services or
products of AVC, or (iii) induce or cause any employee of AVC to leave
the employ of AVC, other than in the course of loyal discharge of his
duties as an executive of AVC. Notwithstanding the above, this
paragraph shall not be construed to prohibit Executive from owning less
than five percent (5%) of the outstanding securities of a corporation
which is publicly traded on a securities exchange or over-the-counter.
(b) For purposes of this Agreement, "Quarter Year Time Period"
shall mean any three month period of a calendar year; "Mandatory Non-Competition
Payments" shall mean four consecutive payments required to be paid by AVC to the
Executive and equal to one hundred percent (100%) of Executive's quarterly
salary being paid under Section 2 hereof, which payments are to be made
quarterly within ten (10) days of the start of each Quarter Year
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Time Period and the first such payment is to be made within ten (10) days after
the termination of Executive's employment; and "Optional Non-Competition
Payments" shall mean optional payments made by AVC to the Executive equal to
eight percent (80%) of Executive's quarterly salary being paid under Section 2
hereof, which payments, if made, shall be paid quarterly within ten (10) days of
the start of each Quarter Year Time Period following the four Quarter Year Time
Periods during which the Mandatory Non-Competition Payments are made, except for
the first Optional Non-Competition Payment which shall be due as provided below.
In order for AVC to elect to commence the Optional Non-Competition Payments, AVC
shall deliver to Executive within fifteen (15) business days prior to the
expiration of the fourth Quarter Year Time Period relating to the last Mandatory
Non-Competition Payment, a written notice of such election, together with the
payment of the first Optional Non-Competition Payment.
7. Non-Disclosure. Executive shall not, except in connection with the
loyal discharge of his duties as an executive of AVC, at any time or in any
manner, directly or indirectly, knowingly disclose to any party other than AVC
any trade secrets or other Confidential Information (as defined below) learned
or obtained by him while a stockholder, officer, director or employee of AVC or
Liberty. As used herein, the term "Confidential Information" means information
disclosed to or known by Executive as a consequence of his position with AVC or
Liberty and not generally known in the industry in which AVC is engaged and that
in any way related to AVC's products, processes, services, inventions (whether
patentable or not), formulas, techniques or know-how, including, but not limited
to, information relating to distribution systems and methods, research,
development, manufacturing, purchasing, accounting, engineering, marketing,
merchandising and selling (all of which is referred to herein as "Confidential
Information").
8. Affiliate Transactions. Except for reimbursement of travel expenses
of Executive's spouse in connection with assistance provided at trade shows at
which AVC participates, use of services of family members of Executive on a
part-time or piece-work contract basis, at reasonable arm's length compensation
rates, or as approved by the Board of Directors of AVC, for as long as Executive
is employed by AVC, or Executive or any member of his family is the beneficial
owner of any stock of AVC, neither Executive, any member of his family nor any
affiliate (as such term is used in the Federal securities laws) of Executive
shall engage, directly or indirectly, in any business transaction with AVC or
any of its affiliates.
9. Business Expenses. Executive is authorized to incur reasonable
expenses for promoting the business of AVC, including expenses for
entertainment, travel, and similar items. AVC shall reimburse Executive for all
reasonable expenses upon the presentation by Executive, from time to time, of an
itemized account of such expenditures.
10. Specific Performance. The parties hereto agree that their rights
hereunder are special and unique and that any violation thereof would not be
adequately compensated by money damages, and each grants the other the right to
specifically enforce (including injunctive relief where appropriate) the terms
of this Agreement.
11. Notices. Any notice, request, consent or communication
(collectively a "Notice") under this Agreement shall be effective only if it is
in writing and (i) personally delivered, (ii) sent by a national recognized
overnight delivery service, with delivery confirmed, or (iii) telexed or
telecopied, with receipt confirmed, addressed as follows:
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(a) If to Executive:
Mr. Stan Scarborough
100 Field Stone Lane
Peachtree City, Georgia 30269
(b) If to AVC to:
Mr. Asa R. Phillips, President
655 Raco Drive
Lawrenceville, Georgia 30045
with a copy to:
Jonathon F. Boucher
c/o The Jordan Company
767 Fifth Avenue, 48th Floor
New York, New York 10153
with a second copy to:
G. Robert Fisher, Esq.
Bryan Cave LLP
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
or such other persons or addresses as shall be furnished in writing by any party
to the other party. A Notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) when receipt of a Notice sent by an
overnight delivery service is confirmed by such overnight delivery service, or
(iii) when receipt of the telex or telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
12. Arbitration. Any controversy or claim arising out of or under this
Agreement, or the alleged breach therof, including, but not limited to, any
question as to the arbitrability of any such controversy or claim, shall be
immediately submitted and settled by an arbitration administered by the American
Arbitration Association ("AAA") in accordance with the Commercial Arbitration
Rules of AAA, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Any arbitration pursuant
hereto shall be conducted in Atlanta, Georgia, and any award rendered by the
arbitrator(s) shall be in strict accordance with the terms and provisions of
this Agreement.
13. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations here under shall be assigned by
Executive.
14. Governing Law. This Agreement shall be governed by the law of the
state of Georgia as to all matters, including, but not limited to, matters of
validity, construction, effect and
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performance, except that no doctrine of choice of law shall be used to apply any
law other than that of Georgia.
15. Severability. AVC and Executive believe the covenants against
competition contained in this Agreement are reasonable and fair in all respects,
and are necessary to protect the interests of AVC. However, in case any one or
more of the provisions or parts of a provision contained in this Agreement
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement or
any other jurisdiction, but this Agreement shall be reformed and construed in
any such jurisdiction as if such invalid or illegal or unenforceable provision
or part of a provision had never been contained herein and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent permitted in such jurisdiction. Without limiting the foregoing,
the parties intend that the covenants and agreements contained in Section 6
shall be deemed to be a series of separate covenants and agreements, one for
each state in the United States of America and for each country in North,
Central or South America then covered by the provisions of Section 6. If, in any
judicial or arbitration proceeding, a court or arbitrator shall refuse to
enforce all the separate covenants and agreements deemed to be included in
Section 6, it is it the intention of the parties hereto that the covenants and
agreements which, if eliminated, would permit the remaining separate covenant
and agreements to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of Section 6.
16. Miscellaneous. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. This Agreement
embodies the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings (whether oral or written) between the parties with
respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
AVC:
AUTO VENTSHADE COMPANY
By: /s/ Jonathon F. Boucher
----------------------------
Jonathon F. Boucher, Vice President
EXECUTIVE:
By: /s/ Stan Scarborough
-----------------------
Stan Scarborough
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EXHIBIT A
AVC-furnished car and all related expenses
100% medical/dental insurance paid
All non-insurance medical expenses paid (up to $10,000 per
year)
$50,000 Life Insurance
$30,000 Life Insurance attached to medical insurance
Continued group long-term disability, short-term disability
and accidental death and dismemberment
Car phone
Annual Physical
10
EXHIBIT 10.103
March 10, 1998
John Daniels
Belmor Autotron Corporation
6460 W. Cortland Avenue
Chicago IL 60707
RE: POSITION WITH BELMOR AUTOTRON CORPORATION
Dear John:
As per our recent discussion, Belmor Autotron Corporation ("Belmor") is
offering you the position of President of Belmor Autotron Corporation, a
subsidiary of Deflecta-Shield Corporation. This correspondence sets out the
terms of our offer to you, except for the terms of any employee handbook for
Belmor, Lund International Holdings, Inc. ("LIH") Insider Trading Policy, and
Insider Trading Compliance Program, which reflect the current policies and
procedures of Belmor and/or LIH, are subject to change, and apply to you. A copy
of the appropriate employee handbook, Insider Trading Policy, and Insider
Trading Compliance Program are provided to you under separate cover.
If the terms offered in this letter are acceptable to you, please sign
the letter at the bottom. We hope that you will accept our offer and look
forward to making you part of our management team.
POSITION: President of Belmor Autotron Corporation, a subsidiary of
Deflecta-Shield Corporation. Under the current organizational structure you will
perform duties as directed by, and report to, the Chief Operating Officer of
LIH. Belmor reserves the right to modify your job responsibilities at its
discretion.
EFFECTIVE EMPLOYMENT START DATE: March 1, 1998
BASE SALARY: $132,000 on an annual basis
BONUS: You will be eligible for any bonus plan offered by LIH and will be in the
thirty-five percent (35%) bonus bracket for the current Short Term Incentive
Plan for 1998. Lund International Holdings, Inc. reserves the right to change
the bonus plan at the end of any plan year as applied to the following or next
plan year. Also, each bonus plan will be evaluated for any particular year, and
it is understood that future bonus plans have not been adopted and have yet to
be determined or approved.
BENEFITS: You are entitled to all current benefits offered to other senior
management members who are in an equivalent position with Belmor. In addition,
you will receive the special medical coverage, "Exec-u-care", provided to you as
a member of the Senior Management Team.
<PAGE>
STOCK OPTION PLAN: After you are hired, you will be eligible, effective as of
March 1, 1998, or your first day of actual employment, to receive a total Thirty
Thousand (30,000) stock options of Lund International Holdings, Inc., with Six
Thousand (6,000) vesting on the anniversary date of your first full year of
employment, and Six Thousand (6,000) vesting on your successive anniversary
dates of employment with Belmor thereafter, until all options have vested. You
must be employed on each anniversary date with no break in service for the stock
options to vest. The vesting schedule would be accelerated in the event of a
"Change of Control", as defined and set forth in the stock option plan. The
stock options are subject to, and will be issued according to, our stock option
plan and may require board and/or stockholder approval.
VACATIONS: You will be eligible for a four (4) week paid vacation, accruing
according to the Company's current vacation benefits.
AUTOMOBILE: During your term of employment with the Company, you will be
provided with a late model light truck or sport utility vehicle for your use,
subject to the reasonable approval of the President of LIH.
In the position of President of Belmor Autotron Corporation, you will
be provided with confidential, trade secret, and/or proprietary information of
Lund International Holdings, Inc., and its subsidiaries, Deflecta-Shield
Corporation and its subsidiaries, whether actually merged or not, which includes
Lund Industries, Incorporated and/or any company acquired by Lund International
Holdings, Inc. or its subsidiaries, or any restructured entities, (collectively
referred to in this letter as the "Company"). This includes, but is not limited
to, the following confidential, trade secret and/or proprietary information:
1. Sales activities, sales records, sales histories and/or how
sales have developed or changed in a particular geographical
area or market or for a particular product; customer lists
and/or vendor lists; and
2. The quantity of products purchased from the Company by its
customers and the prices paid, the Company's purchasing
activities, advertising and promotional activities, past and
present, potential sales and/or markets, market strategies;
and
3. Products' specifications, materials, costs; development of new
products; inventions, modifications of current products, and
information pertaining to all aspects of the Company's
research and development; and
4. The quantity of various products purchased from the Company
and/or the product mix as they relate to overall sales of all
products and/or a particular product; and
5. The reasons for the use by the Company of certain methods of
attachment of its products to the vehicles; manufacturing
processes and/or costs and/or time and/or labor studies; the
products' designs, dimensions, and tolerances; and
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6. The quantity of materials purchased from suppliers and/or the
reason for the use of certain materials; and
7. Shipping methods, pricing, profit margins per products; and
8. The financial information which is not made public in the
Company's press releases, quarterly reports, Securities and
Exchange Filings and/or the Company's annual reports; and
9. Information concerning the Company's management, financial
conditions, financial operations, purchasing activities,
marketing plans, strategic plans, information systems,
communication systems, planning activities, operational
activities and plans, investor relations activities,
interdepartmental communication or operational communication
activities and business plans; and
10. All other types and categories of information which are
generally understood by persons involved in the automotive
industry and any manufacturing operations to be trade secrets,
and/or confidential information and/or proprietary
information.
You agree that you will not disclose or use at any time, only as
limited by law, in any manner any confidential trade secret and/or proprietary
information as defined in this letter, or elsewhere, or subsequently revealed to
you to be confidential, a trade secret or proprietary information.
You agree in the event your employment with Belmor is terminated,
whether voluntarily or otherwise, and/or your are separated from your employment
with Belmor, that you, for a period of six (6) months from the date of
separation of your employment, shall not engage or participate in (whether as an
employee, shareholder, owner, officer, director, partner, consultant, advisor,
principal, agent, or in any other capacity) any business which engages in the
invention, design, development, marketing, and/or selling, and/or distributing,
and/or manufacturing of products competitive with those which are then listed in
the Company's current catalogs or marketing materials, and/or such products
which the Company has, in the preceding one (1) year before your separation, or
at your separation from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
You further agree that you will not, for a period of six (6) months
from the date of your separation of employment with Belmor, whether voluntarily
or otherwise, engage in or participate in, in any capacity, the solicitation of
or the attempt to solicit any potential or actual product designer, supplier,
customer, and/or distributor, and/or manufacturer of the Company's that you have
had contact with for the two (2) years preceding your separation from
employment. This restriction encompasses any business which engages in the
invention, design, development, marketing, and/or selling, and/or distributing,
and/or manufacturing of products competitive with those which are then listed in
the Company's current catalogs or marketing materials, and/or such products
which the Company has, in the preceding one (1) year before your separation, or
at your separation from employment, under design, development, modification,
alteration, or purchase from another company, or for which conception has
occurred.
3
<PAGE>
You also agree that for a period of six (6) months from your separation
from employment with Belmor, whether voluntarily or otherwise, that you will not
hire or offer to hire any of the Company's directors, officers, employees,
and/or agents, or attempt to and/or entice them to discontinue their
relationship with the Company, and/or attempt to divert and/or divert any
potential or actual product designer, customer, distributor, manufacturer,
and/or supplier of the Company's that you have had contact with for the two (2)
years preceding your separation from employment.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operations, promotional, sales,
distribution, or marketing activities, or has otherwise established its good
will, business reputation, or any potential or actual product designer, or
customer, or supplier, or distributor or manufacturing relations during the two
(2) years preceding your separation from employment.
These confidentiality and non-compete terms of this agreement extend
beyond the termination and/or separation of your employment and shall continue
in full force and effect after the termination and/or separation of your
employment or this agreement. You agree to always keep confidential and to not
use any trade secret and/or proprietary information, as limited by applicable
law.
You agree that at the time of your termination and/or separation of
employment with Belmor, that you will promptly deliver to the Company all
confidential, trade secret, or proprietary information and all Company property,
equipment and materials.
This agreement refers to Lund International Holdings, Inc. and its
subsidiaries, Deflecta-Shield Corporation and its subsidiaries, and any
restructured entities, because you will be privy to all operations of Lund
International Holdings, Inc. and its subsidiaries', and any restructured
entities' confidential information, operations and trade secret or proprietary
information.
If you accept Belmor's offer of employment, you understand that it is
not for a particular time period, and that either you or Belmor. may terminate
the employment relationship at any time for any reason or no reason. This
agreement is not to be interpreted as an agreement for continued employment,
because either party may terminate it at any time. In the event you are
terminated without cause, you shall be paid, exclusive of any bonuses or other
remuneration, six (6) months of your base salary effective on the date of
termination, if you sign a full and complete release of all claims against the
Company. However, you will not be entitled in any way to six (6) months of your
base salary, if you voluntarily terminate your employment with Belmor, or you
are terminated for cause, or you decline to execute the full and final release.
Belmor will pay to you any and all vacation benefits you have earned under
Belmor's then current vacation policy.
It is Belmor's understanding that your are not subject to any
agreements or restrictions arising out of any prior employment or consulting
relationship, and that by
4
<PAGE>
accepting this offer of employment, you will not be breaching or violating any
other obligations. If any breach of a prior obligations occurs, Belmor reserves
the right to withdraw this offer of employment.
In the event there is a "Change in Control" as defined in this letter,
a lump sum severance payment equal to one (1) year's base pay will be paid to
you in the event of a "Change of Control" of LIH and your subsequent termination
of employment within six (6) months of such "Change of Control". This
termination of employment may be effected at either the discretion of LIH or at
your discretion. The lump sum severance payment will be made within thirty (30)
days of the termination date.
A "Change of Control" of Lund International Holdings, Inc., shall be
deemed to have occurred if (i) any person or entity becomes the beneficial
owner, directly or indirectly, of securities representing in excess of fifty
percent (50%) of the voting securities of Lund International Holdings, Inc.,
except for (x) persons who, on March 1, 1998 together with their respective
affiliates or associates as such terms are defined under Section 203 of the
Delaware General Corporation Law own securities representing in excess of forty
percent (40%) of the voting securities of Lund International Holdings, Inc.; or
(y) any affiliates or associates identified in (x) to which any person
identified in (x) transfers all or any portion of such voting securities (the
persons in (x) and (y) being referred to herein as a "40% Holder"); (ii) Lund
International Holdings, Inc. sells or otherwise disposes of all or substantially
all of its assets in a single transaction or series or related transactions;
(iii) persons who, at the beginning of any twelve (12) consecutive month period,
constitute the Board of Directors of Lund International Holdings, Inc., at the
end of such period cease to constitute a majority of the Board of Directors of
Lund International Holdings, Inc., unless (a) prior to September 9, 2000, the
nomination or appointment of each new Director was approved by a vote of at
least two-thirds (2/3) of the Directors then still in office who were Directors
at the beginning of such period or (b) on or after September 9, 2000, the
nomination or appointment of each new Director was approved or is ratified by a
then 40% Holder or by any Director authorized by such 40% Holder to exercise
such approval (either pursuant to that certain Amended and Restated Governance
Agreement, dated as of November 25, 1997, among Lund International Holdings,
Ind., LIH Holdings, LLC and LIH Holdings II, LLC, or otherwise); (iv) Lund
International Holdings, Inc. merges or combines with or into any person or
entity and the stockholders or Lund International Holdings, Inc. immediately
prior to the consummation of the merger own less than fifty percent (50%) of the
outstanding voting securities of the surviving entity upon consummation of the
merger.
This agreement may be severed, if any portion is determined to be
unenforceable or void, with the other terms remaining in full force and effect.
Also, this agreement will be interpreted under the laws of the State of
Minnesota and the United States of America, and is binding on the parties, their
heirs, successors, personal representative and assigns.
This agreement supersedes, revokes, or voids all other offers, or
agreements, oral or written made by Lund International Holdings, Inc., or any of
its subsidiaries, regarding any position with Lund International Holdings, Inc.,
or any position with any of its subsidiaries. This agreement also supersedes,
revokes, or voids all other offers, or agreements, oral or written you may have
or have had with Deflecta-Shield Corporation,
5
<PAGE>
or any of its subsidiaries, which you agree shall be null, void, and superseded
by this employment letter agreement with Belmor when you sign at the bottom of
this letter. This letter does not affect the terms of your stock option plan
accelerating the vesting of your stock options with Deflecta-Shield Corporation
as a result of the November 25, 1997, Merger Agreement between Lund
International Holdings, Inc. and Deflecta-Shield Corporation.
Please accept our offer for the position of President of Belmor
Autotron Corporation by executing this agreement at the bottom. Thank you for
your time and interest in employment with Belmor Autotron Corporation. Please
feel free to call me at your convenience if you have any questions. I look
forward to your response in the very near future.
Sincerely,
/s/ William J. McMahon
William J. McMahon
President of Deflecta-Shield Corporation
Accepted by: /s/ John D. Daniels
---------------------------------
John D. Daniels
Dated: 3/11/98
---------------------------------
6
EXHIBIT 10.104
July 27, 1999
Edmund J. Schwartz
8410 Lazy Oaks Court
Dunwoody, GA 30350
Re: Position with Lund International Holdings, Inc.
Dear Mr. Schwartz:
As per our recent discussions, Lund International Holdings, Inc.
("LIH") is interested in offering you the position of Chief Financial Officer of
Lund International Holdings, Inc. This correspondence sets out the terms of our
offer to you. Also, the terms of any employee handbook for Lund International
Holdings, Inc. ("LIH"), LIH's Insider Trading Policy and Insider Trading
Compliance Program, which reflect the current policies and procedures of LIH
apply to you, and are all subject to change. You will shortly receive a copy of
the Insider Trading Policy, and Insider Trading Compliance Program, which
reflect the current Securities and Exchange statutory and regulatory dictates
for employees who work for publicly traded companies.
Please sign the letter at the bottom if the terms offered in this
letter are acceptable to you. We hope that you will accept our offer of
employment in the position of Chief Financial Officer of Lund International
Holdings, Inc.
POSITION: Chief Financial Officer of Lund International Holdings, Inc. LIH and
its subsidiaries and their subsidiaries reserve the right to modify your job
responsibilities and its reporting and organizational structure at its
discretion.
BASE SALARY: $160,000 on an annual basis subject to adjustment, if any, at LIH's
sole discretion on a yearly basis after any performance review. The first
performance review that relates to any potential base salary adjustment will be
twelve (12) months after your official date of hire.
<PAGE>
July 27, 1999
E. Schwartz
Page 2
BONUS: You will be eligible for any bonus plan offered by the LIH, subject to
its terms and conditions. For calendar year 1999, you will be eligible to
participate in LIH's Results Sharing Plan, on a pro rata basis, but in no case
will your bonus be less than Twenty-Five Thousand Dollars ($25,000.00) for 1999.
In addition, it may be greater than Twenty-Five Thousand Dollars ($25,000.00) if
you actually earn more than this amount under the formula as set forth in the
LIH's Results Sharing Plan for 1999. Payment for any pro rata 1999 bonus to you
will be sometime within the first quarter of calendar year 2000. However, Lund
International Holdings, Inc. reserves the right to change the bonus plan at the
end of any plan year as applied to the following or next plan year, including
but not limited to the year 2000. Also, each bonus plan will be evaluated for
any particular year, and it is understood that future bonus plans, are
discretionary, have not been adopted and have yet to be determined or approved
by the Board of Directors, and are subject to LIH's interpretation.
BENEFITS: You are entitled to all current benefits, according to their terms and
conditions, that are offered to other senior management members in an equivalent
position with LIH. You are also eligible for Exec-u-care benefits. LIH and its
subsidiaries reserve the right to change its benefits package and plans.
STOCK OPTION PLAN: You are eligible for Seventy Thousand (70,000) stock options
of Lund International Holdings, Inc. The Seventy Thousand (70,000) stock options
vest on a vesting schedule and you must be employed on each successive
anniversary date of your first day of employment with no break in service for
the stock options to vest. On that schedule, Fourteen Thousand (14,000) will
vest one (1) year from your anniversary date of employment and Fourteen Thousand
(14,000) will vest on your successive anniversary dates thereafter, until all
Seventy Thousand (70,000) stock options have vested. This vesting schedule would
be accelerated in the event of a "Change of Control", as defined and set forth
in the stock option plan. All of these stock options, are subject to, and will
be issued according to, our stock option plan and may require Board and/or
stockholder approval.
VACATIONS: You will be eligible for a three (3) week paid vacation, accruing
according LIH's current vacation policies, which are subject to change.
In the position of Chief Financial Officer of Lund International
Holdings, Inc., you will be provided with confidential, trade secret, and/or
proprietary information of Lund International Holdings, Inc., and all of its
subsidiaries and their subsidiaries, whether actually merged or not, and/or any
company to be acquired by Lund International Holdings, Inc. or its subsidiaries,
or any restructured entities, (collectively referred to in this letter as the
"Company"). This includes, but is not limited to, the following confidential,
trade secret and/or proprietary information:
2
<PAGE>
July 27, 1999
E. Schwartz
Page 3
1. Sales activities, sales records, sales histories and/or how
sales have developed or changed in a particular geographical
area or market or for a particular product; customer lists
and/or vendor lists; and
2. The quantity of products purchased from the Company by its
customers and the prices paid, the Company's purchasing
activities, advertising and promotional activities, past and
present, potential sales and/or markets, market strategies;
and
3. Products' specifications, materials, costs; development of new
products; inventions, modifications of current products, and
information pertaining to all aspects of the Company's
research and development; and
4. The quantity of various products purchased from the Company
and/or the product mix as they relate to overall sales of all
products and/or a particular product; and
5. The reasons for the use by the Company of certain methods of
attachment of its products to the vehicles; manufacturing
processes and/or costs and/or time and/or labor studies; the
products' designs, dimensions, and tolerances; and
6. The quantity of materials purchased from suppliers and/or the
reason for the use of certain materials; and
7. Shipping methods, pricing, profit margins per product or
product lines, labor costs, cost of goods sold, and other
internal non-public financial data; and
8. Other financial information which is not made public in the
Company's press releases, quarterly reports, Securities and
Exchange Filings and/or the Company's annual reports; and
9. Information concerning the Company's management, financial
conditions, financial operations, purchasing activities,
marketing plans, strategic plans, information systems,
communication systems, planning activities, acquisition
activities, operational activities and plans, investor
relations activities, interdepartmental communication or
operational communication activities and business or strategic
or consolidation plans, e-commerce plans; and
3
<PAGE>
July 27, 1999
E. Schwartz
Page 4
10. All other types and categories of information which are
generally understood by persons involved in the automotive
industry, aftermarket automotive industry, and any
manufacturing operations to be trade secrets, and/or
confidential information and/or proprietary information.
You agree that you will not disclose or use at any time (as limited by
applicable law) in any manner, either during your employment or after your
employment, any confidential trade secret and/or proprietary information as
defined in this letter, or elsewhere, or subsequently revealed to you to be
confidential, a trade secret or proprietary information.
You agree in the event your employment with LIH is terminated, whether
voluntarily or otherwise, and/or you are separated from your employment with
LIH, that you, for a period of twelve (12) months from the date of separation of
your employment, shall not, either directly or indirectly, provide services to
or engage in or participate in any activities (whether as an employee, greater
than 5% shareholder, investor, owner, officer, director, partner, consultant,
advisor, principal, agent, or in any other capacity) in any business which
engages in the invention, design, development, marketing, and/or selling, and/or
distributing, and/or manufacturing of products competitive with those which are
then listed in the Company's current catalogs or marketing materials, and/or
such products which the Company has, in the preceding one (1) year before your
separation, or at your separation from employment, under design, development,
modification, alteration, or purchase from another company, or for which
conception has occurred.
You further agree that you will not, for a period of twelve (12) months
from the date of your separation of employment with LIH, whether voluntarily or
otherwise, engage in or participate in, in any capacity, either directly or
indirectly, the solicitation of or the attempt to solicit or divert or the
attempt to divert from the Company any potential or actual product designer,
supplier, customer, and/or distributor, and/or manufacturer of the Company's
that you have had contact with for the two (2) years preceding your separation
from employment. This restriction encompasses any business which engages in any
or all of the following activities: the invention, design, development,
marketing, and/or selling, and/or distributing, and/or manufacturing of products
competitive with those which are then listed in the Company's current catalogs
or marketing materials, which also includes such products that the Company has,
in the preceding one (1) year before your separation, or at your separation from
employment, under design, development, modification, alteration, or purchase
from another company, or for which conception has occurred.
4
<PAGE>
July 27, 1999
E. Schwartz
Page 5
You also agree that for a period of twelve (12) months from your
separation from employment with LIH, whether voluntarily or otherwise, that you
will not, directly or indirectly, hire or offer to hire any of the Company's
directors, officers, employees, and/or agents, or attempt to and/or entice them
to discontinue their relationship with the Company, and/or directly or
indirectly attempt to divert and/or divert any potential or actual product
designer, customer, distributor, manufacturer, and/or supplier of the Company's
that you have had contact with for the two (2) years preceding your separation
from employment from continuing to do business with or provide services to the
Company.
Your obligations under this covenant not to compete shall apply to any
geographical area in which the Company has engaged in business before and during
your employment through production, operations, promotional, sales,
distribution, or marketing activities, or has otherwise established its good
will, business reputation, or any potential or actual product designer, or
customer, or supplier, or distributor or manufacturing relations during the two
(2) years preceding your separation from employment.
These confidentiality and non-compete terms of this agreement extend
beyond the termination and/or separation of your employment and shall continue
in full force and effect after the termination and/or separation of your
employment or this agreement. You agree to always keep confidential and to not
use any trade secret and/or proprietary information, as limited by applicable
law.
You agree that at the time of your termination and/or separation of
employment at LIH, that you will promptly deliver to the Company all
confidential, trade secret, or proprietary information and all Company property,
equipment and materials. You agree that the Company may seek injunctive relief
to enforce the non-competition, confidentiality and Company property provisions
of this letter agreement. You and the Company agree that in the event the
Company seeks injunctive relief to enforce the provisions of the letter
agreement, the party that ultimately prevails, after all appeals have been
exhausted or the time for appeal has run, shall be awarded its or his reasonable
attorneys fees and costs for such injunctive relief proceeding. This agreement
on the allocation of reasonable attorneys fees and costs related to an
injunctive relief proceeding does not limit or restrict either parties' rights
or other remedies, either in law or in equity, arising out of the employment
relationship and for those claims, each party shall bear its own attorneys' fees
and costs.
5
<PAGE>
July 27, 1999
E. Schwartz
Page 6
This agreement refers to Lund International Holdings, Inc. and its
subsidiaries and their subsidiaries, and any restructured entities or
acquisitions, because you will be privy to all operations of Lund International
Holdings, Inc. and its subsidiaries', any restructured entities' or acquired
entities' confidential information, operations and trade secret or proprietary
information.
If you accept the position of Chief Financial Officer of Lund
International Holdings, Inc. offered in this letter agreement, you understand
that your employment is for an indefinite duration, and that either you or LIH
may terminate the employment relationship at any time for any reason or no
reason and without just cause or cause. This agreement is not to be interpreted
as an agreement for continued employment or employment for a specific time
period or for any particular time period because either party may terminate it
at any time for any reason or no reason and your employment is "at will".
Further, you agree that this letter agreement, and the employment relationship
do not contain or have any covenant of good faith and fair dealing, either
expressed or implied.
It is LIH's understanding that you are not subject to any agreements or
restrictions arising out of any prior employment or consulting relationship, and
that by accepting this offer of the position of Chief Financial Officer, you
will not be breaching or violating any other obligations. If any breach of a
prior obligation occurs, LIH reserves the absolute right to immediately
terminate your employment.
This agreement may be severed, if any portion is determined to be
unenforceable or void, with the other terms remaining in full force and effect.
Also, this agreement, where not pre-empted by federal law, will be interpreted
under the laws of the State of Minnesota and the United States of America, and
is binding on the parties, their heirs, successors, personal representative and
assigns.
This letter agreement supersedes, revokes, or voids all other offers,
or agreements, oral or written made by Lund International Holdings, Inc.,
regarding any position with Lund International Holdings, Inc., or any position
with any of its subsidiaries.
6
<PAGE>
July 27, 1999
E. Schwartz
Page 7
Please accept our offer as set out in this letter agreement by
executing this letter agreement at the bottom. Thank you for your time and
interest in becoming the Chief Financial Officer of Lund International Holdings,
Inc. Please feel free to call me at your convenience if you have any questions.
I look forward to your response in the very near future.
Sincerely,
/s/ J. Timothy Yungers
J. Timothy Yungers
Vice President of Human Resources for Lund International
Holdings, Inc.,
Accepted by: /s/ Edmund J. Schwartz
----------------------
Edmund J. Schwartz
Dated: _____________________________
7
EXHIBIT 10.105
EXECUTION COPY
WAIVER AND FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENTS
Reference is made to the Securities Purchase Agreements dated as of December 23,
1998 (the "SPA") between the Companies (the "Companies"), and Massachusetts
Mutual Life Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors, MassMutual Corporate Value Partners Limited, National
City Venture Corporation, and Great Lakes Capital Investments I L.L.C.
(together, the "Holders").
WHEREAS, Events of Default exist under the Sections 14.7(a)(ii) and 14.7(b)(ii)
of the SPA; and
WHEREAS, the Companies and the Holders are desirous of waiving the existing
Events of Default and amending the SPA on the terms and conditions set forth
below.
NOW THEREFORE, in consideration of the mutual conditions and agreements set
forth in the SPA and herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Companies and the
Holders agree as follows:
1. Section 14.7(a)(ii) of the SPA is amended by replacing the dollar
limits for the four consecutive fiscal quarter periods ending,
respectively, on March 31, 2000, June 30, 2000, September 30, 2000, and
December 31, 2000 with the minimum amount figures set forth below:
---------------------------------- --------------------
Period of Four Consecutive
Fiscal Quarters Ending Minimum Amount
---------------------------------- --------------------
March 31, 2000 $18,270,000
---------------------------------- --------------------
June 30, 2000 $18,990,000
---------------------------------- --------------------
September 30, 2000 $20,250,000
---------------------------------- --------------------
December 31, 2000 $23,670,000
---------------------------------- --------------------
2. Section 14.7(b)(ii) of the SPA is amended by replacing the minimum
ratios for the four consecutive fiscal quarter periods ending,
respectively, on March 31, 2000, June 30, 2000, September 30, 2000, and
December 31, 2000 with the minimum ratios set forth below:
---------------------------------- --------------------
Period of Four Consecutive
Fiscal Quarters Ending Minimum Ratio
---------------------------------- --------------------
March 31, 2000 0.90 to 1.00
---------------------------------- --------------------
June 30, 2000 1.00 to 1.00
---------------------------------- --------------------
September 30, 2000 1.10 to 1.00
---------------------------------- --------------------
December 31, 2000 1.55 to 1.00
---------------------------------- --------------------
1
<PAGE>
3. The definition of "Consolidated EBITDA" in Section 15.1 of the SPA is
amended by inserting, immediately prior to the period at the end of the
defined term that includes the definition of "Consolidated EBITDA" the
following:
"provided further, that in determining Consolidated EBITDA,
the Companies will be permitted to add back during the
'Permitted Testing Periods' (as defined below), the
'Restructuring Charges' as defined on the attached Schedule
II, up to an aggregate amount of $4,100,000 for costs incurred
from the period beginning January 1, 2000 through December 31,
2001. The term `Permitted Testing Periods' shall mean the four
fiscal quarters of the Companies beginning with and including
the fiscal quarter in which the actual Restructuring Charge is
incurred and ending with and including the next three fiscal
quarters thereafter."
4. The Events of Default currently existing under Section 14.7(a)(ii) and
Section 14.7(b)(ii) of the SPA are hereby waived.
5. The effectiveness of this Waiver and First Amendment is expressly
subject to the following conditions:
(a) The Companies shall have executed and delivered this Waiver
and First Amendment to the Holders;
(b) All proceedings taken in connection with the transactions
contemplated by this Waiver and First Amendment and all
documents, instruments and other legal matters incident
thereto shall be satisfactory to the Holders;
(c) No Default or Event of Default other than the Events of
Default waived hereby shall have occurred and be continuing;
(d) The accuracy of the representations and warranties set forth
in Section 7 below;
(e) The Companies shall have paid an amendment fee in the amount
of $50,000, such fee to be paid pro rata to the Holders; and
(f) The Senior Loan Agreement shall have been amended in a manner
satisfactory to the Holders.
6. The capitalized terms used herein shall have the respective meanings
specified in the SPA unless otherwise defined herein or if the context
shall otherwise require.
2
<PAGE>
7. To induce the Holders to enter into this Waiver and First Amendment,
the Companies represent and warrant to the Holders that the execution,
delivery, and performance of this Waiver and First Amendment has been
duly authorized by all requisite corporate action on the part of each
of the Companies and that this Waiver and First Amendment has been duly
executed and delivered by the Companies.
8. Except as expressly modified herein, the terms and conditions of the
SPA are hereby ratified, confirmed and approved in all respects.
9. This document shall be dated as of January 28, 2000.
ACCEPTED AND AGREED TO:
MASSACHUSETTS MUTUAL LIFE MASSMUTUAL CORPORATE VALUE
INSURANCE COMPANY PARTNERS LIMITED
By: David L. Babson and Company By: David L. Babson and Company
Incorporated, its Investment Manager Incorporated, under delegated authority
from Massachusetts Mutual Life Insurance
Company, its Investment Adviser
/s/ Michael L. Klofas /s/ Michael L. Klofas
- ------------------------------------ ----------------------------------------
By: Michael L. Klofas By: Michael L. Klofas
Its: Managing Director Its: Managing Director
MASSMUTUAL CORPORATE MASSMUTUAL PARTICIPATION
INVESTORS INVESTORS
/s/ Michael L. Klofas /s/ Michael L. Klofas
- ------------------------------------ ----------------------------------------
By: Michael L. Klofas By: Michael L. Klofas
Its: Managing Director Its: Managing Director
NATIONAL CITY VENTURE GREAT LAKES CAPITAL
CORPORATION INVESTMENTS I, L.L.C.
/s/ Richard J. Martinko /s/ Richard J. Martinko
- ------------------------------------ ----------------------------------------
By: Richard J. Martinko By: Richard J. Martinko
Its: Managing Director Its: Member
3
<PAGE>
LUND INDUSTRIAL HOLDINGS, INC. LUND INDUSTRIES, INCORPORATED
/s/ Edmund J. Schwartz /s/ Edmund J. Schwartz
- ------------------------------------ ----------------------------------------
By: Edmund J. Schwartz By: Edmund J. Schwartz
Its: Chief Financial Officer Its: Chief Financial Officer
DFM CORP. AUTO VENTSHADE COMPANY
/s/ Edmund J. Schwartz /s/ Edmund J. Schwartz
- ------------------------------------ ----------------------------------------
By: Edmund J. Schwartz By: Edmund J. Schwartz
Its: Chief Financial Officer Its: Chief Financial Officer
DEFLECTA-SHIELD CORPORATION SMITTYBILT, INC.
/s/ Edmund J. Schwartz /s/ Edmund J. Schwartz
- ------------------------------------ ----------------------------------------
By: Edmund J. Schwartz By: Edmund J. Schwartz
Its: Chief Financial Officer Its: Chief Financial Officer
BELMORE AUTOTRON CORP.
/s/ Edmund J. Schwartz
- ------------------------------------
By: Edmund J. Schwartz
Its: Chief Financial Officer
4
EXHIBIT 10.106
WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT
This WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT ("Amendment") is
dated as of January 28, 2000, and is entered into by and between DEFLECTA-SHIELD
CORPORATION, LUND INDUSTRIES, INCORPORATED, BELMOR AUTOTRON CORP., DFM CORP.,
AUTO VENTSHADE COMPANY and SMITTYBILT, INC. (each a "Borrower" and,
collectively, the "Borrowers"), LUND INTERNATIONAL HOLDINGS, INC. ("Holdings"),
LUND ACQUISITION CORP., BAC ACQUISITION CO., TRAILMASTER PRODUCTS, INC. and
DELTA III, INC. (together with Borrowers and Holdings, each a "Loan Party", and
collectively, the "Loan Parties"), HELLER FINANCIAL, INC., in its capacity as
Agent ("Agent"), and the Lenders which are signatories hereto.
WHEREAS, Agent, Lenders and the Loan Parties are parties to a certain
Credit Agreement dated February 27, 1998 (as such agreement has from time to
time been amended, supplemented or otherwise modified, the "Agreement"); and
WHEREAS, Events of Default are in existence under the Agreement as a
result of Borrower's breach of the following financial covenants for the twelve
(12) month period ending December 31, 1999: EBITDA (subsection 4.3), Fixed
Charge Coverage (subsection 4.4), Total Interest Coverage (subsection 4.5) and
Total Indebtedness to EBITDA Ratio (subsection 4.6) (the "Existing Events of
Default"), and Borrowers have requested that Agent and Lenders waive the
Existing Events of Default; and
WHEREAS, the parties desire to amend the Agreement as hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Agreement.
2. AMENDMENTS. Subject to the conditions set forth below, the Agreement
is amended as follows:
(a) Subsection 1.2 is amended by deleting the definition of
"LIBOR" and inserting the following in lieu thereof:
"LIBOR" means, for each Interest Period, a rate per annum
equal to:
(a) the offered rate for deposits in U.S. dollars in an amount
comparable to the amount of the applicable Loan in the London interbank
market which is published by the British Bankers' Association, and that
currently appears on Telerate Page 3750, or any other source available
to Agent, as of 11:00 a.m. (London time) on the day which is two (2)
Business Days prior to the first day of the relevant Interest Period
for a term comparable to such Interest Period; or if, for any reason,
such a rate is not published by the British Bankers' Association on
Telerate or any other source available to Agent, the rate per annum
equal to the average rate (rounded upwards, if necessary, to the
nearest 1/100 of 1%) at which Agent determines that U.S. dollars in an
amount comparable to the amount of the applicable Loans are being
offered to prime banks at approximately 11:00 a.m. (London time) on the
day which is two (2) Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period for
settlement in
<PAGE>
immediately available funds by leading banks in the London interbank
market selected by Agent; divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior
to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System
or other governmental authority having jurisdiction with respect
thereto, as now and from time to time in effect) for Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of such Board) which are required to be maintained by a
member bank of the Federal Reserve System; such rate to be rounded
upward to the next whole multiple of one-sixteenth of one percent
(.0625%).
(b) Subsection 1.2(A) is amended by deleting the Base Rate
Margin Pricing Table and the LIBOR Margin Pricing Table in their entirety and
inserting the following in lieu thereof:
<TABLE>
<CAPTION>
BASE RATE PRICING TABLE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total Indebtedness to Base Rate Margin Base Rate Margin Base Rate Margin Base Rate Margin
EBITDA is: Revolving Loans Term Loan A Term Loan B Term Loan C
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
greater than
5.50:1.00 2.25% 2.25% 2.75% 3.25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
equal to or less than
5.50:1.00 but
equal to or greater
than 5.00:1.00 2.00% 2.00% 2.50% 3.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
equal to or less than
5.00:1.00 but equal to
or greater than
3.75:1.00 1.75% 1.75% 2.25% 2.75%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
less than 3.75:1.00 1.50% 1.50% 2.00% 2.50%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
<TABLE>
<CAPTION>
LIBOR MARGIN PRICING TABLE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total Indebtedness to LIBOR Margin LIBOR Margin LIBOR Margin LIBOR Margin
EBITDA is: Revolving Loans Term Loan A Term Loan B Term Loan C
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
greater than
5.50:1.00 3.50% 3.50% 4.00% 4.50%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
equal to or less
than 5.50:1.00
but greater than
5.00:1.00 3.25% 3.25% 3.75% 4.25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
equal to or less than
5.00:1.00
but greater than
3.75:1.00 3.00% 3.00% 3.50% 4.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
less than 3.75:1.00 2.75% 2.75% 3.25% 3.75%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
2
<PAGE>
Notwithstanding anything to the contrary contained in the Agreement, commencing
on January 1, 2000 until the Adjustment Date next following said date,
the LIBOR Margin for all outstanding LIBOR Loans and the Base Rate
Margin for all outstanding Base Rate Loans shall equal the rates
corresponding to the level "equal to or less than 5.50:1.00 but equal
to or greater than 5.00:1.00" set forth in each of the Pricing Tables
above.
(c) Subsection 4.3 is amended by deleting such subsection in
its entirety and inserting the following in lieu thereof:
4.3 EBITDA. Holdings and Borrowers shall not permit EBITDA for
the periods set forth below to be less than the amounts set forth
below.
Period Amount
------ ------
Four Fiscal Quarters ending March 31, 2000 $20,300,000
Four Fiscal Quarters ending June 30, 2000 $21,100,000
Four Fiscal Quarters ending September 30, 2000 $22,500,000
Four Fiscal Quarters ending December 31, 2000 $26,300,000
Four Fiscal Quarters ending March 31, 2001 $32,000,000
Four Fiscal Quarters ending June 30, 2001 $32,000,000
Four Fiscal Quarters ending September 30, 2001 $34,000,000
Four Fiscal Quarters ending December 31, 2001 $34,000,000
Four Fiscal Quarters ending March 31, 2002 and $35,000,000
each four-Fiscal-Quarter period thereafter
"EBITDA" will be calculated as illustrated on Exhibit 4.7(D).
(d) Subsection 4.4 is amended by deleting said subsection in
its entirety and inserting the following in lieu thereof:
4.4 Fixed Charge Coverage. Holdings and Borrowers shall not
permit Fixed Charge Coverage for the periods set forth below to be less
than the ratios set forth below.
Minimum
Period Ratio
------ -----
Four Fiscal Quarters ending March 31, 2000 0.75:1.00
Four Fiscal Quarters ending June 30, 2000 0.75:1.00
Four Fiscal Quarters ending September 30, 2000 0.75:1.00
Four Fiscal Quarters ending December 31, 2000 1.00:1.00
Four Fiscal Quarters ending March 31, 2001 and 1.10:1.00
each four-Fiscal-Quarter period thereafter
"Fixed Charge Coverage" will be calculated as illustrated on Exhibit
4.7(D).
(e) Subsection 4.5 is amended by deleting said subsection in
its entirety and inserting the following in lieu thereof:
3
<PAGE>
4.5 Total Interest Coverage. Holdings and Borrowers shall not
permit Total Interest Coverage for periods set forth below to be less
than the ratios set forth below.
Minimum
Period Ratio
Four Fiscal Quarters ending March 31, 2000 1.10:1.00
Four Fiscal Quarters ending June 30, 2000 1.20:1.00
Four Fiscal Quarters ending September 30, 2000 1.30:1.00
Four Fiscal Quarters ending December 31, 2000 1.80:1.00
Four Fiscal Quarters ending March 31, 2001 2.25:1.00
Four Fiscal Quarters ending June 30, 2001 2.50:1.00
Four Fiscal Quarters ending September 30, 2001 2.75:1.00
Four Fiscal Quarters ending December 31, 2001 2.75:1.00
Four Fiscal Quarters ending March 31, 2002 and 3.00:1.00
each four-Fiscal-Quarter period thereafter
"Total Interest Coverage" will be calculated as illustrated on Exhibit
4.7(D).
(f) Subsection 4.6 is amended by deleting said subsection in
its entirety and inserting the following in lieu thereof:
4.6 Total Indebtedness to EBITDA Ratio. Holdings and Borrowers
shall not permit the ratio of Total Indebtedness (calculated as of the
last day of any Fiscal Quarter) to EBITDA for the periods set forth
below to be greater than the ratios set forth below:
Maximum
Period Ratio
Four Fiscal Quarters ending March 31, 2000 5.50:1.00
Four Fiscal Quarters ending June 30, 2000 5.50:1.00
Four Fiscal Quarters ending September 30, 2000 4.90:1.00
Four Fiscal Quarters ending December 31, 2000 3.85:1.00
Four Fiscal Quarters ending March 31, 2001 3.50:1.00
Four Fiscal Quarters ending June 30, 2001 3.00:1.00
Four Fiscal Quarters ending September 30, 2001 2.75:1.00
Four Fiscal Quarters ending December 31, 2001 2.50:1.00
Four Fiscal Quarters ending March 31, 2002 and 2.50:1.00
each four-Fiscal-Quarter period thereafter
"Total Indebtedness" and "EBITDA" will be calculated as illustrated on
Exhibit 4.7(D).
(g) Exhibit 4.7(D) is amended by deleting those portions of
that Exhibit setting forth the calculations for determining compliance with the
EBITDA and the Total Indebtedness to EBITDA covenants in their entirety and
substituting the attached in lieu thereof.
4
<PAGE>
(h) When determining EBITDA under Exhibit B to Exhibit 4.7(D)
of the Agreement, Borrowers will be permitted to add back during the "Permitted
Testing Periods" (as defined below), the "Restructuring Charges" as defined on
the attached Schedule I, up to an aggregate amount of $4,100,000 for costs
incurred from the period beginning January 1, 2000 through December 31, 2001.
The "Permitted Testing Periods" shall mean the four Fiscal Quarters beginning
with and including the Fiscal Quarter in which the initial applicable
Restructuring Charge is incurred and ending with and including the next three
Fiscal Quarters thereafter.
3. WAIVER. Agent and Lenders hereby waive the Existing Events of
Default. This is a limited waiver and shall not be deemed to constitute a waiver
of any other Event of Default or any future breach of the Agreement or any of
the other Loan Documents.
4. CONDITIONS. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by Agent):
(a) Loan Parties shall have executed and delivered this
Amendment, and such other documents and instruments as Agent may require shall
have been executed and/or delivered to Agent;
(b) All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be satisfactory to Agent and its legal counsel;
(c) No Default or Event of Default other than the Existing
Events of Default shall have occurred and be continuing;
(d) Borrowers shall have paid an amendment fee in the amount
of $250,315 to Agent for the benefit of Lenders; and
(e) Borrowers shall have provided Agent and Lenders with
evidence satisfactory to it that Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation Investors, MassMutual
Corporate Value Partners Limited and National City Venture Corporation shall
have waived in writing on or before the date hereof subsection 14.7 of the
Securities Purchase Agreement dated December 23, 1998, in a manner satisfactory
to Agent and shall have reset the covenants contained therein to levels
satisfactory to Agent.
5. REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders to enter
into this Amendment, the Loan Parties represent and warrant to Agent and Lenders
that (a) the execution, delivery and performance of this Amendment has been duly
authorized by all requisite corporate action on the part of each Loan Party and
that this Amendment has been duly executed and delivered by such Loan Party, and
(b) each of the representations and warranties set forth in section 5 of the
Agreement (other than those which, by their terms, specifically are made as of
certain date prior to the date hereof) are true and correct in all material
respects as of the date hereof.
6. SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
7. REFERENCES. Any reference to the Agreement contained in any
document, instrument or agreement executed in connection with the Agreement
shall be deemed to be a reference to the Agreement as modified by this
Amendment.
5
<PAGE>
8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
9. RATIFICATION. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions of the
Agreement and shall not be deemed to be a consent to the modification or waiver
of any other term or condition of the Agreement. Except as expressly modified
and superseded by this Amendment, the terms and provisions of the Agreement are
ratified and confirmed and shall continue in full force and effect.
[Signatures appear on the following pages.]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
LUND INTERNATIONAL HOLDINGS, INC.
LUND INDUSTRIES, INCORPORATED
DEFLECTA-SHIELD CORPORATION
BELMOR AUTOTRON CORP.
DFM CORP.
LUND ACQUISITION CORP.
BAC ACQUISITION CO.
TRAILMASTER PRODUCTS, INC.
DELTA III, INC.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
VENTSHADE HOLDINGS, INC.
For each of the foregoing corporations:
By: /s/Edmund J. Schwartz
Name: Edmund J. Schwartz
Title: Chief Financial Officer
HELLER FINANCIAL, INC.,
in its capacity as Agent and a Lender
By: /s/ Patricia Weitzman
Name: Patricia Weitzman
Title: Senior Vice President
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
as a Lender
By: /s/ Ben Marzouk
Name: Ben Marzouk
Title: Vice President, Leveraged Finance
LASALLE BANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Kristen J. Lindbergh
Name: Kristen J. Lindbergh
Title: Corporate Banking Officer, Leveraged Finance
7
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, as a Lender
By: /s/ Marie Fioramonti
Name: Marie Fioramonti
Title: Vice President
IBJ WHITEHALL BANK & TRUST COMPANY,
as a Lender
By: /s/ Mark Weitekamp
Name: Mark Weitekamp
Title: Director
KEY CORPORATE CAPITAL, INC.,
as a Lender
By: /s/ Jay R. McKenney
Name: Jay R. McKenney
Title: Vice President
FIRST UNION NATIONAL BANK, as a Lender
By: /s/ Andrew Payne
Name: Andrew Payne
Title: Vice President
FIRST SOURCE FINANCIAL LLP, as a Lender
By: First Source Financial, Inc., its Agent/Manager
By: /s/ Robert Horak
Name: Robert Horak
Title: Vice President
SENIOR DEBT PORTFOLIO, as a Lender
By: Boston Management and Research, Inc., as
Investment Advisor
By: /s/ Payson F. Swaffield
Name: Payson F. Swaffield
Title: Vice President
ARCHIMEDES FUNDING LLC, as a Lender
By: ING Capital Advisors, Inc., as Collateral Manager
By: /s/ Helen Y. Rhee
Name: Helen Y. Rhee
Title: Vice President & Portfolio Manager
8
<PAGE>
TORONTO DOMINION (TEXAS), as a Lender
By:______________________________
Name:____________________________
Title:_____________________________
9
<PAGE>
EXHIBIT B TO
EXHIBIT 4.7(D)
COMPLIANCE CERTIFICATE
BORROWERS:
DEFLECTA-SHIELD CORPORATION
LUND INDUSTRIES, INCORPORATED
BELMOR AUTOTRON CORP.
DFM CORP.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
DATE: __________ __, _____
COVENANT 4.3 EBITDA
EBITDA is defined as follows:
Net income (or loss) for the period of Holdings, Borrower
and their Subsidiaries on a consolidated basis determined in
accordance with GAAP, but excluding: (a) the income (or
loss) of any Person (other than wholly-owned Subsidiaries of
Holdings) in which Holdings or a Borrower or a wholly-owned
subsidiary of Holdings or a Borrower has an ownership
interest unless received by Holdings, a Borrower or such
Subsidiary in a cash distribution during such period; and
(b) the income (or loss) of any Person accrued prior to the
date it became a Subsidiary of a Loan Party or is merged
into or consolidated with a Loan $__________
Plus: Any provision for (or less any benefit from) income
and franchise taxes included in the determination
of net income ___________
Interest expense deducted in the determination of
net income ___________
Amortization and depreciation deducted in
determining net income ___________
Losses (or less gains) from Asset Dispositions or
other non-cash items included in the determination
of net income (excluding sales, expenses or losses
related to current assets) ___________
10
<PAGE>
EXHIBIT B TO
EXHIBIT 4.7(D)
COMPLIANCE CERTIFICATE
BORROWERS:
DEFLECTA-SHIELD CORPORATION
LUND INDUSTRIES, INCORPORATED
BELMOR AUTOTRON CORP.
DFM CORP.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
DATE: _________ __, _____
COVENANT 4.3 EBITDA (CONTINUED)
Extraordinary losses (or less gains), as defined
under GAAP, net of related tax effects ___________
Expenses of the Related Transactions included in
the determination of net income provided that such
expenses were included in the Pro Forma, or
disclosed in the notes thereto ___________
"Restructuring Charges" set forth on the attached
Schedule I for Fiscal Years 2000 and 2001, on a
trailing twelve month basis, not to exceed $4.1MM
in the aggregate. (To be included only in those
Compliance Certificates covering periods ending on
or before December 31, 2002.) ___________
Less: Expenditures pursuant to the last sentence of
subsection 4.8 applicable to, but not included in,
the Pro Forma; including expenditures during the
period made in connection with the Related
Transactions and payment of liabilities existing on
the Closing Date ___________
EBITDA $
==========
Required EBITDA $
==========
In Compliance Yes/No
11
<PAGE>
EXHIBIT B TO
EXHIBIT 4.7(D)
COMPLIANCE CERTIFICATE
BORROWERS:
DEFLECTA-SHIELD CORPORATION
LUND INDUSTRIES, INCORPORATED
BELMOR AUTOTRON CORP.
DFM CORP.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
DATE: _________ __, _____
COVENANT 4.6 TOTAL INDEBTEDNESS TO EBITDA
Total Indebtedness:
Average daily principal balance of the Revolving
Loans for the one month period ending on the date
set forth above $__________
Plus: Outstanding principal balance of the Term Loan[S] ___________
Outstanding principal balance of all other
Indebtedness ___________
Total Indebtedness $
==========
Operating Cash Flow (calculated in the manner required by
subsection 4.4) $
==========
Total Indebtedness to Operating Cash Flow Ratio ____ to ___
Required Total Indebtedness to Operating Cash Flow Ratio _________
In Compliance Yes/No
12
<PAGE>
SCHEDULE I
TO
COMPLIANCE CERTIFICATE
BORROWERS:
DEFLECTA-SHIELD CORPORATION
LUND INDUSTRIES, INCORPORATED
BELMOR AUTOTRON CORP.
DFM CORP.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
DATE: __________ __, ____
RESTRUCTURING CHARGES (ACTUAL)
<TABLE>
<CAPTION>
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Type of FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending
Charge 03-31-00 06-30-00 09-30-00 12-31-00 03-31-01 06-30-01 09-30-01 12-31-01
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance/Stay
Pay
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Training
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Building
Clean-up/
Retrofit
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Employee
Relocation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Inventory
Relocation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Mold
Transportation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Refurbish
Molds/
Tooling
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Facility
Set-up Costs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Consulting
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Asset
Write-Offs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Lease Buyout
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Continuing
Costs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
SUBTOTALS
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
TOTAL $
===========
13
<PAGE>
SCHEDULE I (CONTINUED)
TO
COMPLIANCE CERTIFICATE
BORROWERS:
DEFLECTA-SHIELD CORPORATION
LUND INDUSTRIES, INCORPORATED
BELMOR AUTOTRON CORP.
DFM CORP.
AUTO VENTSHADE COMPANY
SMITTYBILT, INC.
DATE: __________ __, ____
RESTRUCTURING CHARGES (PROJECTED)
<TABLE>
<CAPTION>
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Type of FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending FQ ending
Charge 03-31-00 06-30-00 09-30-00 12-31-00 03-31-01 06-30-01 09-30-01 12-31-01
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Severance/Stay
Pay
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Training
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Building
Clean-up/
Retrofit
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Employee
Relocation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Inventory
Relocation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Mold
Transportation
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Refurbish
Molds/
Tooling
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Facility
Set-up Costs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Consulting
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Asset
Write-Offs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Lease Buyout
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Continuing
Costs
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
SUBTOTALS
- ---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
TOTAL $
===========
14
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Lund International Holdings, Inc. on Form S-8 (File Nos. 33-78140,
333-46263, 33-64083 and 33-37160) of our report dated March 3, 2000 on our
audits of the consolidated financial statements of Lund International Holdings,
Inc. as of December 31, 1999 and 1998 and for the years ended December 31, 1999
and 1998, the six months ended December 31, 1997 and for the year ended June 30,
1997, included in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
which is included in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820526
<NAME> LUND INTERNATIONAL HOLDINGS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 448
<SECURITIES> 0
<RECEIVABLES> 35,728
<ALLOWANCES> 2,892
<INVENTORY> 24,214
<CURRENT-ASSETS> 67,088
<PP&E> 31,331
<DEPRECIATION> 13,831
<TOTAL-ASSETS> 226,669
<CURRENT-LIABILITIES> 36,641
<BONDS> 0
0
2
<COMMON> 787
<OTHER-SE> 87,534
<TOTAL-LIABILITY-AND-EQUITY> 226,669
<SALES> 194,369
<TOTAL-REVENUES> 194,369
<CGS> 140,678
<TOTAL-COSTS> 185,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,389
<INTEREST-EXPENSE> 12,747
<INCOME-PRETAX> (4,558)
<INCOME-TAX> (726)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,832)
<EPS-BASIC> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
