-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JD+vXpg2ae7wN1tRI9Q18EfRutEQEttEhX/jcr2Rkemdmi2aVX/LjTslYhHn0OOX T1Db132PLRe/OtY0Od3rSw== 0000897101-96-000838.txt : 19961001 0000897101-96-000838.hdr.sgml : 19961001 ACCESSION NUMBER: 0000897101-96-000838 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUND INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0000820526 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 411568618 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16319 FILM NUMBER: 96636824 BUSINESS ADDRESS: STREET 1: 911 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 BUSINESS PHONE: 6127802520 MAIL ADDRESS: STREET 2: 911 LUND BLVD CITY: ANOKA STATE: MN ZIP: 55303 FORMER COMPANY: FORMER CONFORMED NAME: LUND ENTERPRISES INC DATE OF NAME CHANGE: 19891019 FORMER COMPANY: FORMER CONFORMED NAME: FLEX CORP /DE/ DATE OF NAME CHANGE: 19880218 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______to________ Commission File Number: 0-16319 LUND INTERNATIONAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1568618 (State or other jurisdiction (I.R.S. Employer or organization) Identification Number) 911 Lund Boulevard, Anoka Minnesota 55303 (Address of principal executive offices including Zip Code) Registrant's telephone number, including area code: (612) 576-4200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] Number of shares of Common Stock, $.10 par value, outstanding as of September 19, 1996 was 4,391,970. The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 19, 1996 was approximately $34,028,811 based upon the last sale price of the registrant's Common Stock on such date. Documents incorporated by reference: Portions of the registrant's 1996 Annual Report to Stockholders are incorporated by reference into Part II and portions of the registrant's Proxy Statement are incorporated by reference into Part III. Page 1 of 110 Pages The Exhibit Index is located on page 18 PART I. Item 1. BUSINESS General Lund International Holdings, Inc. ("Holdings") was incorporated on November 10, 1986, pursuant to the Delaware General Corporation Law. Lund Industries, Incorporated ("Lund") was incorporated as a Minnesota corporation in 1965 and first engaged in its present business in 1974. In October 1987, Holdings acquired Lund as a wholly-owned operating subsidiary. During fiscal 1993, a foreign sales corporation was incorporated and named Lund International FSC, Inc. ("FSC") as a wholly-owned foreign sales corporation of Holdings. In fiscal 1996, Lund Acquisition Corp. ("Acquisition") was incorporated as a Minnesota corporation. During 1996, Acquisition acquired certain assets of Innovative Accessories, Inc., an Oklahoma corporation. (Holdings, Lund, FSC and Acquisition will hereinafter be referred to collectively as the "Company" or "Lund"). Lund is a leading designer, manufacturer and marketer of a broad line of appearance accessories for new and used light trucks, including pickup trucks, sport utility vehicles, minivans and other vans. The Company's products allow consumers to customize the relatively uniform look of light trucks with stylish and functional accessories which are engineered and designed to give an original equipment look and fit. The Company currently has 32 product lines, each designed to fit a wide range of makes, models and years of light trucks. The Company's major product categories are: EXTERNAL VISORS, which give light trucks an aerodynamically-styled look while reducing glare; HOOD SHIELDS/BUG DEFLECTORS, which provide a distinctive look and protect hoods and windshields from insects, stones and road debris; RUNNING BOARDS, which provide an original equipment look, protect the rocker panels of a vehicle and assist in passenger entry and exit; TONNEAU COVERS, which protect the bed of a pickup truck with a smooth, stylish look; and OTHER EXTERNAL APPEARANCE ACCESSORIES, which include cab extenders, styling covers for taillights and headlights, tailgate protectors, fender extensions, custom grille inserts, rear window air deflectors, side window covers, wiper cowls, rear valances, interior window nets, cargo trays, floor mats and bumper covers. Products The Company currently has 32 appearance product lines, each designed to fit a wide range of vehicles. These products are generally manufactured from fiberglass or plastic sheets composed of polyester, ABS plastic, acrylic or polycarbonate. Virtually all of Lund's products are custom molded for an exact fit to each vehicle. EXTERNAL VISORS In fiscal 1978, Lund entered the light truck accessory market by introducing the Lund SunVisor(R). Since then, the Company has been designing, manufacturing and selling external visors and believes it is the largest supplier of external visors in the industry. In fiscal 1996, Lund introduced and began shipping the Solar(TM) and Lunar(TM) visors. The visor category represented 36.2%, 43.4% and 48.8% of the Company's gross sales in fiscal 1996, 1995 and 1994, respectively, The Company's current visor product lines include: LUND SUNVISOR(R). The Lund SunVisor extends forward from the roofline of the truck's cab, enhancing its appearance with an aerodynamically-styled look while reducing glare for passengers. A distinctive hawk-like silhouette is incorporated into a majority of the Lund SunVisors. MOONVISOR(TM). The MoonVisor is similar to the Lund SunVisor, with the addition of recessed amber running lights for additional style and lighting. The SunVisors and MoonVisors are sold unpainted to allow a customer to match the paint of the visor to that of the vehicle. The visors are easy to install and are mounted to the cab of the vehicle using self-tapping screws which are capped with custom finishing covers. SOLAR(TM) VISOR. The Solar Visor is manufactured using a UV stable, ABS polymer and is designed with the unique feature of attaching in the door mount of the vehicle rather the into the roof. This visor is available in the color black and can be painted to match the exterior of the vehicle. LUNAR(TM) VISOR. The Lunar Visor is similar to the Solar Visor, with the addition of D.O.T. approved recessed amber lights. HOOD SHIELDS/BUG DEFLECTORS The Company entered the hood shield/bug deflector market in fiscal 1990 and now offers four styles, which represented 24.1%, 23.9% and 23.3% of the Company's gross sales in fiscal 1996, 1995 and 1994, respectively. These product lines currently are: INTERCEPTOR(TM). The Interceptor's wrap-around design is consistent with today's sleek looking vehicles. The Interceptor's unique design protects the leading edge of each fender as well as the hood from bugs, stones and other road debris. This product line is available in smoke, red, blue and clear. The clear shield can be painted for a more customized look. FRONTRUNNER(TM). The FrontRunner, which is also available for certain cars, follows the contour of the hood for a "second skin" look and mounts easily without tools or drilling. The FrontRunner protects the hood as well as the leading edge of each fender and is available in a black satin finish which can be painted to match the color of the vehicle. PREDATOR I(TM). The Predator I is a low-profile hood shield that is contoured to match the lines of the hood for maximum aerodynamics. This product line is available in smoke color. PREDATOR II(TM). The Predator II is similar to the Predator I but has the added feature of a wrap-around design for hood and fender protection. This product line is also available in smoke color. RUNNING BOARDS AND STEP BOARDS In fiscal 1992, the Company entered this market when it developed its line of fiberglass running boards. The Company currently offers four sets of running boards, which provide an original equipment look, protect the rocker panels of a vehicle and assist in passenger entry and exit. This product category represented 18.0%, 14.4% and 10.8% of the Company's gross sales in fiscal 1996, 1995 and 1994, respectively. These lines currently are: RUNNINGMATES(TM). RunningMates are full-length fiberglass running boards that come with a non-skid rubber tread, gravel guard and splash guard. RunningMates are offered in a two-piece design for pickups and large sport utility vehicles. This product line is available in ready-to-paint white gel-coat or, for the Ford Explorer, in mocha. STEPMATES(TM). StepMates are single step boards that are similar to RunningMates in style and function. StepMates are available in a white gel-coat finish to allow a customer to match the exterior of the vehicle. SUPERSTEPS(TM). SuperSteps are step boards designed to be a multi-application product with limited part numbers that fit a broad array of vehicles. SuperSteps are molded from an ABS black polymer which can be painted to match the vehicle or installed without painting. SIDETRACKER(TM). SideTracker running boards are designed to allow four applications to fit most extended cab pickups and sport utility vehicles. These running boards are manufactured from ABS plastic polymer which can be installed without painting or painted to match the vehicle. TONNEAU COVERS The Company entered into the tonneau cover market with an initial marketing agreement with, and the subsequent acquisition of certain assets of, Innovative Accessories, Inc. The Company currently markets two styles of soft tonneau covers, which are each designed to protect the bed of a pickup truck. This product category represented 2.2% of the Company's gross sales in fiscal 1996. These product lines currently are: LUXXUS ADVANTAGE(TM). The Advantage tonneau cover is a vinyl cover that is attached to the bed of a pickup truck to protect the cargo from the elements and to add a smooth look to the pickup. The Advantage tonneau cover is available in black. The cover attaches to the bed of the truck with the use of anodized aluminum rails that are clamped onto the bed. Rust-proof Insulsnaps(R) are used to attach the vinyl to the rail. LUXXUS PREMIER(TM). The Premier tonneau cover is similar to the Advantage cover but has an upgraded bow design system that allows for easy removal of the bows. The Premier is available in a variety of colors to complement the color of the pickup. OTHER EXTERNAL APPEARANCE ACCESSORIES The Company began designing, manufacturing and selling other external appearance accessories in 1982. These products represented 19.5%, 18.3% and 17.1% of the Company's gross sales in fiscal 1996, 1995 and 1994, respectively. The Company's other external appearance accessories currently are: CAB EXTENDERS AND BODY ACCESSORIES. The Company designed and began selling cab extenders in the 1980's, and other body accessories in the 1990's. The Company's cab extender and other body accessory product lines include: FASTBACK(R). The Fastback is a cab spoiler designed to enhance the appearance of a pickup truck by extending the lines of the cab. It also acts like a visor for the back of the cab and provides a bar on which accessory lights may be mounted. This product line is available with solid or cutout side panels and has a white gel-coat finish which can be painted to match the vehicle. RACERBACK(TM). The Racerback cab fairing is similar to the Fastback except that it raises above the cab line with a streamlined spoiler-effect and fastens to the truck cab and roof. The Racerback also allows for the use of a tonneau cover. The Racerback comes in a white gel-coat finish which can be painted to match the vehicle. WINDJAMMER(TM). The WindJammer is a stylish rear window air deflector that helps prevent the build-up of dirt on the rear window of vans, minivans and sport utility vehicles. The WindJammer is available in smoke acrylic or paintable plastic. TAILMATE(TM). The TailMate is a fiberglass rear valance that is mounted below a pickup truck's tailgate, providing a smooth look to the back of the vehicle. The TailMate comes in a white gel coat finish which can be painted to match the vehicle. WIDESIDES(TM). WideSides are fiberglass fender extensions which attach to the rear wheel wells of a pickup truck, giving a vehicle a "dual-tire" look. WideSides extend the body panel by approximately four inches and are offered in a nine inch super-wide size for Chevrolet(R) pickup trucks. WideSides come in a white gel-coat finish which can be painted to match the vehicle. GATEKEEPER(TM). The GateKeeper tailgate protector adheres to the top edge of a pickup truck's tailgate, protecting it from scratches and dents. The GateKeeper is made from flexible PVC and is sold in black. SHADOW(TM) WIPER COWL. The Shadow wiper cowl hides the windshield wipers and creates the appearance of a lowered cab, known as a "chopped look." The Shadow is available in smoke or a paintable clear finish. RUNNINGMATE(TM)REAR EXTENDER. The RunningMate rear extender is used to complement the Company's running board line by extending the look of the running boards to the rear portion of the fender. The RunningMate Extender is made of ABS black polymer plastic and can be painted to match the vehicle. N.E.T PERFORMANCE(TM) BY LUND. N.E.T.s are designed to capitalize on the popular motorsports enthusiasm. They are installed to the interior of a vehicle to give the look of window racing nets. N.E.T.s are available in a variety of colors. HARDNOSE(TM) BUMPER COVER. The HardNose bumper cover is a clear plastic polymer cover for the front bumper of a vehicle. The HardNose can be painted from behind to ensure a chip-free painted surface. BACKDRAFT(TM) TAILGATE SPOILER. The BackDraft tailgate spoiler is a designed black ABS polymer spoiler that can be attached to the tailgate of a pickup using 3M(R) tape. GRILLE INSERTS. The Company entered the market for grille inserts when it acquired the Cold Front(R) product line in fiscal 1990. The Company developed the Screen Front(TM) product line in fiscal 1991. COLD FRONT(R). The Cold Front custom grille insert snaps into the grille of a light truck to give a stylish "blacked-out look" and to provide it with fast engine warm-up and even engine temperature in cold weather. The Cold Front consists of solid Lexan(R) panels which come in smoke. SCREEN FRONT(TM). The Screen Front custom grille insert is similar to the Cold Front except that it consists of perforated Lexan panels that are used to screen bugs and road debris from the grille. The Screen Front is sold in smoke and can be painted to match the vehicle. HEADLIGHT, TAILLIGHT AND SIDE WINDOW STYLING COVERS. In fiscal 1993, the Company introduced its Eclipse(TM) line of styling covers for headlights and taillights. The Company introduced the Eclipse side window styling covers in fiscal 1994. The Eclipse product lines are: ECLIPSE HEADLIGHT AND TAILLIGHT STYLING COVERS(TM). The Eclipse headlight and taillight styling covers are solid in design and can be easily mounted without tools or drilling, either by snapping in place or by using a patented mounting system acquired by the Company. The Eclipse headlight styling covers are available in smoke and paintable clear, and the Eclipse taillight styling covers are available in smoke. The Company entered the market for automobile accessories with its headlight styling covers, which are available for most domestic and imported cars and light trucks. ECLIPSE SLOTTED TAILLIGHT STYLING COVERS(TM). The Eclipse slotted taillight styling covers provide a distinctive look and can be easily mounted using double-sided industrial tape. This product comes in a paintable black finish. ECLIPSE SIDE WINDOW STYLING COVERS(TM). The Eclipse side window styling covers provide a distinctive look for many domestic and imported extended cab pickup trucks. These covers attach to the side window using double-sided industrial tape. The Eclipse side window styling covers come in smoke or a paintable black finish. CARGO TRAYS AND FLOOR MATS. The Company entered the market for cargo trays and floor mats with the introduction of two new products in fiscal 1995. These products are used to protect the interior floor of vehicles. Lund's cargo trays and floor mats are manufactured using a special blend of polymers and recycled rubber. SPORTLINER(TM) CARGO TRAYS. The SportLiner cargo trays are used to protect the storage areas of sport utility vehicles and minivans and are manufactured on the Company's vacuum forming machine. This product is available in a variety of colors to match the interior of the vehicle. SPORTMAT(TM) FLOOR TRAYS. SportMats are designed to protect the interior floor space of a light truck and are also manufactured on the vacuum forming machine. This product is available to match the SportLiner cargo trays. Manufacturing Process The Company's products are generally manufactured from fiberglass or plastic sheets composed of polyester, ABS plastic, acrylic or polycarbonate. Product lines representing a majority of the Company's sales are manufactured from laminated fiberglass and polyester resin, making these the predominate raw materials currently used by the Company. The Company believes that the raw materials it uses are available from numerous sources and that it could find alternative vendors to supply such materials or alternative materials, if necessary. Fiberglass products, such as Lund SunVisors, Fastbacks and RunningMates, are manufactured largely by hand using production molds to form a 1/8" fiberglass laminate into product shapes. The edges are then machine trimmed and hand sanded for a smooth finish. Plastic products, including the Solar and Lunar visors, FrontRunner, WindJammer and the Eclipse product lines, are manufactured from plastic sheets utilizing drape forming and vacuum forming processes. In the drape forming process, a plastic sheet is cut into custom flat shapes, known as blanks. These blanks are heated in a computerized conveyor oven and formed into products by draping the heated blanks over molds. In the vacuum forming process, a plastic sheet is heated and formed over a mold using vacuum pressure in a thermoforming machine. To supplement its internal manufacturing, the Company relies on independent manufacturers. During fiscal 1996, the Company began outsourcing a portion of its traditional visor line to a manufacturer that utilizes compression molding. This manufacturing technique ensures that product is uniform in strength, thickness and surface quality. In addition, the Company is investigating the use of an automated resin transfer molding process in its fiberglass manufacturing department. The Company qualifies each manufacturer and works closely with it to assure the timely delivery of products that meet the Company's specifications. The Company generally retains ownership of the tooling used to produce a product line, with the understanding that it will remove the tooling from the manufacturer's plant at the termination of the manufacturing relationship. The Company has not experienced any product liability claims in the past. Lund generally provides limited lifetime warranties against manufacturing defects on its products. Historically, warranty expense has not been material to the Company. In fiscal 1996 and 1995, the Company had warranty expense of $778,239 and $510,624, which represented 1.7 % and 1.1% of net sales, respectively. These expenses resulted primarily from warranty claims related to breakage in its acrylic product lines. The Company believes it has addressed this issue by moving to a virtually non-breakable Lexan(R) plastic material for a majority of its acrylic product line. Marketing and Sales The Company sells its products through a national distribution system utilizing an in-house sales staff and independent manufacturers' representatives. The Company has three in-house regional sales managers who oversee 13 independent manufacturers' representative organizations employing approximately 60 sales representatives. The Company's staff and the independent manufacturers' representatives sell the Company's products to warehouse distributors, dealer expediters, automotive specialty chain stores, convertors and catalog companies. In addition, the Company sells heavy duty truck visor products to original equipment manufacturers. While the light truck accessory market is highly fragmented, the Company believes that there is a trend among distributors to prefer suppliers, such as Lund, who provide well-recognized brand names, customer service and a broad product line that accommodates "one-stop-shopping." In addition, the Company believes that there is a trend toward computerized ordering and therefore offers its customers access to ordering through Electronic Data Interchange (EDI). Virtually all of the Company's sales are from product lines sold in the United States and Canada. The Company delivers product to warehouse distributors by truck from its manufacturing and warehouse facilities in Anoka, Minnesota and Oklahoma City, Oklahoma, as well as from independent warehouses in Toronto, Ontario and Los Angeles, California. The Company's marketing program is focused on developing high profile new products, creating excitement around its broad product offering and building equity in the Lund name. The Company employs an integrated communications strategy that utilizes consumer and trade advertising, public relations, promotions, point-of purchase and packaging to communicate a specific message to each level of the selling process. That message is centered on industry leadership, innovation, high quality, breadth of line and Company integrity. Consumer advertising is focused on building equity in the Lund name through getting the "Lund Look." The program utilizes consumer magazines targeted at the street truck enthusiasts, off-road enthusiasts, sportsmen, tow vehicle owners and family vehicle markets. Promotion plays a critical role in exposing the "Lund Look" to the consuming public. An example is the Company's sponsorship of the nationally televised "Lund Look 225" NASCAR(R) Craftsman Super Truck Series Race. In addition, the Company participates in other enthusiast events through team sponsorships in racing, off-roading and fishing. The Company also promotes through the use of "Lundmobiles." Lundmobiles consist of various light trucks that have been customized with Lund products to illustrate the ultimate extent of the "Lund Look." Lundmobiles appear at numerous consumer and trade shows, are used in all of the Company's advertisements, are featured in consumer magazine editorials and are utilized by retailers and distributors to create consumer excitement. Other steps in pulling the product through the distribution system involve trade advertising, direct communication with businesses that come in contact with the consumer and a cooperative advertising program to help them reach the consumer. The Company uses various trade magazines to create excitement at the jobber and retail level. In addition, the Company has developed a network of Authorized Dealers that currently consists of over 9,000 businesses. Lund communicates directly with these dealers regarding new product introductions, promotions, selling tools and selling techniques. The Company also communicates directly to the consumer through the use of its high quality consumer packaging and point-of-purchase displays. The packaging depicts the product in use on standard vehicles as well as "Lundmobiles" and conveys the features and benefits of the specific product. Lund produces all of its printed selling tools internally. These tools include product catalogs, application lists and other product literature, which it distributes to the warehouse distributors and independent sales representatives. SEASONALITY AND BACKLOG Historically, Lund has had a seasonal mix which favored late winter, spring and early summer with higher sales than late summer and early fall. During fiscal 1995, the Company did not experience its normal seasonality during the first three quarters due to production and shipping capacity constraints in its previous facility, which created significant backlog and shipping delays. During the fourth quarter of fiscal 1995, the Company's new facility allowed it to significantly reduce its backlog and order turn-around time. As a result, the average order turn-around time at the end of fiscal 1996 decreased to five to ten days compared to 15 to 25 days prior to the move. COMPETITION The Company's industry is highly competitive. The Company believes that competition in the industry is based on brand name recognition, quality, design, breadth of product line, price, service and packaging. Certain of the Company's competitors and potential competitors, including manufacturers of light trucks, have greater financial or other resources than the Company. There are no significant technological or manufacturing barriers to entry into the Company's business. While the Company has many competitors for most of its product lines, it believes that in the United States it has one of the broadest offerings of appearance accessories in the light truck market and that it occupies a dominant position for external visors and cab extenders. The Company has aggressively enforced its patents and trademarks and intends to do so in the future. The Company believes that by aggressively enforcing its patents and trademarks it deters other manufacturers from attempting to copy its products or selling lesser quality products at lower prices. INTELLECTUAL PROPERTY The Company generally seeks to obtain patents protection, shape/design trademarks and brand trademarks for its products. The Company holds more than 30 patents, expiring at various dates from 1998 to 2010, generally related to product design or mounting procedures. In addition, the Company owns various federally registered and common law trademarks, including the LUND SUNVISOR and a shape/design mark in the distinctive "hawk-like" design, respectively, incorporated in a majority of the Company's visor products. Lund regards its intellectual property rights as valuable assets and has vigorously defended them against infringement. GOVERNMENT REGULATION The Company is subject to federal, state and local laws and regulations concerning consumer products, the environment and occupational safety and health. EMPLOYEES As of September 17, 1996, the Company employed 267 people on a full-time basis, three people on a part-time basis and contracted for the services of 15 additional full-time people. None of the Company's employees are represented by a labor union. The Company believes its employee relations are good. EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS The executive officers, key employees and directors of the Company during fiscal 1996 were as follows: Name Age Position - ---- --- -------- Allan W. Lund 66 Chairman of the Board William J. McMahon 50 President and Chief Executive Officer Jay M. Allsup 38 Chief Financial Officer Kathy R. Smith 35 Corporate Secretary William H. Toms 51 Vice President of Operations Bradley W. Andress 42 Vice President of Marketing Stephen S. Treichel 53 Vice President of Strategic and Human Systems James E. Haglund 59 Director Charles R. Weaver, Jr. 39 Director David E. Dovenberg 52 Director Christopher A. Twomey 49 Director ALLAN W. LUND, a co-founder of the Company, has been Chairman of the Board, a director and executive officer of the Company since 1965. WILLIAM J. MCMAHON rejoined the Company in September 1994 as President and Chief Executive Officer. From May 1991 to September 1994, Mr. McMahon served as Chief Operating Officer for Anagram International, Inc., a manufacturer and distributor of mylar balloons, gift wrap and industrial packaging. Prior to Anagram, Mr. McMahon was Chief Executive Officer and President of Lund International Holdings, Inc. from 1988 to 1991. JAY M. ALLSUP joined the Company in October 1993 as the Director of Finance and was appointed Chief Financial Officer in June 1994. From April 1989 to October 1993, he was the Chief Financial Officer and Treasurer of Standun, Inc., a manufacturing holding company. KATHY R. SMITH joined the Company in May 1989 and since April 1990 has served as Executive Assistant to the Chief Executive Officer. Ms. Smith was named Corporate Secretary and Investor Relations Manager of the Company in February 1994. WILLIAM H. TOMS joined the Company in April 1995 as Vice President of Operations. From 1983 to April 1995, Mr. Toms was the Vice President of Operations for Anchor-Hocking Plastics, a manufacturer of household storage containers and microwave cookware accessories and a division of the Newell Companies. BRADLEY W. ANDRESS joined the Company in October 1995 as Vice President of Marketing. From August 1985 to October 1995, Mr. Andress held various positions, including Vice President of Marketing and Vice President of Sales of Plastics, Inc. and Anchor-Hocking Plastics, which are divisions of the Newell Companies. STEPHEN S. TREICHEL joined the Company in October 1995 as Vice President of Strategic and Human Systems. From 1993 to October 1995, Mr. Treichel was the President of Process Management International, a management consulting firm. From 1990 to 1993, he was a senior manager of strategic services at McGladrey & Pullen, a CPA and consulting firm. JAMES E. HAGLUND has been a director of the Company since January 1992. He has been the President and owner of Central Container Corporation, a designer and manufacturer of corrugated packaging and related items, since March 1975; a partner in Spectrum Screen Printing, a privately held screen printing company, since 1986; and a partner in Eagle Embroidery, a privately held sportswear design company, since 1992. CHARLES R. WEAVER, JR. has been a director of the Company since October 1992. He has served as Assistant County Attorney for Anoka County, Minnesota since June 1991, and has served as a Minnesota State Legislator since January 1988. Mr. Weaver was an attorney with Lindquist and Vennum, a law firm based in Minneapolis, Minnesota from September 1984 to June 1991. DAVID E. DOVENBERG has been a director of the Company since June 1994. He has been the Chief Financial Officer of Universal Hospital Services, Inc., a provider of movable medical equipment, since May 1988. CHRISTOPHER A. TWOMEY has been a director of the Company since June 1994 and will serve in that capacity until the next annual meeting of stockholders or until his successor is duly elected and qualified. He has been the President, Chief Executive Officer and a director of Arctic Cat, Inc., a designer and manufacturer of snowmobiles and personal watercraft, since February 1986. Mr. Twomey is also a community board member of Norwest Bank Minnesota, N.A. Item 2. PROPERTIES In fiscal 1995, the Company constructed a new facility to consolidate its corporate offices, manufacturing operations and warehouse facilities and allowed Lund to significantly expand its manufacturing capacity and capabilities. This 228,000 square foot facility is located in Anoka, Minnesota. The Company believes that the new facility will allow it to maintain its sales growth, reduce costs by manufacturing more products internally, increase profitability through greater manufacturing efficiencies and improve product quality. In fiscal 1996, the Company acquired the assets of Innovative Accessories, Inc. of Oklahoma City, Oklahoma. In connection with the acquisition, the Company leased a 32,000 square foot manufacturing and office facility and a 10,000 square foot warehouse facility. Item 3. LEGAL PROCEEDINGS The Company is not currently a party to any material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by Item 5 is incorporated herein by reference to the section entitled "Market for the Company's Common Stock" which appears on page 27 of the Company's 1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996. Item 6. SELECTED FINANCIAL DATA The information required by Item 6 is incorporated herein by reference to the section entitled "Five Year Summary" which appears on page 27 of the Company's 1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by Item 7 is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" which appears on pages 10 through 13 of the Company's 1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 is incorporated herein by reference to the "Financial Statements, Notes thereto and Report of Independent Accountants" which appear on pages 14 through 26 of the Company's 1996 Annual Report to Stockholders for the fiscal year ended June 30, 1996. See Item 14 (a) for an index of the financial statements and related schedule. The Report of Independent Accountants as of June 30, 1995 and for the years ended June 30, 1995 and 1994 is included as Exhibit 99 of the Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 9, 1996, the Company dismissed KPMG Peat Marwick LLP as its accountant. KPMG Peat Marwick LLP was the independent accountant who was engaged as principal accountant to audit the Company's financial statements for the Company's two most recent completed fiscal years. On April 9, 1996, the Company retained Coopers & Lybrand L.L.P. as its independent auditors to audit the Company's financial statements for the year ending June 30, 1996. The reports of KPMG Peat Marwick LLP on the financial statements of the Company for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the Company's financial statements for the two most recent fiscal years and the subsequent interim period proceeding their dismissal, there were no disagreements with KPMG Peat Marwick LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG Peat Marwick LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its report. During the Company's two most recent fiscal years and the subsequent interim period, there were no "reportable events" as described in Item 304(a)(1)(v) of Regulation S-K. Prior to the engagement of Coopers & Lybrand L.L.P., the Company had not consulted with Coopers & Lybrand L.L.P. regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or any matter described above. The decision to change accountants was recommended by the audit committee of the Board of Directors and approved by the entire Board. The Company has requested, and KPMG Peat Marwick LLP has furnished, a letter addressed to the Commission stating that it agrees with the above statements. A copy of that letter was filed by the Company. In addition, Coopers & Lybrand L.L.P. was provided an opportunity to review the above statements and provide a letter regarding such statements. PART III. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 concerning executive officers of the Company is set forth at the end of Part I of this report. The information required by Item 10 concerning the directors of the Company is incorporated herein by reference to the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed. PART IV. Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report (1) Consolidated Financial Statements. The financial statements below are incorporated herein by reference to: Pages ----- Report of Independent Accountants............................................* Consolidated Balance Sheets as of June 30, 1996 and 1995 ...................* Consolidated Statement of Earnings for the fiscal years ended June 30, 1996, 1995 and 1994..................................* Consolidated Statement of Changes in Stockholders' Equity for the fiscal years ended June 30, 1996, 1995 and 1994 ............* Consolidated Statement of Cash Flows for the fiscal years ended June 30, 1996, 1995 and 1994 .................................* Notes to Consolidated Financial Statements...................................* *Incorporated by reference to the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1996, a copy of which is included in this Form 10-K as Exhibit 13. (2) Financial Statement Schedule. Pages in this Form 10-K ------------- Reports of Independent Accountants on Financial Statement Schedule........22-23 Schedule II: Valuation and Qualifying Accounts for the fiscal years ended June 30, 1996, 1995 and 1994.............24 All other schedules are omitted because they are not required or not applicable or the information is otherwise shown in the Consolidated Financial Statements or notes thereto. (3) Exhibits. See "Exhibit Index" on the pages following the signatures. (b) Reports on Form 8-K. On April 15, 1996, a report on Form 8-K was filed with respect to the Registrant's Change in Certifying Accountants. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LUND INTERNATIONAL HOLDINGS, INC. By /s/William J. McMahon ------------------------------------- William J. McMahon Chief Executive Officer and President September 24, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/William J. McMahon Chief Executive Officer September 24, 1996 - ------------------------------ President (Principal Executive Officer) /s/ Jay M. Allsup Chief Financial Officer September 24, 1996 - ------------------------------ (Principal Financial Officer) /s/ Allan W. Lund Chairman of the Board, September 24, 1996 - ------------------------------ Treasurer and Director /s/ James E. Haglund Director September 24, 1996 - ----------------------------- /s/ Charles R. Weaver Director September 24, 1996 - ----------------------------- /s/ Christopher A. Twomey Director September 24, 1996 - ----------------------------- /s/ David E. Dovenberg Director September 24, 1996 - -----------------------------
EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NO: 0-16319 Exhibit Page Number or Incorporation by Number Description Reference to - ------ ----------- ------------ 2.1 Agreement and Plan of Exhibit 2 of the Registrant's Reorganization dated July 21, 1987, Registration Statement on Form S-4 as amended as of August 20, 1987 Reg. No. 33-16685 and September 25, 1987, by and among Flex Corporation, Lund Industries, Incorporated and Flex Acquisition Corp. 2.2 Articles of Merger of Flex Exhibit 2.2 of the Registrant's Form Acquisition Corp. into Lund 10-K for the fiscal year ended June Industries Incorporated 30, 1988, Commission File No. 0-16319 3.1 Certificate of Incorporation of Exhibit 19 of the Registrant's Form Registrant as amended to date 10-Q for the quarter ended December 31, 1987, Commission File No. 0-16319 3.2 Bylaws Exhibit 3.2 of the Registrant's Registration Statement on Form S-4, Reg. No. 33-16685 10.2 Assignment dated July 22, 1987, Exhibit 10.2 of the Registrant's of certain U.S. patents of Lund Registration Statement of Form S-4, Industries, Incorporated by Allan Reg. No. 33-16685 W. Lund 10.3 Assignment of Certain Canadian Exhibit 10.3 of the Registrant's Industries Designs to Lund Industries, Registration Statement on Form S-4 Incorporated by Allan W. Lund Reg. No. 33-16685 10.8 The Registrant's Incentive Stock Exhibit 10.8 of the Registrant's Form Option Plan 10-K for the fiscal year ended June 30, 1989, Commission File No. 0-16319 10.9 Revised specimen of form of option granted under the Registrant's Incentive Stock Option Plan 10.18 The Registrant's 1992 Non-Employee Exhibit 10.18 of the Registrant's Form Director Stock Option Plan 10-K for the fiscal year ended June 30, 1992 10.19 Employment letter with Jay M. Allsup Exhibit 10.19 of the Registrant's Form dated September 16, 1993 10-K for the fiscal year ended June 30, 1994 10.20 Employment Agreement with Exhibit 10.20 of the Registrant's Form William J. McMahon dated 10-K for the fiscal year ended June 30, 1994 August 30, 1994 10.28 Bond Purchase Agreement Among Exhibit 10.28 of the Registrant's Form Lund Industries, Incorporated; Lund 10-Q for the quarter ended September International Holdings, Inc.; City of 30, 1994 Anoka Minnesota; and Piper Jaffray, Inc. dated September 22, 1994 10.29 1994 Incentive Stock Option Plan Exhibit 10.29 of the Registrant's Form 10-Q for the quarter ended December 31, 1994 10.31 Employment Letter with William H. Exhibit 10.31 of the Registrant's Form Toms dated March 7, 1995 10-Q for the quarter ended March 31, 1995 10.32 Supply agreement between Lund Exhibit 10.32 of the Registrant's Form 10-K Industries, Incorporated and GenCorp, for the fiscal year ended June 30, 1995 Inc. dated June 1, 1995 10.33 Master Lease Agreement between Exhibit 10.33 of the Registrant's Form 10-Q LMI Funding Corporation and Lund for the quarter ended September 30, 1995 Industries, Incorporated dated August 1, 1995 10.34 Employment letter with Bradley W. Exhibit 10.34 of the Registrant's Form 10-Q Andress dated October 11, 1995 for the quarter ended September 30, 1995 10.35 Marketing Agreement dated Exhibit 10.35 of the Registrant's Form 10-Q October 18, 1995 by and between for the quarter ended September 30, 1995 Innovative Accessories, Inc. and Lund Industries, Incorporated. 10.36 Restated Exclusive Purchase Option Exhibit 10.36 of the Registrant's Form 10-Q Agreement dated October 18, 1995 by for the quarter ended September 30, 1995 and among Lund International Holdings, Inc., Innovative Accessories, Inc. and shareholders of Innovative Accessories, Inc. 10.37 Employment and Non-Competition Exhibit 10.37 of the Registrant's Form 10-Q Agreement dated October 18, 1995 for the quarter ended September 30, 1995 by and between Innovative Accessories, Inc. and James A. Nett. 10.38 Interim Loan Agreement dated Exhibit 10.38 of the Registrant's Form 10-Q November 7, 1995 by and between for the quarter ended September 30, 1995 Innovative Accessories, Inc. and Lund International Holdings, Inc. 10.39 Demand Promissory Note dated Exhibit 10.39 of the Registrant's Form 10-Q November 7, 1995 between Innovative for the quarter ended September 30, 1995 Accessories, Inc. and Lund International Holdings, Inc. 10.40 Assignment of Patents dated Exhibit 10.40 of the Registrant's Form 10-Q November 7, 1995 from James A. for the quarter ended September 30, 1995 Nett to Lund International Holdings, Inc. 10.41 Loan Agreement dated November 29, Exhibit 10.41 of the Registrant's Form 1995 by and between Innovative 10-Q for the quarter ended Accessories, Inc. and Lund December 31, 1995 International Holdings, Inc. 10.42 Revolving Promissory Note dated Exhibit 10.42 of the Registrant's Form November 29, 1995 by and between 10-Q for the quarter ended Innovative Accessories, Inc. and December 31, 1995 Lund International Holdings, Inc. 10.43 Security Agreement dated November Exhibit 10.43 of the Registrant's Form 29, 1995 by and between Innovative 10-Q for the quarter ended Accessories, Inc. and Lund December 31, 1995 International Holdings, Inc. 10.44 Asset Purchase Agreement by and Page 26 among Lund Acquisition Corp., Innovative Accessories, Incorporated, Lund International Holdings, Inc., James A. Nett and Ramona C. Friar dated May 29, 1996 10.45 Assignment and Assumption of Real Page 85 Property Lease by and between Innovative Accessories, Incorporated and Lund Acquisition Corp. dated June 3, 1996 10.46 Assignment of Intellectual Property Page 87 Rights from Innovative Accessories, Incorporated and James A. Nett to Lund Acquisition Corp. dated June 3, 1996 13 Registrant's Annual Report to Page 88 Stockholders for fiscal 1996 16.1 Letter of KPMG Peat Marwick regarding Page 106 change in Certifying Accountant 21 Subsidiaries of the registrant:
Name State or Jurisdiction of Incorporation - ---- -------------------------------------- Lund Industries, Incorporated Minnesota Lund International FSC, Inc. Virgin Islands Lund Acquisition Corp. Minnesota 23.1 Consent of Independent Accountant Page 107 23.2 Consent of Independent Accountant Page 108 27 Financial Data Schedule Page 109 99 Report of Independent Accountants Page 110 as of June 30, 1995 and for the years ended June 30, 1995 and 1994 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Lund International Holdings, Inc.: Our report on the consolidated financial statements of Lund International Holdings, Inc. has been incorporated by reference in this Form 10-K from page 26 of the 1996 Annual Report to stockholders of Lund International Holdings, Inc. In connection with our audit of such financial statements, we have also audited the related financial statement schedule for the fiscal year ended June 30, 1996 listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota August 21, 1996 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Lund International Holdings, Inc.: Under date of August 11, 1995, we reported on the consolidated balance sheet of Lund International Holdings, Inc. and Subsidiaries as of June 30, 1995, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the two-year period ended June 30, 1995. These consolidated financial statements are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as of June 30, 1995 and 1994 and for each of the years in the two-year period ended June 30, 1995. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Minneapolis, Minnesota August 11, 1995
LUND INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1996, 1995 AND 1994 Balance Charged at to cost Charged Balance beginning and to other at end Description of year expenses accounts Deductions of year - ----------------------------------------------------------------------------------------------------------------------------- Year ended June 30, 1996: Allowance for doubtful accounts (deducted from accounts receivable) $532,000 $215,000 ---- ($27,000) (1) $720,000 Year ended June 30, 1995: Allowance for doubtful accounts (deducted from accounts receivable) 580,000 29,000 ---- (77,000) (1) 532,000 Year ended June 30, 1994: Allowance for doubtful accounts (deducted from accounts receivable) 155,000 446,000 ---- (21,000) (1) 580,000 Accrual costs relating to closing Canadian facility 6,606 ---- ---- (6,606) ---- (1) Represents accounts written off against the allowance, net of recoveries.
LUND INTERNATIONAL HOLDINGS, INC. - ------------------------------------------------------------------------------- FORM 10-K - ------------------------------------------------------------------------------- FOR THE FISCAL YEAR ENDED JUNE 30, 1996 - ------------------------------------------------------------------------------- EX-13 2 1996 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Years Ended June 30, 1996 (in thousands, except per share amounts) Lund International Holdings, Inc. designs, manufactures, and markets appearance automotive aftermarket accessories for light duty trucks, sport utility vehicles and vans. The Company is the world's leading supplier of automotive sunvisors, with an estimated 70% market share in this category. Beginning in fiscal 1989, Lund instituted a product diversification plan and currently has 32 product lines, classified as Visors, Bug Shields/ Hood Protectors, Running Boards, and Other Appearance Accessories. RESULTS OF OPERATIONS: SUMMARY: The Company posted lower net sales and net income for the first time in five years in fiscal 1996 as net sales decreased to $46,423 and net income decreased to $4,622. Shown below for the periods indicated, are the percentage relationships of certain items in the Consolidated Statements of Earnings to net sales and the percentage change of dollar amounts of such items compared with prior periods. NET SALES: Net sales decreased 2% for the year ended June 30, 1996, to $46,423, compared to $47,384 for fiscal 1995. Net sales increased 30% in fiscal 1995, compared to net sales of $36,395 for fiscal 1994. The fiscal 1996 net sales decrease resulted primarily from lower sales of the Visor category, which decreased 18% compared to fiscal 1995, contrasted to a 16% increase comparing fiscal 1995 to fiscal 1994. The decreased sales in the Visor category resulted principally from the Company's customers delaying visor orders in anticipation of the newly developed visor lines and design, production and shipping delays in these new lines. Running Board sales increased by 23% and 73%, comparing fiscal 1996 to 1995 and fiscal 1995 to 1994, respectively. These increases were driven by the continued popularity of the Company's StepMate(TM) line and the introduction of the SideTracker(TM) Running Board in fiscal 1996. The Other Appearance Accessories category increased 16% in fiscal 1996 due to the introduction of tonneau covers, which accounted for 2% of net sales. Year-to-Year Increase/(Decrease) - ----------------------------------------- ------------------- Percent of Net Sales 1996 1995 Years ended June 30, Over Over 1996 1995 1994 1995 1994 - ----------------------------------------- ------------------- Net sales 100.0% 100.0% 100.0% (2)% 30% Cost of goods sold 61.6 57.4 56.6 5 32 - ----------------------------------------- ------------------- Gross profit 38.4 42.6 43.4 (12) 28 - ----------------------------------------- ------------------- General and administrative 8.9 8.6 9.7 1 15 Selling and marketing 12.4 10.3 10.6 18 26 Research and development 2.5 2.0 1.9 23 36 - ----------------------------------------- ------------------- Total operating expenses 23.8 20.9 22.2 11 22 - ----------------------------------------- ------------------- Income from operations 14.6 21.7 21.2 (34) 33 Other income, net 0.6 0.8 1.2 (32) (11) - ----------------------------------------- ------------------- Income before income taxes 15.2 22.5 22.4 (34) 31 Provision for income taxes 5.2 7.8 7.8 (34) 29 - ----------------------------------------- ------------------- Net income 10.0% 14.7% 14.6% (34)% 32% - ----------------------------------------- ------------------- COST OF GOODS SOLD AND GROSS PROFIT: Gross profit margins for the year ended June 30, 1996 were 38.4%, compared to 42.6% and 43.4% for fiscal years 1995 and 1994, respectively. The decrease in gross profit margins for both fiscal 1996 and fiscal 1995 resulted from an increased percentage of sales of lower gross margin products, higher raw material prices, and higher warranty claims on acrylic products. Gross margins in fiscal 1996 were impacted by higher facility costs, while gross margins in fiscal 1995 and 1994 were impacted by production inefficiencies as a result of operating at maximum production and shipping capacities in the Company's former facility. Percent of Net Sales Years ended June 30, 1996 1995 1994 - --------------------------------------- Visors 36.2% 43.4% 48.8% Bug Shields/Hood Protectors 24.1 23.9 23.3 Running Boards 18.0 14.4 10.8 Other Appearance Accessories 21.7 18.3 17.1 - --------------------------------------- Total net sales 100.0% 100.0% 100.0% - --------------------------------------- GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were $4,125 in fiscal 1996, compared to $4,083 and $3,548 for fiscal 1995 and 1994, respectively. As a percentage of net sales, general and administrative expenses were 8.9% in fiscal 1996, compared to 8.6% in fiscal 1995 and 9.7% in fiscal 1994. The dollar increase in fiscal 1996 resulted from higher bad debt, salary, operating lease and system implementation expenses which were offset by lower incentive compensation expense. The dollar increase in fiscal 1995 was caused by higher salary and bonus expense offset by lower bad debt and legal expenses. SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $5,750 in fiscal 1996, compared to $4,888 and $3,874 for fiscal 1995 and 1994, respectively. As a percentage of net sales, selling and marketing expenses were 12.4% for fiscal 1996, compared to 10.3% and 10.6% for fiscal 1995 and 1994, respectively. The dollar increase in fiscal 1996 resulted from higher customer advertising and display expenses, general Company advertising and printing costs, new product support costs, and promotional and sponsorship costs. The dollar increase in fiscal 1995 resulted from higher manufacturer's representative commissions due to higher sales and customer promotions and samples. RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses were $1,152 in fiscal 1996, compared to $934 and $687 for fiscal 1995 and 1994, respectively. As a percentage of net sales, research and development expenses were 2.5% in fiscal 1996, 2.0% in fiscal 1995, and 1.9% in fiscal 1994. The dollar increase in both fiscal 1996 and 1995 related to an increase in personnel and product material to support both new product and application development. The increase in fiscal 1996 related to higher facility and operating lease expenses allocated to research and development and higher computer system costs. OTHER INCOME (EXPENSE): The decrease in fiscal 1996 in other income resulted principally from the increase in interest expense associated with the Company's Industrial Development Revenue Bonds, which was $313 in 1996 compared to $110 in 1995. INCOME TAX EXPENSE: The effective income tax rates for fiscal 1996, 1995 and 1994 were 34.5%, 34.5% and 35.0%, respectively. OUTLOOK: Fiscal 1996 was a transition year for the Company. The Company relocated to a new facility in late fiscal 1995, which significantly increased its production and shipping capabilities, thus reducing considerable order backlogs. As a result, customer ordering patterns significantly changed during fiscal 1996, reducing sales visibility. The Company has improved both order turn around times and fill rates which prompted customers to reduce stocking inventories and order sizes. During fiscal 1996, the Company introduced two new visor lines which were well received by the Company's customers; however, the new visor lines did not ship until late in the fiscal year due to design and production delays. The introduction of the new visor lines and the changing styling lines on new vehicles caused slower sales in the original visor lines. For fiscal 1997, the market penetration of the new visor may be slower due to initial delays in the design, production and shipment of this product line. The Company anticipates its principal growth in fiscal 1997 coming from its new tonneau cover line acquired with the acquisition of the assets of Innovative Accessories, Inc., augmented by continued growth and acceptance of its running board lines. The tonneau covers have a lower than average gross margin, which will impact overall margins and sales as this product line increases. The traditional multi-step distribution channel is continuing to undergo consolidation, with an increasing market share going to competitive channels such as large chain specialty stores, mail-order, mass merchants and original equipment manufacturers such as Ford, General Motors, and Chrysler. The Company intends to devote increasing resources to enter the large chain specialty store and the original equipment manufacturer channels. As a result, sales and marketing expenses are expected to continue at fiscal 1996 rates as a percent of sales. Since late fiscal 1995, the demand for raw material products, including plastic resins, fiberglass, and boxes has slowed. Prices for these products have stabilized and the Company does not anticipate any significant raw material price increases. EFFECTS OF INFLATION: Although increases in costs of certain materials and labor could adversely affect the Company's operations, the Company generally has been able to increase its selling prices to offset increased costs. Price competition, however, particularly in the plastic product lines, could affect the ability of the Company to increase its selling prices to reflect such increased costs. In general, the Company believes that the relatively moderate inflation over the last few years has not had a significant impact on the Company's net sales, but that increasing raw material prices have had an impact on gross profits. FINANCIAL CONDITION: SUMMARY: The Company's financial condition on June 30, 1996 was strong. Cash and marketable securities, including restricted cash, totalled $11,371, or 28% of total assets. Working capital, the difference between current assets and current liabilities, continued to increase. The Company has no working capital lines of credit. The Company financed its new production, warehouse, and office facility with tax-exempt Industrial Development Revenue Bonds. The following key measurements are indicative of the excellent liquidity and strong financial position of the Company.
Years ended June 30, 1996 1995 1994 - --------------------------------------------------------------------------------------- Cash and Marketable Securities $ 11,371 $ 12,079 $ 9,916 (including restricted cash) Working Capital $ 24,649 $ 21,761 $ 16,085 Current Ratio 6.1 to 1 4.5 to 1 6.3 to 1 Cash Flow from Operations $ 2,835 $ 2,747 $ 4,314 Stockholders' Equity $ 30,507 $ 25,504 $ 18,069 Stockholders' Equity to Total Liabilities 3.1 to 1 2.3 to 1 5.9 to 1
LIQUIDITY: Cash flow from operations continued to provide sufficient funds to meet working capital and investment needs. Cash and marketable securities, including restricted cash, decreased by $708 to $11,371 as of June 30, 1996. Accounts receivable increased by $407, or 4%, during fiscal 1996, as days sales outstanding (the average days worth of sales that are in accounts receivable) increased to 78 days from 75 days. The increase was primarily due to the continuation of extended dating terms to customers to increase product flow and customer shelf stock. Days sales outstanding is traditionally higher as of year end due to the seasonality of the Company's business, which favors higher sales during the last quarter. Inventories increased by $1,124, or 24%, during fiscal 1996. The increases in both raw materials and finished goods inventories were primarily related to new product line introductions and continuing efforts to improve product shipment turnaround times and fill rates. Accounts payable decreased by $836, or 30%, due to the timing of inventory purchases and more aggressive cash management to maximize vendor cash discounts. Purchases of plant and equipment of $814 were principally associated with internal and external tooling costs, small equipment and computer purchases. Due to capital spending limitations associated with the Industrial Development Revenue Bond offering during fiscal 1995, all large equipment purchases and new computer hardware and software systems were obtained through an operating lease. The total value of equipment leased during fiscal 1996 was $1,057. The Company acquired the assets and assumed certain liabilities of Innovative Accessories, Inc. ("Innovative") during June 1996, after providing working capital financing since November 1995. From November 1995 until June 1996, the Company provided funds to Innovative totaling $2,230 to pay off prior debts, reduce accounts payable, and fund working capital. In addition, as part of the acquisition, the Company paid additional consideration and transaction costs, net of cash received, which are expected to total approximately $300, and will pay future royalty payments to the former Innovative shareholders based upon future sales of Innovative. The Company expects future working capital requirements to be financed by cash flow from operations and capital requirements to be financed or met through operating leases or cash flow from operations. CAPITAL: During fiscal 1995, the Company entered into a long-term financing agreement for the first time in its history. On September 1, 1994, the City of Anoka, Minnesota offered a $5,450 series of Industrial Development Revenue Bonds on behalf of Lund Industries, Incorporated, a wholly-owned subsidiary of the Company, with sequential annual maturities beginning on September 1, 1995 and continuing through 2004, bearing interest rates between 4.6% and 6.5%, depending upon maturity. The proceeds were used to build the Company's new facility and acquire production machinery and equipment. Although the Company has no other debt besides the Industrial Development Revenue Bonds, the Company is prepared to utilize debt if necessary to continue its diversification program. The Company believes its strong cash flow will enable the Company to acquire sufficient capital to finance anticipated future acquisitions which will be complementary to the Company's operating philosophies. Forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important factors could cause results to differ materially from those anticipated by some statements made herein. You are cautioned that all forward-looking statements involve risks and uncertainties. Among the factors that could cause results to differ materially are the following: consumer preference changes; expansion into new distribution channels; increased competition; and raw material price increases.
CONSOLIDATED BALANCE SHEETS ASSETS 1996 1995 ---- ---- Current assets: Cash and temporary cash investments .................. $ 1,643,416 $ 269,168 Restricted cash ...................................... 1,096,709 783,793 Marketable securities ................................ 8,630,649 11,026,034 Accounts receivable, less allowance for doubtful accounts of $720,000 and $532,000 at June 30, 1996 and 1995, respectively .............. 9,933,366 9,674,908 Inventories .......................................... 6,351,279 4,669,550 Deferred tax assets .................................. 815,600 678,800 Other current assets ................................. 1,047,776 830,448 ------------ ------------ Total current assets ........................... 29,518,795 27,932,701 Property and equipment, net .............................. 6,906,446 6,630,666 Restricted cash and marketable securities ................ 777,919 1,336,564 Other assets, net ........................................ 761,021 654,955 Intangibles, net ......................................... 2,355,424 151,312 ------------ ------------ Total assets ................................... $ 40,319,605 $ 36,706,198 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade .............................. $ 2,289,763 $ 2,797,718 Accrued expenses ..................................... 1,723,902 2,563,329 Income taxes payable ................................. 416,446 391,126 Long-term debt, current portion ...................... 440,000 420,000 ------------ ------------ Total current liabilities ...................... 4,870,111 6,172,173 Long-term debt, less current portion ..................... 4,590,000 5,030,000 Other liabilities ........................................ 352,225 -- Commitments (notes 9 and 14) Stockholders' equity: Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued ..................... -- -- Common stock, $.10 par value; authorized 25,000,000 shares; issued and outstanding 4,391,970 and 4,387,902 shares at June 30, 1996 and 1995, respectively .............. 439,197 438,790 Class B common stock, $.01 par value; authorized 3,000,000 shares; none issued ..................... -- -- Additional paid-in capital ........................... 975,875 767,417 Unrealized holding losses on marketable securities ... (60,442) (150,356) Unearned deferred compensation ....................... (159,872) (242,175) Retained earnings .................................... 29,312,511 24,690,349 ------------ ------------ Total stockholders' equity ..................... 30,507,269 25,504,025 ------------ ------------ Total liabilities and stockholders' equity ..... $ 40,319,605 $ 36,706,198 ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF EARNINGS YEARS ENDED JUNE 30, -------------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Net sales .................... $ 46,423,208 $ 47,383,663 $ 36,395,124 Cost of goods sold ........... 28,599,293 27,201,277 20,592,787 ------------ ------------ ------------ Gross profit .............. 17,823,915 20,182,386 15,802,337 Operating expenses General and administrative 4,124,855 4,082,559 3,547,781 Selling and marketing ..... 5,749,668 4,888,045 3,873,996 Research and development .. 1,152,249 934,076 687,523 ------------ ------------ ------------ Total operating expenses 11,026,772 9,904,680 8,109,300 ------------ ------------ ------------ Income from operations ....... 6,797,143 10,277,706 7,693,037 Other income (expense) Interest expense .......... (324,792) (133,566) (142) Interest income ........... 601,362 613,359 373,621 Other, net ................ (18,797) (100,749) 54,306 ------------ ------------ ------------ Other income, net ...... 257,773 379,044 427,785 ------------ ------------ ------------ Income before income taxes ... 7,054,916 10,656,750 8,120,822 Provision for income taxes ... 2,432,754 3,676,579 2,842,289 ------------ ------------ ------------ Net income .......... $ 4,622,162 $ 6,980,171 $ 5,278,533 ============ ============ ============ Net income per share $ 1.05 $ 1.58 $ 1.20 ============ ============ ============ Weighted average number of shares outstanding ......... 4,393,889 4,429,661 4,387,466 ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996, 1995 AND 1994 COMMON STOCK UNREALIZED ------------------------------- ADDITIONAL HOLDING LOSSES NUMBER OF DOLLAR PAID-IN ON MARKETABLE SHARES AMOUNT CAPITAL SECURITIES ------------ ------------ ------------ -------------- Balance, June 30, 1993 ............ 4,310,260 $ 431,026 $ 157,081 -- Restricted shares ............... 4,500 450 23,175 -- Options exercised ............... 29,292 2,929 126,602 -- Net income ...................... -- -- -- -- Change in unrealized holding losses on marketable securities -- -- -- $ (382,691) ------------ ------------ ------------ ------------ Balance, June 30, 1994 ............ 4,344,052 434,405 306,858 (382,691) Restricted shares ............... 42,500 4,250 456,475 -- Options exercised ............... 1,350 135 4,084 -- Net income ...................... -- -- -- -- Change in unrealized holding losses on marketable securities -- -- -- 232,335 Amortization of deferred compensation .................. -- -- -- -- ------------ ------------ ------------ ------------ Balance, June 30, 1995 ............ 4,387,902 438,790 767,417 (150,356) Restricted shares ............... (15,000) (1,500) (10,423) -- Options exercised ............... 19,068 1,907 218,881 -- Net income ...................... -- -- -- -- Change in unrealized holding losses on marketable securities -- -- -- 89,914 Amortization of deferred compensation .................. -- -- -- -- ------------ ------------ ------------ ------------ Balance, June 30, 1996 ............ 4,391,970 $ 439,197 $ 975,875 $ (60,442) ============ ============ ============ ============
[WIDE TABLE CONTINUED FROM ABOVE]
UNEARNED DEFERRED RETAINED COMPENSATION EARNINGS TOTAL ------------ ------------ ------------ Balance, June 30, 1993 ............ -- $ 12,431,645 $ 13,019,752 Restricted shares ............... -- -- 23,625 Options exercised ............... -- -- 129,531 Net income ...................... -- 5,278,533 5,278,533 Change in unrealized holding losses on marketable securities -- -- (382,691) ------------ ------------ ------------ Balance, June 30, 1994 ............ -- 17,710,178 18,068,750 Restricted shares ............... $ (332,799) -- 127,926 Options exercised ............... -- -- 4,219 Net income ...................... -- 6,980,171 6,980,171 Change in unrealized holding losses on marketable securities -- -- 232,335 Amortization of deferred compensation .................. 90,624 -- 90,624 ------------ ------------ ------------ Balance, June 30, 1995 ............ (242,175) 24,690,349 25,504,025 Restricted shares ............... 11,923 -- -- Options exercised ............... -- -- 220,788 Net income ...................... -- 4,622,162 4,622,162 Change in unrealized holding losses on marketable securities -- -- 89,914 Amortization of deferred compensation .................. 70,380 -- 70,380 ------------ ------------ ------------ Balance, June 30, 1996 ............ $ (159,872) $ 29,312,511 $ 30,507,269 ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED JUNE 30, -------------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................. $ 4,622,162 $ 6,980,171 $ 5,278,533 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................ 908,201 672,183 374,436 Deferred income taxes .................................... (136,800) (106,700) (178,900) (Gain) loss on disposal of property and equipment ........ (17,065) (43,529) 5,281 Provision for doubtful accounts .......................... 228,200 29,190 425,000 Provision for (reduction in) inventory reserves .......... 52,895 (32,019) 6,333 Increase in cash surrender value of life insurance ....... (175,320) (123,631) (102,255) Changes in operating assets and liabilities, net of impact of acquisition: Accounts receivable ...................................... (407,852) (3,347,851) (1,868,380) Inventories .............................................. (1,123,971) (2,836,781) (245,045) Other current and other assets ........................... (158,391) (355,476) (279,872) Accounts payable, trade .................................. (836,466) 1,661,665 342,958 Accrued expenses ......................................... (146,034) 412,506 575,885 Income taxes payable ..................................... 25,320 (162,579) (20,261) ------------ ------------ ------------ Net cash provided by operating activities .............. 2,834,879 2,747,149 4,313,713 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ......................... (814,959) (5,751,634) (1,136,469) Proceeds from sales of property and equipment ............... 76,822 59,094 22,400 Purchase of marketable securities ........................... (7,880,519) (7,316,913) (11,224,932) Proceeds from sales and redemptions of marketable securities 10,365,818 3,387,551 8,553,410 Change in restricted cash and marketable securities ......... 245,729 (2,120,357) -- Increase in note receivable from Innovative Accessories, Inc. (2,230,089) -- -- Acquisition costs ........................................... (114,341) -- -- ------------ ------------ ------------ Net cash used in investing activities .................... (351,539) (11,742,259) (3,785,591) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cost of bond issuance, net .................................. -- (151,682) -- Proceeds from bond offering ................................. -- 5,450,000 -- Checks issued in excess of cash balances .................... (909,880) 909,880 -- Payment on long-term debt ................................... (420,000) -- -- Proceeds from issuance of common stock ...................... 220,788 4,219 129,531 ------------ ------------ ------------ Net cash (used in) provided by financing activities ...... (1,109,092) 6,212,417 129,531 ------------ ------------ ------------ Net increase (decrease) in cash and temporary cash investments ............................. 1,374,248 (2,782,693) 657,653 CASH AND TEMPORARY CASH INVESTMENTS: Beginning of year ........................................... 269,168 3,051,861 2,394,208 ------------ ------------ ------------ End of year.................................................. $ 1,643,416 $ 269,168 $ 3,051,861 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for income taxes .................. $ 2,544,234 $ 3,947,415 $ 3,041,450 ============ ============ ============ Cash paid during the year for interest ...................... $ 333,843 $ 23,817 $ 142 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Restricted shares issued .................................... -- $ 127,926 $ 23,625 ============ ============ ============ Change in unrealized holding losses on marketable securities $ 89,914 $ 232,335 $ (382,691) ============ ============ ============ Conversion of note receivable to consideration for Innovative Accessories, Inc. ............................. $ 2,230,089 -- -- ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Lund International Holdings, Inc. (the "Company") is the holding company for all of the stock of Lund Industries, Incorporated; Lund Acquisition Corp.; and Lund International FSC, Inc.; which manufactures and distributes aftermarket accessory products for trucks, sport utility vehicles and vans to customers in the United States and Canada. The following is a summary of the significant accounting policies used in the preparation of the Company's consolidated financial statements: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lund International Holdings, Inc. and its wholly-owned subsidiaries: Lund Industries, Incorporated; Lund Acquisition Corp.; and Lund International FSC, Inc. All material intercompany balances and transactions have been eliminated in consolidation. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. The inventory reserves are determined based on the Company's continuing analysis of inventory levels in excess of current requirements or considered to be obsolete. The Company has established an estimated reserve to record inventories at estimated net realized value. TEMPORARY CASH INVESTMENTS Temporary cash investments consist of money market funds and certificates of deposit, at the lower of cost or market. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be temporary cash investments. MARKETABLE SECURITIES Marketable securities consist of debt securities. Marketable securities are classified as available-for-sale securities and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings resulting in the establishment of a new cost basis for the security. REVENUE RECOGNITION Revenue is recognized upon shipment of the product. RESEARCH AND DEVELOPMENT EXPENSES Research and development costs are expensed as incurred. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is computed using the straight-line or accelerated methods over their estimated useful lives. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and betterments are capitalized. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets be analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impact of this statement on the Company is immaterial. MOLDS, TOOLING AND DIES Costs for internally manufactured molds, tooling and dies relating to the fiberglass product lines are expensed when incurred as their estimated useful life is less than one year. Purchases of externally manufactured molds, tooling and dies, and internally manufactured molds, tooling and dies related to the plastics product lines are capitalized and amortized over the estimated life of the asset. AMORTIZATION OF INTANGIBLES Intangibles, consisting mainly of patents, non-compete agreements, and goodwill are amortized on a straight-line basis over their estimated lives. Costs incurred in applications for new patents and purchases of patents are capitalized and amortized over the life of the patent. Costs for defending and protecting Company patents are expensed when incurred. Goodwill is being amortized over twenty years. The Company periodically, at least quarterly, evaluates the recoverability of intangibles based on analyses of estimated future undiscounted cash flows. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Income tax expense is the tax payable for the period and the change in deferred income tax assets and liabilities during the period. PRODUCT WARRANTY The Company warrants its products that have been properly installed according to the instructions provided by the Company with a limited lifetime warranty which covers actual product failure. The Company accrues a liability for estimated warranty claims associated with products sold. NET INCOME PER SHARE Net income per share is computed based on the weighted average number of common and common equivalent shares outstanding during the period. Dilutive stock options are considered common stock equivalents for the purpose of this computation. USE OF ESTIMATES The preparation of the Company's consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant areas which require the use of management's estimates relate to allowances for doubtful accounts receivable, inventory obsolescence and accruals for warranty claims, customer rebates, and customer advertising. 2. ADVERTISING The Company expenses the production and space costs of advertising the first time the advertising takes place, except for costs of direct response advertising, product catalogs and brochures, which are capitalized and amortized over the expected period of future benefits. At June 30, 1996 and 1995, $257,153 and $176,305, respectively, of direct response advertising costs, product catalogs, and brochures were reported as other current assets, net of accumulated amortization. Advertising expense was $2,577,981, $1,991,976 and $1,526,656 in 1996, 1995 and 1994, respectively. 3. MARKETABLE SECURITIES The amortized cost, gross unrealized holding losses and fair value for available-for-sale securities at June 30, 1996 and 1995 were as follows: Gross Unrealized Amortized Holding Cost Losses Fair Value ----------- ---------- ----------- June 30, 1996 $ 8,691,091 $ 60,442 $ 8,630,649 June 30, 1995 11,176,390 150,356 11,026,034 Proceeds from the sale of marketable securities were $7,861,812, $3,016,600 and $7,644,057 in 1996, 1995 and 1994, respectively. Net realized gains (losses) included in net income in 1996, 1995 and 1994 were ($1,628), ($160,108) and $51,912, respectively. 4. INVENTORIES Inventories at June 30 consisted of: 1996 1995 ----------- ----------- Raw materials $ 3,329,323 $ 2,195,717 Finished goods and work-in-process 3,021,956 2,473,833 ----------- ----------- $ 6,351,279 $ 4,669,550 =========== =========== 5. PROPERTY AND EQUIPMENT Property and equipment and their estimated useful lives at June 30 consisted of:
Estimated Useful 1996 1995 Lives ----------- ----------- --------- Land $ 1,983 $ 1,983 Building 5,433,605 5,387,741 25 years Machinery and equipment 2,730,718 1,897,667 5-7 years Furniture and fixtures 883,136 881,240 3 years Building-in-progress --- 61,939 ----------- ----------- 9,049,442 8,230,570 Less accumulated depreciation 2,142,996 1 ,599,904 ----------- ----------- $ 6,906,446 $ 6,630,666 =========== ===========
Depreciation expense in 1996, 1995, and 1994 was $779,388, $556,024 and $349,091, respectively. 6. Accrued Expenses Accrued expenses at June 30 consisted of: 1996 1995 ---------- ----------- Checks issued in excess of cash balances --- $ 909,880 Salaries and vacation $ 320,266 649,523 Customer rebates 422,783 477,629 Other 980,853 526,297 ----------- ----------- $ 1,723,902 $ 2,563,329 =========== =========== 7. LONG-TERM DEBT Long-term debt at June 30 consisted of: 1996 1995 ---------- ---------- Industrial Development Revenue Bonds, interest ranging from 4.60% to 6.50%, due in annual installments through 2004 $5,030,000 $5,450,000 Less current portion (440,000) (420,000) ---------- ---------- $4,590,000 $5,030,000 ========== ========== Long-term debt maturities are as follows: 1997 $ 440,000 1998 460,000 1999 500,000 2000 520,000 2001 545,000 Thereafter 2,565,000 ---------- $5,030,000 ========== The bonds contain certain covenants which, among other things, require the Company to maintain a minimum level of interest coverage, fixed charge coverage and maximum ratio of debt to capitalization. The bonds were issued to provide the Company with funding to finance the constructing and equipping of the new manufacturing facility, completed in 1995. The loan agreement restricts certain cash and marketable securities in accordance with the terms of the agreement. Total restricted cash and marketable securities for the years ended June 30, 1996 and June 30, 1995 were as follows:
1996 1995 ----------- ----------- Restricted cash - current $ 1,096,709 $ 783,793 Restricted cash and marketable securities - long-term 777,919 1,336,564 ----------- ----------- Total restricted cash and marketable securities $ 1,874,628 $ 2,120,357 =========== ===========
8. RELATED PARTY TRANSACTIONS A member of the Company's Board of Directors has ownership interests in another entity from which the Company purchases products and services. A summary of these items is as follows: 1996 1995 1994 ---------- ---------- -------- Rents - Facilities --- $ 351,447 $526,870 Rents - Equipment --- 1,811 21,726 Royalties --- --- 24,475 Purchase of components $1,667,982 1,336,268 898,121 9. OPERATING LEASE COMMITMENTS During 1995 and 1994, the Company leased some of its facilities and equipment from certain employees and/or stockholders of the Company under noncancelable operating leases. Total lease expense for these facilities, including real estate taxes and equipment rental, in 1995 and 1994 was $498,397 and $641,464, respectively. The Company has various noncancelable operating leases for certain equipment related to the Company's manufacturing facility and computer system. Total lease expense in 1996 and 1995 was $422,639 and $26,739, respectively. Future minimum lease payments required under the above noncancelable operating leases are as follows: 1997 $ 720,478 1998 672,189 1999 512,448 2000 512,448 2001 147,013 ---------- $2,564,576 ========== 10. SIGNIFICANT CUSTOMERS During 1996, none of the Company's customers represented over 10% of net sales. During 1995 and 1994, the Company had approximately 14.6%, and 10.5%, respectively, of net sales with one customer. 11. INCOME TAXES The provision for income taxes is summarized as follows: 1996 1995 1994 ----------- ----------- ----------- Current: Federal $ 2,326,754 $ 3,365,279 $ 2,687,189 Foreign 21,800 24,000 24,000 State 221,000 394,000 310,000 ----------- ----------- ----------- 2,569,554 3,783,279 3,021,189 ----------- ----------- ----------- Deferred: Federal (125,900) (97,700) (162,300) State (10,900) (9,000) (16,600) ----------- ----------- ----------- (136,800) (106,700) (178,900) ----------- ----------- ----------- $ 2,432,754 $ 3,676,579 $ 2,842,289 =========== =========== =========== Deferred taxes result from temporary differences in the recognition of revenue and expense for income tax and financial statement purposes. The sources of these differences and the related income tax effect are as follows: 1996 1995 1994 --------- --------- ---------- Allowance for doubtful accounts $ (69,600) $ 17,700 $ (157,100) Depreciation 23,400 24,500 21,500 Accruals not currently deductible for tax purposes (32,000) (51,800) (103,800) Inventory capitalization (59,200) (4,400) (3,700) Vacation accrual (2,300) (23,400) (10,200) Other, net 2,900 (69,300) 74,400 --------- --------- ---------- $(136,800) $(106,700) $ (178,900) ========= ========== ========== The effective tax rate differs from the statutory federal income tax rate as follows: 1996 1995 1994 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal tax effect 2.1 2.4 2.5 Foreign Sales Corporation (.6) (.4) (.5) Tax exempt interest (2.1) (1.2) (1.5) Nondeductible life insurance premiums -- .2 .4 Other 1.1 (.5) .1 ---- ---- ---- 34.5% 34.5% 35.0% ==== ==== ==== The tax effects of temporary differences that give rise to deferred tax assets as of June 30, 1996 and 1995 are as follows: 1996 1995 -------- -------- Allowance for doubtful accounts $266,300 $196,700 Depreciation 4,400 27,800 Accruals not currently deductible for tax purposes 423,900 391,900 Inventory capitalization 70,300 11,100 Vacation accrual 50,700 48,400 Other, net --- 2,900 -------- --------- $815,600 $678,800 ======== ======== There is no valuation allowance as of June 30, 1996 and 1995. 12. STOCKHOLDERS' EQUITY STOCK OPTIONS The Company adopted Incentive Stock Option Plans (the "Plans") during 1989 and 1995. The Plans authorize grants of options to purchase up to 250,000 and 400,000 shares of the Company's common stock, respectively. The option prices may not be less than the fair market value of the common stock at the time the option is granted. Options expire ten years after the date granted or on a prior date as fixed by the Board of Directors or appropriate committee. Under the Plans, the option may become exercisable at the date of grant or as determined by the Board of Directors or appropriate committee. Option activity is summarized as follows: Number of Shares Option Price ---------------- ------------------ Balance, June 30, 1993 35,610 $ 3.125 -$ 5.50 Granted 141,000 16.00 - 16.125 Canceled (300) 3.125 Exercised (27,292) 3.125 - 5.50 ------- ------------------ Balance, June 30, 1994 149,018 3.125 - 16.125 Granted 250,000 16.25 - 21.50 Canceled (7,500) 16.125 Exercised (1,350) 3.125 ------ ------------------ Balance, June 30, 1995 390,168 3.125 - 21.50 Granted 120,000 13.50 - 16.75 Canceled (45,600) 16.125 Exercised (19,068) 3.125 - 16.125 ------- ------------------ Balance, June 30, 1996 445,500 $13.50 -$ 21.50 ======= ================= Number of shares exercisable at June 30, 1996 50,200 ======= RESTRICTED STOCK During 1992, the Company granted 50,000 shares of restricted stock to two key employees. During 1993 and 1996, 18,000 shares and 15,000 shares, respectively, were canceled. During 1994, the Company granted 20,000 shares of restricted stock to a key employee. These restricted shares vest over a five-year period. Amortization of the restricted stock's value (at the date of award) over the vesting period resulted in compensation expense of approximately $70,380, $90,600, and $80,500 in 1996, 1995 and 1994, respectively. During 1995, the Company amended the restricted stock plan which resulted in the issuance of 42,500 shares of previously granted but unissued shares of restricted stock. These issued shares resulted in common stock and additional paid-in capital which was offset by the unearned portion of the deferred compensation. The deferred compensation is charged to stockholders' equity and amortized to compensation expense over the remainder of the five-year vesting period. NON-EMPLOYEE DIRECTOR OPTIONS The Company has a Non-Employee Director Stock Option Plan which authorizes grants of options to purchase up to 40,000 shares of the Company's common stock. The option prices must be 100% of the fair market value of the common stock at the time the option is granted. Options expire five years from the date of grant. Options become exercisable at the date of grant or as determined by the Board of Directors or appropriate committee. During fiscal 1996, no options were exercised. Options outstanding at June 30, 1996 were 30,000 shares at $5.50-$20.625 per share. Total shares exercisable at June 30, 1996 were 30,000 shares. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, a new standard of accounting and reporting for stock-based compensation plans. The Company is not required to adopt the new standard until fiscal 1997. The Company will continue to measure compensation costs for its stock option plans using the intrinsic value based method of accounting that it has historically used and, therefore, the new standard will have no effect on the Company's operating results. The Company's financial statement disclosures will be expanded in fiscal 1997, as required, to include pro forma disclosures as if the fair value based method of accounting had been followed. 13. RETIREMENT SAVINGS PLAN The Company has a 401(k) Retirement Savings Plan covering substantially all of its employees. The Company provides matching contributions in accordance with the plan. The Company's contribution to the plan in 1996, 1995 and 1994 was $80,377, $71,080, and $35,854, respectively. 14. PURCHASE COMMITMENTS At June 30, 1996, the Company had contractual supply agreements to purchase certain products from several suppliers. Based upon the contract provisions and Company estimates, these commitments are as follows: 1997 $ 2,561,000 1998 1,161,000 1999 390,150 ------------ $ 4,112,150 ============ 15. ACQUISITION During November 1995, the Company entered into an agreement to provide working capital funds and to market products for Innovative Accessories, Inc. ("Innovative"). In connection with this agreement, the Company provided a working capital note of $2,230,089. During June 1996, the Company acquired the assets and assumed certain liabilities of Innovative for a purchase price equal to the outstanding working capital note of $2,230,089, additional consideration and transaction costs which are expected to total approximately $300,000, and future royalty payments to the former Innovative shareholders based upon future sales of Innovative. The cost in excess of net tangible and identifiable intangible assets acquired, which consists principally of goodwill, was approximately $1,835,916. The acquisition has been recorded using the purchase method of accounting, and Innovative's results have been included in the Company's operating results from the date of acquisition. The acquisition is not significant to the Company's overall results. 16. QUARTERLY FINANCIAL DATA (UNAUDITED AND UNREVIEWED)
(in thousands, except per share amounts) Sept. 30 Dec. 31 Mar. 31 June 30 Year Ended -------- ------- ------- ------- ---------- 1996 ---- Net sales $10,436 $10,268 $11,525 $14,194 $46,423 Gross profit 3,953 3,945 4,284 5,642 17,824 Net income 995 821 1,218 1,588 4,622 Net income per share .22 .19 .28 .36 1.05 1995 ---- Net sales $11,107 $11,057 $10,624 $14,596 $47,384 Gross profit 4,919 4,719 4,436 6,108 20,182 Net income 1,754 1,655 1,355 2,216 6,980 Net income per share .40 .37 .31 .50 1.58
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Lund International Holdings, Inc.: We have audited the accompanying consolidated balance sheet of Lund International Holdings, Inc. as of June 30, 1996, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of Lund International Holdings, Inc. as of June 30, 1995, and for the years ended June 30, 1995 and 1994, were audited by other auditors whose report dated August 11, 1995, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1996 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lund International Holdings, Inc. as of June 30, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P Minneapolis, Minnesota August 21, 1996
FIVE YEAR SUMMARY Years ended June 30, 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------- Net sales $46,423,208 $47,383,663 $36,395,124 $26,125,011 $16,524,317 Income before income taxes 7,054,916 10,656,750 8,120,822 6,025,674 3,204,254 Provision for income taxes 2,432,754 3,676,579 2,842,289 2,094,928 1,202,128 Net income 4,622,162 6,980,171 5,278,533 3,930,746 2,002,126 Net income per share 1.05 1.58 1.20 .90 .47 Total assets 40,319,605 36,706,198 21,127,377 15,203,422 10,564,780 Long-term liabilities 4,942,225 5,030,000 -- -- -- Total stockholders' equity 30,507,269 25,504,025 18,068,750 13,019,752 8,984,851
MARKET FOR THE COMPANY'S COMMON STOCK The Company's Common Stock is traded on the national-over-the-counter market and quoted on the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS") under the symbol "LUND". The following table sets forth, for the periods indicated, the range of bid prices per share for the Company as reported on the NASDAQ/NMS.
1996 1995 1994 Bid Prices Bid Prices Bid Prices --------------- ---------------- ---------------- High Low High Low High Low First Quarter $21.00 $16.00 $19.25 $16.00 $17.00 $10.25 Second Quarter 18.50 10.25 20.75 15.75 20.00 14.00 Third Quarter 14.00 11.50 23.25 16.00 27.50 19.25 Fourth Quarter 15.75 11.75 23.00 19.00 20.75 15.25
As of June 30, 1996, there were 194 Lund International Holdings, Inc. stockholders of record. The Company estimates that an additional 2,500 stockholders own stock held for their account at brokerage firms and financial institutions. Lund International Holdings, Inc. has never paid cash dividends on its common stock. Payment of dividends is within the discretion of the Company's Board of Directors. STOCKHOLDER INFORMATION ANNUAL MEETING 4:00 P.M.CST October 24, 1996 Lund International Holdings, Inc. 911 Lund Boulevard Anoka, MN 55303-9876 OFFICERS Allan W. Lund, Chairman of the Board William J. McMahon, President and Chief Executive Officer Jay M. Allsup, Chief Financial Officer Kathy R. Smith, Corporate Secretary William H. Toms, Vice President of Operations Bradley W. Andress, Vice President of Marketing Stephen S. Treichel, Vice President of Strategic and Human Systems CORPORATE HEADQUARTERS Lund International Holdings, Inc. 911 Lund Boulevard Anoka, MN 55303-9876 Telephone: (612) 576-4200 Facsimile: (612) 576-4297 STOCK LISTING NASDAQ/NMS Trading symbol: "LUND" STOCK TRANSFER AGENT AND REGISTRAR Chase Mellon Shareholder Services 111 Founders Plaza Suite 1100 E. Hartford, CT 06108-3212 INDEPENDENT ACCOUNTANTS Coopers &Lybrand L.L.P. IBM Park Building Suite 1300 Minneapolis, MN 55402-4333 STOCKHOLDER COMMUNICATIONS Copies of the Company's 1996 Form 10-K Report to the Securities and Exchange Commission can be obtained by stockholders without charge from the Corporate Secretary, 911 Lund Blvd., Anoka, Minnesota 55303-9876 Lund International Holdings, Inc. ("Lund") issues all of its corporate news releases through PR Newswire. You may obtain a fax copy of any Lund news release issued during the past twelve months by calling Company News On Call at 1-800-758-5804. This electronic, menu-driven system will request a six digit code (518375) and allow you to request specific Lund releases to be sent to your fax for immediate retrieval. This service is accessible 24 hours a day, seven days a week. BOARD OF DIRECTORS [PHOTO] (From left to right-front row) David E. Dovenberg - Universal Hospital Services Inc., Chief Financial Officer; Allan W. Lund - Chairman of the Board of Lund International Holdings; (From left to right-back row) Christopher A. Twomey - Arctic Cat Inc., Chief Executive Officer; Charles R. Weaver, Jr. - Assis- tant County Attorney, Minnesota State Legislator; James E. Haglund - Central Container Corporation, President EX-10.44 3 ASSET PURCHASE AGREEMENT EXHIBIT 10.44 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made as of the 29th day of May, 1996, by and among LUND ACQUISITION CORP., a Minnesota corporation ("Purchaser"), INNOVATIVE ACCESSORIES, INCORPORATED, an Oklahoma corporation ("Seller"), LUND INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("Holdings"), JAMES A. NETT ("Nett"), and RAMONA C. FRIAR ("Friar"), with reference to the following: (i) Seller owns and operates a manufacturing business located at 7949 South I-35 Service Road, Oklahoma City, Oklahoma (the "Business"); (ii) In connection with Seller's operation of the Business, Seller and Nett own and lease certain properties and assets, including, without limitation, raw materials, inventory, furnishings, fixtures, equipment, and intellectual property rights; (iii) Seller and Nett desire to sell or assign and Purchaser desires to purchase or receive, as assignee or otherwise, the assets of the Business upon the terms and subject to the conditions of this Agreement; (iv) Nett owns or controls 50.1% of the issued and outstanding stock of Seller, and Friar owns or controls 44.9% of the issued and outstanding stock of Seller. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, the parties agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS 1.1 Purchased Assets. In consideration of the Purchase Price and the assumption of the Assumed Liabilities, and upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Seller and Nett shall sell, assign, transfer, convey, and deliver to Purchaser and Purchaser shall purchase, accept, acquire, and take assignment and delivery from Seller and Nett, all of the assets of Seller and Nett (whether tangible or intangible) used in the operation of the Business, including, without limitation, those described in this Section 1.1 and excluding the assets described on Schedule 1.1(c) (collectively, the "Purchased Assets"): (a) Inventory. All consumable business supplies, raw materials, work in progress, and good and saleable inventory of Seller as of the Closing (the "Inventory"). (b) Furniture, Fixtures, and Equipment. All of the furniture, fixtures, equipment, machinery, tools, computers and related hardware, and all other tangible personal property used or useful in the Business as of the Closing, which assets include, without limitation, those described on Schedule 1.1(b) (the "Equipment"). (c) Real Property Lease. All of Seller's right, title and interest as lessee under the real property lease described on Schedule 1.1(c) hereto and the related fixtures and leasehold improvements (the "Lease"); (d) Intellectual Property Rights. The entire right, title, and interest in and to all intellectual property rights, including, without limitation, those listed in Schedule 1.1(d) hereto, together with all proceeds thereof, including, without limitation, license royalties and proceeds of infringement suits; license agreements related to any of the foregoing and income therefrom; books, records, computer tapes or discs, flow diagrams, specification sheets, source codes, object codes and other physical manifestations of the foregoing; the right to sue for past, present, and future infringement and all rights corresponding thereto throughout the world; all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; and all proceeds thereof; the intellectual property rights shall include, without limitation, U.S. Patent Nos. 4,730866 and 4,838,602 and all related and corresponding domestic and foreign patent applications and patents, including, for example, reissues, continuations, divisionals, continuations-in-part, renewals, and reexaminations; the intellectual property rights shall include, without limitation, domestic and foreign patents and patent applications, presently owned by Seller or Nett, or otherwise owned by a third party (e.g., an employee/inventor) under an obligation to assign to Seller or Nett; the intellectual property rights shall include, without limitation, all other inventions (i.e., for which a patent application could be filed) related to tonneau covers and owned by Seller or Nett or otherwise owned by a third party (e.g., employee/inventor) under an obligation to assign to Seller or Nett; the intellectual property rights shall include, without limitation, all rights to use the name "LUXXUS" and any variations thereof and any similar name, and all other trademark, tradenames, trade dress, copyrights, trade secrets, licenses, know-how, and other intellectual property owned or used by Seller or Nett in connection with the Business, and all of the goodwill, if any, associated with the Business,and excluding only the intellectual property rights that relate solely and exclusively to the hard tonneau covers produced by the Business (collectively, the "Intellectual Property Rights"). (e) Intangibles. All contract rights, operating data, cost and pricing information, computer programs and software (including source codes), prepaid expenses, customer lists, and all other items of intangible personal property used or useful in the operation of the Business. (f) Operating Contracts. All assignable contracts that relate to the operation of the Business and that are listed on Schedule 1.1(f) hereto (collectively, the "Operating Contracts"). (g) Permits and Licenses. All of Seller's rights, to the extent legally transferable, pursuant to the governmental licenses, code approvals, and permits relating to the Business, all of which licenses, approvals, and permits, regardless of transferability, are listed on Schedule 1.1(g) hereto (the "Permits"). (h) Cash and Accounts Receivable. All cash, accounts receivable, and deposits used or useful in the operation of the Business. 1.2 Excluded Assets. The Purchased Assets shall not include any of the following (the "Excluded Assets"): (a) any claims, causes in action and rights of actions by Seller against third parties except (i) contract rights under the Operating Contracts, (ii) rights under warranties relating to the Purchased Assets, and (iii) rights granted the tenant under the Lease; (b) the Permits to the extent they are not lawfully transferable; and (c) the items of personal property described on Schedule 1.2(c). ARTICLE II ASSUMPTION OF LIABILITIES 2.1 Liabilities Assumed. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, as of the Closing, Purchaser shall assume only the following obligations of Seller (the "Assumed Liabilities"): (a) Seller's obligations under the Lease, Operating Contracts, and all of the transferred Permits which accrue after the Closing Date; (b) The payables of Seller listed on Schedule 2.1(b) (the "Payables"); (c) The obligations of Seller to, or with respect to, its employees listed on Schedule 2.1(b) (the "Employee Obligations"); and (d) The obligations of Seller, if any, for interest and penalties on payroll taxes for employees of the Business due after December 15, 1995 through the Closing Date. 2.2 Non-Assumption of Other Liabilities. Purchaser shall not assume any liability or obligation of Seller or Nett other than as specifically set forth in this Agreement. The liabilities and obligations of Seller and Nett that Purchaser shall not assume include, without limitation, (i) all liabilities for taxes, except as provided in Section 2.1 and 14.2, and related interest and penalties, including, without limitation, liabilities for income taxes, (ii) notes and accounts payable other than the Payables, (iii) liabilities against which Seller is insured, without regard to any deductible amounts, (iv) product liabilities and other claims for personal injury, (v) liabilities and obligations arising from claims asserted by any employee with respect to injury, sickness, disease, or death or under any disability or worker's compensation laws, (vi) liabilities relating to Hazardous Material or otherwise arising under Environmental Laws, (vii) liabilities and obligations for noncompliance by Seller with the requirements of OSHA and ADA, (viii) any liabilities or obligations for any employment-related claim or proceeding including any grievance or arbitration under any collective bargaining agreement, any charge of discrimination before a state or federal regulatory agency, any unfair labor practice charge, any claim or lawsuit arising out of the conditions of employment, hiring, firing, or other employment practice of Seller with respect to any applicant, employee, or former employee of Seller, (ix) liability to any employee benefit plan established or maintained by Seller, or liability to any participant in such plan, and (x) liability to any state or federal regulatory agency or other person or entity with respect to any aspect of Seller's operations, labor relations, employment practices, working conditions, personnel policies, payroll taxes, unemployment insurance or workers' compensation contributions or premiums, employee benefits or benefit plans, or any other liabilities of Seller to its employees, other than the Employee Obligations. ARTICLE III PURCHASE PRICE AND PAYMENT; PRORATIONS 3.1 Amount. The purchase price of the Purchased Assets shall be, subject to adjustment, if any, as provided in this Agreement, (i) the assumption or payment of the Assumed Liabilities, which shall include payment of the Payables and Employee Obligations not exceeding a total of $200,000, (ii) an amount equal to the indebtedness of Seller to Lund International Holdings, Inc. ("Holdings"), the parent of Purchaser, under the Loan Agreement dated November 29, 1995, as amended by the Forbearance Agreement dated April 8, 1996 (the "Purchase Price"), (iii) an amount equal to any payments made pursuant to Sections 3.3, 3.4, 3.5, 3.6, and 3.7 of this Agreement, and (iv) the amounts to be paid to Nett and Friar pursuant to Sections 7.13 and 7.14 of this Agreement. 3.2 Allocations. (a) The Purchase Price shall be allocated by Purchaser in accordance with generally accepted accounting principles ("GAAP") as follows: (i) Cash and accounts receivable at stated book value less appropriate reserves; (ii) Raw materials at cost; (iii) Work in progress at material cost; (iv) Finished goods based on standard costs of manufacturing; (v) Prepaids, deposits, and other current assets at stated book value; (vi) Leasehold improvements and Equipment at net book value; (vii) Intangibles and Intellectual Property Rights at fair market value determined by third party appraiser; and The portion of the Purchase Price, if any, not allocated as described above shall be allocated to goodwill for closing balance sheet purposes only. Purchaser shall advise Seller of the final allocation not later than the 15th day of the month following the month in which the Closing occurs. (b) Reporting Requirements. After the Closing, Purchaser and Seller shall not take any position or action inconsistent with the allocations set forth above, including, without limitation, positions or actions taken in connection with complying with the Code and the regulations promulgated thereunder, and Seller shall assist Purchaser in completing a purchase price allocation schedule (IRS Form 8594) for federal income tax purposes. 3.3 Payment of Additional Payables. If the sum of the Payables and the Employee Obligations is less than $200,000, Purchaser shall pay a total of an amount equal to the difference between such sum and $200,000 for a period of three months after the Closing to payables of the Business accruing prior to the Closing Date, including attorney's fees for services provided through the Closing Date and for services provided after the Closing Date for defense of lawsuits filed against Seller and preparation of Seller's corporate tax returns for tax years 1995 and 1996, but not including attorney's fees for preparation of tax returns of Seller's shareholders or for matters relating to dissolution of Seller. On the day of the Closing, if the payables of the Business exceed $200,000 and the application of any collected accounts receivable of the Business would cause the amount of the payables to be less than $200,000, Seller shall apply such receipts to payment of the payables. 3.4 Additional Payments. After the Closing, Purchaser shall (i) pay up to $15,000 toward a settlement of all claims made by M. Robert Chandler and Truck Pup International in Case No. 95-530895 CZ pending in the Circuit Court of Wayne County, Michigan and (ii) pay up to $15,000 of the cost of remediating the contamination of the real property covered by the Lease as described in the written report of the environmental audit conducted by Stanley Engineering, Inc. (the "Environmental Report"). 3.5 Moving Expenses. Within five days after the Closing, Purchaser shall pay Seller the amount of $35,000 to defray the cost of moving the Excluded Assets from the Oklahoma City Facility. 3.6 Friar Attorney Fees. At the Closing, Purchaser shall pay Friar the amount of $2,000 to defray her legal fees in connection with this Agreement. 3.7 Meridian Rent. Purchaser shall pay not more than $7,500 to the landlord of the Meridian facility leased by Seller for application to the base rent due from Seller for June through August 1996. ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING SELLER AND THE BUSINESS Seller and Nett hereby jointly and severally represent and warrant to Purchaser as follows: 4.1 Organization and Qualification. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Oklahoma and has the requisite corporate power to carry on the Business as now conducted. 4.2 Due Authorization. Seller has full corporate power and authority to enter into and perform this Agreement and all other agreements and transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement has been, and the execution, delivery, and performance by Seller of all other agreements and transactions contemplated hereby have been or prior to Closing will be, duly authorized and approved by all requisite corporate action on the part of Seller. This Agreement has been, and the other agreements contemplated hereby, when executed, will be, duly executed and delivered by Seller and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, this Agreement constitutes and, when executed, each of the other agreements contemplated hereby will constitute, a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally from time to time and to general principles of equity. 4.3 No Violation. The execution, delivery, and performance by Seller of this Agreement and the other agreements and transactions contemplated hereby will not cause Seller to violate any provision of its Certificate of Incorporation or Bylaws. Seller is not subject to or obligated under any provision of (i) any contract or other agreement (other than the Restated Exclusive Purchase Option Agreement dated October 18, 1995, and the Forbearance Agreement dated as of April 8, 1996), (ii) any license, franchise, or permit, or (iii) any law (other than laws applicable to bulk sales transactions), regulation, order, judgment, or decree that would be breached or violated or in respect of which a right of termination or acceleration or any encumbrance on any portion of the Purchased Assets would be created by the Seller's execution, delivery, and performance of this Agreement or the other agreements and transactions contemplated hereby, except for those breaches, defaults, and violations that Seller shall have cured at or before the Closing. 4.4 Lease and Operating Contracts. Schedule 1.1(c) describes the Lease, the name and address of the landlord thereunder, and the street address and legal description of the tract of real property covered thereby. Schedule 1.1(f) describes each Operating Contract and the names and addresses of each party thereto. Seller has provided Purchaser with true, correct, and complete copies of the Lease and Operating Contracts. Seller holds the leasehold estate described by the Lease, free and clear of all security interests, mortgages, assignments, liens, encumbrances, equities, claims, charges, easements, rights of way, covenants, conditions, and restrictions. There are no defaults by Seller under, or to Seller's knowledge, by any other party to, the Lease and the Operating Contracts, and with the giving of notice or the passage of time or both there would be no such defaults under the Lease and the Operating Contracts. The Lease and Operating Contracts are in full force and effect and constitute legal, valid, and binding agreements of Seller, enforceable against Seller in accordance with their respective terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally from time to time and to general principles of equity. 4.5 Permits. Seller has delivered to Purchaser true, correct, and complete copies of all the Permits. There is no outstanding violation of any of the Permits that would result in a material adverse effect on the operation of the Business to which the Permit relates, and all the Permits are in full force and effect. The Permits have been duly and validly issued and constitute all Permits necessary to operate the Business in the manner in which it is currently being operated. 4.6 Title to Purchased Assets. Seller or Nett owns indefeasible title to all of the Purchased Assets subject to no liens, mortgages, privileges, security interest, encumbrances, and charges of any kind, except those in favor of Purchaser. 4.7 Inventory. The Inventory is of good quality, conforms in all respects to the specifications thereof and is useable or saleable in the ordinary course of business. No item included in the Inventory has been the subject of a recall initiated by the manufacturer or supplier thereof or by a government agency. Seller has not taken any action with respect to the Inventory that, on the date hereof, and, as of the Closing Date would cause the Inventory (i) not to be of a quality which complies with current governmental or industry regulations, or (ii) to be articles that may not be introduced into interstate commerce. 4.8 Intellectual Property. Nett or Seller owns all right, title, and interest in the Intellectual Property Rights, free and clear of any and all liens, claims, security interests, assignments, and encumbrances of any kind or nature whatsoever. After the Closing, Purchaser shall have the exclusive right to make, use, and sell products covered by or associated with the Intellectual Property Rights, and neither Nett nor Seller shall retain any shop rights or other rights in the Intellectual Property Rights. To the extent that such shop rights could exist and will not have been transferred to Purchaser by this Agreement or the Assignment of Intellectual Property Rights, Nett and Seller waive such rights and agree to never exercise or purport to exercise such rights in the future. Nett and Seller have provided Purchaser with a complete and accurate list of all domestic and foreign patents and patent applications owned by them or by a third party under an obligation to assign to them. All employees of Nett and Seller are under an obligation to assign all inventions made within the scope of the duties and responsibilities of their employment or that are otherwise made using the resources and facilities of Nett or Seller. The LUXXUS products covered by the Intellectual Property Rights do not infringe any patents, copyrights, trade secrets, trademarks, trade dress, or other proprietary rights of any third party. No rights or licenses are required from third parties to exercise any rights with respect to the LUXXUS products or any part thereof. 4.9 Condition of Purchased Assets. (a) The Purchased Assets constitute all assets necessary for the normal operation of the Business as historically operated by Seller and are in good repair and condition and will be in good repair and condition at the time of Closing. (b) The Business and Seller's operation thereof are in compliance with all applicable zoning, building, and other laws, ordinances, codes, and governmental and industry regulations, including, without limitation, Environmental Laws, OSHA, and ADA. 4.10 Hazardous Material. Except as disclosed in the Environmental Report, (i) any handling, transportation, storage, treatment or usage of Hazardous Material by Seller has been in compliance with all applicable environmental laws, (ii) no leak, spill, release, discharge, emission, or disposal of any Hazardous Material that would constitute a violation of or give rise to remedial action under Environmental Laws has occurred on any real property while owned or operated by Seller now or at any time in the past, and (iii) other than a septic tank system there are no underground storage tanks located on the real property currently occupied by Seller. Set forth on Schedule 4.10 are full, accurate and complete descriptions of any and all reports, studies, tests, and other information in Seller's possession or control relating to the presence or suspected presence of any Hazardous Material on the tract of property covered by the Lease, and Seller has provided Purchaser with full, accurate, and complete copies of all of the foregoing. Seller shall, promptly following its receipt thereof, furnish to Purchaser full, accurate, and complete copies of any such reports, studies, tests, and other information hereafter obtained by Seller. 4.11 Commissions. No broker or finder has acted directly or indirectly for Seller in connection with this Agreement or the transactions contemplated hereby, and no broker or finder is entitled to any brokerage or finder's fee or other commission in respect thereof based in any way on agreements, arrangements, or understandings made by or on behalf of Seller. 4.12 Consents and Approvals of Third Parties. No consent, approval, or authorization of, or declaration, filing or registration with, any governmental or regulatory authority or other person (except the landlord under the Lease) is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 4.13 Legal Proceedings, Defaults. Schedule 4.13 describes all legal proceedings pending or threatened against Seller. There is no legal, administrative, arbitration, or other proceeding pending or threatened, against Seller or Nett which, if resolved against Seller or Nett or their successors, would have an adverse effect on any of the Purchased Assets or Purchaser's use thereof. Seller is not in violation or default, and in carrying out the transactions described herein will not come into violation or default, under any laws, ordinances, regulations, orders, or decrees applicable to the Seller or the Purchased Assets (including, without limitation, Environmental Laws, the provisions of WARN, and laws and regulations relating to employees, such as OSHA and the Equal Employment Opportunity Commission), which would have an adverse effect on any of the Purchased Assets or Purchaser's use thereof. Except as described on Schedule 4.13, Seller has not received notice of any default under any contract or agreement binding upon it and there exist no pending or threatened lawsuits, actions, claims, grievances, charges of discrimination, or any other proceedings involving Seller which relate to Seller's employment practices, personnel policies or procedures, hiring, discharge, or termination decisions, or other matters relating to the employment of employees or to benefits paid or owed to such employees. 4.14 Employees and Employee Benefit Plans. Schedule 4.14 contains a complete list of "employee welfare benefit plans", as defined in Section 3(1) of ERISA, in which employees of Seller who work or worked in the Business participate (which plans are hereinafter referred to as "Seller's Welfare Plans"). Seller does not currently sponsor or participate in, nor has it ever sponsored or participated in, any "employee pension benefit plans", as defined in Section 3(2) of ERISA. Each of Seller's Welfare Plans is in compliance with the provisions of all applicable laws, rules, and regulations, which shall include, without limitation, ERISA and the Code. 4.15 Balance Sheets. Schedule 4.15 contains the balance sheet for the Business on October 31, 1995, and March 31, 1996. Such information fairly presents, in all material respects, the financial position of the Business on those dates. 4.16 Completeness of Documents. The copies of all instruments, agreements, and other documents (including all Schedules) delivered pursuant to this Agreement, that have been or will be delivered to Purchaser pursuant to this Agreement or in connection with the transactions contemplated hereby, are, or if not now when delivered will be, complete and correct. 4.17 Collective Bargaining Agreements. Seller is not a party to any collective bargaining agreements. 4.18 Taxes. Seller has timely filed all income, excise, franchise, property, and other tax returns or reports required to be filed by Seller (excluding those relating to payroll taxes due after December 15, 1995), as of the date hereof, by any governmental authority and has paid all taxes and assessments relating to the time periods covered by such returns and reports that are due and payable prior to the date of this Agreement. There are no present disputes as to taxes of any nature payable by Seller that affect the Business or the Purchased Assets. 4.19 Purchase Orders. Schedule 4.19 lists all outstanding purchase orders of the Business and describes the related vendor, product ordered, quantity, and price of each. 4.20 Material Adverse Changes and Omissions. This Agreement and the Schedules attached hereto do not contain any untrue statement of a material fact and do not omit to state a material fact necessary to make the statements contained herein not misleading in light of the circumstances under which they were made. To the best of Seller's and Nett's knowledge, there is no fact that would materially adversely affect the operations of the Business that has not been disclosed to Purchaser in this Agreement or in the Schedules attached to this Agreement. Neither the diligence investigation of the Business and the Purchased Assets conducted Purchaser shall in any way limit the representations and warranties of Seller, Nett, and Friar in this Agreement or Purchaser's right to rely on such representations and warranties. Friar represents and warrants to Purchaser, without first having made due inquiry, that she knows of no facts or legal condition applicable to the representations and warranties of Seller and Nett that would render such representations false or misleading. In addition to all other remedies available to Purchaser, Purchaser may set off the amount of any claim against Friar or Nett arising under this Agreement against any payment due to Friar or Nett under this Agreement or any other agreement entered into in connection with this Agreement. The exercise of this right to set off will not be construed as an election of remedies by Purchaser. The liability of Seller and Nett and of Friar for a breach of any of the representations and warranties made by them shall survive the Closing. ARTICLE V REPRESENTATIONS AND WARRANTIES REGARDING PURCHASER Purchaser and Holdings represent and warrant to Seller, Nett, and Friar as follows: 5.1 Organization and Qualification. Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota. 5.2 Due Authorization. Purchaser has full corporate power and authority to enter into and perform this Agreement and all other agreements and transactions contemplated hereby. The execution, delivery, and performance by Purchaser of this Agreement has been, and the execution, delivery, and performance by Purchaser of all other agreements and transactions contemplated hereby have been or prior to Closing will be, duly authorized and approved by all requisite corporate action on the part of Purchaser. This Agreement has been, and the other agreements contemplated hereby, when executed, will be, duly executed and delivered by Purchaser and, assuming the due authorization, execution, and delivery hereof and thereof by the other parties hereto and thereto, this Agreement constitutes and, when executed, each of the other agreements contemplated hereby will constitute, a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, and similar laws affecting creditors' rights generally from time to time and to general principles of equity. 5.3 Consents; No Default. No consent or approval is required by any person in connection with the execution, delivery, and performance by Purchaser of this Agreement and the other agreements and transactions contemplated hereby. The execution, delivery, and performance by Purchaser of this Agreement and the other agreements and transactions contemplated hereby will not cause Purchaser to violate any provision of its Certificate of Incorporation or Bylaws. 5.4 Commissions. No broker or finder has acted directly or indirectly for Purchaser in connection with this Agreement or the transactions contemplated hereby, and no broker is entitled to any brokerage or finder's fee or other commission in respect thereof based in any way on agreements, arrangements, or understandings made or on behalf of Purchaser. The liability of Purchaser and Holdings for a breach of any of the foregoing representations and warranties shall survive the Closing. ARTICLE VI CONDUCT OF BUSINESS PRIOR TO CLOSING 6.1 Conduct of Business. Seller shall operate the Business between the date hereof and the Closing Date only in the ordinary course. Without limitation of the foregoing, Seller shall maintain the operation of the Business pending Closing and in so doing shall (i) continue its business in the ordinary and usual course (other than the anticipated depletion and replenishment of Inventory); (ii) maintain and repair all of the Purchased Assets in accordance with past practice and Seller's contractual obligations; (iii) use its best efforts to preserve Seller's relationship with suppliers, customers, brokers, agents, and others; (iv) comply with all applicable laws, rules, and regulations of each federal, state, or municipal authority and industry association having jurisdiction over the Business and the Purchased Assets; (v) operate the Business in accordance with past practices; (vi) maintain insurance in the ordinary course of business with respect to the Purchased Assets until the close of business on the Closing Date; (vii) promptly notify Purchaser of any event which would cause any of Seller's representations and warranties herein to be not true and correct as of the time of such event; and (viii) not modify, amend, or terminate the Lease, Operating Contracts, or Permits. 6.2 Books and Records. Seller shall maintain the books, accounts, and records with respect to the Business in Seller's customary manner so as to fully and accurately reflect all relevant information concerning the Purchased Assets. ARTICLE VII OBLIGATIONS PRIOR, AS OF AND SUBSEQUENT TO THE CLOSING The parties agree that, prior to the Closing and, where specifically indicated below, subsequent to the Closing: 7.1 Access. From the date hereof through the Closing Date, Seller shall afford the officers, employees, and agents of Purchaser access to Seller's properties, books, contracts, documents, and records relating to the Business, and shall furnish Purchaser all financial, operating, and other data and information with respect to the Business as Purchaser, through its officers, employees, or agents, may reasonably request. Purchaser may, at its expense, make such reasonable soil and other environmental tests as are appropriate to its investigation of the real estate subject to the Lease. 7.2 Consents; Additional Agreements. Purchaser and Seller shall cooperate and promptly take, or cause to be taken, all action and to cooperate and promptly do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including (i) the removal of any legal impediment to the consummation or effectiveness of such transactions and (ii) the obtaining of all necessary and material waivers, consents, and approvals of all third parties and governmental bodies and the making of all necessary filings. Seller shall use its best efforts to obtain and deliver to Purchaser prior to or at the Closing estoppel letters from the landlord under the Lease or from other parties to agreements to be assigned to Purchaser, as may be requested by Purchaser (the "Estoppel Letters"). 7.3 Books and Records. After the Closing, Purchaser will allow reasonable access to all books and records of Seller. 7.4 Third Party Claims. From and after the Closing, the parties shall reasonably cooperate with each other with respect to any claims made or litigation which relate to the operations of the Business prior to Closing, and the party requesting cooperation shall reimburse the other party for the other party's reasonable out-of-pocket costs and expenses of furnishing such cooperation. 7.5 Waiver. At the Closing, the parties shall execute and deliver a waiver of claims in substantially the form of Exhibit A hereto (the "Waiver of Claims"). 7.6 Casualty or Condemnation. Seller shall not, prior to the Closing Date, pursue or settle any casualty or condemnation claim with respect to any of the Purchased Assets without the prior written consent of Purchaser, which consent shall not be unreasonably withheld or delayed. 7.7 Confidentiality. Except as permitted in Section 7.8, at all times prior to the Closing Date, Purchaser will hold, and will cause its officers, representatives, attorneys, advisers, and affiliates to hold, in confidence, and not disclose to others for any reason whatsoever, all plans, documents, contracts, records, data analyses, compilations, forecasts, studies, and other information and material received or prepared by any of them from or with respect to the Business, in connection with the transactions contemplated hereby (collectively, the "Information"), except (i) to the extent that such Information is otherwise available from third persons without restriction on its further use or disclosure or is required by order of any court or by law or by any regulatory agency to which Purchaser is subject or in connection with any civil or administrative proceeding, or (ii) to the extent such Information is or becomes publicly known other than through actions, direct or indirect, of the Purchaser, any of its officers, representatives, brokers, attorneys, advisers, or affiliates. 7.8 Public Announcements. Whether prior to or after the Closing, and subject to Section 8.6(a) hereof, each party shall use its best efforts to consult with the other before issuing any press releases or otherwise making any public statements with respect to the transactions contemplated by this Agreement and, except as may be necessary to comply with legal or stock exchange requirements, shall not issue any such press release or make any such public statement prior to the other party approving in writing of such press release or public statement. No approval by either party of any such press release or public statement shall be unreasonably withheld or delayed. 7.9 Utilities. Prior to the Closing Date, Seller and Purchaser shall notify all appropriate utility companies to take final meter readings on the Closing Date and to change the party to be billed, effective as of the day after the Closing Date. 7.10 Keys. On the Closing Date, Seller shall deliver to Purchaser all of the keys for all facilities of the Business and the combination of any safe located therein. 7.11 Assignment of Lease. At the Closing, Purchaser and Seller shall enter into the Assignment and Assumption Agreement in substantially the form of Exhibit B hereto with respect to the Lease. 7.12 Bill of Sale and Assignment. At the Closing, Seller shall execute and deliver a Bill of Sale and Assignment in substantially the form of Exhibit C hereto. 7.13 Friar Payments. Purchaser will pay to Friar or her designee an amount equal to 1.75% of all of Seller's Net Sales from January 1, 1996, through the date of the Closing. Purchaser will make this payment within five days after the end of the calendar month in which the Closing occurs. In addition, Purchaser will pay to Friar or her designee an amount equal to 1.75% of Purchaser's Net Sales from the facility covered by the Lease (the "Oklahoma City Facility") occurring after the Closing and through April 30, 2002. The total of such payments to Friar or her designee will not be less than $200,000. These payments shall be made on or before the 30th day following the last day of each March, June, September, and December of each year and shall commence on July 30, 1996. "Net Sales" shall be calculated on the basis of (i) the transfer price listed on Schedule 7.13 for products shipped to Holdings (or any affiliate thereof) from the Oklahoma City Facility during the relevant period, and (ii) the quoted sales price (F.O.B. the Oklahoma City Facility) of products manufactured at the Oklahoma City Facility and sold directly to Ford Motor Company, General Motors, and other original equipment automotive manufacturers during the relevant period. Purchaser shall have no obligation to maintain any production of products at the Oklahoma City Facility. Nett and Friar shall have the right to audit the books and records of Purchaser relating to the Oklahoma City facility in order to determine Purchaser's proper calculation of the amounts of payments due to them, but there shall not be more than one such audit during each twelve month period after the Closing. The cost of any audit shall be borne by the party requesting it, but if the audit reveals an underpayment by Purchaser of more than five percent, Purchaser shall pay the reasonable costs of the audit. 7.14 Nett Payment. Purchaser will pay to Nett or his designee or heirs an amount equal to 1.75% of all of Seller's Net Sales from January 1, 1996, through the date of the Closing. Purchaser will make this payment within five days after the end of the calendar month in which the Closing occurs. In addition, Purchaser will pay to Nett or his designee or heirs an amount equal to 1.75% of Purchaser's Net Sales from the Oklahoma City Facility occurring after the Closing and through May 31, 1999. These payments will be made on or before the 30th day following the last day of each March, June, September, and December of each year and shall commence on July 30, 1996. If Purchaser ceases sales from the Oklahoma City Facility before May 31, 1999, in lieu of the payments described above Purchaser shall pay Nett or his designee or heirs a prorated amount for the period from the date such sales cease through May 31, 1999, based on the Net Sales for the 12-month period following the Closing. 7.15 Assignment of Intellectual Property Rights. At the Closing, Seller and Nett shall execute and deliver the Assignment of Intellectual Property Rights in substantially the form of Exhibit D hereto. 7.16 Further Actions. At any time after the Closing Date, upon the request of Purchaser, Seller, Nett, and Friar shall promptly take any and all reasonable action and execute and deliver, instruments or conveyances as may be necessary to more fully and effectively convey to, transfer to, and invest in, Purchaser title to, and to put Purchaser in possession and operating control of, all or any part of the Purchased Assets. 7.17 Holdings Guaranty. Holdings hereby guarantees to Seller, Nett, and Friar the performance by Purchaser of all of Purchaser's obligations in this Agreement. Holdings shall be entitled to assert against Seller, Nett, and Friar any and all rights, defenses, and claims that Purchaser has or may have in the future or that could be asserted by Purchaser, except in any discharge in any bankruptcy of Purchaser. 7.18 Intellectual Property Rights. Purchaser shall control the preparation and prosecution of all applications for patents and trademarks on the Intellectual Property Rights, and Nett and Seller shall cooperate with Purchaser in the preparation and prosecution of any such applications. Nett and Seller will cooperate and assist Purchaser in perfecting Purchaser's rights in the Intellectual Property Rights, including the execution of the Assignment of Intellectual Property Rights, and the obtaining of declarations and assignments from any and all inventors (including, without limitation, any employee inventors) for the Intellectual Property Rights. Nett and Seller shall cooperate with Purchaser in identifying all patentable inventions in the current embodiments of the LUXXUS tonneau cover products, including any inventions in subcomponents thereof. Nett and Seller will provide all reasonable and necessary assistance in the defense of any claims that the LUXXUS products infringe any intellectual property rights of others. 7.19 License. After the Closing, Seller and Purchaser shall negotiate in good faith a license agreement pursuant to which Purchaser would grant a limited license to Seller for the use of the portion of the Intellectual Property Rights useful in the manufacturing of hard tonneau covers. ARTICLE VIII PROVISIONS RESPECTING EMPLOYEES 8.1 Business Employees. Seller shall notify all of its employees who are engaged at or in connection with the operations of the Business ("Employees") and the bargaining representative, if any, of such employees that the Purchased Assets are being sold to Purchaser. Purchaser will have no obligation to offer employment to any of the Employees, except Nett. Any Employees hired by Purchaser shall be employed under terms and conditions of employment established solely by Purchaser pursuant to its hiring practices and policies. If Purchaser hires any Employees, Purchaser shall recognize all employment service of such Employees with Seller for the purpose of determining eligibility for vacation time. 8.2 Indemnification for Wages, Severance, and Other Obligations. Seller shall be liable to the Employees for all wages, severance benefits, accrued vacations, unpaid sick and holiday pay, and other obligations of any kind whatsoever (except the Employee Obligations), including, without limitation, obligations and liabilities under Seller's Plans that accrue through the Closing Date, and shall hold Purchaser harmless from and indemnify Purchaser against, any and all such liabilities to Employees. Seller shall be solely responsible for any employment related claims of any nature accruing or vesting prior to or as of the Closing Date. 8.3 COBRA Indemnification and Information. Seller shall pay and be liable to Purchaser and shall assume, indemnify, defend, and hold harmless Purchaser from and against and in respect of any and all losses, damages, liabilities, taxes, and sanctions that arise under the Consolidated Omnibus Budget Reconciliation Act of 1984 ("COBRA") and the Code, interest and penalties, costs, and expenses (including, without limitation, disbursements and reasonable legal fees incurred in connection therewith, and in seeking indemnification therefor, in any amounts or expenses required to be paid or incurred in connection with any action, suit, proceeding, claim, appeal, demand, assessment, or judgment) imposed upon, incurred by, or assessed against Purchaser and any of its employees arising by reason of or relating to any failure to comply with the continuation health care coverage of COBRA and Sections 601 through 608 of ERISA which failure occurred with respect to any current or prior employee of Seller or any qualified beneficiary of such em- ployee (as defined in COBRA) or as otherwise required as a result of any transactions or matters contemplated by this Agreement. 8.4 Multiemployer Pension Plans. Seller and Nett represent and warrant to Purchaser that neither Seller nor any related company currently sponsors, maintains, or participates in and is required to contribute to any "multiemployer employer pension plan" as defined in Section 414(f) of the Code covering any Employees ("Multiemployer Plans"). Purchaser shall have no liability with respect to any complete withdrawal (as described in Section 4203 of ERISA) or partial withdrawal (as described in Section 4205 of ERISA), and Seller and Nett shall assume and indemnify, defend, and hold harmless Purchaser from and against and in respect of, any and all losses, damages, liabilities, taxes, and sanctions (including, without limitation, reasonable attorneys' fees and costs) that arise out of such complete or partial withdrawal, if any, under any Multiemployer Plans resulting from the consummation of this Agreement. 8.5 Plant Closing Notice. Seller shall bear full responsibility for providing any notice to Seller's employees that may be required pursuant to the Federal Worker Adjustment and Retraining Notification Act of 1988 ("WARN") or any similar applicable law for any employment loss that occurs on or after the Closing Date or otherwise in connection with this Agreement. Seller shall bear any liability or obligation which may accrue to the Employees, any unit of local government, or otherwise under WARN or any similar applicable law as the result of improper or untimely notice. Seller and Nett shall indemnify and hold Purchaser harmless from and against any and all losses (including, without limitation, reasonable attorneys' fees and costs) associated with or related to Seller's failure to comply with WARN with respect to the Employees. 8.6 General. Seller and Purchaser shall consult with each other before issuing any written communications or otherwise making any public statements to employees relating to the transactions contemplated by this Agreement through the Closing Date. Seller will have full and complete discretion with respect to the content of such communications, but shall at all times act in good faith. ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLER, NETT, AND FRIAR Each and every obligation of Seller, Nett, and Friar under this Agreement to be performed at or before the Closing shall be subject to the satisfaction, at or prior to the Closing, of the following conditions: 9.1 Representations and Warranties True. The representations and warranties made by Purchaser in this Agreement shall be true and accurate in all material respects as of the date when made and, at and as of the Closing, and Purchaser shall have delivered to Seller a certificate, dated the Closing Date, to that effect duly executed by the president or chief financial officer of Purchaser. 9.2 Performance of Covenants. Purchaser shall have performed and complied in all material respects with each and every covenant, agreement, and condition required by this Agreement to be performed or complied with by it prior to or on the Closing Date, and Purchaser shall have delivered to Seller a certificate, dated the Closing Date, to that effect duly executed by the president or chief financial officer of Purchaser. 9.3 No Governmental or Other Proceeding or Litigation. No order of any court or administrative agency shall be in effect or threatened which restrains or prohibits the transactions contemplated hereby. 9.4 Approvals and Consents. All approvals, or the absence of disapprovals within applicable time periods, from public authorities, federal, state, or local (or exemptions from the requirements therefor), shall have been obtained. All consents, waivers and approvals necessary for the transfer of the Purchased Assets shall have been obtained by Seller. 9.5 Documents and Certificates. At the Closing, and concurrently with the making of the deliveries by Seller as set forth in Section 10.5, Purchaser shall have delivered to the Seller the following, in form and substance reasonably satisfactory to Seller: (a) Appropriate instruments of assumption providing for the assumption of the Assumed Liabilities duly executed by Purchaser; (b) A copy of all necessary corporate resolutions authorizing the execution, delivery, and performance of this Agreement and all other agreements and transactions contemplated hereby by Purchaser, certified (with original or facsimile signature) by Purchaser's secretary or assistant secretary as of the Closing Date; (c) Duly executed incumbency certificates for all officers of Purchaser executing documents in connection with the Closing; (d) Such other instruments and documents as are required or contemplated by any other provision of this Article IX; and (e) The Waiver of Claims duly executed by Purchaser. 9.6 Waiver. Seller, Nett, and Friar may, in their discretion, waive any conditions precedent to the Closing set forth in this Article IX. To be effective any such waiver must be in writing. ARTICLE X CONDITIONS TO OBLIGATIONS OF PURCHASER Each and every obligation of Purchaser under this Agreement to be performed at or before the Closing shall be subject to the satisfaction, at or before the Closing, of the following conditions: 10.1 Representations and Warranties True. The representations and warranties made by Seller, Nett, and Friar shall be true and accurate in all material respects as of the date when made and, at and as of the Closing, and Seller, Nett, and Friar shall have delivered to Purchaser certificates dated the Closing Date to that effect duly executed by Nett, Friar, and the president of Seller. 10.2 Performance of Covenants. Seller shall have performed and complied in all material respects with each and every covenant, agreement, and condition required to be performed or complied with by it prior to or on the Closing Date, and Seller shall have delivered to Purchaser certificates dated the Closing Date to that effect duly executed by the president of Seller. 10.3 No Governmental or Other Proceeding or Litigation. No order of any court or administrative agency shall be in effect or threatened which restrains or prohibits the transactions contemplated hereby. 10.4 Approvals and Consents. All approvals, or the absence of disapprovals within applicable time periods, from public authorities, federal, state, foreign, or local law (or exemptions from the requirements therefor), shall have been obtained. All consents, waivers, and approvals necessary for the transfer of the Purchased Assets shall have been obtained by Seller. 10.5 Documents and Certificates. At the Closing, and concurrently with the making of the deliveries by Purchaser as set forth in Section 9.5, Seller and Nett shall have delivered to Purchaser the following, in form and substance reasonably satisfactory to Purchaser: (a) Appropriate instruments of conveyance for the Purchased Assets, including but not limited to, the Bill of Sale and Assignment; (b) Certificate of good standing for Seller from the Secretary of State of Oklahoma dated not more than ten days prior to the Closing Date; (c) Originals of the Lease and each Operating Contract included in the Purchased Assets and Seller's complete files relating thereto; (d) Original consents, approvals, or waivers by third parties necessary to carry out the transactions contemplated hereby, including, without limitation, the consent of the Landlord under the Lease; (e) A copy of all necessary corporate and shareholder resolutions authorizing the execution, delivery, and performance of this Agreement and all other agreements contemplated hereby by Seller, certified by Seller's secretary; (f) Duly executed incumbency certificates for all officers of Seller executing documents in connection with the Closing; (g) An Assignment and Assumption Agreement with respect to the Lease duly executed by Seller; (h) The Waiver of Claims duly executed by Seller, Nett, Friar, and the other persons named therein; (i) Such other instruments and documents as are required or contemplated by any other provision of this Article X; (j) A designation agreement designating the "reporting person" for purposes of completing Internal Revenue Form 1099 and, if applicable, Internal Revenue Form 8594; (k) An affidavit regarding the nonforeign status of Seller and sufficient to relieve Purchaser from the obligation to withhold taxes under Section 1445 of the Code and the regulations related thereto; (l) The duly executed Estoppel Letters; (m) A release of any claims to the Purchased Assets by ITT Commercial Finance Corp. or its successor; and (n) A certificate in substantially the form of Exhibit E duly executed by Nett and the president of Seller representing and warranting to the accuracy and completeness of the list of accounts receivable of Seller from Ford Motor Company and General Motors attached to such certificate. 10.6 Title Searches. Purchaser shall have obtained reports of Uniform Commercial Code, tax lien, and other searches reasonably requested by Purchaser as to liens, security interests, claims, and encumbrances affecting the Purchased Assets showing no lien, security interests, claims, or encumbrance not satisfactory to Purchaser. 10.7 Material Adverse Change. Prior to the Closing there shall have been no material adverse change in the Purchase Assets or the Business since March 31, 1996. 10.8 Inspection. Purchaser shall not have discovered any damage to or defect in any of the Purchased Assets or other change in the condition thereof, other than ordinary wear and tear which, if not repaired, would materially interfere with the use of such Purchased Asset. 10.9 Waiver. Purchaser may, in its discretion, waive any conditions precedent to the Closing set forth in this Article X. To be effective any such waiver must be in writing. ARTICLE XI CLOSING 11.1 Time and Place of Closing. Consummation of the transactions contemplated by this Agreement shall be held at the offices of McAfee & Taft A Professional Corporation, Tenth Floor, Two Leadership Square, 211 North Robinson, Oklahoma City, Oklahoma, or such other place as the parties may agree, at 9:00 a.m. on June 3, 1996, or such other date as the parties shall agree (the "Closing Date"). 11.2 The Closing. The consummation of the transactions contemplated by this Agreement and the delivery of the documents provided for in Articles IX and X is herein referred to as the "Closing." If the Closing occurs, the Closing will be effective as of the Closing, Seller and Nett shall bear the risk of loss for the Purchased Assets until the conclusion of the Closing. 11.3 Simultaneous Delivery. All payments, documents and instruments to be delivered on the Closing Date pursuant to Articles IX and X and this Article XI shall be regarded as having been delivered simultaneously, and no document or instrument shall be regarded as having been delivered until all documents and instruments being delivered on the Closing Date have been delivered. ARTICLE XII TERMINATION PRIOR TO CLOSING 12.1 Termination. Anything contained in this Agreement to the contrary notwithstanding, this Agreement, other than Sections 7.7 and 15.1, may be terminated at any time prior to the Closing Date as follows: (a) By mutual written consent of Seller, Nett, Friar, and Purchaser; (b) By either Purchaser or Seller, if the conditions to such party's obligations hereunder have not been satisfied on or before the Closing Date; or (c) By Purchaser or Seller if the Closing Date shall not have occurred on or before June 3, 1996. In the event of the termination of this Agreement pursuant to the provisions of this Article XII, no party shall have any liability of any nature whatsoever to the other under this Agreement, including liability for damages, unless either party is in default under its obligations hereunder, in which event the party in default shall be liable to the other party for such default. Notwithstanding the foregoing or anything to the contrary contained herein, the provisions of Sections 7.7 and 15.1 shall survive any termination of this Agreement and in the event of a breach thereof shall be actionable by the aggrieved party to the fullest extent permitted by applicable law. ARTICLE XIII DEFINITIONS The following terms shall have the following respective meanings: ADA shall mean Title III of Americans with Disabilities Act (42 U.S.C. ss. 12181 et seq.) and the regulations and guidelines promulgated pursuant thereto. Assumed Liabilities shall have the meaning set forth in Section 2.1. Business shall have the meaning set forth in the recitals. Closing shall have the meaning set forth in Section 11.2. Closing Date shall have the meaning set forth in Section 11.1. COBRA shall have the meaning set forth in Section 8.3. Code means the Internal Revenue Code of 1986, as amended. Employee Obligations shall have the meaning set forth in Section 2.1(c). Employees shall have the meaning set forth in Section 8.1. Environmental Law(s) shall mean any federal, state, or local laws, ordinances, codes, statutes, regulations, rules, policies and orders, and other authority, existing now or hereafter enacted relating to the environment or to human health or safety associated with the environment, all as amended or modified from time to time. Environmental Report shall have the meaning set forth in Section 3.4. Equipment shall have the meaning set forth in Section 1.1(b). ERISA means the Employee Retirement Income Security Act of 1974, as amended. Estoppel Letters shall have the meaning set forth in Section 7.2. Excluded Assets shall have the meaning set forth in Section 1.2. Friar shall have the meaning set forth in the first paragraph of this Agreement. GAAP shall have the meaning set forth in Section 3.2(a). Hazardous Material shall mean means ammonia, asbestos, petroleum, and any material, substance, or waste that may adversely affect human health or the environment or that is referenced in or regulated under the Environmental Laws, including, without limitation, any "hazardous waste," "hazardous substance," "toxic substance," "regulated substance," "pollutant," or "contaminant" as those terms are defined or used in the Environmental Laws. Such term includes, without limitation, (i) any material, substance or waste defined as a "hazardous waste" pursuant to Section 1004 of RCRA, (ii) any material, substance or waste defined as a "hazardous substance" pursuant to Section 101 of CERCLA or (iii) any material, substance or waste defined as a "regulated substance" pursuant to Subchapter IX of RCRA. Holdings shall have the meaning set forth in the first paragraph of this Agreement. Information shall have the meaning set forth in Section 7.7. Intellectual Property Rights shall have the meaning set forth in Section 1.1(d). Inventory shall have the meaning set forth in Section 1.1(a). Lease shall have the meaning set forth in Section 1.1(c). Multiemployer Plans shall have the meaning set forth in Section 8.4. Oklahoma City Facility shall have the meaning set forth in Section 7.13. Operating Contracts shall have the meaning set forth in Section 1.1(f). OSHA means the Occupational Health and Safety Act of 1970 (29 U.S.C. ss.ss. 651 et seq.) and the regulations promulgated pursuant thereto. Net Sales shall have the meaning set forth in Section 7.13. Payables shall have the meaning set forth in Section 2.1(b). Permits shall have the meaning set forth in Section 1.1(g). Purchase Price shall have the meaning set forth in Section 3.1. Purchased Assets shall have the meaning set forth in Section 1.1. Purchaser shall have the meaning set forth in the first paragraph of this Agreement. Seller shall have the meaning set forth in the first paragraph of this Agreement. Seller's Welfare Plans shall have the meaning set forth in Section 4.14. Waiver of Claims shall have the meaning set forth in Section 7.5. WARN shall have the meaning set forth in Section 8.5. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Further Assurance and Assistance. After the Closing Date, Seller, Nett, and Friar shall, from time to time, upon the reasonable request of Purchaser, execute, acknowledge, and deliver in proper form any instrument of conveyance or further assurance reasonably necessary or desirable to consummate the transactions contemplated by the terms of this Agreement. After the Closing Date, Purchaser shall, from time to time, upon the reasonable request of Seller, Nett, or Friar, execute, acknowledge, and deliver in proper form any further assurance reasonably necessary or desirable to consummate the transactions contemplated by the terms of this Agreement. 14.2 Transfer Taxes and Title Closing Charges. Purchaser shall pay any sales tax required to be paid in connection with the transfer of the Purchased Assets. 14.3 Amendment and Modification. This Agreement may be amended, modified, or supplemented only by mutual written consent of the parties hereto. 14.4 Waiver of Compliance. The failure by any party at any time to require performance of any provision hereof shall not affect its right later to require such performance. No waiver in any one or more instances shall (except as stated therein) be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any condition or breach of any other term, covenant, representation, or warranty. 14.5 Expenses. Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. 14.6 Bulk Transfer Laws. Purchaser hereby waives Seller's compliance with all applicable bulk sales and bulk sales tax laws relating to the transfer to it of the Purchased Assets. 14.7 Notices. All notices, requests, demands, or other communications required or permitted by this Agreement shall be in writing and effective when received, and delivery shall be made personally or by certified mail, return receipt requested, postage prepaid, or national overnight courier, or confirmed facsimile transmission, addressed as follows: (a) If to Purchaser or Holdings: Mr. William J. McMahon President and Chief Executive Officer Lund Acquisition Corp. 911 Lund Boulevard Anoka, Minnesota 55303 FAX: (612) 576-4297 Copy to: J. Michael Nordin, Esq. McAfee & Taft 10th Floor, Two Leadership Square 211 North Robinson Oklahoma City, Oklahoma 73102 FAX: (405) 235-0439 (b) If to Seller or Nett: Mr. James A. Nett President Innovative Accessories, Incorporated 7949 South I-35 Service Road Oklahoma City, Oklahoma 73149 FAX: (405) 634-2066 Copy to: Thomas E. Kemp, Jr., Esq. 629 24th Avenue, S.W. Norman, Oklahoma 73069 FAX: (405) 360-7902 (c) If to Friar: Ramona C. Friar 10920 Abbeywood Oklahoma City, Oklahoma 73149 Copy to: Michael Paul Kirschner, Esq. Lee Kirschner Haswell PLLC 1500 Liberty Tower 100 North Broadway Oklahoma City, Oklahoma 73102-8603 FAX: (405) 235-3352 John A. Green, Esq. Green, Brown & Stark, P.C. 5550 North Francis Oklahoma City, Oklahoma 73118 FAX: (405) 848-6430 or to such other addresses as may be specified pursuant to notice given by either party in accordance with the provision of this Section 15.1. 14.8 Assignability of Agreement. This Agreement may not be assigned in whole or in part by any party without the prior written consent of the other parties, which consent shall not be unreasonably withheld. 14.9 Governing Law. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Oklahoma, except insofar as the internal law of any political entity or jurisdiction shall specifically and mandatorily apply to any of the transactions. 14.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.11 Headings. The headings of the Sections and Articles of this Agreement are inserted for convenience only and shall not constitute a part hereof. 14.12 Entire Agreement. This Agreement, including the agreements referred to herein, the Schedules and Exhibits attached hereto and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 14.13 Attorneys' Fees. If any action or proceeding is commenced by either party hereto relating to this Agreement, the prevailing party in such action or proceeding may receive as part of any award, judgment, decision or other resolution of such action or proceeding its costs and reasonable attorneys' fees. 14.14 Construction. All parties to this Agreement participated in the drafting of this Agreement, and the provisions of 15 Okla. Stat. ss. 170 are therefore not applicable to this Agreement. 14.15 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, and assigns. ARTICLE XV ARBITRATION 15.1 Arbitration. All disputes between all or any of Seller, Nett, Friar, and Purchaser, including, without limitation, those relating to this Agreement, shall be resolved by arbitration as provided in this Article XV. This agreement to arbitrate shall survive the rescission or termination of this Agreement. All arbitration shall be conducted pursuant to the Commercial Arbitration Rules of the American Arbitration Association except as herein may be provided. The decision of the arbitrators shall be final and binding on all parties. All arbitration shall be undertaken pursuant to the Federal Arbitration Act, where applicable, and the decision of the arbitrators shall be enforceable in any court of competent jurisdiction. In any dispute where a party seeks $50,000 or more in damages, three arbitrators shall be employed. All costs attendant to the arbitration, excluding attorney's and expert's fees, shall be borne equally by the parties. Each party shall bear its own expert's fees. The arbitrators shall not award punitive, consequential, or indirect damages. Each party hereby waives the right to such damages and agrees to receive only those actual damages directly resulting from the claim asserted. In resolving all disputes between the parties, unless an agreement specifies otherwise, the arbitrators shall apply the law of the State of Oklahoma, except as may be modified by this Agreement. The arbitrators are by this Agreement directed to conduct the arbitration hearing no later than three months from the service of the statement of claim and demand for arbitration unless good cause is shown establishing that the hearing cannot fairly and practically be so convened. Except as needed for presentation in lieu of a live appearance, depositions shall not be taken. Parties shall be entitled to conduct document discovery by requesting production of documents. Responses or objections shall be served twenty days after receipt of a request. The arbitrators shall resolve any discovery disputes by such prehearing conferences as may be needed. All parties agree that the arbitrators and any counsel of record to the proceeding shall have the power of subpoena process as provided by law. The parties agree that either shall be entitled to pursue emergency or preliminary injunctive relief in any court of competent jurisdiction, and each party agrees that it shall consent to the stay of such judicial proceedings on the merits of both this Agreement and the related transactions pending arbitration of all underlying claims between the parties immediately following the issuance of any such emergency or injunctive relief. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple original counterparts as of the date first written above. INNOVATIVE ACCESSORIES, INCORPO- RATED, an Oklahoma corporation By /s/ James A. Nett James A. Nett, President LUND ACQUISITION CORP., a Minnesota corporation By /s/ Jay M. Allsup Jay M. Allsup, Chief Financial Officer /s/ James A. Nett James A. Nett /s/ Ramona C. Friar Ramona C. Friar LUND INTERNATIONAL HOLDINGS, INC., a Minnesota corporation By /s/ William J. McMahon William J. McMahon, President and Chief Executive Officer EX-10.45 4 ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE EXHIBIT 10.45 ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE THIS ASSIGNMENT AND ASSUMPTION OF REAL PROPERTY LEASE is entered into this 3rd day of June, 1996, by and between INNOVATIVE ACCESSORIES, INCORPORATED, an Oklahoma corporation ("Assignor"), and LUND ACQUISITION CORP., a Minnesota corporation ("Assignee"). W I T N E S S E T H: WHEREAS, in that Asset Purchase Agreement of even date herewith, by and between Assignor, Assignee, James A. Nett, and Ramona C. Friar (the "Agreement"), Assignor agreed to assign to Assignee all of Assignor's right, title, and interest in, to, and under the lease of real property attached as Exhibit "A" hereto (the "Real Property Lease"); and WHEREAS, pursuant to the Agreement, Assignee agreed to assume and perform Assignor's obligations under the Real Property Lease accruing after the date hereof; NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Assignor hereby grants, bargains, sells, transfers, assigns, and conveys to Assignee all of Assignor's right, title, and interest in, to, and under the Real Property Lease. Assignee hereby accepts the foregoing assignment from Assignor and assumes and agrees to perform all responsibilities and obligations of tenant under the Real Property Lease accruing after the date hereof. This Assignment and Assumption of Real Property Lease is made pursuant and subject to the Agreement and incorporates all of the terms and conditions therein including, without limitation, the representations, warranties, and indemnities of Assignor. This Assignment and Assumption of Real Property Lease shall bind and inure to the benefit of Assignor and Assignee and their respective successors and assigns. EXECUTED AND DELIVERED the day and year first written above. INNOVATIVE ACCESSORIES, INCORPO- RATED, an Oklahoma corporation By James A. Nett, President LUND ACQUISITION CORP., a Minne- sota Corporation By Jay M. Allsup, Chief Financial Officer STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) This instrument was acknowledged before me on May 29, 1996, by James A. Nett, as President of Innovative Accessories, Inc., an Oklahoma corporation. (Seal) --------------------------------- Notary Public My Commission Expires:___________ STATE OF OKLAHOMA ) ) ss. COUNTY OF OKLAHOMA ) This instrument was acknowledged before me on May 29, 1996, by Jay M. Allsup, Chief Financial Officer of Lund Acquisition Corp., a Minnesota corporation. (Seal) --------------------------------- Notary Public My Commission Expires:___________ EX-10.46 5 INTELLECTUAL PROPERTY RIGHTS EXHIBIT 10.46 ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS KNOW ALL MEN BY THESE PRESENTS: THAT INNOVATIVE ACCESSORIES, INCORPORATED, an Oklahoma corporation, and JAMES A. NETT, an individual (individually and collectively "Assignors"), for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, do hereby sell, transfer, assign, and convey to LUND ACQUISITION CORP., a Minnesota corporation ("Assignee"), the entire right, title, and interest of Assignors in and to all intellectual property rights, including, without limitation, license royalties and proceeds of infringement suits; license agreements related to any of the foregoing and income therefrom; books, records, computer tapes or discs, flow diagrams, specification sheets, source codes, object codes and other physical manifestations of the foregoing; the right to sue for past, present, and future infringement and all rights corresponding thereto throughout the world; all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; and all proceeds thereof; U.S. Patent Nos. 4,730,866 and 4,838,602 and all related and corresponding domestic and foreign patent applications and patents, including, for example, reissues, continuations, divisionals, continuations-in-part, renewals, and reexaminations; domestic and foreign patents and patent applications, presently owned by Assignor, or otherwise owned by a third party (e.g., an employee/inventor) under an obligation to assign to Assignors; all other inventions (i.e., for which a patent application could be filed) related to tonneau covers and owned by Assignors or otherwise owned by a third party (e.g., employee/inven- tor) under an obligation to assign to Assignors; all rights to use the name "LUXXUS" and any variations thereof and any similar name, and all other trademark, tradenames, trade dress, copyrights, trade secrets, licenses, know-how, and other intellectual property owned or used by Assignors in connection with the Business, and all of the goodwill, if any, associated with Assignors' manufacturing business, and excluding only the intellectual property rights that relate solely and exclusively to the hard tonneau covers produced by Assignors. This Assignment is made pursuant and subject to that certain Asset Purchase Agreement dated as of May 29, 1996, by and among Assignors, Assignee, and Ramona C. Friar and incorporates all of the terms and conditions therein, including, without limitation, the representations, warranties, and covenants of Assignors and Assignee therein. This Assignment shall bind and inure to the benefit of Assignors and Assignee and their respective successors and assigns. EXECUTED AND DELIVERED the 3rd day of June, 1996. ASSIGNORS: INNOVATIVE ACCESSORIES, INCORP- ORATED, an Oklahoma corporation By:______________________________ James A. Nett, President ---------------------------------- James A. Nett EX-16.1 6 EXHIBIT 16.1 April 12, 1996 Securities and Exchange Commission Washington, DC 20549 Ladies and Gentlemen: We were previously principal accountants for Lund International Holdings, Inc. and, under the date of August 11, 1995, we reported on the consolidated financial statements of Lund International Holdings, Inc. and subsidiaries as of and for the years ended June 30, 1995 and 1994. On April 9, 1996, our appointment as principal accountants was terminated. We have read Lund International Holdings, Inc.'s statements included under Item 4 of its Form 8-K dated April 15, 1996, and we agree with such statements, except that we are not in a position to agree or disagree with Lund International Holdings, Inc.'s statements that the change was recommended by the Audit Committee of the Board of Directors and approved by the entire Board and that Coopers & Lybrand LLP was not consulted regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be provided on Lund International Holdings, Inc.'s consolidated financial statements. Very truly yours, KPMG Peat Marwick LLP EX-23.1 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Lund International Holdings, Inc. on Form S-8 (File Nos. 33-64083 and 33-37160) of our reports dated August 21, 1996, on our audits of the consolidated financial statements and financial statement schedule of Lund International Holdings, Inc. as of June 30, 1996 and for the year then ended, which reports are included (or incorporated by reference) in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota September 25, 1996 EX-23.2 8 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Lund International Holdings, Inc.: We consent to incorporation by reference in the registration statement (File Nos. 33-64083 and 33-37160) on Form S-8 of Lund International Holdings, Inc. of our report dated August 11, 1995, relating to the consolidated balance sheet of Lund International Holdings, Inc. as of June 30, 1995 and the related consolidated statements of earnings, changes in stockholders equity and cash flows and related financial statement schedule as of June 30, 1995 and 1994 and for each of the years in the two-year period ended June 30, 1995, which report appears in the June 30, 1996 annual report on Form 10-K of Lund International Holdings, Inc. KPMG Peat Marwick LLP Minneapolis, Minnesota September 25, 1996 EX-99 9 INDEPENDENT AUDITORS' REPORT EXHIBIT 99 INDEPENDENT AUDITORS' REPORT The Board of Directors and Management Lund International Holdings, Inc.: We have audited the consolidated balance sheet of Lund International Holdings, Inc. and subsidiaries as of June 30, 1995, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the two-year period ended June 30, 1995, as contained in the 1996 annual report to stockholders. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimate made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lund International Holdings, Inc. and subsidiaries as of June 30, 1995, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota August 11, 1995 EX-27 10 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 2,740,125 8,630,649 10,797,131 863,765 6,351,279 29,518,795 6,906,446 2,253,783 40,319,605 4,870,111 4,590,000 0 0 439,197 30,068,072 40,319,605 46,423,208 46,423,208 28,599,293 39,626,065 0 720,000 324,293 7,054,916 2,432,754 0 0 0 0 4,622,162 1.05 1.05
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