<PAGE>
SECURITIES AND EXCHANGE COMMISSSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-28822
ROCKSHOX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0396555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Charcot Avenue, San Jose, California 95131
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (408) 435-7469
NO CHANGE
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to 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 [ ]
As of November 3, 1998 there were 13,761,147 shares of the registrant's common
stock outstanding.
This quarterly report on Form 10-Q contains 14 pages, of which this is page 1.
1
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ROCKSHOX, INC.
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements 6
Condensed Consolidated Balance Sheets as of September 30, 1998
and March 31, 1998 3
Condensed Consolidated Statements of Operations for the three-
and six-month period ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the six-
month period ended September 30, 1998 and 1997 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks 11
Part II: Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
2
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 2,115 $ 10,554
Trade accounts receivable, net of allowance for
doubtful accounts of $1,086 and $1,037,
respectively . . . . . . . . . . . . . . . . . . . . . . . 13,604 9,230
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 16,607 11,581
Prepaid expenses and other current assets. . . . . . . . . . 686 962
Income tax receivable. . . . . . . . . . . . . . . . . . . . 845 --
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 4,539 4,539
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . 38,396 36,866
Property, plant and equipment, net. . . . . . . . . . . . . . . . 15,341 15,224
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . 205 169
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 53,942 $ 52,259
--------- ---------
--------- ---------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 9,818 $ 5,869
Other accrued liabilities. . . . . . . . . . . . . . . . . . 9,556 8,625
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . 19,374 14,494
Stockholders' equity
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 138 138
Additional paid-in capital . . . . . . . . . . . . . . . . . 65,929 65,910
Distributions in excess of net book value. . . . . . . . . . (45,422) (45,422)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 13,923 17,139
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . 34,568 37,765
--------- ---------
Total liabilities and stockholders' equity . . . . . . . $ 53,942 $ 52,259
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 24,810 $ 28,878 $ 38,705 $ 53,584
Cost of sales. . . . . . . . . . . . . . . . . . . . . 19,431 19,076 33,092 35,136
-------- --------- --------- ---------
Gross profit. . . . . . . . . . . . . . . . . . . 5,379 9,802 5,613 18,448
Selling, general and administrative expense. . . . . . 3,853 3,300 7,782 6,263
Research, development and engineering expense. . . . . 1,203 1,233 2,501 2,542
-------- --------- --------- ---------
Operating expenses. . . . . . . . . . . . . . . . 5,056 4,533 10,283 8,805
-------- --------- --------- ---------
Income (loss) from operations . . . . . . . . . 323 5,269 (4,670) 9,643
Interest income. . . . . . . . . . . . . . . . . . . . 65 155 203 348
-------- --------- --------- ---------
Income (loss) before taxes. . . . . . . . . . . . 388 5,424 (4,467) 9,991
Income tax (expense) benefit . . . . . . . . . . . . . (108) (1,953) 1,251 (3,620)
-------- --------- --------- ---------
Net income (loss). . . . . . . . . . . . . . . $ 280 $ 3,471 $ (3,216) $ 6,371
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income (loss) per share--basic. . . . . . . . . . $ 0.02 $ 0.25 $ (0.23) $ 0.47
-------- --------- --------- ---------
-------- --------- --------- ---------
Shares used in per share calculations--basic. . . . . 13,761 13,710 13,761 13,676
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income (loss) per share--diluted. . . . . . . . . $ 0.02 $ 0.25 $ (0.23) $ 0.45
-------- --------- --------- ---------
-------- --------- --------- ---------
Shares used in per share calculations--diluted. . . . 13,761 14,060 13,761 14,082
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Sept. 30, 1998 Sept. 30, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income. . . . . . . . . . . . . . . . . . . $ (3,216) $ 6,371
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . 2,987 2,131
Provision for doubtful accounts . . . . . . . . . 18 --
Provisions for excess and obsolete inventory. . . 354 270
Changes in operating assets and liabilities:
Trade accounts receivable . . . . . . . . . . . . (4,392) (8,837)
Inventories . . . . . . . . . . . . . . . . . . . (5,380) (4,172)
Prepaid expenses and other current assets . . . . (569) 500
Accounts payable and accrued liabilities. . . . . 4,880 5,088
--------- --------
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . . . (5,318) 1,351
--------- --------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . (3,104) (7,205)
Other. . . . . . . . . . . . . . . . . . . . . (36) (75)
--------- --------
Net cash used in investing activities . . . . . . . (3,140) (7,280)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options. . . . 17 606
Tax benefits from disqualifying dispositions
of common stock. . . . . . . . . . . . . . . 2 475
--------- --------
Net cash provided by financing activities . . . . . 19 1,081
--------- --------
Net (decrease) in cash and cash equivalents . . . (8,439) (4,848)
Cash and cash equivalents, beginning of period . . . . 10,554 14,747
--------- --------
Cash and cash equivalents, end of period . . . . . . . $ 2,115 $ 9,899
--------- --------
--------- --------
Supplemental disclosure of non-cash transactions:
Income taxes paid. . . . . . . . . . . . . . . . . . . $ -- $ 1,453
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements
5
<PAGE>
Part 1: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of
ROCKSHOX, INC. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The year-end consolidated balance sheet data was derived from the audited
financial statements and does not include all disclosures required by GAAP.
Operating results for the three- and six-month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1999. The unaudited condensed, consolidated interim financial
statements contained herein should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended March 31,
1998 included in the Company's Annual Report on Form 10-K.
2. INVENTORY:
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1998 March 31, 1998
-------------- --------------
<S> <C> <C>
Raw materials $ 11,539 $ 7,023
Finished goods 5,068 4,558
----------- -----------
$ 16,607 $ 11,581
----------- -----------
</TABLE>
3. NOTE PAYABLE:
On September 28, 1998, the Company entered into a bridge loan note agreement
providing for borrowing up to $4.0 million. On October 1, 1998, $2.0 million
was borrowed against the note of which $1.0 million was repaid on October 30,
1998. Any outstanding amounts under the note are collateralized by the
Company's accounts receivables, inventory, equipment and intangibles.
4. EARNINGS PER SHARE AMOUNTS:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective December 31, 1997.
SFAS 128 requires the presentation of basic and diluted earnings per share
("EPS"). Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
that period. Diluted EPS is computed giving effect to all dilutive potential
common shares that were outstanding during the period. Dilutive potential
common shares consist of incremental common shares issuable upon exercise of
stock options and warrants for all periods. All prior period net income (loss)
amounts have been restated to comply with SFAS 128.
6
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. EARNINGS PER SHARE AMOUNTS (continued):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Reconciliation of net income (loss)
used in basic and diluted per share calculations:
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 280 $ 3,471 $ (3,216) $ 6,371
------- -------- -------- --------
------- -------- -------- --------
Reconciliation of shares used in basic and
diluted per share calculations:
Basic net income (loss) per share:
Weighted average shares of common stock outstanding . . 13,761 13,710 13,761 13,676
------- -------- -------- --------
Shares used in basic net income (loss) per
share calculation. . . . . . . . . . . . . . . . . . 13,761 13,710 13,761 13,676
------- -------- -------- --------
------- -------- -------- --------
Diluted net income (loss) per share:
Weighted average shares of common stock outstanding . . 13,761 13,710 13,761 13,676
Dilutive effect of stock options. . . . . . . . . . . . --- 350 --- 406
------- -------- -------- --------
Shares used in diluted net income (loss) per
share calculation . . . . . . . . . . . . . . . . 13,761 14,060 13,761 14,082
------- -------- -------- --------
------- -------- -------- --------
Net Income (loss) per - basic. . . . . . . . . . . . $ 0.02 $ 0.25 $ (0.23) $ 0.47
------- -------- -------- --------
------- -------- -------- --------
Net Income (loss) per - diluted. . . . . . . . . . . $ 0.02 $ 0.25 $ (0.23) $ 0.45
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
Stock options to purchase 1,195,636 shares of common stock at prices ranging
from $3.84 to $15.14 per share were outstanding at September 30, 1998 but were
not included in the computation of diluted income per share because they were
anti-dilutive.
5. OPTION REPRICING
During the quarter ended June 30, 1998, the Board of Directors of the
Company approved the cancellation of the majority of outstanding stock
options held by mid - and lower -level employees with an exercise price
ranging from $13.06 to $15.14 per share and the re-grant of options to
purchase an equivalent number of shares at $4.75 per share. A total of
252,975 options were canceled and re-granted.
6. CONTINGENCIES
The Company is involved in certain legal matters in the ordinary course of
business including the alleged infringement of a competitor's patent. No
provision for any liability that may result upon the resolution of these matters
has been made in the accompanying financial statements nor is the amount or
range of possible loss, if any, reasonably estimable.
7
<PAGE>
Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. RESTRUCTURING CHARGE ACCRUAL
During the quarter ended March 31, 1998, the Company announced a
restructuring plan which included a workforce reduction of approximately 40
employees and the consolidation of the Company's facilities. The Company
expects to complete the restructuring during the fiscal year ending March 31,
1999.
During the quarter ended September 30, 1998, the Company has made
payments of $20,000 against the provision of $1.7 million set aside for this
restructuring program. For the six-month period ended September 30, 1998,
the Company has made payments of $65,000 against this restructuring program.
8. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financed Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") which specifies the computation, presentation, and
disclosure requirements for comprehensive income. The Company implemented SFAS
130 during the first quarter of fiscal 1999. There was no impact on the
Company's financial position, results of operations or cash flows.
Comprehensive income and net income are the same.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 changes current
practice under SFAS 14, "Financial Reporting for Segments of an Enterprise," by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach). It is effective for fiscal years beginning after
December 15, 1997, and requires interim reporting in the second year of
application.
The Company does not expect any material impact on the financial statements
from this pronouncement.
8
<PAGE>
Part I: Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Net sales. Net sales for the quarter ended September 30, 1998 decreased by
14.1% to $24.8 million from $28.9 million for the corresponding period of the
prior year. Net sales for the six months ended September 30, 1998 decreased by
27.8% to $38.7 million compared to $53.6 million for the corresponding period of
the prior year. OEM sales for the quarter ended September 30, 1998 increased by
1.0% to $21.8 million compared to $21.6 million for the corresponding period of
the prior year. For the six months ended September 30, 1998, OEM sales
decreased by 14.8% to $33.4 million compared to $39.2 million for the
corresponding period of the prior year. The year-to-date decrease was
principally due to volume reductions from certain domestic and international OEM
customers in the quarter ended June 30, 1998. Sales to the retail accessory
market were $3.0 million for the quarter ended September 30, 1998 compared to
$7.3 million for the corresponding period of the prior year. For the six months
ended September 30, 1998, sales to the retail accessory market decreased by
63.2% to $5.3 million from $14.4 million for the corresponding period of the
prior year. This decrease is a reflection of the continued softness in the
overall domestic and international mountain biking market.
Gross margin. Gross margin (gross profit as a percentage of net sales) for
the quarter ended September 30, 1998 decreased to 21.7% compared to 33.9% for
the corresponding period of the prior year. For the first six months of this
year, gross margin decreased to 14.5% compared to 34.4% for the corresponding
period of the prior year. The year-to-date decreases in gross margin were
primarily due to fixed overhead costs not being fully absorbed due to lower than
anticipated sales and manufacturing inefficiencies encountered during the first
two quarters of fiscal 1999.
Selling, general and administrative expense. Selling, general and
administrative ("SG&A") expense for the quarter ended September 30, 1998
increased by 16.8% to $3.9 million (or approximately 15.5% of net sales)
compared to $3.3 million (or approximately 11.4% of net sales) in the
corresponding period of the prior year. SG&A expense for the six months ended
September 30, 1998 increased by 24.3% to $7.8 million (or approximately 20.1% of
net sales) compared to $6.3 million (or approximately 11.7% of net sales) for
the corresponding period of the prior year. The year-to-date increase over the
same period last year is primarily a result of marketing expenditures, the new
software implementation and the recruiting and relocation of some members of
senior management.
Research, development and engineering expense. Research, development and
engineering ("R&D") expense for the quarter ended September 30, 1998 remained at
the same $1.2 million level (but increased as a percentage of net sales to
approximately 4.8% of net sales in 1998 from approximately 4.3% of net sales in
1997) compared to the corresponding period of the prior year. R&D expense for
the six months ended September 30, 1998 remained consistent at $2.5 million (but
increased as a percentage of net sales to approximately 6.5% of net sales in
1998 from approximately 4.7% of net sales in 1997) compared to the corresponding
period of the prior year.
Interest income. For the three- and six-month periods ended September 30,
1998, the Company incurred no interest expense and had interest income of
$65,000 and $203,000 respectively, from its cash and cash equivalent balances.
During the three- and six-month periods ended September 30, 1997, the Company
had interest income of $155,000 and $348,000, respectively. The decreases were
principally due to lower cash balances.
9
<PAGE>
Part I: Item 2
Income tax (expense) benefit. The Company's effective tax rate for the six
months ended September 30, 1998 was a benefit of 28% compared to an expense of
36.2% for the corresponding period of the prior year. The decrease was
principally due to a reduction in tax benefit expected to be received for state
tax credits and net operating losses.
Liquidity and Capital Resources:
For the six months ended September 30, 1998, net cash used by operating
activities was $5.3 million, which was comprised of net loss of $3.2 million
increased by $3.0 million for non-cash charges of depreciation and amortization,
an increase in provision for inventory of $354,000, and an increase of $4.9
million in accounts payable and accrued liabilities, offset by increases of $4.4
million in trade accounts receivable, increases in other current assets of
$569,000 and $5.4 million in inventories.
For the six months ended September 30, 1998, net cash used in investing
activities was $3.1, which principally consisted of acquisitions of property and
equipment. Net cash provided by financing activities was $19,000, which
consisted of proceeds and tax benefits from the exercise of employee stock
options.
On September 28, 1998, the Company entered into a bridge loan note
agreement providing for borrowing up to $4.0 million. On October 1, 1998,
$2.0 million was borrowed against the note of which $1.0 million was repaid
on October 30, 1998. Any outstanding amounts under the note are
collateralized by the Company's accounts receivables, inventory, equipment
and intangibles.
At September 30, 1998, the Company had cash and cash equivalents of $2.1
million and working capital of $19.0 million. The Company believes that its
current cash balances and/or financing services available will be sufficient to
provide operating liquidity for at least the next twelve months.
Forward Looking Statements:
Certain statements made in this document constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other facts that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors are
discussed in detail in the Company's Annual Report on Form 10-K. Given these
uncertainties, prospective and current investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained in the
Annual Report on Form 10-K or this document.
Impact of the Year 2000:
As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
process accurately certain data before, during or after the year 2000 (the
"Year 2000"). As a result, business entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the Year 2000 issue. The Year 2000
issue can arise at any point in the Company's supply, manufacturing,
processing, distribution, and financial chains.
The Company has identified its Year 2000 risk in three categories: internal
enterprise resource planning software; other internal software and imbedded chip
technology; and external noncompliance by customers and suppliers, service
providers and contractors.
10
<PAGE>
Part I: Item 2
Internal enterprise resource planning software. During the current fiscal year,
the Company has chosen to replace its legacy information system with an
Enterprise Resource Planning system which the Company's software vendor (Oracle)
has indicated is Year 2000 compliant. The system is being implemented using
both internal resources and outside consultants. The Company is in the
implementation phase and is expected to fully complete the process within the
quarter ending March 31, 1999. Based on this schedule, the Company expects to be
in full Year 2000 compliance with its internal financial systems before the Year
2000. The estimated cost of the system conversion is approximately $2.1 million,
of which $1.5 million will be capitalized. However, if due to unforeseen
circumstances, the implementation is not completed on a timely basis, the Year
2000 could have a material impact on the operations of the Company. Failure to
complete the implementation may result in loss of revenues, or an interruption
in, or a failure of, certain normal business activities or operations.
Other internal software and imbedded chip technology. Over the last three years,
the Company's information technology group has ensured that all system upgrades,
software purchases and replacements have been Year 2000 compliant. The costs
associated with these upgrades, software purchases and replacements are part of
the normal course of business. The Company has identified most of the Year 2000
compliance issues with regard to other internal software and imbedded chip
technology, such as manufacturing equipment, all desktop systems and security
equipment. For those issues identified, contingency plans have been derived and
implementation is in process by the Information Technologies Department.
Implementation includes the replacement of software and hardware with upgraded
Year 2000 compliant versions and is expected to be completed by June 30, 1999.
If the Company is unable to achieve Year 2000 compliance for other internal
software, the Year 2000 could have a material impact on the operations of the
Company. Failure to complete the implementation may result in loss of revenues,
or an interruption in, or a failure of, certain normal business activities or
operations.
External noncompliance by customers and suppliers, service providers and
contractors. The Company (specifically procurement) is in the process of
identifying and contacting its critical suppliers to determine the extent of
their plans and progress in addressing the Year 2000 problem. Responses to
date have indicated that the majority of vendors are Year 2000 compliant. To
the extent that responses to Year 2000 readiness are unsatisfactory, the Company
intends to change suppliers, service providers and contractors to those that
have demonstrated readiness; however, the Company cannot be assured that it will
be successful in finding such alternative suppliers, service providers and
contractors. The Company does not have any formal information concerning the
Year 2000 compliance status of its customers but the Sales Department intends
to contact the customer base in an effort to assess their level of Year 2000
compliance. In the event that any of the Company's significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance , and the
Company is unable to replace them with new customers or alternative suppliers
who have demonstrated Year 2000 readiness, the Company's business or operations
could be adversely affected. These effects could, but are not limited to, loss
of revenues, loss of suppliers and customers, failure to deliver products, etc.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
None.
Part II: Other Information
Item 1. Legal Proceedings
The Company is involved in certain legal matters in the ordinary course of
business including the alleged infringement of a competitor's patent. No
provision for any liability that may result upon the resolution of these matters
has been made in the accompanying financial statements nor is the amount or
range of possible loss, if any, reasonably estimable.
11
<PAGE>
Part II: Item 2
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On August 20, 1998, the Company held its annual meeting of stockholders
(the "Annual Meeting"). At the Annual Meeting, the Company's stockholders
re-elected the Company's Board of Directors in its entirety. Specifically,
11,664,476 votes were cast for the election of each of Stephen W. Simons,
Paul H. Turner, John W. Jordan II, Adam E. Max, Michael R. Gaulke, Edward T.
Post and George Napier, and 21,850 votes were withheld for each of such
persons. Also at the Annual Meeting, the Company's stockholders approved the
adoption of the Company's 1998 Stock Plan (the "1998 Stock Plan") which would
provide for the grant of non-qualified stock options and incentive options to
employees, directors and consultants of the Company, as well as ratified the
selection of PriceWaterhouseCoopers (the "Ratification of Accountants") as
the Company's independent accountants for the fiscal year ending March 31,
1999. A total of 7,870,298 votes were cast in favor of the 1998 Stock Plan,
2,441,430 votes were cast against, and 1,374,598 votes abstained. With
respect to the Ratification of Accountants, a total of 11,569,018 votes were
cast in favor, 6,445 were cast against and 110,863 votes abstained.
Item 5. Other Information
The Securities and Exchange Commission recently amended certain rules under
the Securities Exchange Act of 1934 regarding the use of a company's
discretionary proxy voting authority with respect to stockholder proposals
submitted to the Company for consideration at the Company's next annual meeting.
Stockholder proposals submitted to the Company outside the process of Rule
14a-8 (i.e., the procedures for placing a stockholder's proposal in the
Company's proxy materials) with respect to the Company's 1999 annual meeting of
stockholders will be considered untimely if received by the Company after May
28, 1999. Accordingly, the proxy with respect to the Company's 1999 annual
meeting of stockholders will confer discretionary authority to vote on any
stockholder proposals received by the Company after May 28, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of
ROCKSHOX, INC. *
3.2 Form of Amended and Restated Bylaws of ROCKSHOX, INC. *
10.1 Sublease, dated July 9, 1998, between ROCKSHOX, INC. and Media Arts
Group, Inc.+
10.2 Employment Agreement, dated June 17, 1998, between ROCKSHOX, INC. and
Gary Patten
10.3 Bridge Loan Note, dated September 28, 1998, between ROCKSHOX, INC. and
the First National Bank of Chicago.
10.4 Amended and Restated Incentive Stock Option Agreement Under the
ROCKSHOX, INC. 1996 Stock Plan, dated September 21, 1998, between
ROCKSHOX, INC. and Robert Kaswen.
</TABLE>
- ----------------------------------------------------------------------------
* Previously filed with the Registration Statement on Form S-1 of RockShox
Inc. (Registration No. 333-8069).
+ Previously filed with the Form 10-Q for the quarterly period ended
June 30, 1998.
12
<PAGE>
Part II: Item 6
<TABLE>
<C> <S>
10.5 Settlement and Release Agreement, dated September 21, 1998, between
ROCKSHOX, INC. and Robert Kaswen.
10.6 Separation of Employment Memo, dated June 29, 1998 between ROCKSHOX,
INC. and Charles E. Noreen Jr.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKSHOX, INC.
Dated: November 11, 1998 /s/ Gary Patten
-------------------
Gary Patten
Chief Financial Officer and
Duly Authorized Officer
14
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective this 17th day of
June, 1998 (the "Effective Date"), is entered into by and between Gary Patten
("Executive") and RockShox, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company desires to establish its right to the services of
Executive, in the capacity described below, on the terms and conditions
hereinafter set forth, and Executive is willing to serve the Company on such
terms and conditions.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, Executive and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT. The Company does hereby employ Executive and
Executive does hereby accept employment as Vice-President and Chief Financial
Officer of the Company. Executive shall do and perform all services and acts
necessary or reasonably advisable to fulfill the duties and responsibilities of
his position and shall render such services on the terms set forth herein and
shall report to the Company's President and Chief Executive Officer. In
addition, Executive shall have such other executive and managerial powers and
duties with respect to the Company as may reasonably be assigned to him by the
President and Chief Executive Officer, to the extent consistent with his
positions and status as set forth above. Executive agrees to devote to the
Company his full business time to the conduct of his duties hereunder.
<PAGE>
2. TERM OF AGREEMENT. The term of this Agreement ("Term") shall
commence on the Effective Date and shall continue until the earlier of (i) three
(3) years after the Effective Date of the Agreement or (ii) such earlier date
upon which this Agreement is terminated as otherwise provided herein.
3. COMPENSATION.
(a) BASE SALARY. During the Term, the Company shall pay
Executive an initial annual base salary at the rate of $200,000 per year or
such higher amount as the Company's Board of Directors may from time to time
determine (the "Base Salary"), payable in equal biweekly installments.
(b) BONUS. In addition to his Base Salary, Executive shall
participate in the Company annual bonus plan as described below.
(i) For the balance of the 1999 fiscal year (9 1/2 months),
Executive shall be guaranteed a bonus equal to the
greater of $60,000 or that amount Executive earns
as a participant in the Company bonus plan.
(ii) In future years Executive shall participate in the
Company's annual bonus plan.
Each such annual bonus shall be payable in accordance with the terms and
conditions of the Company's annual bonus plan.
4. OTHER COMPENSATION
(a) STOCK OPTIONS. Subject to the approval by the Compensation
Committee of the Board (as to which the Company shall use its best efforts to
obtain), the Company shall grant Executive stock options (the "Options") to
purchase 100,000 shares of Common Stock under the RockShox, Inc. 1996 Stock Plan
(the "Plan"). The per share exercise price of such Options shall equal the fair
market value of the stock on the date of grant and shall vest and become
exercisable pro rata on the first, second, third and fourth anniversary dates of
the date of grant. The vesting of all the Options shall accelerate upon the
occurrence of a Transaction (as defined below). Such Options shall qualify as
Incentive Stock Options, to the extent permitted under the Plan and Section 422
of the Internal
<PAGE>
Revenue Code of 1986, as amended.
A "Transaction" means any recapitalization, sale of stock or
assets, dissolution, or merger that occurs during the period beginning with
the Effective Date and ending on the date of Executive's termination of
employment for Cause or by reason of his voluntary termination and results in
the delivery of cash, stock or other property to the holders of a majority of
the then outstanding common stock of the Company on a fully diluted basis
(I.E., including shares issuable upon exercise of then outstanding options).
(b) FRINGE BENEFITS. Executive shall be entitled to participate
in the following fringe benefits:
(i) PARTICIPATION IN RETIREMENT/WELFARE PLANS. Executive
shall be eligible to participate in all savings, retirement, and welfare
plans, practices, policies and programs applicable generally to senior
executive officers of the Company.
(ii) VACATION. Executive shall be entitled to accrue up
to a maximum of four weeks of paid vacation days in each year of
employment. If Executive has accrued four weeks of vacation, Executive
shall cease to accrue vacation days until the amount of such accrued
vacation is less than four weeks. The timing of paid vacations shall
be scheduled in a reasonable manner by Executive.
(iii) HEALTH INSURANCE. Executive shall be eligible to
participate in all RockShox' benefits programs available from time to time.
5. REIMBURSEMENT FOR BUSINESS EXPENSES. The Company shall reimburse
Executive for all reasonable and necessary expenses incurred by Executive in
performing his duties for the Company, including the following business
expenses:
(a) TRAVEL. The Company shall reimburse Executive for expenses
incurred in connection with customary business travel in accordance with Company
policy. RockShox will also reimburse Executive for upgrade coupons purchased
for U.S. travel, which Executive may utilize with reasonable discretion.
<PAGE>
6. RELOCATION.
(a) The Company shall reimburse Executive for reasonable
out-of-pocket expenses incurred by Executive for temporary living for up to 2
months in the San Jose area.
(b) The Company shall reimburse Executive for the relocation
of Executive and his family from Kansas to the San Jose area including (i)
all packing and moving of personal effects, furniture, and three cars, (ii)
the cost of air fare for Executive's family to move from Kansas to the San
Jose area, (iii) legal, bank and realtor costs of selling his home in Kansas
and buying a home in the San Jose area, (iv) a maximum of two house hunting
trips, and (v) bridge financing or a home buyout if necessary. The Company
shall provide Executive with a one-time payment of $35,000 to assist
Executive with relocation incidentals. All relocation costs will be grossed
up to pay applicable taxes (I.E., full federal, state, FICA and medicare).
7. TERMINATION OF EXECUTIVE'S EMPLOYMENT. Upon termination of
Executive's employment, Executive shall be entitled to receive the following
benefits:
(a) DEATH. In the event Executive's employment hereunder is
terminated by reason of Executive's death, Executive's estate (or other
appropriate payee or beneficiary) shall be entitled to receive (i) all
benefits payable to Executive through his date of termination from the
Company under the terms of those Company benefit plans, programs or
arrangements provided to Executive as "Other Compensation" in Section 4 of
this Agreement and (ii) any bonus to which Executive would have been entitled
pursuant to Section 3(b) with respect to the twelve month period ending on
the March 31 immediately following Executive's death, provided that such
bonus is prorated for the portion of the fiscal year during which Executive
was employed by the Company.
(b) DISABILITY. If, as a result of Executive's incapacity
due to physical or mental illness ("Disability"), Executive shall have been
absent from the full-time performance of his duties with the Company for
sixty (60) days during any one-hundred and eighty (180) day period,
Executive's employment under this Agreement may be terminated by the Company
or
<PAGE>
Executive for Disability. During any period prior to such termination during
which Executive is absent from the full-time performance of his duties with
the Company due to Disability, the Company shall continue to pay Executive
his Base Salary at the rate in effect at the commencement of such period of
Disability. Upon termination of Executive's employment for Disability, (i)
the Company shall continue to pay Executive his Base Salary for a period of
twelve months (subject to offset for disability insurance benefits received
by Executive or his designee on a tax adjusted basis) and (ii) the Company
shall pay all benefits payable to Executive through his date of termination
under the terms of those Company benefit plans, programs or arrangements
provided to Executive as "Other Compensation" in Section 4 of this Agreement.
(c) TERMINATION FOR CAUSE OR RESIGNATION. The Company may
terminate Executive's employment under this Agreement for Cause at any time
prior to expiration of the Term. As used herein, termination for "Cause"
shall mean termination upon (1) the material failure by Executive to perform
any of his duties with the Company or to follow the good faith instructions
of the President and Chief Executive Officer (other than any such failure
resulting from his incapacity due to physical or mental illness), provided
that Executive has failed to cure such breach within 10 days of receipt of
written notice thereof from the Company, (2) the willful engaging by
Executive in conduct that is materially injurious to the Company, monetarily
or otherwise, (3) the conviction of Executive of (or the pleading by
Executive of NOLO CONTENDRE to) any felony, fraud or embezzlement or (4) any
material breach by Executive of the terms of this Agreement, which Executive
has failed to cure within 10 days of receipt of written notice of such breach
from the Company.
In the event of termination for Cause or resignation by Executive,
this Agreement shall terminate without further obligation by the Company,
except for payment of amounts of Base Salary and any fringe benefits accrued
through the date of such termination for Cause or resignation by Executive.
(d) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY,
CAUSE OR RESIGNATION. If Executive's employment is terminated by the Company on
or before December 17, 1998, for any reason other than Executive's death,
Disability, resignation, or for Cause, Executive shall receive as severance (i)
his Base Salary at the rate then in effect for a period of six months ("Six
Month Severance Period"), (ii) continuation
<PAGE>
of health benefits during the Six Month Severance Period substantially
similar to the health benefits provided to Executive immediately prior to
termination and (iii) all outstanding equity incentive awards (including
without limitation stock options granted) that would have become vested
during such Six Month Severance Period, shall immediately vest and remain
exercisable for a period of ninety (90) days following Executive's
termination of employment.
If Executive's employment is terminated by the Company after
December 17, 1998, for any reason other than Executive's death, Disability,
resignation, or for Cause, Executive shall receive as severance (i) his Base
Salary at the rate then in effect for a period of twelve months (such period,
the "Severance Period"), (ii) continuation of health benefits during the
Severance Period substantially similar to those provided to Executive
immediately prior to termination, (iii) all outstanding equity incentive
awards (including without limitation stock options granted) that would have
become vested during the Severance Period, shall immediately vest and remain
exercisable for a period of ninety (90) days following Executive's
termination of employment.
The Base Salary payments provided to Executive during the Severance
Period pursuant to Section 7(d)(i) hereof shall be reduced by an amount equal
to the Consulting Fee (as defined below) payable by the Company to Executive
pursuant to Section 10(a) of this Agreement.
8. CONFIDENTIAL INFORMATION AND NON-SOLICITATION.
(a) CONFIDENTIALITY. Executive acknowledges that in his
employment hereunder, and during prior periods of employment with the
Company, he has occupied and will continue to occupy a position of trust and
confidence. Executive shall not, except as may be required to perform his
duties hereunder or as required by court order or applicable law, without
limitation in time or until such information shall have become public other
than by Executive's unauthorized disclosure, disclose to others or use,
whether directly or indirectly, any Confidential Information regarding the
Company. "Confidential Information" shall mean information about the
Company, and their respective clients and customers that is not disclosed by
the Company for financial reporting purposes and that was learned by
Executive in the course of his employment by the Company, including (without
limitation) any proprietary knowledge, trade secrets,
<PAGE>
data, formulae, information and client and customer lists and all papers,
resumes, and records (including computer records) of the documents containing
such Confidential Information. Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the
Company and that such information gives the Company a competitive advantage.
Executive agrees to deliver or return to the Company, at the Company's
request at any time or upon termination or expiration of his employment or as
soon thereafter as possible, all documents, computer tapes and disks,
records, lists, data, drawings, prints, notes and written information (and
all copies thereof) furnished by the Company or prepared by Executive during
the term of his employment by the Company.
(b) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
period in which he is employed by the Company (and, in the event Executive's
employment is terminated by the Company for Cause, for a period of one (1) year
beyond the expiration of the Term), Executive shall not, directly or indirectly,
influence or attempt to influence customers or suppliers of the Company to
divert their business to any business, individual, partner, firm, corporation,
or other entity that is then a direct competitor of the Company with respect to
the manufacture and sale of bicycle components or non-automotive suspension
products (each such competitor a "Competitor of the Company").
(c) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that
he possesses and will possess confidential information about other employees
of the Company relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
the Company. Executive recognizes that the information he possesses and will
possess about these other employees is not generally known, is of substantial
value to the Company and its subsidiaries in developing its business and in
securing and retaining customers, and has been and will be acquired by him
because of his business position with the Company. Executive agrees that,
during the period in which he is employed by the Company (and, in the event
Executive's employment is terminated by the Company for Cause, for a period
of one (1) year beyond the expiration of the Term), he will not, directly or
indirectly, solicit or recruit any employee of the Company for the purpose of
being employed by him or by any Competitor of the Company on whose behalf he
is acting as an agent, representative or employee and that he will not convey
any such confidential information or trade secrets about other employees of
the Company to any other person.
<PAGE>
9. NONCOMPETITION/CONSULTING ARRANGEMENT; SURVIVAL OF PROVISIONS.
(a) NONCOMPETE/CONSULTING. For a period of one year
following termination of employment, Executive shall be a non-employee
consultant of the Company and shall provide consulting services to the
Company, as the Company reasonably requests. Executive shall not, during
such period, directly or indirectly, for his own account or for the account
of others, either as an officer, director, stockholder, owner, partner,
promoter, employee, consultant, adviser, agent, manager, or in any other
capacity assist or provide services to any person or entity that is then in
competition with the Company or its affiliates in the manufacturing and sale
of bicycle components or non-automotive suspension products. In consideration
of Executive's consulting and non-competition obligations provided herein,
Executive shall receive an annual consulting fee of $25,000 (the "Consulting
Fee"), payable at regular payroll intervals. At the Company's discretion,
after a period of twelve months, the Consulting Fee shall be terminated.
(b) SURVIVAL OF PROVISIONS. The obligations contained in
Sections 8 and 9 shall, to the extent provided in Sections 8 and 9, survive
the termination or expiration of Executive's employment with the Company and,
as applicable, shall be fully enforceable thereafter in accordance with the
terms of this Agreement. If it is determined by a court of competent
jurisdiction in any state that any restriction in Sections 9 or 10 is
excessive in duration or scope or is unreasonable or unenforceable under the
laws of that state, it is the intention of the parties that such restriction
may be modified or amended by the court to render it enforceable to the
maximum extent permitted by the law of that state.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by fax, first-class mail,
certified or registered with return receipt requested, or overnight courier
service, and shall be deemed to have been duly given three (3) days after
mailing or twenty-four (24) hours after transmission of a fax or by overnight
courier service to the respective persons named below:
<PAGE>
If to Company: RockShox, Inc.
401 Charcot Avenue
San Jose, California 95131
ATTENTION: Corporate Secretary
Phone: (408) 435-7469
Fax: (408) 435-7468
If to Executive:
Gary Patten
151 Old Adobe Road
Los Gatos, CA 95032
Phone: (408) 570-4949
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. DISPUTE RESOLUTION; ATTORNEYS' FEES. The Company and
Executive agree that any dispute, other than with respect to Sections 9 or
10, about the validity, interpretation, effect or alleged violation of this
Agreement (an "Arbitrable Dispute") must be submitted to confidential
arbitration. Arbitration shall take place before an experienced employment
arbitrator licensed to practice law and selected in accordance with the Model
Employment Arbitration Procedures of the American Arbitration Association.
Arbitration shall be the exclusive remedy of any Arbitrable Dispute. Should
any party to this Agreement pursue any Arbitrable Dispute by any method other
than arbitration, the other party shall be entitled to recover from the party
initiating the use of such method all damages, costs, expenses and attorneys'
fees incurred as a result of the use of such method. Each party shall have
the right, in addition to any other relief granted by such arbitrator (or by
any court with respect to relief granted with respect to Sections 8 or 9), to
attorneys' fees based on a determination by the arbitrator (or, with respect
to Sections 8 or 9, the court) of the extent to which each party has
prevailed as to the material issues raised in determination of the dispute.
<PAGE>
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to Executive's employment and compensation by the
Company, but only with respect to the matters expressly addressed herein.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation,
transfer, or sale of all or substantially all of the assets of the Company
with or to any other individual or entity, this Agreement shall, subject to
the provisions hereof, be binding upon and inure to the benefit of such
successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under
and in accordance with the laws of the State of Delaware.
15. WITHHOLDING. The Company shall make such deductions and
withhold such amounts from each payment made to the Executive hereunder as
may be required from time to time by law, governmental regulation or order.
16. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
17. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not
be deemed a waiver of such term, covenant, or condition, nor shall any waiver
or relinquishment of, or failure to insist upon strict compliance with, any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed
by each party hereto.
18. SEVERABILITY; POOLING.
<PAGE>
(a) In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute
or public policy, only the portions of this Agreement that violate such
statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much
effect as possible to the intentions of the parties under this Agreement.
(b) In the event that the Company is party to a transaction
which is otherwise intended to qualify for "pooling of interests" accounting
treatment then (1) this Agreement shall, to the extent practicable, be
interpreted so as to permit such accounting treatment, and (2) to the extent
that the application of clause (1) of this Section 20(b) does not preserve
the availability of such accounting treatment, then, to the extent that any
provision of the Agreement disqualifies the transaction as a "pooling"
transaction (including, if applicable, the entire Agreement), such provision
shall be null and void as of the date hereof. All determinations under this
Section 20(b) shall be made by the accounting firm whose opinion with respect
to "pooling of interests" is required as a condition to the consummation of
such transaction. The Company shall use its best efforts to maintain the
effectiveness of all provisions of the Agreement (or to give Executive the
economic benefit thereof) without adversely affecting "pooling of interests"
treatment of a transaction.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has hereunto signed
this Agreement, as of the date first above written.
ROCKSHOX, INC.
------------------------------------------
By: George Napier
Its: President and Chief Executive Officer
------------------------------------------
Gary Patten
<PAGE>
BRIDGE LOAN NOTE
$4,000,000.00 September 28, 1998
1. FOR VALUE RECEIVED the undersigned, ROCKSHOX, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of THE FIRST NATIONAL
BANK OF CHICAGO, a national banking association ("Bank"), at the times
specified in this Bridge Loan Note (this "Note") at Bank's Office at One
First National Plaza, 16th Floor, Chicago, Illinois 60670, or such other
place as the holder of this Note may from time to time designate, the total
unpaid principal amount of loans advanced hereunder by Bank from time to time
(each, a "Loan" and, collectively, the "Loans") to or for the benefit of or
at the request of Borrower from and after the date of this Note to but not
including October 27, 1998 (the "Scheduled Maturity Date"). In addition,
Borrower shall pay interest on the principal balance of Loans outstanding
hereunder at the times and at the rates specified in this Note.
2. Any person authorized to borrow on behalf of Borrower (an
"Authorized Person") may request a Loan by telephone or telex. Borrower
agrees that Bank is authorized to honor requests which it believes, in good
faith, to emanate from an Authorized Person, whether in fact that be the case
or not. Each Loan shall be in an amount not less than $100,000.00. In no
event shall the aggregate principal balance of Loans outstanding hereunder
exceed $4,000,000.00 (the "Maximum Loan Amount"). Each Loan shall be payable
in full on the Scheduled Maturity Date. In addition, the aggregate principal
amount of Loans outstanding hereunder shall be and become automatically due
and payable, without notice to or demand on Borrower or any other person or
entity, in the event of the institution by or against Borrower of any
proceeding under the bankruptcy laws of any jurisdiction or under any other
insolvency, moratorium or other debtor relief proceeding. Further, if any
amount payable hereunder is not paid when due, there is any material adverse
change in the Borrower's financial condition, there is a default under any
other agreement governing indebtedness of the Borrower or if the Borrower
becomes insolvent, howsoever evidenced, the Bank may declare all unpaid
principal and interest on Loans and unpaid fees immediately due and payable.
3. In the event Bank, in its sole and absolute discretion shall
elect to make the requested Loan, it shall no later than 12:00 noon (Los
Angeles time) on the proposed borrowing date wire the amount of said Loan to
such account or accounts as Borrower may direct. BORROWER ACKNOWLEDGES AND
AGREES THAT THE CREDIT FACILITY EVIDENCED HEREBY IS AN OPTIONAL ADVANCE
FACILITY AND THAT NOTWITHSTANDING BORROWER'S FULL COMPLIANCE WITH ALL TERMS
AND CONDITIONS HEREOF BANK MAY AT ANY TIME AND FROM TIME TO TIME REFUSE TO
MAKE LOANS HEREUNDER.
4. Each Loan shall bear interest calculated at a floating rate
per annum equal to the corporate base rate of interest announced by Bank from
time to time (the "Corporate Base Rate"), said rate to change when and as
said corporate base rate changes, said interest to be payable monthly, in
arrears on the last day of each calendar month.
1
<PAGE>
5. All amounts payable under this Note not paid when due, whether
following demand by Bank or otherwise, shall bear interest (payable on
demand) from the due date of such Loan until payment in full at a rate per
year equal to the Corporate Base Rate plus two percent (2%).
6. Interest and fees payable hereunder shall be computed on the
basis of a three hundred sixty (360) day year and actual days elapsed.
7. Borrower may at any time prepay any Loan, in whole or in part,
without premium or penalty.
8. Borrower agrees to make all payments or reimbursements under
this Note free and clear of any deduction for any present or future taxes and
agrees to pay any present or future taxes or charges with respect to such
payments or reimbursements which may be imposed by any government authority,
except net income taxes of Bank imposed by any jurisdiction.
9. In the event of a lawsuit or proceeding arising out of or
relating to this Note, the prevailing party shall be entitled to recover
costs and reasonable attorneys' fees incurred in connection with the lawsuit
or proceeding, as determined by the court or arbitrator.
10. This Note shall be governed by and construed in accordance
with the laws of the State of California without giving effect to its choice
of law rules.
11. This Note is secured pursuant to that certain security
agreement of even date herewith executed by and between Borrower and Bank
(the "Security Agreement"). Reference is hereby made to said Security
Agreement for additional rights and remedies of Bank with respect to the
credit facility evidenced hereby.
12. Borrower and Bank each hereby waive trial by jury in any
judicial proceeding involving directly or indirectly any matter (whether
sounding in tort, contract or otherwise) in any way arising out of, related
to, or connected with this Note, the Security Agreement or the relationship
established hereunder.
ROCKSHOX, INC., a Delaware corporation
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE>
AMENDED AND RESTATED INCENTIVE STOCK OPTION AGREEMENT
UNDER THE ROCKSHOX, INC.
1996 STOCK PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of
____________, 1998, (the "Effective Date") is entered into between ROCKSHOX,
INC., a Delaware corporation (the "Company"), and Robert Kaswen (the
"Optionee"), a consultant to the Company under and pursuant to the RockShox,
Inc. 1996 Stock Plan (the "Plan").
RECITALS
WHEREAS, in consideration of the services performed by the Optionee,
the Company previously granted the Optionee an option (the "Option") under the
Plan to purchase a total of 146,853 shares of the Company's common stock, par
value $0.01 per share (the "Common Stock");
WHEREAS, as of the Effective Date, Optionee shall no longer be an
employee of the Company and the Company shall retain Optionee, and Optionee
shall act, as a consultant to the Company, as the Company may reasonably request
from time to time.
NOW, THEREFORE, in consideration of such services Optionee may provide
to the Company as a consultant, the Company shall not, subject to the provisions
herein, immediately terminate Optionee's Options upon termination of his
employment with the Company.
TERMS AND CONDITIONS OF THE OPTION
(i) NATURE OF OPTION. It is intended that the Option constitute, to
the extent permitted under applicable law, an Incentive Stock Option ("ISO"), as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder (the "Code").
(ii) NUMBER OF SHARES. The Option entitles the Optionee to purchase
117,482 shares of the Company's Common Stock (the "Option Shares"). 88,112 of
the Option Shares are vested and exercisable as of the Effective Date (the
"Vested Option") and 29,370 of the shares subject to the Option are not vested
and unexercisable as of the Effective Date (the "Unvested Option").
(iii) OPTION PRICE. The exercise price for each share of Common
Stock subject to the Option shall equal $4.39 per share.
(iv) PERIOD OF OPTION. The term of the Vested Options shall commence
on May
<PAGE>
13, 1996, and terminate upon the expiration of ten years from such date or
such earlier date as provided herein. The term of the Unvested Option shall
commence on May 13, 1996, and terminate on the Effective Date. Upon
termination of the Unvested Option, all rights of the Optionee with respect
to such Unvested Option shall cease.
(v) NONTRANSFERABILITY OF OPTION. The Option may not be sold,
pledged, assigned, hypothecated, transferred, gifted or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
(vi) CHANGE OF OWNERSHIP. Upon a change of ownership of the Company
(as described in Section 13(b) of the Plan), the Company may continue,
accelerate or cancel the Option as described in Section 13(b) of the Plan,
without the consent of the Optionee.
(vii) CONSULTANCY. At the Company's written request, Optionee
shall provide to the Company mutually agreed upon consulting services (which
shall be acceptable to each of the Company and Optionee in their respective
discretion). The Company shall pay Optionee for such services in an amount
mutually agreed upon prior to the rendering of such services.
(viii) EXERCISE PROCEDURE. The Option or any part of the Option may
be exercised by giving written notice to the Company, in form satisfactory to
the Company, which notice shall specify the number of whole shares to be
purchased. The exercise procedure is described in Section 9 of the Plan.
(ix) RESTRICTIONS ON TRANSFER. The Optionee understands that, if he
is deemed to be an "affiliate" of the Company as defined in Rule 144 ("Rule
144") of the General Rules and Regulations promulgated under the Securities Act
of 1933 (the "Act"), certificates representing shares of Common Stock acquired
upon exercise of the Option may bear a legend restricting the transfer of such
shares. In such instances, Optionee may resell such shares so acquired pursuant
to (1) the provisions of Rule 144, without being subject to the holding period
requirement of that Rule, (2) any other applicable exemption from registration
under the Act or (3) a separate prospectus prepared in accordance with the
requirements of the applicable form under the Act. An Optionee who is not
deemed to be an "affiliate" of the Company may sell his shares acquired upon
exercise of the Options without compliance with the requirements of Rule 144 or
the registration requirements of the Act.
(x) INCOME TAXES. Neither the Company nor any of its
representatives or agents has made any representations or warranties to the
Optionee with respect to the income tax or other consequences of the
transactions contemplated by this Agreement, and the Optionee is in no manner
relying on the Company or any of its representatives or agents for an
assessment of such tax or other consequences.
2
<PAGE>
(xi) WRITTEN NOTICE. Any written notice under this Agreement shall
be given in the manner and shall be effective on the date provided in Section 23
of the Plan.
(xii) EMPLOYMENT OR OTHER RELATIONSHIP. Nothing contained in the
Plan shall be deemed to give the Optionee the right to be retained as a
consultant to the Company, or a successor entity, or to interfere with the right
of the Company or any such corporations to discharge Optionee at any time.
(xiii) AMENDMENT AND RESTATEMENT OF STOCK OPTION AGREEMENTS. Optionee
hereby acknowledges that this Agreement hereby amends and restates the Incentive
Stock Option Agreement entered into between the Company and Optionee on November
4, 1996, and those Incentive Stock Options subject to the Incentive Stock Option
Agreement and granted to Optionee on May 13, 1996, are now governed by, and
subject to, the terms and conditions of this Agreement, as stated herein.
(xiv) INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof.
(xv) AMENDMENTS. This Option Agreement may be amended or
modified at any time by an instrument in writing signed by the parties hereto.
(xvi) GOVERNING LAW. This Option Agreement shall be governed by
and construed according to the laws of the State of California without regard to
its principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ROCKSHOX, INC.
By:
-----------------------------------
Its
-----------------------------------
OPTIONEE
Signed:
-------------------------------
Robert Kaswen
3
<PAGE>
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement ("Release Agreement") is entered
into between ROCKSHOX, INC. (the "Company"), on the one hand, and Robert
Kaswen ("Kaswen"), on the other hand (together, the "Parties").
RECITALS
WHEREAS, Kaswen has been employed by the Company, most recently as
Vice President, Logistics;
WHEREAS, the Company and Kaswen wish to sever their employment
relationship in an orderly manner, and resolve amicably any and all matters
arising out of or relating in any way to such relationship and agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree to make the following Release Agreement:
AGREEMENT
(1) TERMINATION OF EMPLOYMENT. The Company and Kaswen agree that
as of the 8th day after signing this Release Agreement Kaswen and the Company
shall sever their employment relationship. This Release Agreement will become
effective on the date of its execution by Kaswen or at such other later date
as it may first become effective under applicable provisions of law (the
"Effective Date").
(2) SEVERANCE. Upon the 8th day after signing this Release
Agreement, Kaswen shall be eligible to receive the following severance
benefits (the "Severance Benefits"):
(a) SALARY CONTINUATION. Payments equal to twelve months of
Kaswen's base salary at the rate in effect immediately prior to the Effective
Date (the "Salary Payout"). The Salary Payout shall be paid in equal
bi-weekly installments (retroactive to July 31, 1998) and may, at Kaswen's
election prior to the Effective Date, be paid over a period of twelve months
or eighteen months (such period to be designated the "Severance Period").
After Kaswen has received a portion of his Salary Payout in an amount equal
to six months of his base salary at the rate in effect immediately prior to
the Effective Date, any additional Salary Payout shall be reduced by any
compensation earned by Kaswen as a result of employment by another employer
or compensation earned by Kaswen as a consultant.
(b) WELFARE BENEFITS. COBRA payments with respect to
medical, dental, life insurance and 125 Flexible benefits for eighteen months
(the "Welfare Period") substantially similar to those welfare benefits that
Kaswen received immediately prior to his
1
<PAGE>
termination of employment (the "Welfare Benefits"). The Welfare Benefits
shall be reduced to the extent Kaswen and his spouse are eligible to receive
(after giving effect to any pre-existing conditions provisions) similar
welfare from another employer, and thereafter the Company shall no longer be
obligated to make COBRA payments as provided hereunder.
(c) OUTPLACEMENT SERVICES. Outplacement services (including
office space, career counseling and resume services) following the Effective
Date in order to assist Kaswen in obtaining new employment; provided,
however, that such services shall cease upon the earlier of (i) Kaswen
accepting an offer of employment or (ii) eighteen months following the
Effective Date.
(3) EFFECT OF REVOCATION. Kaswen acknowledges and agrees that, in
the event that he revokes this Release Agreement pursuant to paragraph 5
hereof, he shall have no right to receive any payment under this Release
Agreement. Kaswen further acknowledges that except for the obligations under
this Release Agreement and the Stock Option Agreement (as defined below),
following the Effective Date of this Release Agreement, the Company shall
have no further obligations to Kaswen with respect to his prior relationship
with the Company. Nothing herein shall effect any rights that Kaswen may have
under Labor Code sections 2802 and 2804.
(4) MUTUAL RELEASE.
(a) Except as otherwise provided in this Release Agreement and
the Stock Option Agreement (as defined in paragraph 6), Kaswen and the
Company (collectively, the "Parties") hereby forever release and discharge
each other, and Kaswen hereby releases and discharges the Company's past and
present shareholders, officers, directors, managers, employees, agents,
attorneys, servants, affiliates, predecessors, successors and assigns, and
its and their insurers, employee welfare benefit plans, and pension or
deferred compensation plans, along with their respective trustees,
administrators, and fiduciaries (together with the Company, the "Company
Releasees" and, the Company Releasees together with Kaswen, the "Releasees"),
from any and all claims, charges, complaints, liens, demands, causes of
action, obligations, damages and liabilities, KNOWN OR UNKNOWN, SUSPECTED OR
UNSUSPECTED, that each of the Parties had, now has, or may claim to have in
the future against the other Party's Releasees and agree not to sue or to
join any other person in bringing suit against any of the Releasees arising
out of or relating in any way to the Parties' relationship through the
Effective Date of this Release Agreement. This release specifically extends,
without limitation, to claims arising under Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act of 1990, the Employee Retirement Income Security Act of
1974, the California Fair Employment and Housing Act, the California Labor
Code, and any other federal, state or local statute, regulation or ordinance.
(b) In order to provide a full and complete release, each of the
Parties understands and agrees that this Release Agreement is intended to
include all claims, if any, which the Parties may have and which the Parties
do not now know or suspect to exist in
2
<PAGE>
their respective favor against the other Party's Releasees, and that this
Release Agreement extinguishes those claims. The Parties expressly waive all
rights under California Civil Code Section 1542 ("Section 1542") or any
statute or common law principle of similar effect in any jurisdiction.
Section 1542 states as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for the
purpose of implementing a full and complete release, each of the Parties
understands and agrees that this Release Agreement is intended to include all
claims, if any, that they may have and that they do not now know or suspect
to exist in their respective favor against the Releasees and that this
Release Agreement extinguishes those claims.
(5) KASWEN'S RIGHT TO REVOKE. Kaswen acknowledges and represents
that the Company has advised him to consult with an attorney of his choosing
prior to signing this Release Agreement, and he has done so, and that he has
been given at least twenty-one (21) days during which to review and consider
the provisions of this Release Agreement and, specifically, the release at
paragraph 4, although Kaswen may sign and return it sooner if he so desires.
Kaswen further acknowledges and represents that he has been advised by the
Company that he has the right to revoke this Release Agreement for a period
of seven (7) days after signing it. Kaswen acknowledges and agrees that, if
he wishes to revoke this Release Agreement, he must do so in writing, signed
by Kaswen and received by the Company at its San Jose headquarters no later
than 5:00 p.m. Pacific Standard Time on the seventh (7th) day of the
revocation period. Kaswen further acknowledges and agrees that, in the event
that he revokes this Release Agreement, it shall have no force or effect
except to the extent otherwise expressly stated herein, and he shall have no
right to receive any payment hereunder. Kaswen understands and agrees that
the Company is under no obligation to offer any Severance Benefits, and that
he is under no obligation to consent to the release set forth in paragraph 4.
Kaswen represents that he has read this Release Agreement, including the
release at paragraph 4, and understands its terms and that he enters into
this Release Agreement freely, voluntarily, and without coercion.
(6) STOCK OPTIONS. Pursuant to the stock option agreement entered
into as of November 4, 1996, between the Company and Kaswen (the "Stock
Option Agreement"), Kaswen received an option to purchase 146,853 shares of
common stock of the Company (the "Option"), of which 88,112 shares of common
stock are vested (the "Vested Option"). The Vested Option shall remain
exercisable through the end of the stated term of the such option, and Kaswen
shall become a consultant to the Company, according to the terms of the Stock
Option Agreement, as amended and attached hereto as Exhibit "A."
3
<PAGE>
(7) VACATION. Upon termination of employment, Kaswen shall be
eligible to receive a lump sum payment of $10,630.22 which amount shall equal
Kaswen's actual accrued but unused vacation benefits. Kaswen shall not accrue
vacation benefits during the Severance Period.
(8) CONFIDENTIAL INFORMATION. In the course of his prior
relationship with the Company, Kaswen has received information that is
confidential to the Company, and others doing business with the Company
("Confidential Information"). Kaswen agrees to maintain all Confidential
Information, as well as the terms of this Release Agreement, and all
negotiations surrounding this Release Agreement, in total confidence, and not
to disclose any such information to any third party except (i) with the prior
written consent of the Company or (ii) as legally required provided that
(except with respect to the filing of Kaswen's personal income tax returns)
written notice and an opportunity to object is first given by Kaswen to the
Company of such legally required disclosure. The provisions of this
paragraph 8 shall survive any termination or revocation of this Release
Agreement.
(9) RETURN OF PROPERTY. Other than the property set forth on
Exhibit B attached hereto, Kaswen represents and warrants that he has
returned (or will return) to the Company all property belonging to the
Company that came into his possession during his prior relationship with the
Company. The provisions of this paragraph 9 shall survive any termination or
revocation of this Release Agreement.
(10) NON-SOLICITATION OF EMPLOYEES. Kaswen recognizes that he
possesses confidential information about employees of the Company relating to
their education, experience, skills, abilities, compensation and benefits,
and inter-personal relationships with customers of the Company. Kaswen
recognizes that the information he possesses about these other employees is
not generally known, is of substantial value to the Company and its
subsidiaries in developing its business and in securing and retaining
customers, and has been acquired by him because of his business position with
the Company. Kaswen agrees that (a) for a period of one year after accepting
and beginning other employment, he will not, directly or indirectly, solicit
or recruit any employee of the Company for the purpose of being employed by
him or by any other person on whose behalf he is acting as an agent,
representative or employee and (b) he will not convey any such confidential
information or trade secrets about other employees of the Company to any
other person.
(11) CONTINUING COMMITMENT. Kaswen agrees, upon request by the
Company, to consult with and provide all reasonable assistance to the Company
and to legal counsel for the Company in the investigation, defense,
institution and/or maintenance by the Company of all: (i) litigation or
potential or existing claims pending as of the Effective Date; (ii) matters
within the expertise of Kaswen and in which he was involved or of which he
had knowledge during his employment with the Company; or, (iii) matters in
which Kaswen becomes involved or of which he obtains knowledge during his
employment relationship with the Company. Such assistance includes without
limitation, reasonable attendance as a witness at
4
<PAGE>
depositions, trials or other similar proceedings. The Company agrees to
reimburse Kaswen for any and all reasonable out-of-pocket costs incurred by
Kaswen in connection with said cooperation and assistance.
(12) ARBITRATION. Any dispute arising out of or relating to this
Release Agreement that cannot be settled by good faith negotiation between
the Parties shall be submitted to ENDISPUTE for final and binding arbitration
pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference,
which arbitration shall take place in San Jose, California and shall be the
exclusive remedy of the Parties hereto. The resulting arbitration shall be
deemed a final order of a court having jurisdiction over the subject matter,
shall not be appealable, and shall be enforceable in any court of competent
jurisdiction. Submission to arbitration shall not preclude the right of any
party hereto involved in a dispute regarding this Release Agreement (each, a
"Disputing Party" and collectively, the "Disputing Parties") to institute
proceedings at law or in equity for injunctive or other relief pending the
arbitration of a matter subject to arbitration pursuant to this Release
Agreement. Any documentation and information submitted by any party in the
arbitration proceeding shall be kept strictly confidential by the Parties and
the arbitrator.
In addition to any other relief or award granted by the arbitrator
to either Disputing Party, the arbitrator shall determine the extent to which
each Disputing Party has prevailed as to the material issues raised in the
arbitration, and, based upon such determination, shall apportion to each
Disputing Party its ratable share of (i) the Disputing Parties' reasonable
attorneys' fees and other costs reasonably incurred in the arbitration, (ii)
the expense of the arbitrator, and (iii) all other expenses of the
arbitration.
(13) NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Release Agreement shall be
in writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered or certified mail or by courier or express
delivery service) to the addresses set forth beneath the name of such party
below (or to such other address as such party shall have specified in a
written notice given to the other parties hereto) or to such other address as
either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only
upon receipt:
If to Consultant:
Robert Kaswen
1145 Teresa Lane
Morgan Hill, California 95037
5
<PAGE>
If to the Company:
ROCKSHOX, INC.
401 Charcot Avenue
San Jose, California 95131
Attention: Chief Financial Officer
(14) BINDING AGREEMENT. This Release Agreement shall be binding
upon the Company and Kaswen and their respective heirs, administrators,
representatives, executors, successors and assigns, and shall be for the
benefit of the Company and Kaswen and their respective heirs, administrators,
representatives, executors, successors and assigns.
(15) ENTIRE AGREEMENT. This Release Agreement constitutes the
entire understanding between the Parties and may not be modified without the
express written consent of both Parties. This Release Agreement supersedes
all prior and simultaneous written and oral agreements, understandings and
negotiations between the Parties regarding the subject matter of this Release
Agreement.
(16) SEVERABILITY. In the event that any one or more of the
provisions of this Release Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby.
(17) GOVERNING LAW. This Release Agreement will be construed and
enforced pursuant to the laws of the State of California without regard to
its conflict of law rules.
(18) COUNTERPARTS. This Release Agreement may be executed in one
or more counterparts, each of which shall be deemed to constitute an original
and which together shall constitute one and the same Release Agreement.
6
<PAGE>
Kaswen acknowledges that he has read this Release Agreement and
understands its terms. By signing this Release Agreement, Kaswen
acknowledges and agrees that he enters into this Release Agreement knowingly,
voluntarily and without coercion, that he has had sufficient opportunity to
consult with legal counsel of his choice, and Kaswen does not rely, and has
not relied, on any fact, representation, statement or assumption other than
as specifically set forth in this Release Agreement.
<TABLE>
<S> <C>
Agreed to on: __________________ Agreed to on: _______________
ROCKSHOX, INC. ROBERT KASWEN
____________________________ _____________________________
By:
Its:
</TABLE>
7
<PAGE>
Date: June 29, 1998
From: George Napier
To: Charlie Noreen
RE: SEPARATION OF EMPLOYMENT
This memo of understanding accommodates your wish to leave RockShox by
describing your transition of duties between now and your resignation, effective
July 22, 1998.
Between now and July 22, your position as VP, CFO will continue with primary
focus as described in the objectives listed below:
- Close Q1 books (with Gary Patten)
- Complete and publish Annual Report and Proxies
- Plan and participate in the Q1 Board Meeting and Earnings Release
- Complete negotiations for building moves and subleases
We may jointly develop additional projects as required.
Effective July 23, 1998, you will continue as an employee of the Company, no
longer be an officer of the Company and your new title will be Vice
President, Business Development. RockShox will contract for outplacement
services that will, at the least, provide a temporary office and could
include other mutually agreeable services to resolve your career change and
to complete certain projects, as determined jointly between you and me. Your
present salary ($155,000 annually), paid bi-weekly, as well as medical, life
insurance and 125 benefits will continue until the earlier of January 22,
1999, or until you find other employment or income stream. You will notify us
promptly when either occurrence takes place. PTO and VTO will cease to accrue
as of July 23, 1998 and unused VTO will be paid out when other employment is
found.
In consideration of the above accommodation, we will ask you to sign a
release of responsibility.
Agreed:
------------------------------ ------------------
George Napier Date
------------------------------ ------------------
Charlie Noreen Date
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,115
<SECURITIES> 0
<RECEIVABLES> 14,690
<ALLOWANCES> (1,086)
<INVENTORY> 16,607
<CURRENT-ASSETS> 38,396
<PP&E> 26,430
<DEPRECIATION> (11,089)
<TOTAL-ASSETS> 53,942
<CURRENT-LIABILITIES> 19,374
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 34,430
<TOTAL-LIABILITY-AND-EQUITY> 53,942
<SALES> 38,705
<TOTAL-REVENUES> 38,705
<CGS> 33,092
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<INCOME-PRETAX> (4,467)
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