<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999
REGISTRATION NO.333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ROCKFORD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
ARIZONA 3651 86-0394353
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
546 SOUTH ROCKFORD DRIVE
TEMPE, ARIZONA 85281
(480) 967-3565 (800) 366-2349
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
W. GARY SUTTLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROCKFORD CORPORATION
546 SOUTH ROCKFORD DRIVE
TEMPE, ARIZONA 85281
(480) 967-3565 (800) 366-2349
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
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KEVIN L. OLSON RONALD G. SKLOSS
STEPTOE & JOHNSON LLP BROBECK, PHLEGER & HARRISON LLP
40 N. CENTRAL AVENUE, SUITE 2400 301 CONGRESS AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004 AUSTIN, TEXAS 78701
(602) 257-5275 (512) 477-5495
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for this same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for this same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per share.................... $46,000,000 $12,788
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 (a) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 26, 1999
PROSPECTUS
SHARES
[ROCKFORD CORPORATION LOGO]
COMMON STOCK
------------------------
Of the shares of common stock offered, we are offering
shares and certain shareholders, none of whom are involved in our day-to-day
operations, are offering shares. We will not receive any of the
proceeds from the shares sold by the selling shareholders. This is our initial
public offering and no public market currently exists for our shares. We will
apply to have our common stock approved for quotation on The Nasdaq National
Market under the symbol "ROFO." We anticipate that the initial public offering
price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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PER SHARE TOTAL
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Initial Public Offering Price............................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Rockford........................................ $ $
Proceeds to Selling Shareholders............................ $ $
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The underwriters may also purchase up to an additional shares
from us at the initial public offering price, less the underwriting discounts
and commissions, within 30 days from the date of this prospectus, to cover
over-allotments. Needham & Company, Inc. expects to deliver the shares of common
stock to purchasers on , 1999.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS ILLEGAL FOR ANY PERSON TO TELL YOU
OTHERWISE.
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NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1999
<PAGE> 3
Inside front cover
Entire page: [Close up picture of Rockford wolf]
Upper left: [Diamond R and Rockford Fosgate Logo]
Down right margin: Pictures of Rockford Fosgate products:
2 channel/multi-channel amplifiers
Subwoofers
Source Units
Trunk Mount/In Dash Signal Processors
Coax/Full Range Speakers
Bottom left: [Vicious car audio trademark]
Inside gatefold of page 2:
Left margin: [Diamond R, Rockford Fosgate, and car audio for fanatics Logo]
Upper left: Specialty Retailers 5000 stores worldwide
[Photo of specialty retailer storefront and Rockford product display]
Middle left: National Chains 300+ Stores in the USA
[Photo of Best Buy store and Rockford product display]
Bottom left: Global Fanatics
Israel [Photo of car audio contestants]
Germany [Photo of vehicle with Rockford logos and wolf]
United States [Photo of boys with car audio trophy]
Japan [Photo of vehicle with Rockford wolf]
Upper center: Rockford Worldwide Distribution
[Map showing countries where Rockford Fosgate products are distributed]
Upper right: [Photo of Rockford Fosgate demo truck]
[System diagram showing system installed in truck]
Six 12" Woofers, Thousands of watts, and 5.1 surround sound
[Photos and description of specific products, including source units,
crossovers, amplifiers, full-range speakers, and woofers]
Over 6000 watts
Lower right: www.rockfordfosgate.com
[images of wolf logo and product information from our website]
Text in center: In 1973, Fosgate, the first glimmer of hope in high performance
car audio, emerged from the primordial soup of 8 tracks and wax paper speakers.
In 1998, Rockford Fosgate redefined the evolution of the car audio industry. If
you haven't heard of us, you've HEARD us. If you haven't seen us, you've HEARD
us. If you haven't been annoyed by what we do, you'll be intrigued by how we do
it. To understand what Rockford Corporation is all about, you only need to
understand our customers. They are young adults who are passionate about their
lifestyle. Typically customers begin as hobbyists who become enthusiasts:
possessed by the dream of evolving to the fanatic fringe. They are loud, they
are proud, and most importantly, they are brand loyal to the cult extreme. They
choose Rockford Fosgate!
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Special Note Regarding Forward-Looking Statements........... 8
Risk Factors................................................ 8
Use of Proceeds............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Dividend Policy............................................. 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 41
Certain Transactions........................................ 48
Principal and Selling Shareholders.......................... 50
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Legal Matters............................................... 59
Experts..................................................... 59
Where You Can Find More Information......................... 59
Index to Consolidated Financial Statements.................. F-1
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------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. The information in this
prospectus may only be accurate as of the date of this prospectus.
This prospectus may not contain all of the information that is important to
you. You should read the entire prospectus before making an investment decision.
All references to "we," "us," "our" or "Rockford" in this prospectus mean
Rockford Corporation and all entities we own or control. Rockford Fosgate(R),
The Punch(R), Connecting Punch(R), Punch Sport(R), Practice Safe Sound(R), Car
Audio for Fanatics(R), Hafler(R) and our "Diamond R" logo are registered
trademarks of Rockford. This prospectus also includes other trade names,
trademarks and service marks of Rockford and of other companies.
Until 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including the "Risk Factors" section and the financial statements and
the notes to those statements.
ROCKFORD
We are a leading designer, manufacturer and distributor of high-performance
car audio systems for the worldwide car audio aftermarket. Our car audio
products include technologically advanced amplifiers, speakers, source units and
accessories marketed under our Rockford Fosgate brand name. We also sell
professional audio products under our Hafler brand name.
Rockford Fosgate is one of the world's premier high-performance car audio
brands. For nearly 20 years, Rockford Fosgate has been the brand of choice among
our core Generation Y consumers, particularly 16-24 year old males. We believe
our core consumers perceive our Rockford Fosgate brand as the "coolest" car
audio brand. Our core consumers are extremely, almost fanatically, loyal to our
Rockford Fosgate brand, and proudly display our logos on their cars, clothing
and even their bodies.
We devote significant resources to enhancing our brand image by using
hard-hitting, "in your face" marketing combined with cutting-edge technology and
innovation. We believe our efforts have generated loyalty among both our core
consumers, who devote a significant portion of their time and disposable income
to their car audio systems, and among our retailers, who use our brand, products
and distinctive marketing programs to attract Generation Y and other consumers.
We believe our ability to deliver innovative products to market quickly
appeals to our core consumers' desire for distinctive, "leading edge" products
and powerful, high quality sound. To maintain and further enhance our unique
heritage, we continue to develop new products that are reliable, durable,
technologically advanced and designed to set industry standards in their product
categories. Our Rockford Fosgate and Hafler products have won numerous consumer
and industry awards. We are committed to maintaining our premier position in car
and professional audio by working closely with distributors, retailers and
consumers to satisfy their needs and preferences.
According to the Consumer Electronics Manufacturers' Association, total
worldwide factory sales of car audio products were approximately $14.7 billion
in 1998, of which $6.3 billion represented aftermarket sales. The international
market for car audio products is more than twice the size of the U.S. market.
We currently sell our car audio products in the U.S. through a network of
over 1,500 retail stores. Internationally, we sell our car audio products in
over 60 countries through independent distributors and sales representatives. We
distribute our car audio products to consumers primarily through specialty
dealers, audio/video retailers, national consumer electronics chains and catalog
merchants. Historically, specialty dealers have dominated the retail
distribution of car audio aftermarket products.
Over the last several years, as a result of changing consumer buying
patterns, the audio/ video and consumer electronics retailers have been the
fastest growing distribution channels for car audio products. To capitalize on
changing industry dynamics, in early 1999, we began distributing our products
through Best Buy, one of the largest national consumer electronics chains, in
all of its more than 300 stores nationwide.
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Our goal is to design, produce and distribute the best engineered and most
recognized and respected brands of high-performance car and professional audio
products in the world. Each element of our strategy is intended to enhance and
reinforce the global brand images of Rockford Fosgate and Hafler among consumers
and retailers. Key elements of our growth strategy are to:
- Promote Our Unique Brand Image. We intend to continue to enhance the
Rockford Fosgate and Hafler brands by projecting an image that appeals to
consumers who appreciate brand authenticity and value;
- Introduce New and Innovative Products. We believe our ability to quickly
deliver innovative products to market appeals to consumers' desire for
"leading edge" products and provides a significant competitive advantage;
- Develop a Second Brand. We plan to develop, internally or through
acquisitions, a second brand to be sold at lower price points than our
current products. This strategy will help us enhance and expand our
product offerings and increase our distribution capabilities;
- Expand Channels of Distribution. We believe our selective distribution
increases brand loyalty, enhances retailers' profit margins and
encourages retailers to carry a broad range of our products. We also
believe that we have significant opportunities to increase our existing
channels of distribution; and
- Capitalize on International Opportunities. We believe that the Rockford
Fosgate brand name is as widely recognized in many foreign countries as
it is in the U.S. We intend to aggressively expand both Rockford Fosgate
and Hafler in international markets.
As a result of our growth strategy, we believe we can significantly grow our
business and become a much larger participant in the $6.3 billion car audio
aftermarket industry worldwide.
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Our principal executive offices are located at 546 South Rockford Drive,
Tempe, Arizona 85281, and our telephone number is (480) 967-3565. Our corporate
Web site is located at www.rockfordcorp.com. Information contained on our Web
site does not constitute a part of this prospectus.
5
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THE OFFERING
Except as otherwise indicated, all information in this prospectus assumes a
4.7-for-1 split of the common stock to be effected prior to the completion of
this offering and assumes no exercise of the underwriters' over-allotment
option.
Common stock offered by Rockford.......... shares
Common stock offered by selling
shareholders.............................. shares
Common stock to be outstanding after
the offering............................ shares(1)
Use of proceeds........................... For repayment of debt, working
capital and other general
corporate purposes. See "Use of
Proceeds."
Risk factors.............................. An investment in our common stock
involves risks. See "Risk Factors"
beginning on page 8 to read about
the risks you should consider
before buying shares of our common
stock.
Proposed Nasdaq National Market symbol.... ROFO
- ---------------
(1) The total number of shares, as at May 15, 1999, includes the issuance of
117,500 shares of common stock in conjunction with the conversion of
$262,500 of the 8.5% convertible subordinated debentures to occur upon
completion of the offering. The total excludes shares of common stock
issuable upon exercise of other outstanding convertible debentures, options
and warrants to purchase our common stock. You should be aware that we are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. If and
when we issue these shares, the percentage of common stock you own may be
diluted. The following is a summary of additional shares of common stock
issuable as at May 15, 1999:
- 327,787 shares of common stock issuable upon exercise of the 8.5%
convertible subordinated debentures, assuming conversion of $262,500 of
debentures into 117,500 shares in this offering;
- 2,207,858 shares of common stock issuable upon exercise of outstanding
options, with a weighted average exercise price of $3.06 per share;
- 70,500 shares of common stock issuable upon exercise of outstanding
options, with an exercise price of the per share price of this offering;
- 108,302 shares of common stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $1.35 per share;
- 355,404 shares of common stock reserved for future issuance under our
1994 and 1997 stock option plans; and
- 394,800 shares of common stock reserved for future issuance under our
1999 employee stock purchase plan.
6
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following summary consolidated financial data in
conjunction with our financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. Set forth below are summary
consolidated statements of operations data for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999. Also set
forth below is summary consolidated balance sheet data as at March 31, 1999, on
an actual, pro forma and pro forma as adjusted basis. The pro forma data gives
effect to the conversion of a $1,000,001 subordinated promissory note to a
related party into 316,498 shares of common stock on May 1, 1999 and the
conversion of $262,500 of the 8.5% convertible subordinated debentures into
117,500 shares of common stock to occur upon completion of this offering. The
pro forma as adjusted data gives effect to the sale by us of shares in this
offering at an assumed initial public offering price of $ per share, our
receipt of the estimated proceeds of that sale after deducting underwriting
discounts and commissions and estimated offering expenses payable by us, and the
application of the net proceeds therefrom. See "Capitalization."
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Sales............................... $82,715 $88,783 $89,006 $20,776 $32,026
Cost of goods sold.................. 57,057 57,321 55,146 13,148 19,567
------- ------- ------- ------- -------
Gross profit........................ 25,658 31,462 33,860 7,628 12,459
Operating income.................... 725 4,646 5,523 789 3,324
Net income (loss)................... $ (932) $ 1,632 $ 2,305 $ 258 $ 1,802
======= ======= ======= ======= =======
Net income (loss) per share:
Basic............................. $ (0.21) $ 0.34 $ 0.48 $ 0.05 $ 0.37
======= ======= ======= ======= =======
Diluted........................... $ (0.21) $ 0.28 $ 0.37 $ 0.05 $ 0.27
======= ======= ======= ======= =======
Shares used to calculate net income
(loss) per share:
Basic............................. 4,496 4,811 4,822 4,822 4,822
======= ======= ======= ======= =======
Diluted........................... 4,496 6,179 6,453 6,258 6,846
======= ======= ======= ======= =======
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MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $15,590 $16,590 $
Total assets........................................... 44,703 44,703
Long-term debt and capital lease obligations........... 14,654 14,391 1,396
Total liabilities...................................... 38,054 36,791 23,396
Shareholders' equity................................... 6,632 7,895
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<PAGE> 9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including, without
limitation, statements concerning the future of our industry, product
development, business strategy (including the possibility of future
acquisitions), continued acceptance and growth of our products, dependence on
significant customers and suppliers, and the adequacy of our available cash
resources. These statements may be identified by the use of forward-looking
terminology such as "may," "will," "believe," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, and may contain projections of results of operations or of
financial condition or state other forward-looking information. When considering
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus. The risk factors noted below, and
other factors noted throughout this prospectus, could cause our actual results
to differ significantly from those contained in any forward-looking statement.
We may not update or publicly release the results of these forward-looking
statements to reflect events or circumstances after the date of this prospectus.
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
risks, including those described below. You should consider carefully these risk
factors, together with all of the other information included in this prospectus,
before you decide to purchase shares of our common stock.
WE ARE DEPENDENT ON DEMAND FOR CAR AUDIO PRODUCTS; THE CAR AUDIO INDUSTRY IS
RAPIDLY EVOLVING AND OUR PRODUCTS MAY NOT SATISFY SHIFTING CONSUMER DEMAND OR
COMPETE SUCCESSFULLY WITH COMPETITORS' PRODUCTS
Our success will depend, in large part, on our ability to introduce
distinctive new products that anticipate and capitalize upon emerging
technologies and changing consumer demands. If we do not introduce new products,
misinterpret consumer preferences or fail to respond to changes in the
marketplace, consumer demand for our products could decrease and our brand image
could suffer. In addition, our competitors may introduce superior designs or
business strategies, undermining our distinctive image and our products'
desirability. Any of these events would adversely affect our business, financial
condition and results of operations.
WE MUST ADAPT TO CHANGING DISTRIBUTION CHANNELS FOR CAR AUDIO PRODUCTS TO
MAINTAIN OUR MARKET SHARE AND BRAND IMAGE
We must successfully capitalize on new distribution strategies because the
principal distributors of our products are losing market share. We historically
distributed our products primarily through specialty dealers who sold only car
audio products. Over the last several years, specialty dealers have lost market
share to audio/video retailers and large consumer electronics retailers. We
believe this trend is likely to continue and we are now increasing distribution
of our products through these emerging distribution channels. This change in
distribution channels creates significant risks that:
- We may alienate our specialty dealer base. Some specialty dealers may
react to our new strategy by reducing their purchases or even replacing
our products with competing product lines. Reduced specialty dealer
loyalty could reduce our market share because specialty dealers continue
to hold a large share of the market and contribute substantially to our
brand image among our core consumers; and
8
<PAGE> 10
- Our brand image may erode. Selling in less-specialized distribution
channels may erode our brand image, which could decrease our product
prices and profit margins.
Our inability to manage our new distribution channels in a way that mitigates
these risks would have a material adverse effect on our business, financial
condition and results of operations.
WE ARE HIGHLY DEPENDENT ON SALES OF OUR AMPLIFIER AND SPEAKER PRODUCTS
Any decrease in demand for our amplifiers or speakers could have a material
adverse effect on our business, financial condition and results of operations.
These two product lines collectively accounted for approximately 78% of our
sales in calendar year 1996, 79% in 1997 and 82% in 1998. We expect these two
product lines to continue to account for a significant portion of our sales in
the foreseeable future.
WE RELY HEAVILY UPON BEST BUY AS A SIGNIFICANT CUSTOMER; OUR RELATIONSHIP IS
VERY RECENT AND WE COULD LOSE THIS CUSTOMER AT ANY TIME
The loss of Best Buy as a customer or significant fluctuations or
reductions in its purchases of our products would have a material adverse effect
on our business, financial condition and results of operations. Including Best
Buy's $4.4 million initial purchase of our products to stock its distribution
channel, Best Buy accounted for 25.6% of our sales in the three months ended
March 31, 1999. We anticipate that Best Buy will continue to account for a
significant portion of our sales for the foreseeable future. Best Buy is not
obligated to any long-term purchases of our products and has considerable
discretion to reduce, change or terminate its purchases of our products.
Further, our relationship with Best Buy is recent, as we shipped our first
products to Best Buy in January 1999. We cannot be certain that we will retain
this customer or maintain a relationship as favorable as currently exists.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST OUR CURRENT AND FUTURE
COMPETITORS
Competition could result in reduced margins on our products and loss of
market share. Our markets are very competitive, highly fragmented, rapidly
changing and characterized by price competition and, in the car audio market,
rapid product obsolescence. Our principal car audio competitors include Alpine,
Clarion, Fujitsu Eclipse, JL Audio, Kicker, MTX, Orion, Panasonic, Phoenix Gold,
Pioneer and Sony. We also compete indirectly with automobile manufacturers, who
may improve the quality of original equipment sound systems, reducing demand for
our aftermarket car audio products, or change the designs of their cars to make
installation of our products more difficult or expensive.
Some of our competitors have greater financial, technical and other
resources than we do and many seek to offer lower prices on competing products.
To remain competitive, we believe we must regularly introduce new products, add
performance features to existing products and limit increases in prices or even
reduce them.
SEASONALITY OF CAR AUDIO SALES CAUSES OUR QUARTERLY SALES TO FLUCTUATE
Our sales are generally greater during the second and third quarters of
each calendar year and lower during the first and fourth quarters, with our
lowest sales typically occurring during the fourth quarter. As a result, after
the announcement of our results of operations for the first and fourth quarters,
our stock price may be lower than at other times of the year. We experience this
seasonality because consumers tend to buy car audio products during the spring
and summer when students are on semester breaks and generally more favorable
weather facilitates installation of our products.
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<PAGE> 11
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY, MAKING FINANCIAL
FORECASTING DIFFICULT AND MAKING OUR STOCK PRICE VOLATILE
Our quarterly results of operations are difficult to predict and may
fluctuate significantly from quarter to quarter. In some quarters, our operating
results may fall below the expectations of public market analysts and investors.
Our quarterly operating results are difficult to forecast for many reasons, some
of which are outside of our control, including:
- consumer demand for, and acceptance of, our products;
- the level of product, price and dealer competition;
- general economic conditions, both in the U.S. and internationally;
- size and timing of product orders and shipments, particularly by
significant customers such as Best Buy;
- our ability to develop new products and product enhancements that respond
to changes in technology and consumer needs and preferences while
controlling costs;
- our successes or failures in expanding our customer base and distribution
channels;
- weather conditions, which affect our consumers' ability to install our
products;
- capacity and supply constraints or difficulties;
- timing of marketing programs;
- changes in foreign currency exchange rates; and
- risks associated with potential acquisitions.
As a result, you should not rely on historical results as an indication of our
future performance. In addition, some of our expenses are fixed and cannot be
reduced in the short term. Accordingly, if sales do not meet our expectations,
our results of operations are likely to be negatively and disproportionately
affected. In this event, our stock price may fall dramatically.
CAR AUDIO SALES ARE HIGHLY INFLUENCED BY CONSUMER DEMAND FOR DISCRETIONARY ITEMS
A recession in the general economy or a general decline in consumer
spending would likely have a material adverse effect on our business, financial
condition and results of operations because car audio purchases are highly
discretionary. Consumer spending is volatile and is affected by certain economic
conditions, such as:
- general business conditions;
- employment levels, especially among our core consumers;
- consumer confidence in future economic conditions; and
- interest and tax rates.
WE MAY BE UNABLE TO EXECUTE SUCCESSFULLY OUR GROWTH STRATEGY
If we do not execute our business plan, our business may erode. Our
business plan contemplates that we will:
- promote our unique brand image;
- introduce new and innovative products;
- develop a second brand;
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<PAGE> 12
- expand channels of distribution, such as Best Buy; and
- capitalize on international opportunities.
We cannot be certain that we will achieve these objectives through internal
growth, acquisitions or other means. Acquisitions carry significant risks, since
negotiations of potential acquisitions and their subsequent integration could
divert management's time and resources from our core business. Potential
acquisitions could require us to issue dilutive equity securities, incur debt or
contingent liabilities, amortize goodwill and other intangible expenses or incur
other acquisition-related costs. Further, we may be unable to integrate
successfully any acquisition and we may not obtain the intended benefits of that
acquisition.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH
Our growth has placed, and our anticipated future growth would continue to
place, a significant strain on our resources and capacity. To manage our growth,
we must:
- retain and hire skilled, competent employees;
- continue to improve coordination among our technical, product
development, manufacturing, sales and financial departments; and
- maintain our financial, operational and managerial systems and controls.
Our inability to manage growth effectively could have a material adverse effect
on our business, financial condition and results of operations.
WE MUST CONTINUE TO DEVELOP, INTRODUCE AND ACHIEVE MARKET ACCEPTANCE OF NEW AND
ENHANCED PRODUCTS
We must maintain and improve existing products, while successfully
developing and introducing new products, in order to increase sales in current
markets and gain footholds in new markets. Our new and enhanced products must
respond to technological developments and changing consumer needs and
preferences. We may experience difficulties that delay or prevent the
development, introduction or market acceptance of new or enhanced products.
Furthermore, despite extensive testing, we may not be able to detect and correct
defects in our products before we ship them to our customers. This may result in
loss of sales or delays in market acceptance. Even after we introduce them, our
new or enhanced products may not satisfy consumer preferences and product
failures may cause consumers to reject our products. As a result, these products
may not achieve market acceptance. In addition, our competitors' new products
and product enhancements may cause consumers to defer or forego purchases of our
products.
WE MUST MANAGE OUR PRODUCT INVENTORY IN PROPORTION TO DEMAND
Our success depends in large part on our ability to manage our inventory of
products in proportion to demand. Our dealers have many brands to choose from
when they decide to order products and if we cannot deliver products quickly and
reliably, they will likely order from one of our competitors. We must stock
enough inventory to fill orders promptly, which increases our financing
requirements and the risk of inventory obsolescence. Because competition has
required us to shorten our product life cycle and more rapidly introduce new and
enhanced products, there is a growing and significant risk that our inventory
could become obsolete.
11
<PAGE> 13
OUR INTERNATIONAL OPERATIONS PRESENT SPECIAL RISKS
Our international business, as well as the businesses of our distributors
and suppliers, are subject to the risks inherent in international trade,
including risks resulting from:
- changes in tariff regulations;
- political instability, war, terrorism and other political risks;
- foreign currency exchange rate fluctuations;
- establishing and maintaining relationships with local distributors and
dealers;
- lengthy shipping times and accounts receivable payment cycles;
- import and export licensing requirements;
- compliance with a variety of foreign laws and regulations, including
unexpected changes in taxation and regulatory requirements;
- greater difficulty in safeguarding intellectual property than in the
U.S.; and
- difficulty in staffing and managing geographically dispersed operations.
Changes in these and other factors may increase the relative price of our
products compared to those manufactured in other countries, reducing the demand
for our products. Beginning in the last six months of 1997 and continuing into
1999, countries in Asia and Latin America have experienced unstable local
economies and significant devaluations of local currencies. These instabilities
may continue or worsen, which could have a material adverse effect on our
business, financial condition, and results of operations. Our sales in Asia and
Latin America, collectively, constituted 10.6% of total sales for 1998 and 5.5%
of sales for the three months ended March 31, 1999.
International customers accounted for 28.0% of our sales in calendar year
1996, 26.1% in 1997 and 19.7% in 1998. To continue our growth and profitability,
we will need to expand our sales in international markets. We primarily rely on
distributors, who purchase and resell our products, for a substantial portion of
our international sales. Each distributor is responsible for one or more
particular countries. When we have disputes with a distributor, or decide we
must change our relationship with a distributor, we may disrupt the market for
our products in that country and lose sales. If we change a relationship with a
distributor, we may repurchase that distributor's inventory, which would reduce
our sales proportionately.
Recently, we initiated a strategy of moving to a "one-step" distribution
system in larger markets by converting selected distributors into independent
sales representatives, allowing us to sell directly to retailers. We believe
this strategy will increase our gross margins while lowering the cost of our
products to retailers and consumers. To the extent we extend this strategy into
additional markets, we would incur higher operating expenses, including sales
commissions, warranty costs and customer service expenses, and would have higher
working capital requirements and risks because of increased inventory and
accounts receivable.
We may be affected by foreign currency exchange rate fluctuations. In early
1999, we began making sales to Canadian and German dealers in their respective
currencies. Previously, all our international sales were denominated solely in
U.S. dollars and, accordingly, we were not directly exposed to fluctuations in
foreign currency exchange rates. An increasing portion of our international
sales will likely be denominated in currencies other than U.S. dollars,
increasing our exposure to gains and losses on foreign currency transactions. We
currently do not trade in derivatives or other financial instruments to reduce
currency risks; however, we attempt to create "natural" hedges when possible by
matching our assets and liabilities in a given currency. We may not be able to
execute this
12
<PAGE> 14
strategy and it may not protect us in the event of substantial currency
fluctuations. We may in the future try to limit our foreign currency exposure by
engaging in more aggressive hedging strategies.
WE DEPEND ON A FEW KEY SUPPLIERS
We have not experienced significant supply restrictions in the past, but
our manufacturing processes recently have become more dependent on
"just-in-time" suppliers who are globally sourced. Accordingly, our exposure to
supply restrictions has increased. We do not have any long-term price
commitments from our suppliers and any cost increases may reduce our margins or
require us to raise our prices to protect our margins. Despite the precautions
we take, the components and materials we receive from third-party suppliers may
not always conform to our quality standards. We cannot be certain that we could
locate, within reasonable time frames, alternative sources of components and
materials at similar prices and quality levels of our current suppliers.
Starting in 1999, Hyundai Electronics, a large Korean company, began
supplying us with all of the source units we resell under the Rockford Fosgate
brand name. If Hyundai refuses or is unable to supply source units that meet our
quality standards and specified quantities, we believe we would require a
substantial amount of time to identify and begin receiving source units with
acceptable features and quality from another supplier. During the interim, we
would not have any supply of source units and our sales of source units would be
significantly reduced.
WE MAY BE UNABLE TO RETAIN AND ATTRACT KEY EMPLOYEES, WHICH COULD IMPAIR OUR
BUSINESS
We operate in highly competitive employment markets and cannot guarantee
our continued success in retaining and attracting the employees we need to
develop, manufacture and market our products and manage our operations. Our
business strategy and operations depend, to a large extent, on our senior
management team, particularly Gary Suttle, our President and Chief Executive
Officer. We maintain a $1.0 million key-person life insurance policy covering
Mr. Suttle. We do not have key-person life insurance on or employment contracts
with any of our key employees, other than Mr. Suttle. The terms of Mr. Suttle's
employment contract are limited and if Mr. Suttle or other key members of our
management team are unable or unwilling to continue in their present positions,
our business, financial condition and results of operations could suffer.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF OUR INTELLECTUAL
PROPERTY
Our future success will depend, in substantial part, on our intellectual
property. We seek to protect our intellectual property rights, but our actions
may not adequately protect the rights covered by our patents, patent
applications, trademarks and other proprietary rights, and prosecution of our
claims could be time consuming and costly. In addition, the intellectual
property laws of some foreign countries do not protect our proprietary rights as
do the laws of the U.S. We generally control access to and distribution of our
proprietary information. Despite our efforts to protect our proprietary
information, third parties may obtain, disclose or use our proprietary
information without our authorization. If they do, their actions could have a
material adverse effect on our business, financial condition and results of
operations.
From time to time, third parties have alleged that we infringe their
proprietary rights. In particular, we have exchanged correspondence with a third
party regarding our alleged infringement of patents held by that party. We
believe that our products do not infringe any valid patents cited in the
correspondence. Nonetheless, these claims or similar future claims
13
<PAGE> 15
could subject us to significant liability for damages, result in the
invalidation of our proprietary rights, limit our ability to use infringing
intellectual property or force us to license third-party technology rather than
dispute the merits of any infringement claim. Even if we prevail, any associated
litigation could be time-consuming and expensive and could result in the
diversion of our time and resources. Any of these developments could have a
material adverse effect on our business, financial condition and results of
operations.
OUR SHARES HAVE NEVER BEEN PUBLICLY TRADED, SO WE CANNOT PREDICT THE EXTENT TO
WHICH A TRADING MARKET WILL DEVELOP FOR OUR SHARES
This is our initial public offering and there has not been a public market
for our common stock. We cannot predict whether a trading market will develop or
how liquid that market may become. We and the selling shareholders will
establish the initial public offering price based on our negotiations with the
underwriters. That price may not be indicative of the price that will develop in
the trading market.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE
The market price of our common stock is likely to be highly volatile. You
may not be able to resell your shares during or following periods of volatility
because of the market's adverse reaction to such volatility. Factors that could
cause market volatility may include:
- actual or anticipated variations in our quarterly operating results;
- changes in market expectations or in analysts' earnings estimates;
- changes in investor confidence in us or our industry;
- changes in conditions in the car audio industry;
- new products or technological innovations introduced by us or our
competitors;
- announcements by us or our competitors of significant acquisitions or
strategic relationships;
- additions or departures of our key personnel; and
- general economic conditions or stock market volatility.
YEAR 2000 ISSUES MAY CAUSE US TO LOSE SALES, INCREASE OUR COSTS OR DISRUPT OUR
OPERATIONS
If our computer and information technology systems, or those of any
material third party, are not Year 2000 compliant, their failure could have a
material adverse effect on our business, financial condition and results of
operations. We may fail to discover Year 2000 compliance problems, even though
we have tested most of our systems and have commenced a survey of our material
suppliers' Year 2000 compliance efforts. If there are compliance problems, our
systems may require substantial revisions or replacements and our third-party
suppliers may not be able to deliver products or services to us.
In addition, governmental agencies, utility companies, third-party service
providers and others outside our control may not be Year 2000 compliant. This
could result in a systemic failure beyond our control, including, for example, a
prolonged telecommunications or electrical failure, which could also prevent us
from communicating with our customers and manufacturing and shipping our
products. We are engaged in an ongoing Year 2000 assessment and have not
developed any contingency plans over and above our normal business operation
contingency plans. We will take into account the results of our Year 2000
simulation testing and the results of our third-party surveys in determining the
need for, and nature and extent of, any contingency plans. Our inability to
correct a significant Year 2000
14
<PAGE> 16
problem, if one develops, could result in an interruption in, or a failure of,
certain of our normal business activities or operations. Any material Year 2000
problem could require us to incur significant unanticipated expenses to remedy,
could divert our management's time and attention and could have a material
adverse effect on our business, financial condition and results of operations.
OUR CURRENT SHAREHOLDERS WILL RETAIN CONTROL
After the offering, Mr. Suttle and various shareholders affiliated with or
related to two of our directors, Nicholas G. Bartol and Timothy C. Bartol, will
collectively hold % of our outstanding shares. These shareholders, if they
act together, will be able to control the outcome of all matters submitted for
shareholder action, including the election of our board of directors and the
approval of significant corporate transactions. Consequently, these shareholders
will effectively control our management and affairs, which may limit the
liquidity of our shares, discourage acquisition bids for Rockford and limit the
price some investors might be willing to pay for our shares.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase shares in this offering, you will incur immediate and
substantial dilution in pro forma net tangible book value per share of $ .
You will pay a price per share which substantially exceeds the value of our
assets after subtracting our liabilities. You and the other investors in this
offering will contribute % of the total amount paid to us for our common
stock, but will own only % of our outstanding shares. To the extent
outstanding options or warrants to purchase our shares are exercised, you will
suffer further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE
Following this offering, we will have a large number of shares of common
stock outstanding and available for resale immediately and also at various
points in time in the future. The market price of our common stock could decline
as a result of sales of a large number of shares in the market following this
offering, or the perception that such sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate.
OUR ANTI-TAKEOVER PROVISIONS COULD AFFECT THE VALUE OF OUR STOCK
Provisions of our articles of incorporation and bylaws and Arizona law
could discourage potential acquirors from attempting to acquire us. This could
deprive our shareholders of opportunities to sell our stock at above-market
prices typical of such acquisitions.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common
stock offered by us hereby are estimated to be $ million, or $ million
if the underwriters' over-allotment option is exercised in full, in each case
assuming an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us. We will not receive any proceeds from the sale of shares of common stock
by the selling shareholders.
We plan to use the net proceeds to repay our credit facility, which had an
outstanding balance of $13.4 million as at March 31, 1999, and for working
capital and other general corporate purposes, including new product development
and marketing expansion. We may also use a portion of the net proceeds to
acquire or invest in complementary businesses, products or technologies. Pending
use of the net proceeds, we plan to invest them in short-term, interest bearing
investment-grade securities.
Our credit facility consists of a revolving line-of-credit, a term loan and
an equipment financing arrangement. The revolving line-of-credit has a blended
variable interest rate per annum of LIBOR plus 300 basis points and prime plus
75 basis points. The term loan has a fixed interest rate of 10.67% per annum.
The equipment financing arrangement has, at our option three days prior to the
time used, a fixed interest rate per annum based on five-year U.S. Treasury
Notes plus 425 basis points or a variable interest rate per annum based on the
bank's base rate plus 125 basis points. To date, we have not used this equipment
financing arrangement. As at March 31, 1999, the credit facility had a combined
interest rate of 8.35% per annum. The credit facility matures on June 20, 2001.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as at March 31, 1999, on
an actual, pro forma and pro forma as adjusted basis. The pro forma data gives
effect to the conversion of a $1,000,001 subordinated promissory note to a
related party into 316,498 shares of common stock on May 1, 1999, the increase
in our authorized common stock to 20,000,000 shares on May 17, 1999 and the
conversion of $262,500 of the 8.5% convertible subordinated debentures into
117,500 shares of common stock to occur upon completion of this offering. The
pro forma as adjusted data gives effect to the sale by us of
shares in this offering at an assumed initial public offering price of $ per
share, our receipt of the estimated proceeds of that sale after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long term debt and capital lease
obligations............................................ $ 1,966 $ 966 $ 566
======= ======= ======
Long-term debt, less current portion..................... $12,995 $12,995 $ 0
8.5% convertible subordinated debentures................. 995 732 732
Capital lease obligations, less current portion.......... 664 664 664
Minority interest........................................ 17 17 17
Shareholders' equity:
Common stock, $0.01 par value; 10,000,000 shares
authorized, 4,845,126 shares issued and 4,821,626
outstanding actual; 20,000,000 shares authorized,
and 5,279,124 shares issued and outstanding pro
forma; 20,000,000 shares authorized, and
shares issued and outstanding pro forma as
adjusted............................................ 48 53
Additional paid-in capital............................. 2,060 3,266
Retained earnings(1)................................... 4,415 4,415 4,115
Accumulated other comprehensive income................. 161 161 161
Less treasury stock, 23,500 shares at cost actual; no
shares pro forma and pro forma as adjusted.......... (52) 0 0
------- ------- ------
Total shareholders' equity.......................... 6,632 7,895
------- ------- ------
Total capitalization........................... $21,303 $22,303 $
======= ======= ======
</TABLE>
- ---------------
(1) If we terminate our credit facility after paying the balance with the
proceeds of this offering, we would incur $300,000 of expenses related to
deferred loan fees as at March 31, 1999.
17
<PAGE> 19
DILUTION
Our pro forma net tangible book value as at March 31, 1999, after giving
effect to the conversion of a $1,000,001 subordinated promissory note to a
related party into 316,498 shares of common stock on May 1, 1999 and the
conversion of $262,500 of the 8.5% convertible subordinated debentures into
117,500 shares of common stock to occur upon completion of this offering, was
$7.9 million, or $1.50 per share of common stock. Pro forma net tangible book
value is equal to total pro forma tangible assets less total liabilities and
minority interest. Pro forma net tangible book value per share is determined by
dividing the number of outstanding shares of common stock into the pro forma net
tangible book value. After giving effect to the sale by us of
shares in this offering at an assumed initial public offering price of $ per
share, our receipt of the estimated proceeds of that sale after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, and the application of the net proceeds therefrom, our pro forma net
tangible book value as at March 31, 1999 would have been $ million, or
$ per share. This represents an immediate increase in pro forma tangible
book value of $ per share to existing shareholders and an immediate dilution
of $ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value as at March 31,
1999.............................................. $1.50
Increase in pro forma net tangible book value
attributable to new investors.....................
-----
Pro forma net tangible book value after this offering.......
--------
Pro forma dilution per share to new investors............... $
========
</TABLE>
The following table summarizes, on a pro forma basis as at March 31, 1999,
giving effect to the above conversions, the total number of shares of common
stock purchased from us, the total consideration paid to us and the average
consideration paid per share by existing shareholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 5,279,124 % $3,319,000 % $0.63
New investors.................
--------- --- ---------- ----
Total............... 100% $ 100%
========= === ========== ====
</TABLE>
The foregoing discussion and table assume no exercise of outstanding
debentures, options and warrants to purchase our common stock other than the
conversion of $262,500 of the 8.5% convertible subordinated debentures to occur
upon completion of this offering. As at May 15, 1999, there were issuable:
- 327,787 shares of common stock issuable upon exercise of the 8.5%
convertible subordinated debentures, assuming conversion of 117,500
shares in this offering;
- 2,207,858 shares of common stock issuable upon exercise of outstanding
options, with a weighted average exercise price of $3.06 per share;
- 70,500 shares of common stock issuable upon exercise of outstanding
options, with an exercise price of the per share price of this offering;
- 108,302 shares of common stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $1.35 per share;
18
<PAGE> 20
- 355,404 shares of common stock reserved for future issuance under our
1994 and 1997 stock option plans; and
- 394,800 shares of common stock reserved for future issuance under our
1999 employee stock purchase plan.
To the extent these dilutive securities are exercised or converted, new
investors will experience further dilution.
DIVIDEND POLICY
We have never paid any cash dividends. We currently intend to retain
earnings, if any, to fund the development and growth of our business and do not
anticipate declaring or paying cash dividends in the foreseeable future. Our
credit facility does not permit the payment of cash dividends. Our board of
directors will decide whether to pay future dividends, if any, at its discretion
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The following table contains
our selected consolidated financial data for the years ended September 30, 1994
and 1995 derived from audited consolidated financial statements, which are not
included in this prospectus. The selected consolidated financial data for the
year ended September 30, 1996, the three months ended December 31, 1996, when we
changed our fiscal year-end to December 31, and the years ended December 31,
1997 and 1998 are derived from our audited consolidated financial statements,
which are included elsewhere in this prospectus. The selected consolidated
financial data for the year ended December 31, 1996 are derived from unaudited
financial statements, which are not included in this prospectus. The selected
financial data for the three months ended March 31, 1998 and 1999 are derived
from unaudited financial statements, which are included elsewhere in this
prospectus. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for those periods.
<TABLE>
<CAPTION>
THREE THREE MONTHS
MONTHS ENDED
YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- DEC. 31, --------------------------- -----------------
1994 1995 1996 1996 1996 1997 1998 1998 1999
------- ------- ------- -------- ------- ------- ------- ------- -------
STATEMENTS OF CONSOLIDATED (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $63,051 $74,005 $81,144 $16,448 $82,715 $88,783 $89,006 $20,776 $32,026
Cost of goods sold................... 39,565 49,803 56,761 11,020 57,057 57,321 55,146 13,148 19,567
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......................... 23,486 24,202 24,383 5,428 25,658 31,462 33,860 7,628 12,459
Operating expenses:
Sales and marketing................. 10,749 11,341 15,218 2,814 15,405 15,890 16,250 4,145 5,616
General and administrative.......... 6,439 7,659 8,552 1,983 8,156 9,350 10,211 2,290 3,018
Research and development............ 1,347 1,404 1,448 292 1,372 1,576 1,876 404 501
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.......... 18,535 20,404 25,218 5,089 24,933 26,816 28,337 6,839 9,135
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss).............. 4,951 3,798 (835) 339 725 4,646 5,523 789 3,324
Interest and other expense, net...... 1,689 1,660 2,193 377 2,064 2,055 1,501 357 431
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax............. 3,262 2,138 (3,028) (38) (1,339) 2,591 4,022 432 2,893
Income tax expense (benefit)......... (1,594) 598 (1,025) (19) (407) 959 1,717 174 1,091
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 4,856 $ 1,540 $(2,003) $ (19) (932) $ 1,632 $ 2,305 $ 258 $ 1,802
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic............................... $ 1.70 $ 0.44 $ (0.45) $ (0.01) $ (0.21) $ 0.34 $ 0.48 $ 0.05 $ 0.37
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted............................. $ 1.68 $ 0.42 $ (0.45) $ (0.01) $ (0.21) $ 0.28 $ 0.37 $ 0.05 $ 0.27
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used to calculate net income
(loss) per share:
Basic............................... 2,862 3,526 4,416 4,803 4,496 4,811 4,822 4,822 4,822
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted............................. 2,895 3,707 4,416 4,803 4,496 6,179 6,453 6,258 6,846
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
--------------------------- --------------------------- -----------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital...................... $ 7,407 $12,560 $11,063 $12,369 $ 9,592 $13,488 $11,014 $15,590
Total assets......................... 22,905 29,848 34,423 31,420 29,234 37,307 34,168 44,703
Long-term debt and capital lease
obligations......................... 10,829 15,352 16,033 16,720 12,230 14,292 13,160 14,654
Total liabilities.................... 22,700 28,054 33,644 30,629 26,766 32,369 31,436 38,054
Shareholders' equity................. 205 1,794 779 791 2,463 4,907 2,730 6,632
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
OVERVIEW
HISTORY
We are a leading designer, manufacturer and distributor of high-performance
car audio systems for the worldwide car audio aftermarket. Rockford was
incorporated in 1980 to continue a high-performance car audio business founded
in 1973 by car audio enthusiast Jim Fosgate. While Rockford developed a
reputation for technical excellence, in the early 1990s, Rockford's financial
performance deteriorated for a variety of reasons. Inefficient management and
manufacturing resulted in high and volatile costs, excessive inventory, obsolete
materials and finished goods, and significant delays in new product development
and delivery. In addition, Rockford had begun to diversify into home and
professional audio products. This diversification initially failed to enhance
Rockford's competitive position, adversely impacted financial performance and
distracted management away from its core business.
Beginning in 1992, Rockford recruited a new management team, including Gary
Suttle, our President and Chief Executive Officer. Mr. Suttle and his new
management team:
- hired a number of experienced senior executives and mid-level managers;
- focused on profitability by establishing and implementing specific
financial objectives through improved business processes and
sophisticated management information systems;
- substantially increased new product introductions without a significant
increase in design staff;
- implemented new sourcing and manufacturing strategies, reducing product
development time-to-market from up to 24 months to approximately six to
nine months;
- implemented a more focused advertising and marketing strategy to further
enhance the Rockford Fosgate and Hafler brand images; and
- discontinued or redesigned a number of unprofitable and marginally
profitable product lines.
Primarily as a result of these initiatives, Rockford regained profitability in
the fiscal year ended September 30, 1994. For the fiscal years ended September
30, 1995 and 1996, we experienced decreases in both operating and net income.
These decreases were primarily related to warranty costs resulting from product
quality issues and investments in our infrastructure, including (1) the
reengineering of our speaker facility, (2) our system conversion to Oracle
applications and databases and (3) investments in personnel. In addition, for
the year ended September 30, 1996, sales and marketing expenses increased
significantly primarily due to (1) increased promotional expenses, (2) an
increase in bad debt expenses and (3) higher commissions resulting from
increased sales volume. Beginning in 1997, we began to realize the benefits of
our investments in our infrastructure, resulting in subsequent increases in both
operating and net income. We believe that we have the people, processes and
systems in place to enable us to continue to grow profitably.
21
<PAGE> 23
BUSINESS
We generate a substantial portion of our sales from our car audio products.
We recognize revenues from sales when we ship products to the distributor or
dealer. Sales are reported net of discounts and returns. Related expenses, such
as commissions, bonuses, cooperative advertising allowances to dealers and other
program expenses, warranty expenses and bad debt expenses, are accrued when the
related sales are recognized. We have no significant obligations subsequent to
shipment, as we do not install our products, and returns have not been
significant to date.
In the U.S., we sell our car audio products using commissioned independent
sales representative firms who are supported by our employee regional managers.
Internationally, we sell products through a majority owned subsidiary in Japan,
in over 60 other countries through distributors and, since the beginning of
1999, through commissioned independent sales representatives in Canada and
Germany. Unlike in the U.S., we have established relationships with distributors
in certain international markets who purchase our products and resell them to
retailers.
During the last three years, a substantial portion of our sales were
derived from customers located outside of the U.S., and we believe that our
continued growth and profitability will require further expansion in
international markets.
In 1999, we launched our distribution program with Best Buy. Including its
$4.4 million initial purchase of our products to stock its distribution channel,
Best Buy accounted for 25.6% of our sales for the three months ended March 31,
1999. We anticipate that Best Buy will continue to account for a significant
portion of our sales for the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated statements of operations data expressed as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 69.0 64.6 62.0 63.3 61.1
----- ----- ----- ----- -----
Gross profit.................................... 31.0 35.4 38.0 36.7 38.9
Operating expenses:
Sales and marketing........................... 18.6 17.9 18.2 20.0 17.5
General and administrative.................... 9.9 10.5 11.5 11.0 9.4
Research and development...................... 1.6 1.8 2.1 1.9 1.6
----- ----- ----- ----- -----
Total operating expenses................... 30.1 30.2 31.8 32.9 28.5
----- ----- ----- ----- -----
Operating income................................ 0.9 5.2 6.2 3.8 10.4
Interest and other expense, net................. 2.5 2.3 1.7 1.7 1.4
----- ----- ----- ----- -----
Income (loss) before tax........................ (1.6) 2.9 4.5 2.1 9.0
Income tax expense (benefit).................... (0.5) 1.1 1.9 0.9 3.4
----- ----- ----- ----- -----
Net income (loss)............................... (1.1)% 1.8% 2.6% 1.2% 5.6%
===== ===== ===== ===== =====
</TABLE>
Cost of goods sold primarily consists of raw materials, direct labor and
manufacturing costs associated with production of our products as well as
warranty, warehousing and customer service expenses. Sales and marketing
expenses primarily consist of salaries, sales commissions and costs of
advertising, trade shows, distributor and sales representative
22
<PAGE> 24
conferences and freight. General and administrative expenses primarily consist
of salaries, facilities and other costs of our accounting, finance, management
information systems, administrative and executive departments, as well as legal,
accounting and other professional fees and expenses associated with the
business. Research and development expenses primarily consist of salaries
associated with our research and development personnel.
In the following discussion, certain increases or decreases may differ due
to rounding.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Sales. Sales increased by $11.3 million, or 54.1%, to $32.0 million for
the three months ended March 31, 1999 from $20.8 million for the three months
ended March 31, 1998. The increase in sales was primarily attributable to our
initial sales to Best Buy. Including Best Buy's $4.4 million initial purchase of
our products to stock its distribution channel, Best Buy accounted for $8.2
million, or 25.6%, of our sales for the three months ended March 31, 1999. In
addition, sales to car audio specialty dealers increased by $1.9 million, or
10.8%, to $19.6 million for the three months ended March 31, 1999 from $17.7
million for the three months ended March 31, 1998.
U.S. sales increased by $11.1 million, or 67.5%, to $27.6 million for the
three months ended March 31, 1999 from $16.5 million for the three months ended
March 31, 1998. International sales increased by $0.1 million, or 2.5%, to $4.4
million for the three months ended March 31, 1999 from $4.3 million for the
three months ended March 31, 1998. A decrease in sales to certain countries in
Latin America was offset by increased sales in other international regions.
Cost of Goods Sold. Cost of goods sold increased by $6.4 million, or
48.8%, to $19.6 million for the three months ended March 31, 1999 from $13.1
million for the three months ended March 31, 1998. Substantially all of the
increase was due to increased sales. As a percent of sales, cost of goods sold
decreased to 61.1% for the three months ended March 31, 1999 from 63.3% for the
three months ended March 31, 1998. The primary reasons for the decrease as a
percent of sales included (1) improvement in global sourcing of raw materials,
(2) leveraging of fixed overhead due to increased production volume, (3) ongoing
production process improvements and (4) shifting of sales away from lower margin
source units.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$1.5 million, or 35.5%, to $5.6 million for the three months ended March 31,
1999 from $4.1 million for the three months ended March 31, 1998. The increase
was primarily related to increased sales commissions as a direct result of
higher U.S. sales. As a percent of sales, these expenses decreased to 17.5% for
the three months ended March 31, 1999 from 20.0% for the three months ended
March 31, 1998. The decrease as a percent of sales was primarily due to the
fixed nature of a portion of these expenses which do not fluctuate with sales.
General and Administrative Expenses. General and administrative expenses
increased by $0.7 million, or 31.8%, to $3.0 million for the three months ended
March 31, 1999 from $2.3 million for the three months ended March 31, 1998. The
primary reason for the increase was an increase in our financial
performance-based employee incentive program. As a percent of sales, these
expenses decreased to 9.4% for the three months ended March 31, 1999 from 11.0%
for the three months ended March 31, 1998. The decrease as a percent of sales
was primarily due to the fixed nature of a portion of these expenses which do
not fluctuate with sales.
Research and Development Expenses. Research and development expenses
increased by $0.1 million, or 24.0%, to $0.5 million for the three months ended
March 31, 1999 from $0.4 million for the three months ended March 31, 1998. As a
percent of sales, these expenses
23
<PAGE> 25
decreased to 1.6% for the three months ended March 31, 1999 from 1.9% for the
three months ended March 31, 1998.
Operating Income. Operating income increased by $2.5 million, or 321.3%,
to $3.3 million for the three months ended March 31, 1999 from $0.8 million for
the three months ended March 31, 1998. This increase was primarily attributable
to our initial sales to Best Buy. As a percent of sales, operating income
increased to 10.4% for the three months ending March 31, 1999 from 3.8% for the
three months ended March 31, 1998. The primary reasons for this increase are
mentioned above.
Interest and Other Expense, Net. Interest and other expense, net primarily
consists of interest expense. These expenses remained level at $0.4 million for
the three months ended March 31, 1999 and for the three months ended March 31,
1998. Interest expense was similar for both periods due to relatively constant
levels of debt and interest rates.
Income Tax Expense (Benefit). Income tax expense increased by $0.9 million
to $1.1 million for the three months ended March 31, 1999 from $0.2 million for
the three months ended March 31, 1998. The effective income tax rates were 37.8%
for the three months ended March 31, 1999 and 40.5% for the three months ended
March 31, 1998. The primary reason for the higher effective tax rate for the
three months ended March 31, 1998 was the impact of relatively fixed,
non-deductible items for income tax accounting purposes on a much lower amount
of net income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Sales. Sales increased by $0.2 million, or 0.3%, to $89.0 million for 1998
from $88.8 million for 1997. U.S. sales increased by $5.8 million, or 8.9%, to
$71.4 million for 1998 from $65.6 million for 1997. International sales
decreased by $5.6 million, or 24.2%, to $17.6 million for 1998 from $23.2
million for 1997. Increased sales in the U.S. were offset by lower sales in
Latin America and Asia due to economic instability in those regions.
Cost of Goods Sold. Cost of goods sold decreased by $2.2 million, or 3.8%,
to $55.1 million for 1998 from $57.3 million for 1997. Cost of goods sold as a
percent of sales decreased to 62.0% for 1998 from 64.6% for 1997. The primary
reasons for the decrease as a percent of sales included (1) improvement in
global sourcing of raw materials, (2) leveraging of fixed overhead due to
increased production volume as we prepared for initial shipments to Best Buy,
(3) ongoing production process improvements and (4) shifting of sales away from
lower margin source units.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$0.4 million, or 2.3%, to $16.3 million for 1998 from $15.9 million for 1997.
The increase was primarily related to increased sales commissions as a direct
result of higher U.S. sales. As a percent of sales, these expenses increased to
18.2% for 1998 from 17.9% for 1997.
General and Administrative Expenses. General and administrative expenses
increased by $0.9 million, or 9.2%, to $10.2 million for 1998 from $9.4 million
for 1997. This increase was primarily due to the write-off of a $0.4 million
note from our German distributor in 1998 following the distributor's change in
ownership. As a percent of sales, these expenses increased to 11.5% for 1998
from 10.5% for 1997.
Research and Development Expenses. Research and development expenses
increased by $0.3 million, or 19.0%, to $1.9 million for 1998 from $1.6 million
for 1997. This increase primarily related to increased personnel and product
certification costs. As a percent of sales, these expenses increased to 2.1% for
1998 from 1.8% for 1997.
Operating Income. Operating income increased by $0.9 million, or 18.9%, to
$5.5 million for 1998 from $4.6 million for 1997. As a percent of sales,
operating income increased to
24
<PAGE> 26
6.2% for 1998 from 5.2% for 1997. The primary reasons for these increases are
mentioned above.
Interest and Other Expense, Net. Interest and other expense, net decreased
by $0.6 million, or 27.0%, to $1.5 million for 1998 from $2.1 million for 1997.
This decrease primarily related to a decrease in interest expense resulting from
our June 1997 change in lenders, consolidation of various debt instruments and
lower overall effective interest rates, the impact of which was fully realized
in 1998.
Income Tax Expense (Benefit). Income tax expense increased by $0.8 million
to $1.7 million for 1998 from $1.0 million for 1997. Our effective income tax
rates were 42.5% in 1998 and 37.0% in 1997. The primary reason for the higher
effective rate in 1998 was higher effective foreign tax rates coupled with a
higher than expected credit for certain foreign sales in 1997 made through our
foreign sales corporation.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Sales. Sales increased by $6.1 million, or 7.3%, to $88.8 million for 1997
from $82.7 million for 1996. Substantially all of the increase in sales was due
to increased sales. U.S. sales increased by $6.0 million, or 10.1%, to $65.6
million for 1997 from $59.6 million for 1996. International sales remained
relatively unchanged at $23.2 million for 1997 and $23.1 million for 1996.
However, within the international regions, sales increased in Asia and Latin
America, which were offset by a decrease in sales to customers in Europe.
Cost of Goods Sold. Cost of goods sold increased by $0.3 million, or 0.5%,
to $57.3 million for 1997 from $57.1 million for 1996. Substantially all of the
increase was due to increased sales. Cost of goods sold as a percent of sales
decreased to 64.6% for 1997 from 69.0% for 1996. The primary reasons for the
decrease as a percent of sales included (1) improvement in global sourcing of
raw materials, (2) leveraging of fixed overhead due to increased production
volume, (3) ongoing production process improvements and (4) shifting of sales
away from lower margin source units.
Sales and Marketing Expense. Sales and marketing expenses increased by
$0.5 million, or 3.1%, to $15.9 million for 1997 from $15.4 million for 1996.
The increase was primarily related to increased sales commissions as a direct
result of higher U.S. sales. As a percent of sales, these expenses decreased to
17.9% for 1997 from 18.6% for 1996.
General and Administrative Expenses. General and administrative expenses
increased by $1.2 million, or 14.6%, to $9.4 million for 1997 from $8.2 million
for 1996. The primary reason for the increase was costs related to our financial
performance-based employee incentive program, which had no payouts in 1996. As a
percent of sales, these expenses increased to 10.5% for 1997 from 9.9% for 1996.
Research and Development Expenses. Research and development expenses
increased by $0.2 million, or 14.9%, to $1.6 million for 1997 from $1.4 million
for 1996. This increase was primarily related to increased personnel and product
certification costs. As a percent of sales, these expenses increased to 1.8% for
1997 from 1.6% for 1996.
Operating Income. Operating income increased by $3.9 million, or 540.8%,
to $4.6 million for 1997 from $0.7 million for 1996. As a percent of sales,
operating income increased to 5.2% for 1997 from 0.9% for 1996. The primary
reasons for these increases are mentioned above.
Interest and Other Expense, Net. Interest and other expense, net remained
flat at $2.1 million for both 1997 and 1996.
Income Tax Expense (Benefit). Income tax expense increased by $1.4 million
for 1997 to $1.0 million from an income tax benefit of $0.4 million in 1996. Our
effective tax rates
25
<PAGE> 27
were 37.0% in 1997 and 30.4% in 1996. The lower effective tax rate in 1996 was
due to the absence of a tax benefit for the portion of the 1996 loss relating to
state taxes.
QUARTERLY RESULTS OF OPERATIONS
Our sales on a quarterly basis reflect the seasonality of the car audio
aftermarket business. Sales are generally greater during the second and third
quarters of each calendar year and lower during the first and fourth quarters,
with our lowest sales typically occurring during the fourth quarter. During the
first quarter of 1999, we launched our distribution program with Best Buy.
Including Best Buy's $4.4 million initial purchase of our products to stock its
distribution channel, Best Buy accounted for 25.6% of our sales in the three
months ended March 31, 1999.
The following tables set forth selected consolidated quarterly statements
of operations data that were derived from unaudited financial statements for
each of the nine quarters ended March 31, 1999, as well as such data expressed
as a percent of sales for the periods indicated. We believe these unaudited
financial results were prepared on a basis consistent with our audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of our consolidated results of
operations for those periods. The results of operations for any quarter are not
necessarily indicative of the results of any future period.
26
<PAGE> 28
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... $22,523 $26,789 $21,862 $17,609 $20,776 $25,881 $23,019 $19,330 $32,026
Cost of goods sold............. 14,115 17,007 14,481 11,718 13,148 15,635 13,693 12,670 19,567
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................... 8,408 9,782 7,381 5,891 7,628 10,246 9,326 6,660 12,459
Operating expenses:
Sales and marketing.......... 4,129 4,467 4,216 3,078 4,145 4,686 4,431 2,988 5,616
General and administrative... 2,346 2,764 1,965 2,275 2,290 2,769 2,495 2,657 3,018
Research and development..... 333 413 409 421 404 466 498 508 501
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 6,808 7,644 6,590 5,774 6,839 7,921 7,424 6,153 9,135
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............... 1,600 2,138 791 117 789 2,325 1,902 507 3,324
Interest and other expense,
net.......................... 454 469 548 584 357 400 619 125 431
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax....... 1,146 1,669 243 (467) 432 1,925 1,283 382 2,893
Income tax expense (benefit)... 424 618 90 (173) 174 832 548 163 1,091
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 722 $ 1,051 $ 153 $ (294) $ 258 $ 1,093 $ 735 $ 219 $ 1,802
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic........................ $ 0.15 $ 0.22 $ 0.03 $ (0.06) $ 0.05 $ 0.23 $ 0.15 $ 0.05 $ 0.37
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted...................... $ 0.12 $ 0.18 $ 0.03 $ (0.06) $ 0.05 $ 0.17 $ 0.12 $ 0.04 $ 0.27
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used to calculate net
income (loss) per share:
Basic........................ 4,804 4,804 4,812 4,822 4,822 4,822 4,822 4,822 4,822
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted...................... 6,093 6,093 6,185 4,822 6,258 6,511 6,614 6,678 6,846
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF SALES FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............. 62.7 63.5 66.2 66.6 63.3 60.4 59.5 65.6 61.1
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................... 37.3 36.5 33.8 33.4 36.7 39.6 40.5 34.4 38.9
Operating expenses:
Sales and marketing.......... 18.3 16.7 19.3 17.5 20.0 18.1 19.2 15.5 17.5
General and administrative... 10.4 10.3 9.0 12.9 11.0 10.7 10.8 13.7 9.4
Research and development..... 1.5 1.5 1.9 2.4 1.9 1.8 2.2 2.6 1.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 30.2 28.5 30.2 32.8 32.9 30.6 32.2 31.8 28.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............... 7.1 8.0 3.6 0.6 3.8 9.0 8.3 2.6 10.4
Interest and other expense,
net.......................... 2.0 1.8 2.5 3.3 1.7 1.6 2.7 0.6 1.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax....... 5.1 6.2 1.1 (2.7) 2.1 7.4 5.6 2.0 9.0
Income tax expense (benefit)... 1.9 2.3 0.4 (1.0) 0.9 3.2 2.4 0.9 3.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. 3.2% 3.9% 0.7% (1.7)% 1.2% 4.2% 3.2% 1.1% 5.6%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
Since 1995, we have financed our business primarily using cash flows from
operations, borrowings from shareholders and bank borrowings. We had working
capital of $15.6 million at March 31, 1999, compared with $13.5 million at
December 31, 1998. At March 31, 1999, we maintained minimal cash and cash
equivalent balances.
We currently have a $20.0 million credit facility which consists of a
revolving line-of-credit, a term loan and an equipment financing arrangement.
The revolving line-of-credit has a blended variable interest rate per annum of
LIBOR plus 300 basis points and prime plus 75 basis points. The term loan has a
fixed interest rate of 10.67% per annum. The equipment financing arrangement
has, at our option three days prior to the time used, a fixed interest rate per
annum based on five-year U.S. Treasury Notes plus 425 basis points or a variable
interest rate per annum based on the bank's base rate plus 125 basis points. To
date, we have not used this equipment financing arrangement. As at March 31,
1999, the credit facility had a combined interest rate of 8.35% per annum. The
credit facility matures on June 20, 2001.
We also have a $2.0 million capital lease credit facility under which
leases can be funded up until September 30, 1999. We use the capital lease
credit facility for the purchase of capital equipment under agreements
structured as three-year capital lease obligations. As at March 31, 1999, the
capital lease credit facility had an outstanding balance of $1.1 million.
Net cash provided by (used in) operating activities was negligible for
1998, $6.5 million for 1997 and ($0.2) million for 1996. Net cash provided by
(used in) operating activities was $0.8 million for the three months ended March
31, 1999 and ($0.3) million for the three months ended March 31, 1998. In recent
periods, our working capital requirements have offset cash provided by net
income plus depreciation, resulting in low cash flows from operating activities.
The primary contributing factor to the growth in our working capital
requirements has been the effect of adding Best Buy as a customer, which has
increased our inventory levels and accounts receivable.
Net cash used in investing activities was $1.3 million for 1998, $2.1
million for 1997 and $1.8 million for 1996. Net cash used in investing
activities was $0.7 million for the three months ended March 31, 1999 and $0.3
million for the three months ended March 31, 1998. Net cash used in investing
activities was primarily related to purchases of property and equipment.
Net cash provided by (used in) financing activities was $1.3 million for
1998, ($4.4) million for 1997 and $2.3 million for 1996. Net cash provided by
(used in) financing activities was ($0.1) million for the three months ended
March 31, 1999 and $0.7 million for the three months ended March 31, 1998. Net
cash provided by (used in) financing activities was primarily related to
borrowings and repayments of our credit facilities and other debt obligations,
including repayments of various senior notes and other debt obligations during
1997, at the time our $20.0 million credit facility was established.
We may pursue acquisitions of businesses, products or technologies that
could complement or expand our business and product offerings. Any material
acquisition could result in an increase in our working capital requirements
depending on the amount, timing and nature of the consideration to be paid.
We believe that the net proceeds to be received by us from this offering,
together with potential cash flows from operations, will be sufficient to meet
our anticipated cash needs for working capital, capital expenditures and other
activities for at least the next twelve months. Thereafter, if current sources
are not sufficient to meet our needs, we may seek additional equity or debt
financing. In addition, any material acquisition of complementary businesses,
products or technologies could require us to obtain additional equity or debt
financing. There
28
<PAGE> 30
can be no assurance that such additional financing would be available on
acceptable terms, if at all.
IMPACT OF THE YEAR 2000
Readiness. We use and rely on a variety of information technologies,
computer systems and scientific and manufacturing equipment containing
computer-related components, such as programmable logic controllers and other
embedded systems. We have a Year 2000 project to address the impact of Year 2000
issues on our computer systems and scientific and manufacturing equipment and
the readiness of our critical third parties. Our Year 2000 project is designed
to:
- take inventory of and prioritize business critical systems;
- analyze each system's Year 2000 compliance;
- undertake remedial activities, including repairing or replacing
identified systems;
- test the effectiveness of any remedial activities;
- identify and analyze compliance of critical third parties that provide
goods and services to us; and
- develop contingency plans, if internal or external systems fail.
We believe that approximately 90% of our Year 2000 compliance work is complete
with the remaining work scheduled for completion by the end of the third quarter
of 1999.
Information and Operation Systems. To date, we have completed an
inventory, compliance analysis and testing of business critical financial,
information and operational systems, including manufacturing control systems.
Testing of business critical application programs began in the first quarter of
1994, and was completed during the second quarter of 1997. Remedial activities
vary by department. However, on average, remedial activities are approximately
95% complete.
Third Party Year 2000 Compliance. We are surveying Year 2000 compliance of
our key financial institutions, suppliers, vendors, research partners,
governmental entities and customers. If any of these third parties experience
Year 2000 failures, their failures could impair our ability to process
transactions, manufacture products or engage in similar normal business
activities. While some of these risks are outside our control, we have
instituted programs, including internal records reviews and use of external
questionnaires, to identify key third parties, assess their level of Year 2000
compliance, update contracts and address any non-compliance issues. We have
completed approximately 85% of these activities with the remaining activities
scheduled for completion by the end of the third quarter of 1999.
Costs. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. The total costs of the Year 2000 systems
assessments and conversions are currently funded through cash flows from
operating activities and we are expensing these costs as they are incurred. Most
of our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters in general. A substantial portion of
such costs has already been incurred and we do not anticipate significant future
costs with respect to the remaining efforts. To date, we have not deferred any
information technology initiatives as a result of our Year 2000 project.
Risks. We believe that the risk that our computer systems and
manufacturing equipment are not Year 2000 compliant is minimal. Third-party
goods or services incorporated into our products may need to be revised or
replaced, which could be time consuming and expensive. Our inability to fix any
such compliance problems on a timely basis could result in lost sales,
29
<PAGE> 31
increased operating costs and other business interruptions, any of which could
have a material adverse effect on our business, financial condition and results
of operations. In addition, governmental agencies, utility companies,
third-party service providers and others outside our control may not be Year
2000 compliant and their failures could result in an internal failure beyond our
control, which could have a material adverse effect on our business, financial
condition and results of operations.
Contingency Plan. We are engaged in an ongoing Year 2000 assessment and
have not developed any contingency plans over and above our normal business
operation contingency plans. We will take into account the results of our Year
2000 simulation testing and the results of our third-party surveys in
determining the need for, and nature and extent of, any contingency plans. Our
inability to correct a significant Year 2000 problem, if one develops, could
result in an interruption in, or a failure of, certain of our normal business
activities or operations. Any material Year 2000 problem could require us to
incur significant unanticipated expenses to remedy and could divert our
management's time and attention, either of which could have a material adverse
effect on our business, financial condition and results of operations.
30
<PAGE> 32
BUSINESS
OUR BUSINESS
We are a leading designer, manufacturer and distributor of high-performance
car audio systems for the worldwide car audio aftermarket. Our car audio
products include technologically advanced amplifiers, speakers, source units and
accessories marketed under our Rockford Fosgate brand name. We also sell
professional audio products under our Hafler brand name.
Rockford Fosgate is one of the world's premier high-performance car audio
brands. For nearly 20 years, Rockford Fosgate has been the brand of choice among
our core Generation Y consumers, particularly 16-24 year old males. We believe
our core consumers perceive our Rockford Fosgate brand as the "coolest" car
audio brand. Our core consumers are extremely, almost fanatically, loyal to our
Rockford Fosgate brand, and proudly display our logos on their cars, clothing
and even their bodies.
We devote significant resources to enhancing our brand image by using
hard-hitting, "in your face" marketing combined with cutting-edge technology and
innovation. We believe our efforts have generated loyalty among both our core
consumers, who devote a significant portion of their time and disposable income
to their car audio systems, and among our retailers, who use our brand, products
and distinctive marketing programs to attract Generation Y and other consumers.
We believe our ability to deliver innovative products to market quickly
appeals to our core consumers' desire for distinctive "leading edge" products
and powerful, high quality sound. To maintain and further enhance our unique
heritage, we continue to develop new products that are reliable, durable,
technologically advanced and designed to set industry standards in their product
categories. Our Rockford Fosgate and Hafler products have won numerous consumer
and industry awards. We are committed to maintaining our premier position in car
and professional audio by working closely with distributors, retailers and
consumers to satisfy their needs and preferences.
OUR INDUSTRY
CAR AUDIO
According to the Consumer Electronics Manufacturers' Association, CEMA,
total worldwide factory sales of car audio products were approximately $14.7
billion in 1998, of which $6.3 billion represented aftermarket sales. Also,
according to CEMA, total factory sales of car audio products in the U.S. were
approximately $4.4 billion in 1998, of which approximately $1.9 billion
represented aftermarket sales. The international car audio market is
significantly larger, with estimated factory sales of car audio products of
approximately $10.3 billion in 1998, of which $4.4 billion represented
aftermarket sales.
The U.S. car audio aftermarket industry is mature and highly fragmented
with many companies competing for market share. Competition comes predominantly
from specialty audio suppliers that generally compete in specific market niches
on the basis of brand image, quality and technology, and large consumer
electronics suppliers that offer car audio products as part of their broad
consumer electronics lines. The larger specialty audio suppliers and consumer
electronics suppliers have been increasing their market share at the expense of
the smaller specialty audio suppliers, who often lack the capital and other
resources necessary to satisfy the demands of retailers. As a result, industry
consolidation is accelerating, with more efficient vendors capturing incremental
market share and further leveraging costs.
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<PAGE> 33
Car audio aftermarket products are typically distributed to consumers
through the following channels:
- Specialty dealers: Retail stores specializing in car audio products;
- Audio/video retailers: Retail stores specializing in car audio, home
audio and video products;
- Consumer electronics retailers: National consumer electronics chains,
such as Best Buy and Circuit City;
- Catalog merchants: Mail order retailers, such as Crutchfield;
- Mass merchants: National mass merchandisers, such as K-Mart, Target and
Wal-Mart; and
- Automotive retailers: Auto parts retailers, such as AutoZone and Pep
Boys.
Historically, specialty dealers have dominated the retail distribution of car
audio aftermarket products. Over the last several years, as a result of changing
consumer buying patterns, the audio/video and consumer electronics retailers
have been the fastest growing distribution channels for car audio products.
PROFESSIONAL AUDIO
The professional audio market is focused on consumers who use audio
equipment in commercial applications. Professional audio products are used in
recording studios, movie theaters, concert facilities, stadiums, traveling bands
and broadcast studios. The professional audio market requires technical
information to assist buyers in the sales process and has become increasingly
price competitive. To reduce costs, many manufacturers have shifted to overseas
component suppliers.
OUR CONSUMERS
CAR AUDIO
Historically, 16-24 year old males have been the primary consumers of
high-end car audio aftermarket products. Generation Y consumers possess
substantial disposable income and devote much of their time and money to their
music and cars. They are part of Generation Y, the 10-24 year old age group that
is one of the fastest growing segments of the U.S. population. According to U.S.
Census Bureau, Generation Y is estimated to grow from 57.0 million in 1998 to
61.6 million in 2005. This growth rate would outpace the estimated general
population growth by 56.7%.
Today's 16-24 year old male consumers have an increasing preference for
brand names, durability and high-performance products and are more knowledgeable
about car audio products than prior generations. Consumer electronics retailers
devote significant square footage to car audio products because they have found
the category to be a very important traffic driver, particularly of Generation Y
consumers.
PROFESSIONAL AUDIO
Our professional audio consumers are typically more technically oriented
and drawn from a broader range of age groups. These consumers use our products
primarily for commercial applications and in their professional activities.
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<PAGE> 34
OUR GROWTH STRATEGY
Our goal is to design, produce and distribute the best engineered and most
recognized and respected brands of high-performance car and professional audio
products in the world. Each element of our strategy is intended to enhance and
reinforce the global brand images of Rockford Fosgate and Hafler among consumers
and retailers. Key elements of our growth strategy are to:
Promote Our Unique Brand Image. We believe our core consumer, the
Generation Y 16-24 year old male, perceives our brand as the "coolest" in the
car audio product category. We intend to continue to enhance the Rockford
Fosgate brand by projecting an image that appeals to consumers who appreciate
brand authenticity and value. We believe that the combination of our
hard-hitting advertising campaigns with our rugged and durable products has
created worldwide recognition and loyalty among our core consumers. Many of our
consumers proudly display our logos on their cars, clothing and even on their
bodies. In addition, we believe demand for our brand and products provides
retailers with a powerful tool to expand their customer base by generating
increased foot traffic of Generation Y and other consumers.
Introduce New and Innovative Products. We intend to take advantage of the
strength of the Rockford Fosgate and Hafler brands by continuing to introduce
new and innovative products. We believe our ability to quickly deliver
innovative products to market appeals to consumers' desire for "leading edge"
products and provides a significant competitive advantage. In recent years, this
strategy has been effective both in launching our new products and increasing
sales of our core products. For example, we recently introduced new source units
and mid-range speakers for the Rockford Fosgate brand, and are developing home
theater products under the Hafler brand.
Develop a Second Brand. In response to requests from our retailers and
international distributors, we intend to develop, internally or through
acquisition, a second brand to be sold at lower price points than our current
products. Consistent with our Rockford Fosgate and Hafler brand images, however,
we expect that these products will continue to offer the highest performance and
quality standards in their categories. We believe the addition of a second brand
will help us enhance and expand our product offerings and increase our
distribution capabilities.
Expand Channels of Distribution. We believe our selective distribution
increases brand loyalty, enhances retailers' profit margins and encourages
retailers to carry a broad range of our products. We have recently increased our
channels of distribution, focusing on some of the fastest growing and most
efficient retailers in the U.S. and selected international markets. For example,
in early 1999, we began distributing our car audio products through Best Buy, a
leading consumer electronics and car audio retailer, with more than 300 stores
in the U.S. Best Buy concentrates its in-store merchandising on a few high
quality suppliers in each of its product categories and has committed
substantial selling space and financial and operating resources to promote and
sell our products. In addition, in August 1998, we began selling our products to
Crutchfield, a leading car and home audio catalog retailer in the U.S., as well
as continuing to sell through the Autobacs and Yellow Hat consumer electronics
chains in Japan.
Capitalize on International Opportunities. We believe that the Rockford
Fosgate brand name is as widely recognized in many foreign countries as it is in
the U.S. We intend to aggressively expand both Rockford Fosgate and Hafler in
international markets. We currently sell our car audio products directly to
retailers in Canada, Germany and Japan, and through independent distributors, to
over 60 other countries. Unlike in the U.S., we have established relationships
with distributors in certain international markets who purchase our products and
resell them to retailers. Recently, we initiated a strategy of moving to a
"one-step" distribution system in larger international markets by converting
selected distributors into
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<PAGE> 35
independent sales representatives, allowing us to sell directly to retailers. We
expect these measures to substantially increase our sales in these markets by
allowing us to better compete through lower distribution costs and reduced
prices to the consumer.
OUR PRODUCTS
CAR AUDIO
We offer a full line of high-performance car audio products. The following
table provides examples of specific products within each of our product lines:
<TABLE>
<S> <C>
Amplifiers.............. Two channel amplifiers; multi-channel amplifiers; mono
(single channel) amplifiers; signal processors
Speakers................ Subwoofers; woofers; mid-range separates; full range or
coaxial speakers; speaker enclosures; tweeters
Source Units............ AM/FM/CD players; compact disc changers
Accessories............. Amplifier installation kits; power, ground and speaker wire;
RCA cables; connectors; adaptors; stiffening caps;
miscellaneous electrical components; installation
accessories; Punch Sport brand promotional materials and
clothing
</TABLE>
Amplifiers. Amplifiers increase the voltage and current coming from the
source unit, providing more power than possible from a source unit alone.
Amplifiers are essential for a high-performance car audio system and are
typically not part of a standard factory installed system. We sell 21 different
models of amplifiers under our Punch brand, with rated power from 100 to 1,100
watts and with minimum advertised prices ranging from $179.95 to $1,329.95. Our
amplifiers provide 1, 2, 4 and 5 channel alternatives, giving consumers the
ability to select an optimum configuration for their system. For specialized
applications, we also sell stand-alone signal processors that accept input from
a source unit, modify the signal to provide the consumer with enhanced
performance and deliver the signal to one or more amplifiers.
Speakers. Speakers accept a signal from a source unit or amplifier and
translate it into sound. There are two categories of speakers: those eight
inches or greater in diameter are considered subwoofers and are designed to play
lower (bass) frequencies; and those less than eight inches in diameter are
considered speakers and are designed for higher frequencies. Aftermarket
speakers and subwoofers provide dramatically improved sound quality compared to
most factory installed car audio systems and are often the single most important
improvement consumers can make to their car audio sound system. We sell 88
different models of car audio speakers under our Punch brand with minimum
advertised prices ranging from $59.95 to $549.95.
Source Units. Source units are the control center for a car audio system.
Typically mounted in the dash of the car, source units provide input signals,
including AM/FM radio and compact disc players. Most of our units have the
ability to control a CD changer. We sell three different models of source units
under the Rockford Fosgate brand with minimum advertised prices ranging from
$249.95 to $349.95. Additionally, we sell 8-disc CD changers with a minimum
advertised price of $299.95.
Accessories. We sell over 400 different types of accessories under the
Connecting Punch brand, including amplifier installation kits, RCA cables and
carpet/fabric/surface applications. We also sell promotional materials and
clothing under the Punch Sport brand.
Our Rockford Fosgate products have won numerous consumer and industry
awards, including Autosound Grand Prix awards, Innovations awards at the
Consumer Electronics Shows and European Car Audio Press awards.
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<PAGE> 36
PROFESSIONAL AUDIO
We sell professional audio amplifiers and speakers under the Hafler brand
name. Suggested retail prices range from $569.00 to $2,200.00. Our professional
audio products are used in recording studios, movie theaters, concert
facilities, stadiums, traveling bands and broadcast studios. Due to
manufacturing and technical similarities with the Rockford Fosgate brand, many
processes and technologies are shared and developed across both brands. Our
Hafler products have won awards from Pro Audio Review, Mix Magazine and Canadian
Music-Music Week Magazine, as well as the EQ Award and Electronic Musician
Editor's Choice Award.
RESEARCH AND DEVELOPMENT
Research and development is a primary focus of our business because of the
heavy demand by our core consumers for leading-edge products. We focus our
research and development efforts primarily on enhancing current products and
developing new products. Our efforts rely on concurrent engineering processes
which involve a coordinated effort across multiple areas of our company. As at
March 31, 1999, our research and development staff consisted of ten design
engineers, as well as other support staff, dedicated to project development and
who coordinate their efforts with (1) our sales group to identify features
consistent with market requirements and our brand image, (2) our manufacturing
staff to develop and build products more efficiently, (3) our product support
staff to identify weaknesses in our existing products and to help re-design them
and (4) our customers -- both at the retailer and consumer level -- to help us
better understand their needs and preferences and incorporate them into our
products.
As a result of our efforts and our new sourcing and manufacturing
strategies, we have reduced product development time-to-market from up to 24
months to an average of six to nine months, as compared to over twelve months
for many of our competitors. Our objective is to introduce or reengineer
approximately one-third of our product line annually. In 1998, more than 60% of
our sales were generated from new or reengineered products.
We devote substantial resources to creating a "technology shelf" that we
can use to develop next-generation products and features. Our technology shelf
provides a base of technologies and innovations that are available to our
engineers for use in the product development process. As a result, we can
readily respond to changing demand and effectively execute our marketing plans
by introducing new products and by adding features to our existing products.
Examples of product innovations that have been or are being developed from our
technology shelf include powered speakers, remote bass and speaker controls,
active cross-overs, circuit designs such as class BD amplifiers, mechanical
components, cosmetics and materials improvements, and digital signal processing.
SALES, MARKETING AND DISTRIBUTION
Our sales and marketing efforts are designed to enhance our brands by
projecting an image that appeals to consumers who appreciate brand authenticity
and value. We believe that the combination of our hard-hitting advertising
campaigns with our rugged and durable product offerings has created worldwide
recognition and loyalty among our core consumers.
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Our sales and marketing activities focus on:
- making regular calls to dealers and providing them with demonstration
products, point-of-purchase displays and other marketing materials;
- initiating targeted advertising in periodicals read by our potential
consumers;
- training dealer installation personnel at our Rockford Technical Training
Institute;
- participating in rule making for, and providing technical and product
support to, auto sound competitions; and
- participating in related professional and consumer trade shows.
Our corporate Web site, located at www.rockfordcorp.com, offers consumers
and retailers reliable and comprehensive information about our product offerings
and consumer services. Because our core consumers are among the most
enthusiastic users of the Internet, we believe expanded Internet-based marketing
will broaden our consumer reach, enhance our brand image and direct potential
consumers to our retailers. Our Web site offers retailers, sales representatives
and distributors an efficient method to track order status, accounts receivable
and sales history and to access marketing and advertising materials. Consumers
can currently purchase Punch Sport promotional materials and clothing from our
corporate Web site. In addition, we intend to sell our upcoming Hafler home
theater products over the Internet.
CAR AUDIO DISTRIBUTION
We currently sell our car audio products in the U.S. through a network of
over 1,500 retail stores and 18 independent sales representative firms who
identify, recruit and sell to dealers in their regions. Our representative
firms, serviced by our three in-house regional managers, employ a total of
approximately 60 field personnel who make regular calls on dealers in their
region.
Our U.S. distribution system is composed of specialty dealers, audio/video
retailers, consumer electronics chains and catalog merchants. In early 1999, we
launched our distribution program with Best Buy, one of the larger consumer
electronics retailers. Best Buy sells our products in all of its more than 300
stores nationwide. Our expansion into Best Buy represents an evolution in our
strategy to distribute through additional channels. We believe our expansion
into Best Buy will:
- further increase recognition of the Rockford Fosgate brand;
- distribute our products to a more diverse set of consumers, including
females and older males;
- expand market share among our core consumers since many of them shop at
Best Buy stores;
- expand our sales into geographic markets where we currently have little
presence; and
- allow our specialty dealers to grow their sales by leveraging off Best
Buy's advertising programs.
We currently sell our car audio products in over 60 other countries through
independent distributors and sales representatives. Selling through distributors
has allowed us to expand into international markets while minimizing cultural
differences and local marketing issues, such as warranty service. In Japan, we
sell to independent distributors through our majority owned subsidiary.
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During 1999, we initiated a program to convert selected foreign markets to
a "one-step" distribution system by switching to independent sales
representatives, allowing us to sell directly to retailers. We expect this
transition to substantially increase our penetration in these markets by
lowering our distribution costs and reducing prices to the consumer. Because
relatively high sales volumes are needed to justify the use of independent sales
representatives, we anticipate converting some higher volume territories over
time while continuing to distribute through distributors in smaller territories.
To date, we have successfully completed the conversion to the one-step
distribution system in Canada and Germany.
PROFESSIONAL AUDIO DISTRIBUTION
In the U.S., sales of professional audio products primarily are made
through sales representatives to small specialty dealers and larger retail
chains, such as Guitar Center and Sam Ash. Internationally, sales are primarily
made through approximately 28 independent distributors in over 30 countries. We
also plan to sell Hafler home theater products directly over the Internet in the
future.
PRODUCT SUPPORT
To maintain and enhance our relationships with retailers, we provide
numerous support services, including product and installation training, sales
training, technical and customer service support and advanced information
systems, including an interactive Web site. Our Web site provides comprehensive
and valuable information for dealers and distributors, including product
schematics, ad layouts and logos. Our Rockford Technical Training Institute, one
of the first and most advanced of its kind in our industry, trains over 700
retailer sales and installation personnel per year on our special methods and
unique culture. In addition, our instructors and demonstration vehicles travel
worldwide hosting dealer instruction seminars.
Our products carry standard warranties against defects in material and
workmanship, and we will either repair or replace any product that fails to meet
this warranty. Repair services are available for products which are no longer
covered under the original warranty. For our U.S. customers, we have in-house
customer service, repair and technical support personnel who provide general
company information, installation support, troubleshooting, and system design
assistance. We provide a unique rapid factory direct repair program that repairs
and ships products within 24 hours of receipt, reducing retailer and consumer
inconvenience if our products fail to perform properly. For our international
customers, our distributors provide customer service and warranty support.
MANUFACTURING
We believe our efficient production, sourcing and distribution capabilities
make us one of the preferred suppliers in the car audio aftermarket.
We manufacture amplifiers, signal processors and various accessories at our
facilities in Tempe, Arizona and mid-range speakers, woofers and subwoofers at
our facility in Grand Rapids, Michigan. Third parties manufacture our source
units, coaxial speakers and various components according to our design
specifications. We use cellular manufacturing processes and just-in-time supply
management in all our manufacturing facilities. We use advanced surface mount
technology in our electronics manufacturing. Our flexible manufacturing and
in-house engineering capabilities are a key part of our efforts to shorten lead
times from concept to production, respond rapidly to changing demand and reduce
our parts and raw materials inventory. Both of our facilities focus on
continuous improvement, with quality
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control embedded in the manufacturing process. The result has been improved
flexibility, increased efficiency and greatly improved cycle times.
We recently shifted from purchasing parts and materials solely in the U.S.
to purchasing from the best suppliers available to us worldwide. This global
sourcing initiative was a critical shift in our raw materials strategy, allowing
us to deliver high quality, low-cost goods that are competitive with those
offered by our U.S. and international competitors.
COMPETITION
Our markets are very competitive, highly fragmented, rapidly changing and
characterized by price competition and, in the car audio market, rapid product
obsolescence. Rockford competes in the car audio market on the basis of brand
recognition, innovation and technology, quality and reliability, breadth of
product line, distribution capabilities and price. Competition comes
predominantly from two categories:
- Specialty audio suppliers. These companies generally compete in specific
market niches on the basis of brand image, quality and technology.
However, many of these companies are undercapitalized, lack the buying
power necessary to develop cost efficiencies and lack the infrastructure
to efficiently source raw materials, manufacture components and systems,
and distribute finished products.
- Large consumer electronics companies. These companies offer car audio
products as part of their broad consumer electronics lines. They have
efficient operations but are volume-driven and generally do not respond
as quickly to changing consumer preferences as do smaller specialty
suppliers. Consumer perception of the quality of their products is often
not as high, frequently resulting in lower brand image and profit
margins. These companies tend to focus on the larger market segments,
such as source units, and generally do not focus on the smaller market
segments, such as amplifiers and subwoofers.
Some of our competitors have greater financial, technical and other
resources than we do and many seek to offer lower prices on competing products.
To remain competitive, we believe we must regularly introduce new products, add
performance features to existing products and limit increases in prices or even
reduce them. Our principal competitors within our product lines are listed
below:
- Car Audio Amplifiers: Alpine, Kenwood, Kicker, MTX, Orion, Phoenix Gold
and PPI;
- Car Audio Speakers: Blaupunkt, Boston Acoustics, Infinity, JBL, JL
Audio, Kenwood, Kicker, Pioneer and Polk;
- Car Audio Source Units: Alpine, Blaupunkt, Clarion, Fujitsu Eclipse,
Kenwood, Nakamichi, Pioneer and Sony;
- Car Audio Accessories: Lightning Audio, Monster Cable, Phoenix Gold and
Stinger; and
- Professional Audio Amplifiers and Speakers: Cress, Crown, Eastern
Acoustic Works, Mackie Designs, Peavy, QSC and Tannoy.
We also compete indirectly with automobile manufacturers, who may improve
the quality of original equipment sound systems, reducing demand for aftermarket
car audio products. They may also change the designs of their cars to make
installation of our products more difficult or expensive.
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INFORMATION SYSTEMS
Our information systems are designed to respond quickly to inquiries from
our managers, employees, suppliers and customers. They are designed to support
our efforts to:
- produce high quality products;
- reduce working capital requirements;
- decrease the time to market for new products;
- deliver orders faster; and
- provide accurate and timely information.
We have a fully integrated system based on a Novell network, Oracle
applications and databases, Microsoft Office applications and a Cisco
infrastructure. Our business applications are flexible and designed to enhance
our productivity. Applications are distributed throughout the organization, from
manufacturing to order entry and financial reporting.
We have implemented Web-based systems to allow our representatives, dealers
and distributors to check the status of their orders at our secure Internet
site. We also have designed and tested systems to accept orders from consumers
over the Internet in preparation for distribution of our Hafler home theater
products.
INTELLECTUAL PROPERTY
We rely upon a combination of trade secret and trademark laws,
non-disclosure agreements and patents to protect our proprietary rights. We have
registered many trademarks and trade names both in the U.S. and internationally
and expend substantial resources to maintain and protect them. We believe our
trademarks and trade names are material to our business and are well known among
consumers in our principal markets. Our principal trademarks and trade names
include:
- Rockford Fosgate(R);
- The Punch(R);
- Connecting Punch(R);
- Punch Sport(R);
- Practice Safe Sound(R);
- Car Audio for Fanatics(R);
- Hafler(R); and
- Our "Diamond R" logo.
EMPLOYEES
As at March 31, 1999, we had 422 total employees. At that date, in the
U.S., 283 were engaged in manufacturing, 33 in research and development, 40 in
sales and marketing and 49 in administration. We also had 17 employees working
outside of the U.S. in various functions. We have never had a work stoppage and
none of our employees are unionized. We believe our employee relations are good.
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FACILITIES
Our corporate headquarters and electronics manufacturing facilities are
located in Tempe, Arizona. We manufacture speakers at our facility in Grand
Rapids, Michigan. We use warehouses strategically located in the U.S., Japan,
Singapore and Germany that enhance our ability to serve our markets faster and
more cost effectively than many of our competitors. The following table sets
forth certain information about our facilities, all of which are leased:
<TABLE>
<CAPTION>
APPROXIMATE
FUNCTION LOCATION SQUARE FOOTAGE LEASE EXPIRATION
- ------------------------------- ---------------------- -------------- -----------------
<S> <C> <C> <C>
Corporate headquarters......... Tempe, Arizona 15,000 December 31, 2000(1)
Manufacturing, research and
development, and
purchasing................... Tempe, Arizona 22,000 December 31, 2000(1)
Warehousing, sales and customer
service...................... Tempe, Arizona 25,000 December 31, 2000(1)
Manufacturing, research and
development, purchasing and
administration............... Grand Rapids, Michigan 81,000 March 3, 2001
Warehousing and sales.......... Japan 6,000 March 29, 2004
Warehousing.................... Singapore 10,000 November 15, 2000
Warehousing.................... Germany 17,000 December 30, 2006
-------
Total................ 176,000
</TABLE>
- ---------------
(1) We have the right to extend these leases for two additional one-year terms.
We are currently seeking alternative or additional space for our
warehousing facilities in Tempe, Arizona in order to accommodate our future
needs and believe we will be able to obtain such space on commercially
reasonable terms.
ENVIRONMENTAL COMPLIANCE
Whenever possible, we avoid using hazardous materials in our production
processes. Two chemicals used in our basic processes, lacquer and flux, are
listed as hazardous materials by the U.S. Environmental Protection Agency. We
use them in limited quantities in our production facility, taking care to see
that they are stored, used and disposed of in the proper manner.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
W. Gary Suttle(1)......................... 59 President, Chief Executive Officer and Director
David A. Boshes........................... 45 Vice President of Operations
Daniel C. McLeod.......................... 45 Vice President of Sales
David L. Richards......................... 52 Vice President of Information Technology
James C. Strickland....................... 61 Vice President of Engineering
James M. Thomson.......................... 52 Vice President of Finance, Chief Financial
Officer and Secretary
Ronald N. Trout........................... 40 Vice President of New Products
Alan R. Zimmerman......................... 42 Vice President of Product Design and Development
Jerry E. Goldress(1)(2)(3)................ 68 Chairman of the Board
Nicholas G. Bartol........................ 46 Director
Timothy C. Bartol(1)(2)(3)................ 43 Director
Ralph B. Godfrey(2)....................... 58 Director
John P. Lloyd(3).......................... 47 Director
</TABLE>
- ---------------
(1) Member of the executive committee.
(2) Member of the nominating and compensation committee.
(3) Member of the audit and finance committee.
W. Gary Suttle has served as President and Chief Executive Officer since
August 1992. From that time through December 31, 1998, he simultaneously served
as a partner in Grisanti, Galef & Goldress, a turnaround, growth and profit
improvement firm and provided his services to us through that firm pursuant to a
consulting agreement. From 1982 until 1992, Mr. Suttle was a partner in
Grisanti, Galef & Goldress and was involved in consulting and management for
various manufacturing and retail firms. From 1980 to 1982, Mr. Suttle was a
consultant with The Boston Consulting Group. He also served as a captain in the
U.S. Marine Corps where he was involved in special operations. Mr. Suttle holds
a B.S. in Electrical Engineering from Auburn University, an M.S. in Electrical
Engineering from the Georgia Institute of Technology and an M.B.A. from The
Harvard Graduate School of Business Administration.
David A. Boshes has served as Vice President of Operations since 1996 and
has served us in various positions since 1993, beginning as Production
Engineering Manager. From 1976 until 1993, Mr. Boshes held various technical
positions with Digital Equipment, ranging from Product Test Engineer to Plant
Engineering Manager. Mr. Boshes holds a B.S. in Electrical Engineering from
Northern Arizona University.
Daniel C. McLeod has served as Vice President of Sales since 1991 and has
served us in various sales positions since 1985. From 1982 to 1985, Mr. McLeod
operated a manufacturers representative firm selling consumer electronics. From
1975 to 1982, Mr. McLeod was a retail store manager for the Minneapolis-based
chain of Team Electronics.
David L. Richards has served as Vice President of Information Technology
since 1996 and, prior to that, as Director of Information Technology beginning
in 1993. From 1976 until 1993, Mr. Richards held a number of MIS management
positions for Digital Equipment with
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responsibility for systems and programming implementation. Mr. Richards also
served in the U.S. Army.
James C. Strickland has served as Vice President of Engineering since 1992
and has served us in other engineering and research positions since 1987. Prior
to joining us in 1987, he served in various engineering capacities with Sony,
MCI, Acoustat and The David Hafler Company. Mr. Strickland holds a B.S. in
Mathematics from the University of Miami (Florida). Mr. Strickland holds seven
U.S. patents, three of which have been assigned to Rockford, involving circuitry
used in home and auto amplifiers.
James M. Thomson has served as Vice President of Finance and Chief
Financial Officer since joining us in 1993. Prior to 1993, Mr. Thomson held
positions as Operations Finance Manager, Corporate Controller of Corporate
Planning and Director of Finance and Customer Administration for The Toro
Company Worldwide Irrigation Division. He was also a Senior Financial Analyst
for Litton Industries and operated his own consulting company. Mr. Thomson also
served in the U.S. Navy. Mr. Thomson holds a B.S. and M.S. in Applied Economics
from the University of Wisconsin -- Madison.
Ronald N. Trout has served as Vice President of New Products since 1991
and, since 1987, he has served us in various positions, beginning as Customer
Service Manager, where he developed our technical training school, Rockford
Technical Training Institute. Mr. Trout attended Arizona State University where
he studied Mass Communications.
Alan R. Zimmerman has served as Vice President of Product Design and
Development since 1998 and has served us in various positions since 1988. Mr.
Zimmerman was with Honeywell from 1980 to 1988 where he held various positions
in cost and inventory accounting, manufacturing financial analysis and business
planning. Mr. Zimmerman holds a B.S. in Accounting and an M.B.A. from Arizona
State University.
Jerry E. Goldress has served as Chairman of the Board since 1998. Mr.
Goldress served as an advisory director to us from 1992 until 1998. Since 1981,
Mr. Goldress has served as Chairman and Chief Executive Officer of Grisanti,
Galef & Goldress. Mr. Goldress is also a director of Applied Magnetics, a
publicly held supplier of magnetic recording heads and head stack assemblies for
disc drives, and of K2, Inc., a publicly held manufacturer of snow ski
equipment. Mr. Goldress has a B.S. and M.S. in Industrial Engineering from
Pennsylvania State University.
Nicholas G. Bartol has served as a director since 1985, except for a
two-year period from 1991 to 1993. Mr. Bartol was employed by EFW, a defense
contractor, from 1985 until April 1999. Mr. Bartol holds an A.B. from Brown
University, an M.B.A. from Southern Methodist University and a Master of
Theology from Dallas Theological Seminary. Mr. Bartol is the brother of Timothy
C. Bartol.
Timothy C. Bartol has served as a director since 1997 and served as our
Chairman in 1997 and 1998. Mr. Bartol has been employed since 1994 by Phillips
Publishing and, since 1997, has served as Director of Applications Development.
Mr. Bartol holds a B.A. from Stanford University, and an M.B.A. and M.S./M.I.S.
from Boston University. Mr. Bartol is the brother of Nicholas G. Bartol.
Ralph B. Godfrey has served as a director since April 1999. Mr. Godfrey has
been employed since 1990 by 3Com, a publicly held manufacturer of computer
networking products. He has held various sales positions including Senior Vice
President of Americas Sales. He is currently managing 3Com's electronic business
operations as Vice President of E-Business. Mr. Godfrey holds a B.S.E.E. and an
M.S. in Electrical Engineering from Auburn University.
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<PAGE> 44
John P. Lloyd has served as a director since 1988. Mr. Lloyd has worked
since 1994 as a Managing Director in the Investment Management Group of Aetna.
Mr. Lloyd is a Chartered Financial Analyst and has a B.S. in Finance from
Villanova University and an M.B.A. in Investments from Drexel University.
COMMITTEES OF THE BOARD OF DIRECTORS
The executive committee of the board of directors meets periodically to
advise upon and approve Rockford's business and affairs that may arise between
the regularly scheduled board meetings. The current members of the executive
committee are Messrs. Goldress (Chair), T. Bartol and Suttle.
The nominating and compensation committee of the board of directors
recommends officers and directors to the board of directors and reviews and
approves the amount and type of compensation paid to senior management. The
current members of the nominating and compensation committee are Messrs. T.
Bartol (Chair), Godfrey and Goldress.
The audit and finance committee of the board of directors reviews our
accounting controls and recommends to the board of directors the engagement of
our outside auditors. The current members of the audit and finance committee are
Messrs. Lloyd (Chair), T. Bartol and Goldress.
DIRECTOR COMPENSATION
We compensate our non-executive directors by paying them $1,000 per
quarter. In addition to compensation, we reimburse directors for their
reasonable travel expenses in connection with attending board and committee
meetings.
We have customarily granted to our non-executive directors options under
our 1994 and 1997 Stock Option Plans. Mr. Goldress holds options for 37,600
shares, Mr. Lloyd holds options for 79,900 shares and each of Messrs. N. Bartol
and T. Bartol hold options for 9,400 shares under these plans. On the effective
date of this offering, we plan to grant to our newest director, Mr. Godfrey, an
option to purchase up to 70,500 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, executive compensation decisions were made by our board's
nominating and compensation committee which consisted of Messrs. T. Bartol,
Goldress and Suttle. None of our directors serve on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of our board of directors or nominating and compensation
committee.
EMPLOYMENT AGREEMENTS
Except for Mr. Suttle, none of our executive officers has a written
employment agreement. See "Certain Transactions -- Suttle Employment Agreement"
for a description of Mr. Suttle's employment agreement.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during 1998 by our
President and Chief Executive Officer and our other four most highly compensated
executive officers whose salaries and bonuses in aggregate exceeded $100,000 in
1998.
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<PAGE> 45
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS STOCK OPTIONS
- --------------------------- --------- -------- ---------------------
<S> <C> <C> <C>
W. Gary Suttle................................. $360,000 $120,000 --
President and Chief Executive Officer(2)
David A. Boshes................................ 137,458 26,000 18,800
Vice President of Operations
Daniel C. McLeod............................... 175,107 23,000 27,025
Vice President of Sales
David L. Richards.............................. 136,964 26,000 18,800
Vice President of Information Technology
James M. Thomson............................... 137,500 23,000 23,500
Vice President of Finance and Chief Financial
Officer
</TABLE>
- ---------------
(1) Amounts listed are annual base salaries, with the exception of Mr. McLeod,
who is paid commissions based on our sales. Amounts listed include amounts
deferred under any Rockford deferred salary plan.
(2) All compensation for Mr. Suttle's services was paid to Grisanti, Galef &
Goldress, pursuant to a consulting agreement with that firm. Mr. Suttle's
services under the consulting agreement ended and he became a Rockford
employee on January 1, 1999.
1998 STOCK OPTION GRANTS
The following table summarizes the stock options we granted to our officers
listed on the Summary Compensation Table for 1998. We have never granted any
stock appreciation rights.
The Securities and Exchange Commission requires that we use the assumed
annual compounded rates of stock price appreciation of 5% and 10% shown in this
table. These rates are only an illustration and are not based on our anticipated
results. Our stock price may increase or decrease, based on market conditions,
our performance and many other factors. You should not rely on the amounts in
this table as a projection of our performance over any time period.
INDIVIDUAL GRANT(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM(2)
NUMBER OF EMPLOYEES IN PRICE PER --------------------
NAME SHARES 1998 SHARE EXPIRATION DATE 5% 10%
- ---- --------- ------------- --------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Gary Suttle......... -- -- -- -- -- --
David A. Boshes........ 18,800 11.5% $5.32 8/31/08 $62,889 $159,400
Daniel C. McLeod....... 23,500 14.4 5.32 8/31/08 78,612 199,218
3,525 2.2 3.83 2/01/08 8,490 21,516
David L. Richards...... 18,800 11.5 5.32 8/31/08 62,889 159,374
James M. Thomson....... 23,500 14.4 5.32 8/31/08 78,612 199,218
</TABLE>
- ---------------
(1) All options were granted under our 1997 Stock Option Plan. 25% of the option
shares are exercisable on the day of the grant and 25% become exercisable on
each of the first three anniversaries of the grant date.
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<PAGE> 46
(2) This column represents the hypothetical gain if (1) the employee exercises
the options at the end of the option term, (2) the shares had a fair market
value on the date of grant equal to the option price and (3) the shares
appreciate at the assumed rates of compounded annual growth. The employee's
actual gain, if any, will depend on the performance of our stock and on
market conditions. It may be more or less than the assumed amounts.
1998 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended December 31, 1998 by our officers listed on
the Summary Compensation Table:
- the shares that our executive officers purchased during 1998 by
exercising their stock options; and
- the number and value of unexercised options our officers listed on the
Summary Compensation Table held at December 31, 1998. Value is determined
by subtracting the exercise price from our board's deemed fair market
value at such date.
<TABLE>
<CAPTION>
VALUE OF
1998 OPTION UNEXERCISED IN-THE-MONEY
EXERCISES UNEXERCISED OPTIONS AT OPTIONS AT
------------------- DECEMBER 31, 1998 DECEMBER 31, 1998
SHARES VALUE ----------------------------- -----------------------------
ACQUIRED REALIZED EXERCISABLE NOT EXERCISABLE EXERCISABLE NOT EXERCISABLE
-------- -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
W. Gary Suttle........ -- -- 42,300 -- $202,446 $ --
David A. Boshes....... -- -- 70,500 23,500 349,091 55,151
Daniel C. McLeod...... -- -- 68,446 25,554 339,608 55,272
David L. Richards..... -- -- 65,800 28,200 307,097 70,145
James M. Thomson...... -- -- 69,325 24,675 343,593 53,650
</TABLE>
STOCK OPTION PLANS
We have two stock option plans, the 1994 Stock Option Plan and the 1997
Stock Option Plan. The plans are substantially similar. Both provide for the
grant of incentive stock options and non-qualified stock options to our
consultants, directors, officers and key employees. The purpose of the plans are
to:
- attract and retain skilled and qualified officers, directors and key
employees;
- motivate them to achieve our long-range goals; and
- align their interests with the interests of our shareholders.
The board of directors adopted the 1994 Stock Option Plan on January 26,
1995 and the 1997 Stock Option Plan on April 22, 1998. The shareholders approved
the 1994 plan on April 25, 1995 and the 1997 plan on April 22, 1998.
We have reserved a total of 2,350,000 shares for issuance under both plans.
As at March 31, 1999, we had:
- issued 21,738 shares under the plans;
- outstanding options to purchase 1,972,858 shares under the plans at a
weighted average exercise price of $3.26 per share; and
- 355,404 shares still available for future grant.
Shares of common stock reserved for issuance upon the exercise of options under
a plan are available for future reissuance under the plan if the options expire
or terminate without
45
<PAGE> 47
being exercised. Under the 1997 plan, the maximum number of shares any
individual may receive during a calendar year is 470,000 shares. There is no
similar maximum under the 1994 plan. Under both plans, in the case of incentive
stock options, the aggregate fair market value of stock that is exercisable for
the first time by any individual during any calendar year may not exceed
$100,000.
The nominating and compensation committee of the board of directors
administers the plans. The committee has discretion to determine:
- who should receive options;
- how many shares to include in each grant;
- the exercise price for each option;
- whether an option should be an incentive option or a non-statutory option
under the federal tax laws (except that only our employees may receive
incentive options);
- the vesting schedule for each option;
- the term of each option; and
- other material terms of the options granted.
Option holders may pay the exercise price for options in cash or, at the
committee's discretion, in shares of common stock. Also at the committee's
discretion, option holders may exercise on a cashless basis through the same-day
sale of the purchased shares.
The vesting schedule for all options awarded to date provides for 25% of
the option shares granted to vest on the date of grant and 25% to vest on each
of the first three anniversaries of the grant date. The options also fully vest
if we agree to sell all or substantially all of our assets or shares or to merge
with another company if our shareholders do not have a controlling interest in
the surviving entity.
Prior to expiration of the 1994 plan on December 22, 2004 and the 1997 plan
on October 28, 2007, the board of directors may terminate, amend or modify
either plan at any time; however, no termination, amendment or modification may
adversely change the rights of holders of outstanding options without their
consent.
OTHER OPTIONS
We also granted options to purchase 235,000 shares of our common stock to
Grisanti, Galef & Goldress before the adoption of the 1994 plan at an exercise
price of $4.89 per share which we agreed to reduce to $1.38 per share in October
1994. This option expires on August 1, 2002.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted, and the shareholders approved on May 17,
1999, the 1999 Employee Stock Purchase Plan. A total of 394,800 shares of our
common stock are reserved for issuance under the plan, which will become
effective on July 1, 1999.
The plan is intended to qualify under Section 423 of the Internal Revenue
Code and provides for overlapping 24-month offering periods. Each offering
period includes four purchase periods. The offering periods generally start on
the first trading day on or immediately preceding July 1 and January 1 of each
year, with the first offering period commencing on July 1, 1999 and ending on
the last trading day on or immediately preceding July 1, 2001.
46
<PAGE> 48
Employees are generally eligible to participate if they are employed by us
or a participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the plan does not permit an employee to
participate if the employee either: (1) immediately after the grant, owns shares
controlling 5% or more of the total combined voting power of our shares or (2)
has the right to purchase more than $25,000 worth of our shares under all of our
employee stock purchase plans in each calendar year. The plan permits employees
to purchase common stock through payroll deductions of up to 10% of the
employee's base earnings. The maximum number of shares an employee may purchase
during a single purchase period is 4,700 shares.
The price for shares purchased under the plan is generally 85% of the fair
market value of the shares (1) at the beginning of the offering period or (2) at
the end of the purchase period, whichever is less. In the event the fair market
value at the end of a purchase period is less than the fair market value at the
beginning of the offering period, the employees will be withdrawn from the
current offering period following exercise and automatically re-enrolled in a
new offering period. The new offering period will use the lower fair market
value as of the first date of the new offering period to determine the purchase
price for future purchase periods. Employees may end their participation at any
time during a purchase period, and we will repay their payroll deductions as of
the date they stop participating. Participation ends automatically upon
termination of employment with us.
Rights granted under the plan are generally not transferable by an employee
other than by will or the laws of descent and distribution. In the event that we
merge with or into another corporation and we are not the surviving corporation
or sell substantially all of our assets, each outstanding right under the plan
will be automatically exercised to the extent of existing payroll deductions as
of the effective date of such merger or asset sale.
The board of directors has the authority to terminate or amend the plan,
however, the shareholders must approve any amendment that will increase the
total number of shares for which rights may be granted. The shareholders must
also approve any amendment that is required by reason of section 423 of the
Internal Revenue Code. The plan will terminate automatically ten years from its
effective date unless it is terminated sooner by the board.
47
<PAGE> 49
CERTAIN TRANSACTIONS
GRISANTI, GALEF & GOLDRESS CONSULTING AGREEMENT
We initially retained Grisanti, Galef & Goldress to provide Mr. Suttle's
consulting services to us under a February 1992 letter agreement. Effective on
August 1, 1992, we named Mr. Suttle our President and Chief Executive Officer
and entered into a consulting agreement with Grisanti, Galef & Goldress. Under
the consulting agreement, we retained Grisanti, Galef & Goldress to provide
services for three years beginning on August 1, 1992. We agreed to pay
consulting fees of $360,000 per year and bonus fees of up to $120,000 per year.
In addition, we granted Grisanti, Galef & Goldress an option to purchase up to
235,000 shares of our common stock at an exercise price of $4.89 per share. In
October 1994, we agreed to reduce the exercise price of the option to $1.38 per
share.
We renewed our agreement with Grisanti, Galef & Goldress effective as of
August 1, 1995, extending the term for five more years. We agreed to continue
paying consulting fees of $360,000 per year and bonus fees up to $120,000 per
year. We paid bonus fees of $120,000 during 1997 and $120,000 during 1998. We
also agreed in 1995 to extend the 235,000-share stock option so that it now
expires on August 1, 2002.
Effective January 1, 1999, the consulting agreement was amended to
discharge our remaining obligation to pay consulting fees or bonuses to
Grisanti, Galef & Goldress, in exchange for a grant to Mr. Goldress of options
to purchase 23,500 shares of our common stock under our 1997 Stock Option Plan.
Also on that date, Mr. Suttle became a Rockford employee under the terms of a
formal employment agreement. The consulting agreement as amended January 1,
1999, gives us the right, but not the obligation, to retain Grisanti, Galef &
Goldress to provide consulting services.
SUTTLE/BARTOL OPTION AGREEMENT
Mr. Suttle holds an option to purchase 869,500 shares of our common stock
from Monument Investors Limited Partnership, a family partnership controlled by
two of our directors, Messrs. N. and T. Bartol. This option was originally
granted to Mr. Suttle effective August 1, 1992 and fully vested on August 1,
1995. In connection with Mr. Suttle's January 1, 1999 employment agreement,
Monument agreed to extend the term of the option from August 1, 2002 until
December 31, 2003. The exercise price of Mr. Suttle's options increase over time
on the following schedule:
<TABLE>
<S> <C>
$0.34 per share.......................... On or before August 1, 1995
$0.41 per share.......................... After August 1, 1995 and on or before
August 1, 1999
$0.64 per share.......................... After August 1, 1999 and on or before
August 1, 2002
$0.74 per share.......................... After August 1, 2002 and on or before
December 31, 2003
</TABLE>
CAROLINE BARTOL NOTE
In March 1996, we borrowed $2.0 million from Caroline Bartol, the mother of
Messrs. N. and T. Bartol. On July 1, 1996, Mrs. Bartol converted $1.0 million of
this loan into 316,498 shares of common stock and extended the $1.0 million
balance of the loan in exchange for our grant of an option to convert this
balance into shares of our common stock at a purchase price of $3.16 per share.
Mrs. Bartol assigned the loan and the option to Boulder Investors Limited
Partnership, a partnership owned by the Bartol children, which exercised the
option and converted the note into 316,498 shares on May 1, 1999.
48
<PAGE> 50
SUTTLE EMPLOYMENT AGREEMENT
The principal terms of our agreement with Mr. Suttle are as follows: (1)
five-year term ending January 1, 2004; (2) initial base salary of $400,000 per
year, subject to increases at the discretion of our nominating and compensation
committee; (3) bonus potential of up to 50% of salary; (4) participation in our
stock option plan, with an initial grant of 94,000 shares at $7.02 per share as
of January 1, 1999; (5) payment by us of up to $36,000 per year in premiums on a
"split dollar" life insurance policy for Mr. Suttle's benefit; and (6) we may
terminate the agreement at any time after the first year. If we terminate
without good cause, or if Mr. Suttle terminates for good reason, we must
continue to pay Mr. Suttle's base salary for 18 months after the termination.
Mr. Suttle shall not compete with us, call on any of our customers or induce any
of our employees to work for another business during the term of the agreement
and for twelve months after the later of (1) the termination date or (2) the day
we stop paying severance payments under the employment agreement.
49
<PAGE> 51
PRINCIPAL AND SELLING SHAREHOLDERS
This table sets forth certain information with respect to the beneficial
ownership of our outstanding common stock as at May 15, 1999, both before and
immediately following this offering by:
- each of our directors and our officers listed on the Summary Compensation
Table;
- all executive officers and directors as a group;
- each person who is known by us to own beneficially more than five percent
of our outstanding common stock; and
- each of the selling shareholders.
The following calculation of the percentage of outstanding shares is based on
5,255,624 shares of common stock outstanding as at May 15, 1999, and assuming
the conversion of $262,500 of the 8.5% convertible subordinated debentures into
117,500 shares to occur upon completion of this offering, and assumes no
exercise of the underwriters' over-allotment option. Beneficial ownership is
determined in accordance with the Securities and Exchange Commission's rules and
generally includes voting or investment power with respect to securities,
subject to community property laws, where applicable. Shares of common stock
subject to options, warrants and convertible debentures that are exercisable or
convertible within 60 days of May 15, 1999 are deemed to be outstanding and
beneficially owned by the person holding the option, warrant or debenture for
the purpose of computing the percentage of ownership of that person, but they
are not deemed outstanding for the purpose of computing the percentage of
ownership of any other person.
Except as otherwise noted, each of the persons or entities named in the
table below have sole voting and investment power with respect to all the shares
of common stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------- SHARES ---------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5%
SHAREHOLDERS:
Nicholas G. Bartol(1)............... 4,175,394 78.0%
Timothy C. Bartol(2)................ 4,164,763 78.0
Monument Investors Limited
Partnership(3).................... 3,447,422 65.6
W. Gary Suttle(4)................... 958,800 17.9
Boulder Investors Limited
Partnership(5).................... 658,539 12.5
Jerry E. Goldress(6)................ 263,927 4.8
James M. Thomson(7)................. 92,587 1.7
David A. Boshes(8).................. 80,352 1.5
Daniel C. McLeod(9)................. 69,325 1.3
David L. Richards(10)............... 68,584 1.3
John P. Lloyd(11)................... 33,739 *
Ralph B. Godfrey.................... -- --
ALL EXECUTIVE OFFICERS AND DIRECTORS
AS A GROUP (13 PERSONS)(12)....... 5,059,721 81.3
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------- SHARES ---------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
OTHER SELLING SHAREHOLDERS:
Glenn and Pamela Carrio(13)....... 227,170 4.4
Kathryn A. Coffee, Trustee and
Individually................... 104,340 2.0
Will Hegarty...................... 70,500 1.3
Kevin Campbell.................... 31,020 *
Sidney Smith...................... 25,300 *
Vrolyk & Company.................. 23,500 *
Franklin Richards................. 22,480 *
Gordon MacInnes................... 10,903 *
Don Hammerle...................... 9,613 *
John P. Frank..................... 7,050 *
Larry Ulrich...................... 4,935 *
Rebecca P. Harris................. 3,361 *
Brigham P. Herzfeld............... 3,361 *
Andy Szabo........................ 1,880 *
John Seaver....................... 940 *
Marion Szabo...................... 470 *
</TABLE>
- ---------------
* Represents less than 1%.
(1) Includes 3,447,442 shares held by Monument Investors Limited Partnership;
for which Mr. Bartol serves as general partner; 658,539 shares held by
Boulder Investors Limited Partnership, for which Mr. Bartol serves as
general partner; 163,273 shares held by GST Exempt Trust, a trust in which
Mr. Bartol has a beneficial interest; 7,840 shares underlying convertible
debentures; 23,500 shares underlying convertible debentures held by Mr.
Bartol's wife; and 9,400 shares underlying options. Mr. Bartol disclaims
beneficial ownership of the shares held by his wife. Mr. Bartol's address
is 239 Cove Drive, Coppell, Texas 75019.
(2) Includes 3,447,422 shares held by Monument Investors Limited Partnership,
for which Mr. Bartol serves as general partner; 658,539 shares held by
Boulder Investors Limited Partnership, for which Mr. Bartol serves as
general partner; 163,273 shares held by GST Exempt Trust, a trust in which
Mr. Bartol has a beneficial interest; 2,620 shares underlying convertible
debentures; 7,050 shares underlying options held by Mr. Bartol; and 4,700
shares underlying options held by Mr. Bartol's wife. Mr. Bartol disclaims
beneficial ownership of the shares held by his wife. Mr. Bartol's address
is 9200 Willow Pond Lane, Potomac, Maryland 20854.
(3) Monument Investors Limited Partnership's address is c/o Mr. T. Bartol, 9200
Willow Pond Lane, Potomac, Maryland 20854.
(4) Includes 23,500 shares underlying convertible debentures; 869,500 shares
underlying options granted by Monument Investors Limited Partnership; and
19,975 shares underlying options granted under our stock option plans. Mr.
Suttle's address is c/o Rockford Corporation, 546 Rockford Drive, Tempe,
Arizona 85281.
(5) Includes 25,544 shares issuable upon exercise of warrants. Boulder
Investors Limited Partnership's address is c/o Mr. T. Bartol, 9200 Willow
Pond Land, Potomac, Maryland 20854.
(6) Includes 8,953 shares underlying convertible debentures and 254,975 shares
underlying options.
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<PAGE> 53
(7) Includes 22,381 shares underlying convertible debentures and 70,206 shares
underlying options.
(8) Includes 8,971 shares underlying convertible debentures and 71,381 shares
underlying options.
(9) Includes 69,325 shares underlying options.
(10) Includes 1,903 shares underlying convertible debentures and 66,681 shares
underlying options.
(11) Includes 6,716 shares underlying convertible debentures and 27,025 shares
underlying options.
(12) Includes 123,760 shares underlying convertible debentures, 60,487 shares
underlying warrants and 785,469 shares underlying options.
(13) Includes 227,170 shares underlying convertible debentures. 223,810 of these
shares are held by Carrio Cabling Corporation, a corporation owned by Mr.
and Mrs. Carrio.
We will bear all of the expenses of this offering, other than the
underwriting discounts and commissions, stock transfer and other taxes
attributable to the shares of common stock sold by the selling shareholders, and
legal and other advisors' fees and expenses incurred by the selling
shareholders, which will be borne by the selling shareholders.
52
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As at May 17, 1999, we increased our authorized capital stock from
10,000,000 to 20,000,000 shares of common stock, $.01 par value per share. The
following summary is qualified in its entirety by reference to our articles of
incorporation and bylaws, copies of which are filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, except for the election of
directors. The holders of common stock have cumulative voting rights with
respect to the election of directors and, as a result, minority shareholders may
be able to elect directors on the basis of their votes alone. Holders of common
stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefore. In the event of our
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities. Holders of
our common stock have no preemptive, conversion or other rights to subscribe for
additional securities. There are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of common stock are, and
all shares of common stock to be outstanding upon completion of the offering
will be, validly issued, fully paid and nonassessable.
As at May 15, 1999, assuming the conversion of $262,500 of the 8.5%
convertible subordinated debentures into 117,500 shares upon completion of this
offering, there were outstanding 5,255,624 shares of common stock, options to
purchase 2,207,858 shares of common stock, warrants to purchase 108,302 shares
of common stock and debentures convertible into 327,787 shares of common stock.
Upon completion of this offering, shares of common stock will be
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise or conversion of options, warrants or convertible debentures after
May 15, 1999.
WARRANTS
As of the date of this prospectus, warrants to purchase 84,802 shares of
common stock at an exercise price of $0.85 per share and warrants to purchase
23,500 shares of common stock at an exercise price of $3.16 per share were
outstanding. The common stock issuable upon exercise of the 84,802 warrants is
subject to registration rights, which are described below.
DEBENTURES
As of the date of this prospectus, holders of the 8.5% convertible
subordinated debentures had the right to convert their debentures into 445,287
shares of our common stock at a conversion price of $2.23 per share. The common
stock issuable upon exercise of these debentures is subject to registration
rights, which are described below.
REGISTRATION RIGHTS
The holders of approximately 84,802 shares of common stock, issuable upon
exercise of outstanding warrants, have registration rights for the shares of
common stock issuable upon exercise of the warrants. Their rights are subject to
customary conditions. They include "piggyback" registration rights in connection
with any public offering we conduct and demand registration rights exercisable
on one occasion. In order to require a demand registration, holders of at least
50% of the warrants or of common stock obtained by prior
53
<PAGE> 55
conversion of the warrants must request registration and the proposed offering
must be expected to raise proceeds of at least $7.5 million.
The holders of approximately 445,287 shares of common stock, issuable upon
conversion of the 8.5% convertible subordinated debentures, have registration
rights for the shares of common stock issuable upon conversion of their
debentures. Their rights are subject to customary conditions. They include
"piggyback" registration rights in connection with any public offering we
conduct and demand registration rights exercisable on one occasion. In order to
require a demand registration, holders of at least 50% of the debentures or of
common stock issued upon conversion of the debentures must request registration
and the proposed offering must be expected to raise proceeds of at least $15.0
million.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION
AND BYLAWS
Articles of Incorporation and Bylaws. Our board of directors may issue
additional shares of common stock without shareholder approval, to the extent
shares are authorized for issuance in our articles of incorporation. This may
protect the continuity of management because it gives the board of directors
power to discourage an acquisition. The board of directors may exercise this
power, subject to compliance with fiduciary duties, even if our shareholders
would receive a premium over the market price for their shares. For example, if
the board of directors decides that a takeover proposal is not in our best
interest, the board of directors could issue shares that make completion of a
takeover more difficult and more costly by:
- diluting the voting or other rights of the proposed acquiror or insurgent
shareholder group;
- putting a substantial voting block in institutional or other hands that
support the incumbent board of directors; or
- effecting an acquisition that complicates or precludes the takeover.
Our articles of incorporation require approval of any amendments by a
two-thirds vote of the outstanding shares. This requirement limits the ability
of shareholders to change the restrictions described above by voting to amend
our articles of incorporation.
Our bylaws provide for our board to have from two to eleven directors.
Directors are elected at the annual shareholders meeting, with each director
holding office until his or her successor is elected. Our directors are not
classified and are elected annually. Our articles of incorporation require that:
- two-thirds of our board of directors approve any increase in the size of
our board of directors;
- the shareholders may remove a director only for cause; and
- only the board of directors may fill a vacancy on the board of directors.
These requirements may restrict the ability of a hostile bidder to gain control
of our board of directors by limiting the bidder's right to add new directors or
replace existing directors.
Our bylaws provide that special meetings of shareholders may be called only
by our President or a majority of the board of directors. Shareholders may not
call shareholders meetings and, under Arizona law, may act by written consent in
lieu of a meeting only if all shareholders sign the consent. Our bylaws require
that shareholders who wish to place an item on the agenda for a shareholders
meeting, or who wish to nominate a person for election as a director, must give
at least 30 days notice of the proposed agenda item or name of the person
nominated. Together, these restrictions may limit proxy contests seeking to
control us by (1) limiting shareholders' ability to call a special shareholders
meeting, (2) making shareholder action by written consent impossible as a
practical matter, and (3) giving the board of directors advance notice of
hostile annual meeting proposals.
54
<PAGE> 56
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by them and to discourage certain types of transactions that may
involve an actual or threatened change of control of Rockford. These provisions
are designed to reduce our vulnerability to an unsolicited proposal for takeover
that does not contemplate the acquisition of all of our outstanding shares, or
an unsolicited proposal for the restructuring or sale of all or part of
Rockford. These provisions, however, could discourage potential acquisition
proposals and could delay or prevent a change in control of Rockford. These
provisions may also have the effect of preventing changes in our management.
Arizona Control Share Acquisition and Business Combination Statute. We
have opted out of the Arizona statute regulating control share acquisitions and
business combinations, A.R.S. Title 10, Chapter 23. As a result, potential
bidders are not subject to the statute's restrictions on control share
acquisitions or business combinations with us.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation limit, to the maximum extent permitted by
Arizona law, the liability of our directors for monetary damages arising from a
breach of their duties as directors. The limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.
Our articles of incorporation require us to indemnify our directors and
officers, to the maximum extent permitted by Arizona law, against liability for
acts or omissions within the scope of their authority as directors or officers.
Indemnification is prohibited if our board of directors finds that the person's
action or omission was willful, grossly negligent, or with fraudulent or
criminal intent, or for liabilities under the Securities Act of 1933. Under
Arizona law, we may indemnify a director or officer against liability incurred
on account of service to us, if the director or officer:
- conducted himself or herself in good faith;
- reasonably believed that his or her conduct (1) if in an official
capacity, was in our best interests or (2) if in any other capacity, was
not opposed to our best interests;
- in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful; and
- did not improperly receive personal benefit.
Before completing this offering, we intend to enter into indemnification
agreements with each of our directors. These agreements will generally obligate
us to indemnify them for liability incurred by them as a result of their service
as directors, unless (1) their liability arises as a result of their fraud,
deliberate dishonesty or willful misconduct or (2) Arizona law prohibits
indemnification. Prior to completing this offering, we will obtain liability
insurance for our directors.
LISTING
We will apply for quotation of our common stock on The Nasdaq National
Market under the symbol "ROFO."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Chicago
Trust Company of New York and its address is 525 Washington Boulevard, Jersey
City, New Jersey 07310.
55
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
We have not had any public market for our common stock before this
offering. If our shareholders decide to sell many of their shares in the public
market, the price of our shares could go down and we could find it hard to raise
capital by selling more shares.
After this offering, we will have shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise or conversion of outstanding options, warrants and convertible
debentures after May 15, 1999 other than the conversion of $262,500 of the 8.5%
convertible subordinated debentures into 117,500 shares upon completion of this
offering. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, except that shares held by our "affiliates" will be subject to the
restrictions of Rule 144 under the Securities Act of 1933 described below. The
remaining outstanding shares of common stock will be "restricted
securities" under Rule 144.
Our directors, executive officers and other shareholders, holding
shares in the aggregate, have agreed that they will not sell, directly
or indirectly, any shares of common stock without the prior written consent of
Needham & Company, Inc. for a period of 180 days after the date of this
prospectus. Subject to these lock-up agreements, our outstanding shares of
common stock will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES ELIGIBLE FOR SALE AFTER EXPLANATION
- ---------------- ------------------------------------- -------------------------------------
<C> <S> <C>
Date of this prospectus - Freely tradeable shares sold in
this offering; and
- Shares saleable under Rule 144(k)
that are not subject to the 180-day
lock-up
Filing of a registration statement on Option shares that are not subject to
Form S-8 to register for resale the 180-day lock-up
shares issued upon exercise of stock
options
90 days from the date of this Shares saleable under Rule 144 that
prospectus are not subject to the 180-day lock-
up or eligible for sale under Rule
701
180 days from the date of this Shares saleable under:
prospectus - Rule 144 or Rule 701 (subject, in
some cases, to volume limitations);
- Rule 144(k); or
- Pursuant to a registration
statement to register for resale
shares of common stock issued upon
the exercise of stock options
Over 180 days from the date of this Restricted shares held for less than
prospectus one year and not yet saleable under
Rule 144
</TABLE>
In general under Rule 144, if restricted shares were purchased from us (or
any affiliate of ours) more than one year ago, their owner may sell them in
"brokers' transactions" or to market makers. The owner may not sell, in any
three-month period, more than the greater of (1) one percent of our
then-outstanding shares of common stock (approximately shares
immediately after this offering), or (2) the average weekly trading volume in
our common stock during the four calendar weeks before a Form 144 notice of sale
is filed with
56
<PAGE> 58
the Securities Exchange Commission. The owner may make sales only if current
public information is available about us.
If the restricted shares were purchased from us (or any affiliate of ours)
more than two years ago, then their owner may sell them under Rule 144(k)
without regard to the volume limitations or manner of sale, public information
or notice of sale requirements of Rule 144. This does not apply if the owner was
an affiliate of ours at any time during the 90 days before the sale.
Under Rule 701 under the Securities Act of 1933 persons who purchase shares
from us upon exercise of options granted before the date of this prospectus may
sell their shares in the public markets beginning 90 days after the date of this
prospectus. They make the sales in reliance on Rule 144 without having to comply
with its holding period requirements and, if they are not affiliates, without
having to comply with the rule's volume limitations, public information and
notice of sale requirements.
We intend to file one or more registration statements under the Securities
Act of 1933, covering the shares of common stock reserved for issuance under our
1994 and 1997 stock option plans. We plan this filing within 90 days after the
date of this prospectus. The registration statements will become effective upon
filing, thus permitting the resale of option shares in the public markets,
without restriction under the Securities Act of 1933 other than the limitations
applicable to affiliates or the 180-day lock ups described above.
See "Description of Capital Stock -- Registration Rights" for a description
of certain registration rights with respect to our common stock.
57
<PAGE> 59
UNDERWRITING
The underwriter named below has agreed, subject to the terms and conditions
set forth in the underwriting agreement, to purchase from us and the selling
shareholders the number of shares of common stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriting agreement provides that the obligations of the underwriters to pay
for and accept delivery of such shares are subject to certain conditions
precedent, and that the underwriters are committed to purchase all such shares,
if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Needham & Company, Inc. ....................................
----------
Total.............................................
----------
</TABLE>
The representatives have advised us that the underwriters initially propose
to offer the shares of common stock to the public on the terms set forth on the
cover page of this prospectus. The underwriters may allow to selected dealers
(who may include the underwriters) a concession of not more than $ per
share, and the underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After this
offering, the public offering price and other selling terms may be changed by
the representatives. We estimate that the total offering expenses payable by us,
other than underwriting discounts and commissions, will be $ .
We have granted an option to the underwriters, exercisable during the
30-day period after the date of this prospectus, to purchase up to
additional shares of common stock at the same price per share as the initial
shares to be purchased by the underwriters. To the extent that the
underwriters exercise this option, each of the underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table and we will be
obligated to sell such shares to the underwriters. The underwriters may purchase
such shares only to cover over-allotments made in connection with this offering.
If purchased, the underwriters will offer such additional shares on the same
terms as those on which the initial shares are being offered.
Our executive officers, directors and other shareholders, beneficially
holding in the aggregate shares of common stock after this offering,
have agreed that, for a period of 180 days after the date of this prospectus,
they will not, without the prior written consent of Needham & Company, Inc.,
directly or indirectly sell, offer to sell or otherwise dispose of any such
shares of common stock or any right to acquire such shares. In addition, we have
agreed that, for a period of 180 days after the date of this prospectus, we will
not, without the prior written consent of Needham & Company, Inc., issue, offer,
sell, grant options to purchase or otherwise dispose of any of our equity
securities or any other securities convertible into or exchangeable for the
common stock or other equity security, other than the grant of options to
purchase common stock or the issuance of shares of common stock under our stock
option and stock purchase plans, and the issuance of shares of common stock
pursuant to the exercise of outstanding options, warrants and conversion of
debentures.
The representatives of the underwriters have informed us that they do not
expect sales to accounts over which the underwriters have discretionary
authority to exceed five percent of the total number of shares of common stock
offered by them.
The underwriting agreement provides that we will indemnify the several
underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, or will
58
<PAGE> 60
contribute to payments the underwriters may be required to make arising from
these types of liabilities.
In connection with this offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on The Nasdaq National Market may engage in passive market making
transactions in our common stock on The Nasdaq National Market in accordance
with Regulation M under the Securities Exchange Act of 1934 during the two
business day period before commencement of offers or sales of the common stock
offered hereby. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholders and the expenses payable by us
and the selling shareholders.
<TABLE>
<CAPTION>
TOTAL
---------------------------
WITHOUT
OVER- WITH OVER-
PER SHARE ALLOTMENT ALLOTMENT
--------- ---------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us.... $ $ $
Estimated expenses payable by us..................... $ $ $
Underwriting discounts paid by selling
shareholders....................................... $ $ $
</TABLE>
Prior to this offering, there has been no public market for our common
stock. Consequently, the public offering price for the common stock offered by
this prospectus will be determined through negotiations among us, the selling
shareholders and the representatives of the underwriters. Among the factors to
be considered in such negotiations will be prevailing market conditions, our
financial results, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Steptoe & Johnson LLP, Phoenix, Arizona. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, Austin, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as at September 30, 1996, and December 31,
1996, 1997 and 1998, and for the year ended September 30, 1996, the three months
ended December 31, 1996, and for the years ended December 31, 1997 and 1998. We
have included our financial statements and schedule in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus, which is part of the registration
statement, does not contain all the information included in this registration
statement. Some information is omitted and you should refer to the registration
statement and its exhibits. With respect to references made in this prospectus
to any contract, agreement or other document of ours, these references are
59
<PAGE> 61
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. You may review a copy of our registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information about the
public reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information on file at the public
reference rooms. You can also request copies of these documents, for a copying
fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration
statement can also be reviewed by accessing the Securities and Exchange
Commission's Internet Web site at http://www.sec.gov, which contains reports,
proxy statements and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
60
<PAGE> 62
ROCKFORD CORPORATION
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF ROCKFORD CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the year ended
September 30, 1996, the three months ended December 31,
1996, the years ended December 31, 1997 and 1998, and the
three months ended March 31, 1998 and 1999 (unaudited).... F-4
Consolidated Statements of Shareholders' Equity for the year
ended September 30, 1996, the three months ended December
31, 1996, the years ended December 31, 1997 and 1998, and
the three months ended March 31, 1999 (unaudited)......... F-5
Consolidated Statements of Cash Flows for the year ended
September 30, 1996, the three months ended December 31,
1996, the years ended December 31, 1997 and 1998, and the
three months ended March 31, 1998 and 1999 (unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Rockford Corporation
We have audited the accompanying consolidated balance sheets of Rockford
Corporation and subsidiaries (Rockford) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended September 30, 1996, the three months ended
December 31, 1996, and the years ended December 31, 1997 and 1998. These
consolidated financial statements are the responsibility of Rockford'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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Rockford Corporation and subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for the year ended
September 30, 1996, the three months ended December 31, 1996, and the years
ended December 31, 1997 and 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Phoenix, Arizona
February 5, 1999, except for Note 12
as to which the date is July , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
restatement of the capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
Phoenix, Arizona
May 24, 1999
F-2
<PAGE> 64
ROCKFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 260 $ 470 $ 364
Accounts receivable, less allowances of $918,000,
$1,043,000 and $1,295,000 (unaudited) at December
31, 1997, 1998 and March 31, 1999, respectively.... 11,089 15,097 23,140
Inventories, net...................................... 9,603 12,226 11,314
Prepaid expenses and other............................ 693 688 1,088
Income taxes receivable............................... 85 -- --
Deferred income taxes................................. 2,398 3,084 3,084
------- ------- -------
Total current assets.................................... 24,128 31,565 38,990
Property and equipment, net............................. 3,977 5,007 5,037
Other assets............................................ 1,129 735 676
------- ------- -------
Total assets............................................ $29,234 $37,307 $44,703
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 5,409 $ 6,492 $ 9,082
Accrued salaries and incentives....................... 1,773 1,948 1,574
Accrued warranty...................................... 2,911 3,625 3,870
Income taxes payable.................................. -- 30 1,053
Other accrued expenses................................ 2,710 3,589 5,855
Current portion of notes payable, long-term debt and
capital lease obligations.......................... 1,733 2,393 1,966
------- ------- -------
Total current liabilities............................... 14,536 18,077 23,400
Notes payable and long-term debt, less current
portion............................................... 12,220 13,596 13,990
Capital lease obligations, less current portion......... 10 696 664
Minority interest....................................... 5 31 17
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value
Authorized shares -- 10,000,000
Issued shares -- 4,845,126 shares at December 31,
1997 and 1998 and March 31, 1999 (unaudited)..... 48 48 48
Additional paid-in capital............................ 2,060 2,060 2,060
Retained earnings..................................... 308 2,613 4,415
Accumulated other comprehensive income................ 99 238 161
------- ------- -------
2,515 4,959 6,684
Less treasury stock, 23,500 shares at cost............ 52 52 52
------- ------- -------
Total shareholders' equity.............................. 2,463 4,907 6,632
------- ------- -------
Total liabilities and shareholders' equity.............. $29,234 $37,307 $44,703
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 65
ROCKFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE YEAR ENDED THREE MONTHS ENDED
YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31,
SEPTEMBER 30, DECEMBER 31, ----------------- -------------------
1996 1996 1997 1998 1998 1999
------------- ------------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $81,144 $16,448 $88,783 $89,006 $20,776 $32,026
Cost of goods sold................. 56,761 11,020 57,321 55,146 13,148 19,567
------- ------- ------- ------- ------- -------
Gross profit....................... 24,383 5,428 31,462 33,860 7,628 12,459
Operating expenses:
Sales and marketing.............. 15,218 2,814 15,890 16,250 4,145 5,616
General and administrative....... 8,552 1,983 9,350 10,211 2,290 3,018
Research and development......... 1,448 292 1,576 1,876 404 501
------- ------- ------- ------- ------- -------
25,218 5,089 26,816 28,337 6,839 9,135
------- ------- ------- ------- ------- -------
Operating income (loss)............ (835) 339 4,646 5,523 789 3,324
Other income (expense):
Interest......................... (1,809) (439) (1,757) (1,434) (355) (394)
Other............................ 104 62 (294) (49) (4) (44)
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item and income taxes............ (2,540) (38) 2,595 4,040 430 2,886
Income tax expense (benefit)....... (864) (19) 959 1,717 174 1,091
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item and minority interest....... (1,676) (19) 1,636 2,323 256 1,795
Minority interest.................. -- -- (4) (18) 2 7
------- ------- ------- ------- ------- -------
Net income (loss) before
extraordinary item............... (1,676) (19) 1,632 2,305 258 1,802
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $161,000... (327) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income (loss).................. $(2,003) $ (19) $ 1,632 $ 2,305 $ 258 $ 1,802
======= ======= ======= ======= ======= =======
Net income (loss) per common share:
Basic............................ $ (0.45) $ (0.01) $ 0.34 $ 0.48 $ 0.05 $ 0.37
======= ======= ======= ======= ======= =======
Diluted.......................... $ (0.45) $ (0.01) $ 0.28 $ 0.37 $ 0.05 $ 0.27
======= ======= ======= ======= ======= =======
Weighted average shares:
Basic............................ 4,416 4,803 4,811 4,822 4,822 4,822
======= ======= ======= ======= ======= =======
Diluted.......................... 4,416 4,803 6,179 6,453 6,258 6,846
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 66
ROCKFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
--------------- PAID-IN EARNINGS COMPREHENSIVE TREASURY
SHARES AMOUNT CAPITAL (DEFICIT) INCOME STOCK TOTAL
------ ------ ---------- --------- -------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995.... 3,803 $38 $ 883 $ 698 $ 227 $(52) $ 1,794
Currency translation........... -- -- -- -- (162) -- (162)
Net loss....................... -- -- -- (2,003) -- -- (2,003)
-------
Comprehensive loss............. (2,165)
Conversion of subordinated debt
to common stock.............. 1,020 10 1,140 -- -- -- 1,150
----- --- ------ ------- ----- ---- -------
Balance at September 30, 1996.... 4,823 48 2,023 (1,305) 65 (52) 779
Currency translation........... -- -- -- -- 27 -- 27
Net loss....................... -- -- -- (19) -- -- (19)
-------
Comprehensive income........... 8
Exercise of stock options...... 4 -- 4 -- -- -- 4
----- --- ------ ------- ----- ---- -------
Balance at December 31, 1996..... 4,827 48 2,027 (1,324) 92 (52) 791
Currency translation........... -- -- -- -- 7 -- 7
Net income..................... -- -- -- 1,632 -- -- 1,632
-------
Comprehensive income........... 1,639
Exercise of stock options...... 18 -- 33 -- -- -- 33
----- --- ------ ------- ----- ---- -------
Balance at December 31, 1997..... 4,845 48 2,060 308 99 (52) 2,463
Currency translation........... -- -- -- -- 139 -- 139
Net income..................... -- -- -- 2,305 -- -- 2,305
-------
Comprehensive income........... 2,444
----- --- ------ ------- ----- ---- -------
Balance at December 31, 1998..... 4,845 48 2,060 2,613 238 (52) 4,907
Currency translation
(unaudited).................. -- -- -- -- (77) -- (77)
Net income (unaudited)......... -- -- -- 1,802 -- -- 1,802
-------
Comprehensive income
(unaudited).................. 1,725
----- --- ------ ------- ----- ---- -------
Balance at March 31, 1999
(unaudited).................... 4,845 $48 $2,060 $ 4,415 $ 161 $(52) $ 6,632
===== === ====== ======= ===== ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 67
ROCKFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
THREE MONTHS YEAR ENDED ENDED
YEAR ENDED ENDED DECEMBER 31, MARCH 31,
SEPTEMBER 30, DECEMBER 31, ----------------- -----------------
1996 1996 1997 1998 1998 1999
------------- ------------ ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................... $ (2,003) $ (19) $ 1,632 $ 2,305 $ 258 $ 1,802
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation and amortization........... 1,397 431 2,176 2,080 562 760
Loss (gain) on sale of fixed assets..... 127 -- -- (12) (8) 17
Deferred income tax expense (benefit)... (691) 145 28 (686) -- --
Provision for doubtful accounts......... 653 247 540 561 370 252
Provision for inventory allowances...... 251 79 638 787 295 326
Minority interest....................... -- -- 4 18 (2) (7)
Changes in operating assets and
liabilities:
Accounts receivable................... (1,969) 3,304 14 (4,569) (4,082) (8,295)
Inventories........................... (1,553) (1,174) 487 (3,410) (1,549) 586
Prepaid expenses and other............ 305 (29) 121 5 (197) (401)
Income taxes receivable............... -- (165) 242 85 85 --
Accounts payable...................... 2,929 (2,089) (2,454) 1,083 3,076 2,590
Accrued salaries and incentives....... (608) 421 996 175 (666) (374)
Accrued warranty...................... 370 (7) 823 714 215 245
Income taxes payable.................. (158) (4) -- 30 43 1,023
Other accrued expenses................ 1,219 (1,296) 1,220 879 1,270 2,266
-------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities.............................. 269 (156) 6,467 45 (330) 790
INVESTING ACTIVITIES
Purchases of property and equipment....... (2,191) (36) (1,318) (1,728) (379) (759)
Proceeds from sale of property and
equipment............................... 362 -- 118 38 56 3
Decrease (increase) in other assets....... 30 20 (939) 388 (1) 9
-------- ------- ------- ------- ------- -------
Net cash used in investing activities..... (1,799) (16) (2,139) (1,302) (324) (747)
FINANCING ACTIVITIES
Proceeds from notes payable and long-term
debt.................................... 20,406 5,290 160 1,791 853 532
Payments on notes payable and long-term
debt.................................... (17,874) (5,196) (3,550) (142) -- (415)
Payments on capital lease obligations..... (494) (134) (1,058) (321) (121) (182)
Proceeds from exercise of stock options... -- 4 33 -- -- --
-------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities.............................. 2,038 (36) (4,415) 1,328 732 (65)
Effect of exchange rate changes on cash... (160) 27 7 139 5 (84)
-------- ------- ------- ------- ------- -------
Net increase (decrease) in cash........... 348 (181) (80) 210 83 (106)
Cash at beginning of period............... 173 521 340 260 260 470
-------- ------- ------- ------- ------- -------
Cash at end of period..................... $ 521 $ 340 $ 260 $ 470 $ 343 $ 364
======== ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Conversion of subordinated debt to common
stock................................... $ 1,150 $ -- $ -- $ -- $ -- $ --
======== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 68
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
1. ACCOUNTING POLICIES
Organization and Description of Business
Rockford Corporation and subsidiaries ("Rockford") is a leading designer,
manufacturer and distributor of high performance car audio systems under the
"Rockford Fosgate" brand name for the worldwide car audio aftermarket. Rockford
also sells professional audio products under the "Hafler" brand name. Rockford
was organized and incorporated under the laws of the State of Arizona on July
22, 1980, and has manufacturing facilities in Tempe, Arizona and Grand Rapids,
Michigan; warehousing operations in Germany and Singapore; and sales and
warehousing operations in Japan.
Interim Financial Information
The consolidated financial statements as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) that Rockford
considers necessary for a fair presentation of financial position as of such
date and results of operations and cash flows for such period. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of Rockford and
its wholly owned subsidiaries in Germany and Singapore and its majority (90
percent) owned subsidiary in Japan. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
with remaining maturities of three months or less when acquired and which are
readily convertible to cash. Rockford's investments have consisted of commercial
paper, certificates of deposit with original maturities of three months or less
and money market accounts.
Fair Value of Financial Instruments
At December 31, 1998, Rockford has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, capital lease obligations, notes payable and long-term debt. The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximates their fair value based on the
liquidity of these financial instruments or based on their short-term nature.
The carrying value of capital lease obligations, notes payable and long-term
debt approximates fair value based on the market interest rates available to
Rockford for debt of similar risk and maturities.
Accounts Receivable
Rockford sells its products principally to car audio and professional audio
dealers primarily in North America, South America, Europe and Asia. At December
31, 1997, 1998
F-7
<PAGE> 69
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
and March 31, 1999, net accounts receivable includes approximately $3,213,000,
$2,958,000 and $4,302,000, respectively, due from overseas businesses.
Rockford also offers a prompt pay discount for certain invoices paid under
40 to 60 days of issuance and has included in its allowance for accounts
receivable at December 31, 1997, 1998 and March 31, 1999 approximately $162,000,
$262,000 and $395,000, respectively, with respect to accounts using such
discounts after the period-end.
Inventories
Inventories consist principally of raw materials of electronic and
mechanical components used in the manufacturing of amplifier and speaker
systems, and finished goods. Inventories are carried at the lower of cost or
market using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization are
computed principally on the straight-line method for financial reporting
purposes over a three-to-five year life. Leasehold improvements are amortized on
the straight-line method over the shorter period of the lease term or the
estimated useful life of the asset.
Research and Development
During the year ended September 30, 1996, the three months ended December
31, 1996, and the years ended December 31, 1997 and 1998, research and
development expenses of approximately $1,448,000, $292,000, $1,576,000 and
$1,876,000, respectively, were charged to expense as incurred.
Advertising
Rockford expenses advertising as incurred. Advertising expenses for the
year ended September 30, 1996, the three months ended December 31, 1996, and the
years ended December 31, 1997 and 1998 were approximately $1,189,000, $313,000,
$1,008,000 and $1,201,000, respectively.
Income Taxes
Rockford accounts for income taxes under the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes.
Under this method, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Net Income per Common Share
Rockford reports net income per common share in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 128, Earnings Per Share.
Diluted net income per share includes the dilutive effects of options, warrants
and convertible securities.
F-8
<PAGE> 70
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52. All balance sheet
accounts have been translated using the current exchange rates at the balance
sheet date. Statement of operations amounts have been translated using the
average exchange rate for the year. The gains and losses resulting from the
change in exchange rates from year-to-year have been reported separately as a
component of shareholders' equity. The effect on the statement of operations of
transaction gains and losses is insignificant.
Stock Based Compensation
Rockford grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at date of grant.
Rockford has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation and
accordingly, recognizes no compensation expense for the employee stock option
grants. Stock option grants to non-employees are charged to expense based upon
the fair value of the options granted.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Comprehensive Income
Effective January 1, 1998, Rockford adopted SFAS No. 130, Reporting
Comprehensive Income. In adopting the new requirements for calculating income,
items of other comprehensive income have been presented in the equity section of
the statement of shareholders' equity.
Segments of an Enterprise and Related Information
Effective January 1, 1998, Rockford adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business Enterprise.
SFAS No. 131 establishes standards for the way that business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Reclassifications
Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the 1998 presentation.
F-9
<PAGE> 71
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials...................................... $ 3,749 $ 4,864 $ 4,697
Work in progress................................... 417 754 946
Finished goods..................................... 6,860 8,512 7,901
------- ------- -------
11,026 14,130 13,544
Less allowances.................................... (1,423) (1,904) (2,230)
------- ------- -------
$ 9,603 $12,226 $11,314
======= ======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Machinery and equipment......................... $ 9,251 $ 10,708 $ 10,083
Tooling equipment............................... 3,185 3,718 4,171
Leasehold improvements.......................... 1,312 1,368 1,360
Furniture and fixtures.......................... 354 905 893
In process...................................... 464 849 1,115
-------- -------- --------
14,566 17,548 17,622
Less accumulated depreciation and
amortization.................................. (10,589) (12,541) (12,585)
-------- -------- --------
$ 3,977 $ 5,007 $ 5,037
======== ======== ========
</TABLE>
F-10
<PAGE> 72
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1997 1998 1999
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
$17,000,000 revolving line of credit with a lender
collateralized by substantially all assets, interest
payments due monthly based upon a blended rate of LIBOR
plus 3.0 percent (approximately 8.2 percent at December
31, 1998) and prime plus 0.75 percent (approximately 8.5
percent at December 31, 1998) until June 2001 when all
remaining principal and interest is due and payable.
Borrowings under this line of credit are limited to the
borrowing base defined substantially as a percentage of
inventory and accounts receivable, as defined and adjusted
in the agreement. ........................................ $ 9,410 $11,631 $12,125
$2,000,000 term note payable to a lender collateralized by
substantially all assets, monthly principal payments of
$33,333 plus interest at 10.67 percent until June 2000
when all principal and interest is due and payable. ...... 1,800 1,370 1,270
10.5 percent subordinated senior notes payable, unsecured,
interest payable quarterly until February 1999 when all
remaining principal and interest is due and payable. In
connection with these senior notes, detachable warrants
were issued to purchase 84,802 shares of Rockford's common
stock at $0.851 per share, expiring February 2000. ....... 415 415 --
9.0 percent subordinated promissory note to related party,
unsecured, with $200,000 monthly principal due commencing
May 1999 and interest payable monthly until September 1999
when all remaining principal and interest is due and
payable, convertible into common shares at the most recent
price at which Rockford has sold its common shares to an
unaffiliated party subsequent to the date of the agreement
or $3.16 per share, if Rockford has not sold its shares in
such a transaction. ...................................... 1,000 1,000 1,000
8.5 percent convertible subordinated debentures to related
parties, unsecured, interest payable quarterly until May
2002 when all remaining principal and interest is due and
payable, convertible into common shares at $2.234 per
share. ................................................... 995 995 995
Other....................................................... 169 26 6
------- ------- -------
13,789 15,437 15,396
Less current portion........................................ (1,569) (1,841) (1,406)
------- ------- -------
$12,220 $13,596 $13,990
======= ======= =======
</TABLE>
F-11
<PAGE> 73
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
Annual maturities of notes payable and long-term debt for the years
succeeding December 31, 1998 are $1,841,000 in 1999, $12,601,000 in 2000, $-0-
in 2001 and $995,000 in 2002. Interest payments were approximately $1,705,000
and $1,520,000 for the years ended December 31, 1997 and 1998, respectively.
At December 31, 1998, Rockford has $5,999,000 available under its revolving
line of credit and $1,000,000 available for financing equipment under its credit
arrangement with its primary lender.
Rockford's $17,000,000 revolving line of credit, its 10.5 percent
subordinated senior notes payable and its 8.5 percent convertible subordinated
debentures contain covenants which place various restrictions on financial
ratios, levels of indebtedness, and capital expenditures, among other things.
Rockford issued warrants in April of 1997 to purchase 23,500 shares of common
stock at $3.16 in conjunction with this credit facility which expire on June 1,
2007.
5. LEASES
Rockford leases equipment under capital leases. Capital leases include
leases made under a two million dollar equipment leasing arrangement with a
bank. At December 31, 1998, $1,074,000 had been used under the arrangement and
$926,000 was available for future capital lease fundings through September 30,
1999. Rockford also leases certain manufacturing, warehouse and office
facilities, and computer hardware and software under noncancelable operating
leases that expire in various years through September 2006.
Property and equipment includes the following amounts for leases that have
been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment............................................ $2,002 $1,990 $2,000
Less accumulated amortization........................ (895) (622) (698)
------ ------ ------
$1,107 $1,368 $1,302
====== ====== ======
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
During the year ended September 30, 1996, the three months ended December
31, 1996 and the years ended December 31, 1997 and 1998, Rockford acquired
approximately $949,000, $27,000, $68,000 and $1,394,000 of equipment under
capital leases, respectively.
F-12
<PAGE> 74
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
Future minimum payments under capital leases and noncancelable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1999........................................ $ 624 $1,140
2000........................................ 413 945
2001........................................ 398 381
2002........................................ -- 246
2003........................................ -- 137
Thereafter.................................. -- 412
------ ------
Total minimum lease payments................ 1,435 $3,261
======
Less amounts representing interest.......... (187)
------
Present value of net minimum lease.......... 1,248
Less current portion........................ (552)
------
$ 696
======
</TABLE>
Total rental expense for all operating leases was approximately $1,812,000,
$420,000, $2,309,000 and $1,957,000 for the year ended September 30, 1996, the
three months ended December 31, 1996 and the years ended December 31, 1997 and
1998, respectively.
6. INCOME TAXES
Significant components of Rockford's deferred tax assets are:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory basis........................................ $ 629 $ 837
Basis in receivables................................... 48 251
Book over tax depreciation............................. 84 125
Accrued warranty....................................... 1,077 1,342
Accrued liabilities and other.......................... 233 529
Alternative minimum tax credit carryforward............ 212 --
Net operating loss carryforwards....................... 115 --
------ ------
Total deferred tax assets................................ $2,398 $3,084
====== ======
</TABLE>
F-13
<PAGE> 75
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
Significant components of the federal and state income tax expense
(benefit) are:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, --------------
1996 1996 1997 1998
------------- ------------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal expense (benefit)................. $ (433) $(195) $779 $1,883
State expense............................. 90 23 116 384
Foreign expense........................... 9 8 36 136
------- ----- ---- ------
Total current expense (benefit)............. (334) (164) 931 2,403
Deferred:
Federal expense (benefit)................. (643) 127 25 (719)
State expense (benefit)................... (48) 18 3 33
------- ----- ---- ------
Total deferred expense (benefit)............ (691) 145 28 (686)
------- ----- ---- ------
$(1,025) $ (19) $959 $1,717
======= ===== ==== ======
</TABLE>
A reconciliation of Rockford's effective income tax rate to the federal
statutory rate follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, --------------
1996 1996 1997 1998
------------- ------------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal statutory rate...................... $(1,029) $(13) $881 $1,374
State tax, net of federal benefit........... 28 27 79 275
Nondeductible items......................... -- -- 36 45
Higher (lower) foreign tax rates............ (30) (17) (43) 17
Foreign sales corporation benefit........... -- -- (98) (65)
Other, net.................................. 6 (16) 104 71
------- ---- ---- ------
$(1,025) $(19) $959 $1,717
======= ==== ==== ======
</TABLE>
Rockford's income attributable to foreign operations amounted to
approximately $105,000 for the year ended September 30, 1996, $65,000 for the
three months ended December 31, 1996, $237,000 for the year ended December 31,
1997 and $350,000 for the year ended December 31, 1998.
For the year ended September 30, 1996, no tax payments were made and
$150,000 of net tax refunds were received. For the three months ended December
31, 1996, no tax payments were made nor were refunds received. For the years
ended December 31, 1997 and 1998, Rockford made tax payments of $694,000 (net of
$460,000 in refunds) and $2,082,000, respectively.
7. COMMON STOCK GRANTS AND OPTIONS
The Board of Directors of Rockford prior to 1995 granted a certain
consulting firm, which provided chief executive officer services to Rockford
until January 1, 1999, options to
F-14
<PAGE> 76
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
purchase 235,000 shares of its authorized but unissued common stock at a price
of $1.38 per share, protected against dilution, as defined, and expiring in
August 2002. The price per share exceeded the fair value at the date of the
grant. The stock options are fully vested at December 31, 1998.
Rockford has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of Rockford's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Rockford has provided stock option plans for certain employees and
directors under its 1994 and 1997 stock option plans. Under the plans, options
to purchase common stock of Rockford will be granted to certain employees and
directors at the fair value of the underlying common stock. The options
generally have a term of ten years and become exercisable over three years
commencing on the date of the grant. Options granted prior to December 31, 1996
will vest 100 percent upon an initial public offering or merger or acquisition
of Rockford. Up to 2,350,000 shares are reserved and may be offered under these
plans. Under certain circumstances, Rockford has the right to repurchase common
stock acquired under the options at the fair value price.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if Rockford has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum value
pricing model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life of the award............................... 5 years
Dividend yield........................................... 0 percent
Risk-free interest rate.................................. 6 percent
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Rockford's pro
forma information follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, ----------------
1996 1996 1997 1998
------------- ------------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) as reported..... $(2,003) $(19) $1,632 $2,305
Pro forma Statement 123
expense......................... (25) (9) (76) (110)
------- ---- ------ ------
Pro forma net income (loss)....... $(2,028) $(28) $1,556 $2,195
======= ==== ====== ======
</TABLE>
F-15
<PAGE> 77
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
Option activity under the 1994 and 1997 stock option plans during the year
ended September 30, 1996, the three months ended December 31, 1996, the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
SHARES AVAILABLE WEIGHTED-AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
---------------- --------- ----------------
<S> <C> <C> <C>
Outstanding at September 30, 1995..... 584,191 590,809 $1.38
Granted............................... (461,775) 461,775 2.35
Exercised............................. -- -- --
Expired or cancelled.................. 68,150 (68,150) 1.38
--------- --------- -----
Outstanding at September 30, 1996..... 190,566 984,434 1.81
Granted............................... (14,100) 14,100 3.16
Exercised............................. -- (3,525) 1.38
Expired or cancelled.................. -- -- --
--------- --------- -----
Outstanding at December 31, 1996...... 176,466 995,009 1.83
Reserve shares........................ 1,175,000 -- --
Granted............................... (734,624) 734,624 3.65
Exercised............................. -- (18,213) 1.82
Expired or cancelled.................. 68,737 (68,737) 1.85
--------- --------- -----
Outstanding at December 31, 1997...... 685,579 1,642,683 2.64
Granted............................... (172,725) 172,725 4.92
--------- --------- -----
Outstanding at December 31, 1998...... 512,854 1,815,408 2.86
Granted............................... (188,000) 188,000 7.02
Expired or cancelled.................. 30,550 (30,550) 2.33
--------- --------- -----
Outstanding at March 31, 1999......... 355,404 1,972,858 $3.26
========= ========= =====
</TABLE>
The weighted-average fair value of options granted during the year ended
September 30, 1996, the three months ended December 31, 1996, the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999 was $0.61,
$0.82, $0.82, $0.99 and $1.82, respectively.
The following table summarizes information about stock options under the
plans outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE NUMBER REMAINING AVERAGE NUMBER AVERAGE
OF EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE OUTSTANDING AT EXERCISE
PRICES DECEMBER 31, 1998 LIFE PRICE DECEMBER 31, 1998 PRICE
- ------------- ----------------- ----------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$1.38 508,559 6.0 years $1.38 508,559 $1.38
$2.23 - $3.16 603,950 7.6 years 2.66 484,100 $2.53
$3.83 575,999 9.1 years 3.83 279,481 $3.83
$5.32 126,900 9.3 years 5.32 -- --
</TABLE>
F-16
<PAGE> 78
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
8. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
THREE MONTHS YEAR ENDED ENDED
YEAR ENDED ENDED DECEMBER 31, MARCH 31,
SEPTEMBER 30, DECEMBER 31, --------------- ---------------
1996 1996 1997 1998 1998 1999
------------- ------------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).................. $(2,003) $ (19) $1,632 $2,305 $ 258 $1,802
Effect of dilutive securities
Interest impact of convertible
debentures.................... -- -- 110 110 27 27
------- ------ ------ ------ ------ ------
Numerator for diluted net income
(loss) per share -- income
available to common stockholders
after assumed conversions.......... $(2,003) $ (19) $1,742 $2,415 $ 285 $1,829
======= ====== ====== ====== ====== ======
Denominator:
Denominator for basic net income
(loss) per share -- weighted --
average shares.................. 4,416 4,803 4,811 4,822 4,822 4,822
Effect of dilutive securities
Employee stock options.......... -- -- 540 793 604 1,175
Warrants........................ -- -- 66 76 70 87
Convertible debentures.......... -- -- 762 762 762 762
------- ------ ------ ------ ------ ------
Dilutive potential common shares... 4,416 4,803 1,368 1,631 1,436 2,024
------- ------ ------ ------ ------ ------
Denominator for diluted net income
(loss) per share -- adjusted
weighted-average shares and assumed
conversions........................ 4,416 4,803 6,179 6,453 6,258 6,846
======= ====== ====== ====== ====== ======
Basic net income (loss) per share.... $ (0.45) $(0.01) $ 0.34 $ 0.48 $ 0.05 $ 0.37
======= ====== ====== ====== ====== ======
Diluted net income (loss) per
share.............................. $ (0.45) $(0.01) $ 0.28 $ 0.37 $ 0.05 $ 0.27
======= ====== ====== ====== ====== ======
</TABLE>
9. CONTINGENCIES
Rockford is a party to legal proceedings which arise out of the ordinary
course of business. Based upon advice from outside legal counsel, management is
of the opinion that these matters will have no material effect on Rockford's
consolidated financial position.
10. BENEFIT PLAN
Rockford has a 401(k) Retirement Savings Plan (the Plan) covering
substantially all employees who have completed six consecutive months of service
without regard to hours of service. Under the terms of the Plan, employees may
make voluntary contributions, subject to Internal Revenue Service limitations.
Rockford will match employee contributions up to three percent of the employee's
annual compensation. Additional contributions to the Plan can be made at the
discretion of the Board of Directors. Contributions to the Plan during the year
ended September 30, 1996, the three months ended December 31, 1996 and the years
ended
F-17
<PAGE> 79
ROCKFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(The information for the three months ended
March 31, 1998 and 1999 is unaudited)
December 31, 1997 and 1998 were approximately $219,000, $46,000, $237,000 and
$296,000, respectively.
11. SEGMENT INFORMATION
Rockford operates its business under the car audio and professional audio
product lines. For each of the years ended December 31, 1997 and 1998, the
professional audio line was not significant and, accordingly, no additional
disclosures of revenue information about products are required. Below is
geographic information for revenues of Rockford:
<TABLE>
<CAPTION>
THREE
MONTHS YEAR ENDED THREE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, MARCH 31,
SEPTEMBER 30, DECEMBER 31, ------------------ -------------------
1996 1996 1997 1998 1998 1999
------------- ------------ -------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales from external
customers(a)
United States........... $58,977 $11,518 $ 65,612 $71,445 $16,504 $27,648
Export:
Americas............. 4,880 1,560 7,005 4,905 1,929 1,444
Europe............... 10,326 1,503 7,819 6,599 1,212 1,738
Asia................. 6,961 1,867 8,347 6,057 1,131 1,196
------- ------- -------- ------- ------- -------
Total sales from external
customers............... $81,144 $16,448 $ 88,783 $89,006 $20,776 $32,026
======= ======= ======== ======= ======= =======
</TABLE>
- ---------------
(a) Revenues are attributed to geographic regions based on the location of
customers.
Rockford had no customers who accounted for more than 10 percent of net
sales for all periods presented except for the three months ended March 31, 1999
in which sales to one customer accounted for 25.6 percent of that period's net
sales. Rockford's long-lived assets outside of the United States are not
significant.
12. SUBSEQUENT EVENTS
During April 1999, the Board of Directors authorized Rockford to file a
registration statement for an initial public offering of shares of its common
stock.
On May 1, 1999, the $1,000,001 promissory note due to a related party was
converted into 316,498 shares of Rockford's common stock.
On May 17, 1999, the shareholders approved the adoption of the 1999
Employee Stock Purchase Plan to be effective July 1, 1999. Under the plan,
394,800 shares have been reserved for issuance.
On May 17, 1999, the shareholders approved an increase in the number of
authorized common shares to 20,000,000.
Effective , 1999, Rockford executed a 4.7-for-1 common stock
split. All share information in the financial statements has been restated to
reflect the effect of the stock split.
F-18
<PAGE> 80
Inside back cover
Upper left: [Hafler logo]
Middle left: Hafler worldwide distribution
[Map of countries where Hafler products are distributed]
Lower left: Power amplifiers
[Photo of Hafler power amplifier]
Lower left: Studio monitors
[Photo of Hafler studio monitor]
Lower left: Powered subwoofers
[Photo of Hafler powered subwoofer]
Right margin: Professional users
[Photos of Hafler product users]
Ron McMaster, Capital Records
Tom Jung, DMP Records
Wayman Tisdale, MoJazz Recording Artist
Jon Karell, Theater Spec Engineer
Bottom center: www.hafler.com
[Photos of product and endorsement pages from Hafler website]
Text in upper center: There is a human filter in the world of music. Sitting
somewhere between the creative musician in the recording studio, and the
passionate listener in a living room or vehicle. That filter is the professional
sound engineer, the person that makes a living recording, mixing, or
broadcasting the music and movie soundtracks that we hear everyday. Hafler is
the brand of choice among these working professionals and the aspiring
professionals.
Moving beyond the amplifier niche, in 1996 Hafler introduced the TRM Series of
powered monitors and powered subwoofers. Amplifier electronics manufactured in
Tempe and speaker components in Grand Rapids. This unique strategy allows the
Hafler brand to take advantage of Rockford Corporation's world class product
development process and manufacturing muscle.
Now, those opinionated human filters that wedge themselves between musicians,
and listeners are lining up. Lining up at retailers around the world and
hitting the web to demand the finest in sound quality and technology.
Everything that goes into the design and excitement of Hafler challenges the
music professional to come to www.hafler.com.
Outside Back Cover
Center: [Photo of young man and woman restraining Rockford wolf]
Under photo: [Diamond R and Rockford Corporation logo]
Under Logos: Stock Symbol: ROFO
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We expect to incur the following estimated expenses (other than
underwriting discounts and commissions) in connection with the issuance and
distribution of the securities which we are registering under this statement:
<TABLE>
<S> <C>
SEC registration fee........................................ $12,788
NASD filing fee............................................. 5,100
Nasdaq National Market listing fee.......................... 17,500
Printing and engraving...................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses (including legal fees)........... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation limit, to the maximum extent permitted by
Arizona law, the liability of our directors for monetary damages arising from a
breach of their duties as directors. The limitation of liability does not affect
the availability of equitable remedies, such as injunctive relief or rescission.
Our articles of incorporation require us to indemnify our directors and
officers, to the maximum extent permitted by Arizona law, against liability
arising against them for acts or omissions within the scope of their authority
as directors or officers. Indemnification is prohibited if our board of
directors finds that the person's action or omission was willful, grossly
negligent, or with fraudulent or criminal intent, or for liabilities under the
Securities Act of 1933. Under Arizona law, we may indemnify a director or
officer against liability incurred on account of service to us, if the director
or officer:
- conducted himself or herself in good faith;
- reasonably believed that his or her conduct (1) if in an official
capacity, was in our best interests or (2) if in any other capacity, was
not opposed to our best interests;
- in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful; and
- did not improperly receive personal benefit.
Before completing this offering, we intend to enter into indemnification
agreements with each of our directors. These agreements will generally obligate
us to indemnify them for liability incurred by them as a result of their service
as directors, unless (1) their liability arises as a result of their fraud,
deliberate dishonesty or willful misconduct or (2) Arizona law prohibits
indemnification. Prior to completing this offering on the effective date of this
registration statement, we will have obtained liability insurance for our
directors.
Reference is made to Section 7 of the underwriting agreement to be filed as
an exhibit to the registration statement, indemnifying our officers and
directors against certain liabilities.
II-1
<PAGE> 82
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1996, we have issued and sold or otherwise transferred the
below listed unregistered securities. These issuances were deemed exempt from
registration under the Securities Act of 1933 in reliance on Rule 701 under such
Act or Section 4(2) of such Act.
1. In 1996 and 1997, we issued 21,738 shares to several employees who
exercised stock options pursuant to our 1994 and 1997 Stock Option Plans.
2. In March 1996, we borrowed $2.0 million from Caroline Bartol. On
July 1, 1996 she converted $1.0 million of this loan into 316,498 shares of
Common Stock.
3. On May 1, 1999, we issued 316,498 shares of our Common Stock to an
entity controlled by two of our directors in connection with the conversion
of a $1,000,001 loan.
4. On April 23, 1997, we issued to Vrolyk Partnership 97-A a warrant
for 23,500 shares with an exercise price of $3.16 per share, as
compensation for services rendered in connection with arranging our $20.0
million credit facility.
5. We have, from time to time, granted stock options to employees.
The following table sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ---------------
<S> <C> <C>
January 1, 1996 through December 31, 1996................... 70,500 $2.24 - $3.16
January 1, 1997 through December 31, 1997................... 734,624 $3.16 - $3.83
January 1, 1998 through December 31, 1998................... 172,725 $3.83 - $5.32
January 1, 1999 through the date of this prospectus......... 188,000 $7.02
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1 Underwriting Agreement*
3.1 Articles of Incorporation
3.2 Restated Bylaws
3.3 Amendment to Articles of Incorporation filed on January 12,
1988
3.4 Amendment to Articles of Incorporation filed on April 30,
1999
3.5 Amendment to Articles of Incorporation filed on May 17, 1999
3.6 Amendments to Bylaws adopted by the board of directors on
May 14, 1999
4.1 Specimen Common Stock Certificate
4.2 Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 for a description
of the rights of the holders of Common Stock.
5 Opinion of Steptoe & Johnson LLP*
10.1 1994 Stock Option Plan
10.2 1997 Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Employment Agreement by and between Rockford Corporation and
W. Gary Suttle
10.5 Indemnity Agreement by and between Rockford Corporation and
W. Gary Suttle
10.6 Letter Agreement by and between Rockford Corporation and
Best Buy Corporation**
10.7 Joint Development and Supply Agreement by and between
Rockford Corporation and Hyundai Electronics Industries Co.,
Ltd.**
10.8 Form of Dealership Agreements
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.9 Standard Industrial Commercial Multi-Tenant Lease -- Gross
American Industrial Real Estate Association Lease, and
addenda thereto, by and between Rockford River LLC and
Rockford Corporation
10.10 Standard Industrial Lease -- Gross, and addenda thereto, by
and between Cloyce Clark and Rockford Corporation
10.11 Lease Agreement, and addenda thereto, by and between
Carbonneau Industries, Inc. and Rockford Corporation
10.12 Master Lease Agreement and addenda thereto, by and between
Banc One Leasing Corporation and Rockford Corporation
10.13 Loan and Security Agreement by and between Rockford
Corporation and FINOVA Capital Corporation
10.14 Employee 401(k) Deferred Compensation Plan
10.15 Manufacturing and Distribution Agreement by and between
American Connection Incorporated and Rockford Corporation,
and addenda thereto**
10.16 Product Sales Agreement by and between Rockford Corporation
and Avnet Electronics Marketing**
10.17 Convertible Subordinated Debenture Amendment Agreement and
Agreement to Rename as Senior Notes
10.18 Form of Senior Note due February 3, 1999 and Warrant
10.19 Schedule for Senior Notes and Warrants
10.20 Convertible Subordinated Debenture Purchase Agreement
10.21 Form of 8.5% Convertible Subordinated Debenture due May 1,
2002
10.22 Schedule for 8.5% Convertible Subordinated Debentures
10.23 Warrant issued to the Vrolyk Partnership 97-A to expire June
1, 2007
10.24 Services and Option Agreement by and between W. Gary Suttle,
Caroline S. Bartol, individually and as representative of
the estate of John G. Bartol and Rockford Corporation
10.25 Amendment of Services and Option Agreement by and between W.
Gary Suttle, Monument Investors Limited Partnership as
successor to Caroline S. Bartol and the estate of John G.
Bartol and Rockford Corporation
10.26 Amendment of Services and Option Contract by and between W.
Gary Suttle, Monument Investors Limited Partnership as
successor to Caroline S. Bartol and the estate of John G.
Bartol and Rockford Corporation
10.27 Consulting and Option Contract by and between Rockford
Corporation and Grisanti, Galef & Goldress, Inc.
10.28 Amendment and Renewal of Consulting and Option Contract by
and between Rockford Corporation and Grisanti, Galef &
Goldress, Inc.
10.29 Amendment of Consulting and Option Contract by and between
Rockford Corporation and Grisanti, Galef & Goldress, Inc.
10.30 Letter from Timothy Bartol, General Partner for the Boulder
Partnership exercising rights under Bridge Loan Conversion
and Extension Agreement by and between Rockford Corporation
and Boulder Investors Ltd. Partnership, as successor to
Caroline S. Bartol
10.31 Fifth Amendment to Bridge Loan Conversion and Extension
Agreement by and between Rockford Corporation and Boulder
Investors Ltd. Partnership, as successor to Caroline S.
Bartol
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.32 Bridge Loan Conversion and Extension Agreement by and
between Rockford Corporation and Caroline S. Bartol
10.33 Bridge Loan Agreement by and between Rockford Corporation
and Caroline S. Bartol
10.34 1990 Restricted Stock Grant and Tax Loan Agreement and
Promissory Note
10.35 Form of Indemnity Agreement*
21 List of Subsidiaries of Rockford Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Steptoe & Johnson, LLP*
24 Power of Attorney. Reference is made to the signature page
of this registration statement which includes the power of
attorney
27.1 Financial Data Schedule for three months ended March 31,
1999
27.2 Financial Data Schedule for year ended December 31, 1998
</TABLE>
- ---------------
* To be filed by amendment
** Confidential treatment requested
Financial Statement Schedule: Schedule II -- Valuation and Qualifying
Accounts.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ROCKFORD CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------------- ---------- -------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------------------------- ------------ ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Receivable allowances...... $ 918 $561 $-- $436(1) $1,043
Inventory reserve.......... 1,423 787 -- 306(2) 1,904
December 31, 1997
Receivable allowances...... 699 540 -- 321(1) 918
Inventory reserve.......... 785 638 -- -- 1,423
December 31, 1996
Receivable allowances...... 551 247 -- 99(1) 699
Inventory reserve.......... 944 79 -- 238(2) 785
September 30, 1996
Receivable allowances...... 525 653 -- 627(1) 551
Inventory reserve.......... 914 251 -- 221(2) 944
</TABLE>
- ---------------
(1) Accounts written off net of recoveries.
(2) Reserved inventory sold or scrapped.
Other financial statement schedules have not been presented, as they are
not applicable.
II-4
<PAGE> 85
ITEM 17. Undertakings
We hereby undertake to provide to the underwriter at the closing specified
in the underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to our directors, officers and controlling
persons pursuant to the Act, our articles of incorporation or our bylaws, the
underwriting agreement or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
one of our directors, officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
We hereby undertake that for purposes of determining any liability under
the Securities Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by us pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall
be deemed to be part of this registration statement as of the time it was
declared effective. We further undertake that for the purpose of determining any
liability under the Securities Act of 1933, as amended, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-5
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, we
have duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on May 25, 1999.
ROCKFORD CORPORATION
By: /s/ W. GARY SUTTLE
------------------------------------
W. Gary Suttle
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints W. Gary Suttle and James M. Thomson, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, as amended, and all post-effective amendments thereto, and to file the
same, with all exhibits thereto and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ W. GARY SUTTLE President, Chief Executive May 25, 1999
- --------------------------------------------------- Officer, and Director (Principal
W. Gary Suttle Executive Officer)
/s/ JAMES M. THOMSON Vice President of Finance and May 25, 1999
- --------------------------------------------------- Chief Financial Officer,
James M. Thomson Secretary (Principal Financial
Officer)
/s/ D. LYNN THROWER Corporate Controller (Principal May 25, 1999
- --------------------------------------------------- Accounting Officer)
D. Lynn Thrower
/s/ JERRY E. GOLDRESS Director May 25, 1999
- ---------------------------------------------------
Jerry E. Goldress
/s/ TIMOTHY C. BARTOL Director May 25, 1999
- ---------------------------------------------------
Timothy C. Bartol
</TABLE>
II-6
<PAGE> 87
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ NICHOLAS G. BARTOL Director May 25, 1999
- ---------------------------------------------------
Nicholas G. Bartol
Director
- ---------------------------------------------------
Ralph Godfrey
/s/ JOHN P. LLOYD Director May 25, 1999
- ---------------------------------------------------
John P. Lloyd
</TABLE>
II-7
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1 Underwriting Agreement*
3.1 Articles of Incorporation
3.2 Restated Bylaws
3.3 Amendment to Articles of Incorporation filed on January 12,
1988
3.4 Amendment to Articles of Incorporation filed on April 30,
1999
3.5 Amendment to Articles of Incorporation filed on May 17, 1999
3.6 Amendments to Bylaws adopted by the board of directors on
May 14, 1999
4.1 Specimen Common Stock Certificate
4.2 Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 for a description
of the rights of the holders of Common Stock.
5 Opinion of Steptoe & Johnson LLP*
10.1 1994 Stock Option Plan
10.2 1997 Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Employment Agreement by and between Rockford Corporation and
W. Gary Suttle
10.5 Indemnity Agreement by and between Rockford Corporation and
W. Gary Suttle
10.6 Letter Agreement by and between Rockford Corporation and
Best Buy Corporation**
10.7 Joint Development and Supply Agreement by and between
Rockford Corporation and Hyundai Electronics Industries Co.,
Ltd.**
10.8 Form of Dealership Agreements
10.9 Standard Industrial Commercial Multi-Tenant Lease -- Gross
American Industrial Real Estate Association Lease, and
addenda thereto, by and between Rockford River LLC and
Rockford Corporation
10.10 Standard Industrial Lease -- Gross, and addenda thereto, by
and between Cloyce Clark and Rockford Corporation
10.11 Lease Agreement, and addenda thereto, by and between
Carbonneau Industries, Inc. and Rockford Corporation
10.12 Master Lease Agreement and addenda thereto, by and between
Banc One Leasing Corporation and Rockford Corporation
10.13 Loan and Security Agreement by and between Rockford
Corporation and FINOVA Capital Corporation
10.14 Employee 401(k) Deferred Compensation Plan
10.15 Manufacturing and Distribution Agreement by and between
American Connection Incorporated and Rockford Corporation,
and addenda thereto**
10.16 Product Sales Agreement by and between Rockford Corporation
and Avnet Electronics Marketing**
10.17 Convertible Subordinated Debenture Amendment Agreement and
Agreement to Rename as Senior Notes
10.18 Form of Senior Note due February 3, 1999 and Warrant
10.19 Schedule for Senior Notes and Warrants
10.20 Convertible Subordinated Debenture Purchase Agreement
10.21 Form of 8.5% Convertible Subordinated Debenture due May 1,
2002
10.22 Schedule for 8.5% Convertible Subordinated Debentures
10.23 Warrant issued to the Vrolyk Partnership 97-A to expire June
1, 2007
10.24 Services and Option Agreement by and between W. Gary Suttle,
Caroline S. Bartol, individually and as representative of
the estate of John G. Bartol and Rockford Corporation
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.25 Amendment of Services and Option Agreement by and between W.
Gary Suttle, Monument Investors Limited Partnership as
successor to Caroline S. Bartol and the estate of John G.
Bartol and Rockford Corporation
10.26 Amendment of Services and Option Contract by and between W.
Gary Suttle, Monument Investors Limited Partnership as
successor to Caroline S. Bartol and the estate of John G.
Bartol and Rockford Corporation
10.27 Consulting and Option Contract by and between Rockford
Corporation and Grisanti, Galef & Goldress, Inc.
10.28 Amendment and Renewal of Consulting and Option Contract by
and between Rockford Corporation and Grisanti, Galef &
Goldress, Inc.
10.29 Amendment of Consulting and Option Contract by and between
Rockford Corporation and Grisanti, Galef & Goldress, Inc.
10.30 Letter from Timothy Bartol, General Partner for the Boulder
Partnership exercising rights under Bridge Loan Conversion
and Extension Agreement by and between Rockford Corporation
and Boulder Investors Ltd. Partnership, as successor to
Caroline S. Bartol
10.31 Fifth Amendment to Bridge Loan Conversion and Extension
Agreement by and between Rockford Corporation and Boulder
Investors Ltd. Partnership, as successor to Caroline S.
Bartol
10.32 Bridge Loan Conversion and Extension Agreement by and
between Rockford Corporation and Caroline S. Bartol
10.33 Bridge Loan Agreement by and between Rockford Corporation
and Caroline S. Bartol
10.34 1990 Restricted Stock Grant and Tax Loan Agreement and
Promissory Note
10.35 Form of Indemnity Agreement*
21 List of Subsidiaries of Rockford Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Steptoe & Johnson, LLP*
24 Power of Attorney. Reference is made to the signature page
of this registration statement which includes the power of
attorney
27.1 Financial Data Schedule for three months ended March 31,
1999
27.2 Financial Data Schedule for year ended December 31, 1998
</TABLE>
- ---------------
* To be filed by amendment
** Confidential treatment requested
<PAGE> 1
EXHIBIT 3.1
STATE OF ARIZONA
[STATE OF ARIZONA SEAL]
OFFICE OF THE
CORPORATION COMMISSION
To all to Whom these Presents shall Come, Greeting:
I, the Executive Secretary of the Arizona Corporation Commission, DO
HEREBY CERTIFY that
***ROCKFORD CORPORATION***
a Domestic Corporation organized under the laws of the State of Arizona, did
incorporate on July 22, 1980
I FURTHER CERTIFY that this corporation has filed all affidavits and
annual reports and paid all annual filing fees required to date and, therefore,
is in good standing in this state.
IN WITNESS WHEREOF, I have hereunto
set my hand and affixed the
official seal of the Arizona
(SEAL) Corporation Commission. Done at
Phoenix, the Capital, this 23rd day
of May , 1994, A.D.
/s/ James Matthews
-----------------------------
Executive Secretary
By: /s/
--------------------------
<PAGE> 2
ROCKFORD CORPORATION
KNOW ALL MEN BY THESE PRESENTS:
That we, whose hands are hereunto affixed, desiring to form a
corporation under the laws of the State of Arizona, do hereby associate
ourselves together for that purpose, and adopt the following Articles of
Incorporation:
ARTICLE I
The name of the corporation is Rockford Corporation.
ARTICLE II
The purpose for which this corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the laws of the State of Arizona, as they may be amended from
time to time, and specifically but not in limitation thereof, the purpose of
manufacturing and sale of consumer items.
ARTICLE III
The corporation initially intends to conduct the business of
manufacturing and sale of consumer electronic items.
ARTICLE IV
The corporation shall have authority to issue 1,000,000
shares of common stock of the par value of $.01 per share.
-2-
<PAGE> 3
ARTICLE V
The initial Board of Directors shall consist of two (2)
directors. The persons who are to serve as the initial directors are:
Charles E. Davis
1531 East Hope
Mesa, Arizona 85203
Robert F. Pothier
2437 E. Huber
Mesa, Arizona 85203
The number of persons to serve on the Board of Directors
thereafter, the means of electing them and their terms of office shall be fixed
by the bylaws.
ARTICLE VI
Subject to the further provisions hereof, the corporation
shall indemnify any and all of its existing and former directors, officers,
employees, and agents against all expenses incurred by them and each of them,
including but not limited to legal fees, judgments, penalties, and amounts paid
in settlement or compromise, which may arise or be incurred, rendered, or levied
in any legal action brought or threatened against any of them for or on account
of any action or omission alleged to have been committed while acting within the
scope of employment as director, officer, employee or agent of the corporation,
whether or not any action is or has been filed against them and whether or not
any settlement or compromise is approved by a court, indemnification shall be
made by the corporation whether the legal action brought or threatened is by or
in the right of the corporation or by any other person. Whenever any existing or
former director, officer, employee, or agent shall report to the President of
the corporation or the Chairman of the Board of Directors that he or she has
incurred or may incur expenses, including but not limited to legal fees,
judgments, penalties, and amounts paid in settlement or compromise in a legal
action brought or threatened against him or her for or on account of any action
or omission alleged to have been committed by him or her while acting within the
scope of his or her employment as a director, officer, employee or agent of the
corporation, the Board of
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<PAGE> 4
Directors shall, at its next regular or at a special meeting held within a
reasonable time thereafter, determine in good faith whether, in regard to the
matter involved in the action or contemplated action, such person acted, failed
to act, or refused to act willfully or with gross negligence or with fraudulent
or criminal intent. If the Board of Directors determines in good faith that such
person did not act, fail to act, or refuse to act willfully or with gross
negligence or with fraudulent or criminal intent in regard to the matter
involved in the action or contemplated action, indemnification shall be
mandatory and shall be automatically extended as specified herein, provided
however, that no such indemnification shall be available with respect to
liabilities under the Securities Act of 1933, and, provided further, that the
corporation shall have the right to refuse indemnification in any instance in
which the person to whom indemnification would otherwise have been applicable
shall have unreasonably refused to permit the corporation, at its own expense
and through counsel of its own choosing, to defend him or her in the action.
ARTICLE VII
The incorporators of the corporation are:
Robert F. Pothier
2437 E. Huber
Mesa, Arizona 85203
Charles E. Davis
1531 E. Hope
Mesa, Arizona 85203
All powers, duties and responsibilities of the Incorporators
shall cease at the time of delivery of these Articles of Incorporation to the
Arizona Corporation Commission for filing.
ARTICLE VIII
The name and address of the initial statutory agent of the
corporation is:
Charles E. Davis
30 West 1st Street
Mesa, Arizona 85201
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<PAGE> 5
IN WITNESS WHEREOF, we, the undersigned, have hereunto signed
our names this 22nd day of July, 1980.
/s/ Charles E. Davis
--------------------
Charles E. Davis
/s/ Robert F. Pothier
---------------------
Robert F. Pothier
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
SUBSCRIBED, SWORN TO and acknowledged before me this 22nd day
of July, 1980 by Charles E. Davis and Robert F. Pothier.
/s/
-----------------
Notary Public
My Commission Expires:
September 24, 1983
I, Charles E. Davis, having been designated to act as
Statutory Agent, hereby consent to act in that capacity until removal or
resignation is submitted in accordance with the Arizona Revised Statutes.
/s/ Charles E. Davis
--------------------
Charles E. Davis
-5-
<PAGE> 1
EXHIBIT 3.2
RESTATED BY-LAWS OF
ROCKFORD CORPORATION
ARTICLE I
OFFICES AND CORPORATE SEAL
1.01 PLACE OF BUSINESS
In addition to its known place of business, which shall be the office
of its Statutory Agent, the corporation shall maintain a principal office in
Maricopa County, Arizona.
1.02 OTHER PLACES OF BUSINESS
The corporation may also maintain offices at such other place or
places, either within or without the State of Arizona, as may be designated from
time to time by the Board of Directors, and the business of the corporation may
be transacted at such other offices with the same effect as that conducted at
the principal office.
1.03 CORPORATE SEAL
A corporate seal shall not be requisite to the validity of any
instrument executed by or on behalf of this corporation, but nevertheless if in
any instance a corporate seal be used, the same shall be, at the pleasure of the
officer affixing the same, be either (a) a circle having on the circumference
thereof "Rockford Corporation" and in the center "Incorporated 1980 Arizona," or
(b) a circle containing the words "Corporate Seal" on the circumference thereof,
and in the center "Arizona."
ARTICLE II
SHAREHOLDERS
2.01 PLACE OF MEETINGS
All meetings of shareholders shall be held at such place as may be
fixed from time to time by the Board of Directors, or in the absence of
direction by the Board of Directors, by the President or Secretary of the
corporation, either within or without the State of Arizona, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
2.02 ANNUAL MEETINGS
Annual meetings of shareholders shall be on the fifteenth day of March
if not a legal holiday, and if a legal holiday, then on the next secular day
following, or at such other date
<PAGE> 2
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At the annual meeting, shareholders shall
elect a Board of Directors and transact such other business as may properly be
brought before the meeting.
2.03 NOTICE OF ANNUAL MEETING
Written notice of the annual meeting stating the place, date, and hour
of the meeting shall be given to each shareholder of record entitled to vote at
such meeting not less than ten (10) nor more than fifty (50) days before the
date of the meeting. Shareholders entitled to vote at the meeting shall be
determined as of 4:30 P.M. on the day before notice of the meeting is sent.
2.04 SHAREHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any shareholder present.
2.05 SPECIAL MEETINGS
Special meetings of the shareholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of Incorporation, may
be called by the President and shall be called by the President or Secretary at
the request in writing of a majority of the Board of Directors, or at the
request in writing of shareholders owning a majority in amount of the entire
capital stock of the corporation issued, outstanding, and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
2.06 NOTICE OF SPECIAL MEETING
Written notice of a special meeting stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten (10) nor more than fifty (50) days before the date of
the meeting to each shareholder of record entitled to vote at such meeting.
Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice. Shareholders entitled to vote at the meeting
shall be determined as of 4:00 P.M. on the day before notice of the meeting is
sent.
-2-
<PAGE> 3
2.07 QUORUM
The holders of a majority of the shares issued, outstanding, and
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting, present in person or represented by proxy, the
President, or if he is not present, the Secretary, shall have power to adjourn
the meeting to another time or place, without notice other than announcement at
the meeting at which adjournment is taken, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the Adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
2.08 AUTHORITY OF QUORUM
When a quorum is present at any meeting, the vote of the holders of a
majority of the voting power present, whether in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of the statutes of the state of Arizona or
of the Articles of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
2.09 VOTING AND PROXIES
At every meeting of the shareholders, each shareholder shall be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholder, but no proxy shall be voted or
acted upon after eleven (11) months from its date, unless the proxy provides for
a longer period.
2.10 ACTION WITHOUT MEETING
Any action required or permitted to be taken at any annual or special
meeting of shareholders may be taken without a meeting, without prior notice,
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the outstanding shares entitled to vote
with respect to the subject matter of the action.
2.11 WAIVER OF NOTICE
Attendance of a shareholder at a meeting shall constitute waiver of
notice of such meeting, except when such attendance at the meeting is for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Any shareholder may waive notice of
any annual or special meeting of shareholders by executing a written notice of
waiver either before or after the time of the meeting.
-3-
<PAGE> 4
ARTICLE III
DIRECTORS
3.01 NUMBER AND ELECTION
The number of Directors shall be from 2 to 11, as set from time to time
by the shareholders or the Board of Directors, and the Directors shall be
elected at the annual meeting of the shareholders, except as provided in Section
3.02 of this Article, and each Director elected shall hold office until his or
her successor is elected and qualified. Directors need not be shareholders.
3.02 VACANCIES
Vacancies and newly created directorships resulting from any increase
in the authorized number of Directors may be filled by the affirmative vote of a
majority of the remaining Directors then in office, though not less than a
quorum, or by a sole remaining Director, and the Directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified, unless sooner displaced. If there are no Directors in
office, then an election of Directors may be held in the manner provided by
statute.
3.03 DUTIES OF BOARD
It shall be the duty of the board of directors to control and manage
the property and business of the corporation, and to appoint from its own
membership or otherwise the officers of the corporation who may serve under
written or oral contract at the pleasure of the board. The board shall have
power to enter into written contracts with officers for terms extending beyond
their own terms of office. Generally, and without limitation, the board shall
have the power and shall operate the business of the corporation in a prudent
and careful manner to the best interests of the stockholders. The authority of
the board shall include the authority to authorize the issuance of stock, the
power to fill vacancies on the board and the power to increase the size of the
board of directors by appropriate amendment to these bylaws.
3.04 PLACE OF MEETING
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Arizona.
3.05 FIRST MEETING OF BOARD OF DIRECTORS
The first meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of shareholders and in the same
place as the annual meeting of shareholders, and no notice to the newly elected
directors of such meeting shall be necessary in order legally to hold the
meeting, providing a quorum shall be present. In the event such meeting is not
held, the meeting may be held at such time and place as shall be specified in
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<PAGE> 5
a notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver by all of the Directors.
3.06 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board.
3.07 SPECIAL MEETINGS
Special meetings of the Board may be called by the President or the
Secretary on one (1) day's notice to each Director, either personally, by mail,
by telegram, or by telephone; special meetings shall be called by the President
or Secretary in like manner and on like notice on the written request of two (2)
Directors.
3.08 QUORUM
A majority of the membership of the Board of Directors shall constitute
a quorum and the concurrence of a majority of those present shall be sufficient
to conduct the business of the Board, except as may be otherwise specifically
provided by statute or by the Articles of Incorporation. If a quorum shall not
be present at any meeting of the Board of Directors, the Directors then present
may adjourn the meeting to another time or place, without notice other than
announcement at the meeting, until a quorum shall be present.
3.09 ACTION WITHOUT MEETING
Unless otherwise restricted by the Articles of Incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or Committee.
3.10 EXECUTIVE COMMITTEE
There may be created at the option of the Board of Directors an
Executive Committee consisting of two (2) members of the Board of Directors who
shall be elected by the whole board at the first meeting of the Board of
Directors following each annual meeting of shareholders. Members of the
Executive Committee shall serve at the pleasure of the Board of Directors and
each member of the Executive Committee may be removed with or without cause at
any time by the Board of Directors acting at a meeting or by unanimous written
consent. In the event any vacancy occurs in the Executive Committee, the vacancy
shall be filled by the Board of Directors. The Executive Committee shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the corporation, but shall not possess any authority of
the Board of Directors prohibited by law.
-5-
<PAGE> 6
3.11 REIMBURSEMENT EXPENSES
The Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
The amount or rate of such compensation of members of the Board of Directors or
of committees shall be established by the Board of Directors and shall be set
forth in the minutes of the Board.
3.12 WAIVER OF NOTICE
Attendance of a Director at a meeting shall constitute waiver of notice
of such meeting, except when the person attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Any Director may waive notice of any annual,
regular, or special meeting of Directors by executing a written notice of waiver
either before or after the time of the meeting.
3.13 VACANCY
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
4.01 ELECTION AND OFFICES
The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Vice President, a Secretary, and a
Treasurer. The Board of Directors may also choose a Chairman of the Board,
additional Vice Presidents, and one or more assistant secretaries, assistant
treasurers, and assistant vice-presidents. Any number of offices, except the
offices of President and Secretary, may be held by the same person, unless the
Articles of Incorporation or these bylaws otherwise provide. The Board of
Directors may leave any office vacant indefinitely so long as there is a
President or Vice President and a Secretary or an assistant Secretary available
to act.
4.02 TIME OF ELECTION
The Board of Directors at its first meeting after each annual meeting
of shareholders shall choose a President, one or more Vice Presidents, a
Secretary, and a Treasurer, and may choose a Chairman of the Board, each of whom
shall serve at the pleasure of the Board of Directors. The Board of Directors at
any time may appoint such other officers and agents as it
-6-
<PAGE> 7
shall deem necessary to hold offices at the pleasure of the Board of Directors
and to exercise such powers and perform such duties as shall be determined from
time to time by the Board.
4.03 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a Director of the corporation. The
salaries of the officers or the rate by which salaries are fixed shall be set
forth in the minutes of the meetings of the Board of Directors.
4.04 VACANCY
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise may be filled by the Board of Directors at any
time.
4.05 CHAIRMAN OF THE BOARD
The Chairman of the Board, if one shall have been appointed and be
serving, shall preside at all meetings of the Board of Directors and shall
perform such other duties as from time to time may be assigned to him or her.
4.06 THE PRESIDENT
The President shall preside at all meetings of shareholders, and if a
Chairman of the Board shall not have been appointed or, having been appointed,
shall not be serving or be absent, the President shall preside at all meetings
of the Board of Directors. He or she shall sign all deeds and conveyances, all
contracts and agreements, and all other instruments requiring execution on
behalf of the corporation, subject to policies established by the Board of
Directors.
4.07 THE VICE PRESIDENTS
There shall be as many vice presidents as shall be determined by the
Board of Directors from time to time, and they shall perform such duties as from
time to time may be assigned to them. Any one of the vice presidents, as
authorized by the Board, shall have all the powers and perform all the duties of
the President in case of the temporary absence of the President or in case of
his or her temporary inability to act. In case of the permanent absence or
inability of the President to act, the office shall be declared vacant by the
Board of Directors and a successor chosen by the Board.
4.08 THE SECRETARY
The secretary shall see that the minutes of all meetings of
shareholders, of the Board of Directors, and of any standing committees are
kept. He or she shall be the custodian of the corporate seal and shall affix it
to all proper instruments when deemed advisable by him or her. He or she shall
give or cause to be given required notices of all meetings of the shareholders
and of the Board of Directors. He or she shall have charge of all the books and
records of the
-7-
<PAGE> 8
corporation except the books of account, and in general shall perform all the
duties incident to the office of Secretary of a corporation and such other
duties as may be assigned to him or her.
4.09 THE TREASURER
The Treasurer shall have general custody of all the funds and
securities of the corporation except such as may be required by law to be
deposited with any state official. He or she shall see to the deposit of the
funds of the corporation in such bank or banks as the Board of Directors may
designate. Regular books of account shall be kept under his or her direction and
supervision, and he or she shall render financial statements to the President,
Directors, and shareholders at proper times. The Treasurer shall have charge of
the preparation and filing of such reports, financial statements, and returns as
may be required by law. He or she shall give to the corporation such fidelity
bond as may be required, and the premium therefor shall be paid by the
corporation as an operating expense.
4.10 THE ASSISTANT SECRETARIES
There may be such number of assistant secretaries as from time to time
the Board of Directors may fix, and such persons shall perform such functions as
from time to time may be assigned to them. No assistant secretary shall have
power or authority to collect, account for, or pay over any tax imposed by any
federal, state or city government.
4.11 THE ASSISTANT TREASURERS
There may be such number of assistant treasurers as from time to time
the Board of Directors may fix, and such persons shall perform such functions as
from time to time may be assigned to them. No assistant treasurer shall have the
power or authority to collect, account for, or pay over any tax imposed by any
federal, state, or city government.
4.12 THE ASSISTANT VICE PRESIDENTS
There may be such number of assistant vice presidents as from time to
time the Board of Directors may fix, and such persons shall perform such
functions as from time to time may be assigned to them. No assistant vice
president shall have the power or authority to collect, account for, or pay over
any tax imposed by any federal, state, or city government.
ARTICLE V
SPECIAL CORPORATE ACTS
NEGOTIABLE INSTRUMENTS, DEEDS AND CONTRACTS
All checks, drafts, notes, bonds, bills of exchange, and orders for the
payment of money of the Corporation; all deeds, mortgages, and other written
contracts and agreements to which the Corporation shall be a party; and all
assignments or endorsements of stock certificates, registered bonds, or other
securities owned by the Corporation, shall, unless otherwise directed
-8-
<PAGE> 9
by the Board of Directors, or unless otherwise required by law, be signed by the
President or Secretary-Treasurer. The Board of Directors may, however, authorize
any one of such officers to sign any of such instruments, for and in behalf of
the Corporation, without necessity of countersignature; may designate officers
or employees of the Corporation, other than those named above, who may, in the
name of the Corporation, sign such instruments; and may authorize the use of
facsimile signatures of any of such persons. Any shares of stock issued by any
other corporation and owned or controlled by the Corporation may be voted at any
shareholder's meeting of the other Corporation by the President of the
Corporation, if he be present; or, in his absence, by the Secretary-Treasurer of
the corporation who may be present; and, in the event both the President and
Secretary-Treasurer shall be absent, then by such person as the President of the
Corporation shall, by duly executed proxy, designate to represent the
Corporation at such shareholders' meeting.
ARTICLE VI
REPEAL, ALTERATION OR AMENDMENT
These bylaws may be repealed, altered, or amended, or substitute bylaws
may be adopted at any time only by a majority of the Board of Directors.
ARTICLE VII
CORPORATE TAKEOVERS
Pursuant to A.R.S. Section 10-2760, the corporation elects to opt out
of all of the provisions of A.R.S. Title 10, Chapter 23, Corporate Takeovers.
I, _________________________, Secretary of Rockford Corporation, an
Arizona corporation, do hereby certify that the foregoing Bylaws were duly
adopted as the Bylaws of said corporation by the Board of Directors at a regular
meeting thereof, duly and regularly called and held on the _____ day of
_________________________, 19__; and that the same do now constitute the Bylaws
of said corporation.
DATED this _____ day of _________________________, 19__.
/s/ JAMES M. THOMSON
___________________________
Secretary
-9-
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT
The undersigned ROCKFORD CORPORATION hereby amends its articles of
incorporation by executing, acknowledging and filing with the Arizona
Corporation Commission the following Articles of Amendment:
1. The corporation's name is Rockford Corporation.
2. The amendment adopted by action of the Directors and
stockholders is to amend ARTICLE IV of the corporation's
articles of incorporation to read in its entirety as follows:
"The corporation shall have authority to issue
10,000,000 shares of common stock of the par value of
$.01 per share"
3. The date of adoption of the amendment by the shareholders was
January 12, 1988.
4. The number of shares outstanding and entitled to vote on the
amendment was 4415 shares.
5. The number of shares voting in favor of adopting the amendment
was 4415 shares, and the number voting against was - 0 -
shares.
6. (Not applicable)
7. (Not applicable)
IN WITNESS WHEREOF, Rockford Corporation has caused these Articles of
Amendment to be executed by its President and Secretary and its corporate seal
to be hereto affixed this 12th day of January, 1988.
ROCKFORD CORPORATION
By: /s/ Robert F. Pothier
-----------------------
Robert F. Pothier
(SEAL)
Attest:
/s/ John G. Bartol
--------------------------
John G. Bartol, Secretary
<PAGE> 2
State of Arizona )
) ss
County of Maricopa )
On this 12th day of January 1988, personally appeared before
me, a notary public in and for the State and County aforesaid, Robert F. Pothier
and John G. Bartol, who, being duly sworn in accordance with law, stated that
they are the President and Secretary respectively of Rockford Corporation, that
they signed the foregoing Articles of Amendment on its behalf, and that they
acknowledged the said Articles to be the act and deed of said corporation and
desired that the same should be recorded as such.
/s/ Kevin Olson
---------------
Notary Public
[NOTARY PUBLIC SEAL]
My Commission Expires: April 11, 1991
-2-
<PAGE> 1
Exhibit 3.4
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
ROCKFORD CORPORATION
1. The name of the corporation is ROCKFORD CORPORATION.
2. The amendment adopted by action of the directors and
stockholders is to amend ARTICLE IV of the corporation's articles of
incorporation to read in its entirety as follows:
"The corporation shall have authority to issue 20,000,000
shares of common stock of the par value of $.01 per share."
3. The date of adoption of the amendment by the shareholders
was April 21, 1999.
4. The number of shares of the corporation outstanding and the
number of shares entitled to vote thereon were 1,025,878.
5. The number of shares voting in favor of adopting the
amendment was 978, 323, and the number of shares voting against the adoption was
zero (0).
DATED as of April 30, 1999.
ROCKFORD CORPORATION
By /s/
---------------------------------------
W. Gary Suttle, President
By /s/
---------------------------------------
James M. Thomson, Assistant Secretary
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 30
day of April, 1999, by W. Gary Suttle, President of ROCKFORD CORPORATION, an
Arizona corporation, on behalf of the corporation.
/s/
-----------------------------------------
Notary Public
<PAGE> 2
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 30
day of April, 1999, by James M. Thomson, Assistant Secretary of ROCKFORD
CORPORATION, an Arizona corporation, on behalf of the corporation.
/s/
-----------------------------------------
Notary Public
2
<PAGE> 1
Exhibit 3.5
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ROCKFORD CORPORATION
1. The name of the corporation is ROCKFORD CORPORATION.
2. The amendment adopted by action of the directors and
stockholders is to amend the corporation's articles of incorporation as
follows:
Amend Article IV so that it reads in its entirety as follows:
The corporation shall have authority to issue 20,000,000
shares of common stock of the par value of $.01 per share.
Amend Article V by replacing the final sentence at the
conclusion of existing Article V with the following new
sentences:
The number of persons to serve on the board of directors, the
means of electing them, and their terms of office will be
fixed in, or in the manner established by, the bylaws;
however, only the board of directors by a two-thirds vote of
all directors may increase the number of directors. Only the
Board of Directors may fill a vacancy on the Board of
Directors, unless the vacancy is for an office elected by a
voting group of shareholders and, in that case, only that
voting group may fill the vacancy. The shareholders may remove
a director from the Board of Directors only for cause.
Amend Article VI by adding the following new sentence
immediately before the existing text of Article VI:
The corporation is required to indemnify each of its directors
and officers to the fullest extent permissible under the
provisions of Arizona Revised Statutes Title 10, Chapter 8,
Article 5 or any successor or amended statute.
Add a new Article IX to read as follows:
ARTICLE IX
A director of this corporation is not personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. This article does not eliminate or limit the liability of a
director for any conduct described in clauses (a) through (d) of Arizona Revised
Statutes Section 10-202.B. 1. If the Arizona Corporation Law is amended to
<PAGE> 2
authorize further elimination or limitation of the liability of a director, then
the liability of a director of the corporation will automatically be eliminated
or limited to the fullest extent permitted by the Arizona Corporation Law as so
amended. Any repeal or modification of this article may not increase the
liability of a director of the corporation arising out of acts or omissions
occurring before the repeal or modification becomes effective.
Add a new Article X to read as follows:
ARTICLE X
Approval of an amendment to these articles of incorporation requires an
affirmative vote of two-thirds of the shareholders present and voting at a
meeting of the shareholders at which a quorum is present. Approval of an
amendment to the bylaws of the corporation requires an affirmative vote of (a)
the board of directors or (b) two-thirds of the shareholders present and voting
at a meeting of the shareholders at which a quorum is present.
3. The date of adoption of the amendment by the shareholders
was May 17, 1999.
4. The number of shares of the corporation outstanding and the
number of shares entitled to vote thereon were 1,093,218.
5. The number of shares voting in favor of adopting the
amendment was 1,011,451 and the number of shares voting against the adoption was
zero (0).
DATED as of 17 day of May, 1999.
ROCKFORD CORPORATION
By /s/
--------------------------------------
W. Gary Suttle, President
By /s/
--------------------------------------
James M. Thomson,Assistant Secretary
-2-
<PAGE> 3
STATE OF ARIZONA )
) ss
County of Maricopa )
The foregoing instrument was acknowledged before me this 17 day of May, 1999, by
W. Gary Suttle, President of ROCKFORD CORPORATION, an Arizona corporation, on
behalf of the corporation.
----------------------------------------
Notary Public
STATE OF ARIZONA )
) ss
County of Maricopa )
The foregoing instrument was acknowledged before me this 17 day of May, 1999, by
James M. Thomson, Assistant Secretary of ROCKFORD CORPORATION, an Arizona
corporation, on behalf of the corporation.
----------------------------------------
Notary Public
-3-
<PAGE> 1
AMENDMENTS TO BYLAWS
OF
ROCKFORD CORPORATION
The Bylaws of Rockford Corporation dated July 30, 1980, are
amended to read as follows:
1. Article II, Section 2.05 of the Bylaws is amended by replacing the
entire current Section 2.05 with the following replacement Section 2.05:
2.05 SPECIAL MEETINGS
Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors. The request shall state the purpose or purposes of the proposed
meeting. Except as required by law, the shareholders may not call a special
meeting of the shareholders.
2. A new Article II, Section 2.11 is added to the Bylaws to read as
follows:
2.11 NOTICE OF AGENDA ITEMS AND DIRECTOR NOMINATIONS
A shareholder who wishes to place an item on the agenda for a
meeting of the shareholders or who wishes to nominate a person for election as a
director must, not less than 30 nor more than 60 days before the meeting, give
the corporation notice of:
(a) the item to be placed on the agenda (including a
complete and adequate description of the proposal),
or
(b) the name of, and biographical information about, the
person to be nominated.
If the required notice is not given, the agenda or nomination may not be
presented at the meeting.
3. Article III, Section 3.01 of the Bylaws is amended to read in its
entirety as follows:
3.01. NUMBER AND ELECTION
The number of Directors shall be from 2 to 11, as set from
time to time by the shareholders or the Board of Directors (except that the
number of directors may be increased only by a vote of two-thirds of the
Directors). The Directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 3.02 of this Article, and each
Director elected shall hold office until his or her successor is elected and
qualified. Directors need not be shareholders.
<PAGE> 2
4. Article VI is amended to read as follows:
These bylaws may be repealed, altered, or amended, or
substitute bylaws may be adopted at any time only by a vote of:
(a) a two-thirds majority of the Board of Directors or
(b) a two-thirds majority of the shareholders present and
voting at a meeting of the shareholders at which a
quorum is present.
The preceding amendments have been duly approved and adopted by a
majority of the Board of Directors in accordance with Article VI of the Bylaws.
DATED May __, 1999.
------------------------------
W. Gary Suttle
President and Chief Executive Officer
ATTEST:
- ------------------------
Secretary
<PAGE> 1
EXHIBIT 4.1
LOGO
============================= ===========================
NUMBER SHARES
============================= ===========================
--See Transfer Restrictions
On Back--
INCORPORATED UNDER THE LAWS OF THE STATE OF ARIZONA
ROCKFORD CORPORATION
THE CORPORATION IS AUTHORIZED TO ISSUE 10,000,000 COMMON SHARES
- PAR VALUE $.01 EACH
THIS CERTIFIES THAT _____________________ is the owner of
_____________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated _____________________
/s/ _____________________ /s/ _____________________
<PAGE> 2
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND OF APPLICABLE
STATE SECURITIES LAWS, AND HAVE BEEN ACQUIRED PURSUANT TO AN INVESTMENT
REPRESENTATION BY OR ON BEHALF OF THE HOLDER. IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION, THE SECURITIES REPRESENTED HEREBY SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
ITS COUNSEL AND/OR SUBMISSION TO THE COMPANY, IN EITHER CASE TO THE EFFECT THAT
ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian . . . . . . . . (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Acts . . . . (State)
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
</TABLE>
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned
hereby sells, Assigns and transfers
unto ____________________
_______________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
______________________________________________________ Shares represented by the
within Certificate, and hereby irrevocably constitutes and appoints
_________________________________ Attorney to transfer the said shares on the
books of the within-named Corporation with full power of substitution in the
premises.
Dated _________________________________
In presence of _________________________________
_________________________________
<PAGE> 1
Exhibit 10.1
-------------------------------
Rockford Corporation
1994 Stock Option Plan
-------------------------------
<PAGE> 2
ROCKFORD CORPORATION
1994 Stock Option Plan
1. Purpose.
The Rockford Corporation 1994 Stock Option Plan is intended to
assist in attracting and retaining employees and directors.
2. Definitions.
The following terms have the following meanings:
2.1 "Act" means the Federal Securities Act of 1933 and applicable
state securities laws.
2.2 "Board" means the Board of Directors of Rockford Corporation.
2.3 "Code" means the Internal Revenue Code of 1986.
2.4 "Committee" means the Compensation Committee of the Board of
Directors of Rockford Corporation.
2.5 "Corporation" means Rockford Corporation and any Subsidiary.
2.6 "Grant Date" means the date on which an Option is granted as
specified by the Board, contingent on the Optionee executing a Stock Option
Agreement in form satisfactory to the Board.
2.7 "Incentive Option" means an Option eligible for tax treatment as
an incentive option under Section 422 of the Code.
2.8 "Non-Qualified Option" means an Option that is not eligible for
tax treatment as an incentive option under Section 422 of the Code.
2.9 "Option" means an option to purchase Stock granted under this
Plan.
2.10 "Optionee" means an employee or director to whom an Option has
been granted under the Plan.
2.11 "Plan" means the Rockford Corporation 1994 Stock Option Plan,
the terms and conditions of which are covered in this instrument.
2.12 "Stock" means the common stock of the Corporation.
2.13 "Stock Option Agreement" means a written agreement entered into
between the Corporation and the Optionee that provides for the price and terms
of an Option.
<PAGE> 3
2.14 "Subsidiary" means any corporation of which the majority of the
outstanding capital stock is owned, directly or indirectly, by the Corporation.
2.15 "Ten Percent Shareholder" means an individual who owns more
than 10% of the total combined voting power of all classes of stock of the
Corporation.
3. Administration.
3.1 The Plan shall be administered by the Board. Without limiting
the powers of the Board, the Board shall have the power to determine the times
during which any Option shall be exercisable, the events upon which any Option
shall terminate, the amounts, if any, payable to beneficiaries of an Optionee
upon the death of such Optionee, the exercisability of any Option on the sale of
all, or substantially all, of the assets of the Corporation, or a merger where
the Corporation is not the surviving corporation (other than a merger that is
only a change in form), and other terms of exercise. No member of the Board
shall be eligible to vote on the grant of Options to him or her. All decisions
and determinations of the Board in administering the Plan shall be final.
3.2 If changes are made to the Code that make it advisable, in the
Board's sole discretion, to change the character of Options for income tax
purposes, the Board may change the character of Options and may impose on
Options any conditions deemed necessary or appropriate to comply with the Code
requirements. However, the Board may not change the character or terms of an
outstanding Option without the Optionee's consent.
3.3 The Committee, subject to the provisions of the Plan, shall make
recommendations to the Board regarding:
(a) The employees or directors who shall receive Options, the
times when such Options shall be granted, the time limits within which Options
may be exercised, the number of shares subject to each Option, and the terms and
provisions of Stock Option Agreements (which need not be identical);
(b) Interpretation of Plan provisions;
(c) Rules and regulations relating to the Plan;
(d) Stock Option Agreements under the Plan; and
(e) Other determinations advisable for the proper
administration of the Plan.
4. Tax Characteristics of Options.
Options granted pursuant to the Plan may be designated, but need not
be designated, as Incentive Options. The Stock Option Agreement shall provide
whether an Option is an Incentive Option or a Non-Qualified Option. In the case
of Incentive Options, the aggregate fair market value of the Stock (at the time
the Option is granted) for Options that are
-2-
<PAGE> 4
exercisable for the first time by an Optionee during any calendar year (under
all stock option plans of the Corporation) shall not exceed $100,000.
Non-employee directors of the Corporation shall not be eligible for the grant of
Incentive Options.
5. Stock Subject to the Plan.
5.1 Subject to adjustments under Section 11, the aggregate number of
shares of Stock that may be issued on the exercise of Options shall not exceed
250,000. Such Stock may be authorized but unissued shares or treasury shares, as
the Board determines.
5.2 If an Option expires or is terminated, the shares of Stock
allocated for issuance under such Option may be allocated to a new Option under
the Plan.
6. Eligibility.
All individuals who are officers, directors, advisory directors or
employees of the Corporation or a Subsidiary, including employees who are
officers or directors, shall be eligible for selection by the Board to receive
Options under the Plan. Only officers and employees may receive Incentive
Options under the Plan.
7. Exercise Price and Payment of Withholding Taxes.
The price at which shares of Stock may be purchased on the exercise
of any Option shall be determined by the Board at the time an Option is granted.
The price shall not be less than 100% of the fair market value of the Stock at
the Grant Date, but if the Corporation desires to grant an Incentive Option to a
Ten Percent Shareholder, the price at which shares may be purchased under such
Option shall not be less than 110% of the fair market value of the Stock at the
Grant Date. Also, if an employee desires to exercise a Non-Qualified Option, the
employee shall pay to the Corporation the federal and state income and
withholding taxes the Corporation determines are payable on the spread between
the fair market value of the Stock at the date of exercise and the Option price.
8. Term of Options.
The term of each Option shall be determined by the Board at the
Grant Date. In no case, however, shall the term of any Option exceed ten years
from the Grant Date, or five years in the case of a grant of an Incentive Option
to a Ten Percent Shareholder.
9. Payment on Exercise of Options.
The price of an exercised Option and any taxes required to be paid
by the Optionee on exercise of such Option shall be paid:
(a) In cash; or
(b) At the discretion of the Board, through the delivery of
Stock with a fair market value equal to the exercise price and withholding
taxes, if any;
-3-
<PAGE> 5
or
(c) At the discretion of the Board, through a combination of
(a) and (b).
10. Non-Transferability of Options.
Options shall not be transferable by the Optionee, but if an
Optionee dies, his or her personal representative may exercise an Option within
90 days of the date of the Optionee's death.
11. Adjustments.
If the Corporation:
(a) declares a dividend or makes a distribution on its Stock
payable in Stock or securities convertible into Stock; or
(b) recapitalizes through a split-up of the outstanding shares
of Stock into a greater number or a combination of the outstanding Stock into a
lesser number; or
(c) issues, by reclassification of its Stock, any shares of
Stock, the Board shall make appropriate and equitable adjustments in the number
and kind of shares subject to outstanding Options under the Plan. Any other
adjustments to the Options shall be within the sole discretion of the Board. If
the adjustment would produce fractional shares with respect to any unexercised
Option, the Board may adjust appropriately the number of shares covered by the
Option to eliminate the fractional shares. The price of any shares subject to an
outstanding Option shall be adjusted so there will be no change in the aggregate
purchase price payable upon the exercise of the Option.
12. Additional Restrictions.
Notwithstanding any other provisions of the Plan, any Stock Option
Agreement may contain such additional or more restrictive provisions as the
Board deems advisable and consistent with the Plan.
13. Registration.
The Plan, the Stock to be issued pursuant to the exercise of
Options, or the Options granted under the Plan, may be registered under the Act.
14. Effective Date of Plan.
The Plan shall become effective as of December 15, 1994 and shall
remain in effect for ten years from its effective date, unless it is terminated
earlier by the Board. No Incentive Options may be issued under the Plan unless
the Plan is approved by the stockholders of the Corporation within one year from
the date the Plan is adopted by the Corporation.
-4-
<PAGE> 6
15. Amendments and Termination.
The Board, in its discretion and at any time, may modify, amend or
terminate the Plan. Neither the termination of the Plan, nor any modification or
amendment thereof, shall adversely affect any rights under an Option previously
granted under the Plan without the consent of the Optionee. Notwithstanding the
foregoing, the Board may amend the Plan to the extent necessary to cause Options
granted under the Plan to meet the requirements of the Act and the Code and
regulations thereunder.
16. Miscellaneous.
(a) Nothing in the Plan or any Option granted shall confer
upon any employee any right to continue in the service of the Corporation or a
Subsidiary.
(b) The grant of Options under the Plan, the issuance and
delivery of shares upon the exercise of Options, and any other matters relating
thereto shall be subject to all laws, rules and regulations as may from time to
time be applicable, including but not limited to, any and all rules and
regulations of any stock exchange or exchanges upon which the shares of the
Corporation may be listed and all applicable federal and state securities laws.
(c) No person shall acquire any rights as an Optionee under
this Plan unless and until a Stock Option Agreement in the form and containing
the terms specified by the Board shall have been duly executed on behalf of the
Corporation by such officer or officers as the Board shall designate for such
purpose, delivered to the Optionee named therein, and executed by such person.
(d) No person shall have any rights as a shareholder with
respect to any shares covered by an Option granted pursuant to the Plan until
the date of the issuance of a share certificate to the Optionee for such shares.
17. Execution.
The President of the Corporation has been authorized to execute this
Plan and has executed the Plan on the date indicated below.
ROCKFORD CORPORATION
/s W. Gary Suttle
-------------------------------------------
President
Date: December 22, 1994
-5-
<PAGE> 1
EXHIBIT 10.2
Rockford Corporation
1997 Stock Option Plan
<PAGE> 2
Rockford Corporation
1997 Stock Option Plan
1. Purpose.
The Rockford Corporation 1997 Stock Option Plan is intended to assist
in attracting and retaining key employees and directors and increase the value
of the Corporation for shareholders by providing incentives for key employees
and directors who contribute to the strategic and long-term performance and
growth of the Corporation.
2. Definitions.
The following terms have the following meanings:
2.1 "Act" means the Securities Act of 1933, as amended, and applicable
state securities laws.
2.2 "Board" means the Board of Directors of Rockford Corporation.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Compensation Committee of the Board and in
the event Stock becomes publicly held and Section 162(m) of the Code applies,
the Committee shall be composed of individuals who qualify as outside Directors
for purposes of Section 162(m) of the Code.
2.5 "Corporation" means Rockford Corporation.
2.6 "Grant Date" means the date on which an Option is granted as
specified by the Board or the Committee, contingent on the Optionee executing a
Stock Option Agreement in form satisfactory to the Board or Committee.
2.7 "Incentive Option" means an Option eligible for tax treatment as an
incentive option under Section 422 of the Code.
2.8 "Non-Qualified Option" means an Option that is not eligible for tax
treatment as an incentive option under Section 422 of the Code.
2.9 "Option" means an option to purchase Stock granted under this Plan.
2.10 "Optionee" means an employee or director to whom an Option has
been granted under the Plan.
2.11 "Plan" means the Rockford Corporation 1997 Stock Option Plan, the
terms and conditions of which are covered in this instrument.
<PAGE> 3
2.12 "Stock" means the common stock of the Corporation.
2.13 "Stock Option Agreement" means a written agreement entered into
between the Corporation and the Optionee that provides for the price and terms
of an Option.
2.14 "Subsidiary" means any corporation of which the majority of the
outstanding capital stock is owned, directly or indirectly, by the Corporation.
2.15 "Ten Percent Shareholder" means an individual who owns more than
10% of the total combined voting power of all classes of stock of the
Corporation.
3. Administration.
3.1 The Plan shall be administered by the Board; provided, however, if
the Stock becomes publicly held, the Board's responsibilities under this Plan
shall be carried out by the Committee. Without limiting the powers of the Board,
or the Committee, the Board or the Committee shall have the power to determine
the times during which any Option shall be exercisable, the events upon which
any Option shall terminate, the amounts, if any, payable to beneficiaries of an
Optionee upon the death of such Optionee, the exercisability of any Option on
the sale of all, or substantially all, of the assets of the Corporation, or a
merger where the Corporation is not the surviving corporation (other than a
merger that is only a change in form), and other terms of exercise. No member of
the Board or the Committee shall be eligible to vote on the grant of Options to
him or her. All decisions and determinations of the Board or the Committee in
administering the Plan shall be final.
3.2 If changes are made to the Code that make it advisable, in the
Board's or Committee's sole discretion, to change the character of Options for
income tax purposes, the Board or the Committee may change the character of
Options and may impose on Options any conditions deemed necessary or appropriate
to comply with the Code requirements. However, the Board or the Committee may
not change the character or terms of an outstanding Option without the
Optionee's consent.
3.3 The Committee, subject to the provisions of the Plan, shall make
recommendations to the Board or, after the application of Section 162(m) of the
Code, shall decide, regarding:
(a) The employees or directors who shall receive Options, the
times when such Options shall be granted, the time limits within which Options
may be exercised, the number of shares subject to each Option, and the terms and
provisions of Stock Option Agreements (which need not be identical);
(b) Interpretation of Plan provisions;
(c) Rules and regulations relating to the Plan;
(d) Stock Option Agreements under the Plan; and
-2-
<PAGE> 4
(e) Other determinations advisable for the proper
administration of the Plan.
4. Tax Characteristics of Options.
Options granted pursuant to the Plan may be designated, but
need not be designated, as Incentive Options. The Stock Option Agreement shall
provide whether an Option is an Incentive Option or a Non-Qualified Option. In
the case of Incentive Options, the aggregate fair market value of the Stock (at
the time the Option is granted) for Incentive Options that are exercisable for
the first time by an Optionee during any calendar year (under all stock option
plans of the Corporation) shall not exceed $100,000. Non-employee directors of
the Corporation shall not be eligible for the grant of Incentive Options.
5. Stock Subject to the Plan.
5.1 Subject to adjustments under Section 11, the aggregate number of
shares of Stock that may be issued on the exercise of Options shall not exceed
250,000. Such Stock may be authorized but unissued shares or treasury shares, as
the Board determines.
5.2 If an Option expires or is terminated, the shares of Stock
allocated for issuance under such Option may be allocated to a new Option under
the Plan.
5.3 No Optionee may be granted options covering more than 100,000
shares of Stock in any calendar year,
6. Eligibility.
All individuals who are officers, directors, advisory directors or
employees of the Corporation or a Subsidiary, including employees who are
officers or directors, shall be eligible for selection by the Board or the
Committee to receive Options under the Plan. The individuals who quality include
Level 3 employees and select key employees in level 2 who are executives,
managerial, professional or technical employees. Only employees may receive
Incentive Options under the Plan.
7. Option Exercise Price and Payment of Withholding Taxes.
The price at which shares of Stock may be purchased on the exercise of
any Option shall be determined by the Board or the Committee at the time an
Option is granted. The price shall not be less than 100% of the fair market
value of the Stock at the Grant Date, but if the Board or the Committee desires
to grant an Incentive Option to a Ten Percent Shareholder, the price at which
shares may be purchased under such Option shall not be less than 110% of the
fair market value of the Stock at the Grant Date. Also, if an employee desires
to exercise a Non-Qualified Option, the employee shall pay to the Corporation
the federal and state income and withholding taxes the Corporation determines
are payable on the spread between the fair market value of the Stock at the date
of exercise and the Option price.
-3-
<PAGE> 5
8. Term of Options.
The term of each Option shall be determined by the Board or the
Committee at the Grant Date. In no case, however, shall the term of any Option
exceed ten years from the Grant Date, or five years in the case of a grant of an
Incentive Option to a Ten Percent Shareholder.
9. Payment on Exercise of Options.
The price of an exercised Option and any taxes required to be paid by
the Optionee on exercise of such Option shall be paid:
(a) In cash; or
(b) At the discretion of the Board or the Committee,
through the delivery of Stock with a fair market value equal to the exercise
price and withholding taxes, if any; or
(c) At the discretion of the Board or the Committee,
through a combination of (a) and (b).
10. Non-Transferability of Options.
Options shall not be transferable by the Optionee, and during his or
her lifetime shall be exercisable only by him or her, but if an Optionee dies,
his or her personal representative may exercise an Option within 90 days of the
date of the Optionee's death.
11. Adjustments.
If the Corporation:
(a) declares a dividend or makes a distribution on
its Stock payable in Stock or securities convertible into Stock; or
(b) recapitalizes through a split-up of the
outstanding shares of Stock into a greater number or a combination of the
outstanding Stock into a lesser number; or
(c) issues, by reclassification of its Stock, any
shares of Stock, the Board or the Committee shall make appropriate and equitable
adjustments in the number and kind of shares subject to outstanding Options
under the Plan. Any other adjustments to the Options shall be within the sole
discretion of the Board or the Committee. If the adjustment would produce
fractional shares with respect to any unexercised Option, the Board or the
Committee may adjust appropriately the number of shares covered by the Option to
eliminate the fractional shares. The price of any shares subject to an
outstanding Option shall be adjusted so there will be no change in the aggregate
purchase price payable upon the exercise of the Option.
-4-
<PAGE> 6
12. Additional Restrictions.
Notwithstanding any other provisions of the Plan, any Stock Option
Agreement may contain such additional or more restrictive provisions as the
Board or the Committee deems advisable and consistent with the Plan.
13. Registration.
The Plan, the Stock to be issued pursuant to the exercise of Options,
or the Options granted under the Plan, may be registered under the Act.
14. Effective Date of Plan.
The Plan shall become effective as of October 28, 1997, and shall
remain in effect for ten years from its effective date, unless it is terminated
earlier by the Board. No Incentive Options may be issued under the Plan unless
the Plan is approved by the stockholders of the Corporation within one year from
the date the Plan is adopted by the Corporation.
15. Amendments and Termination.
The Board, in its discretion and at any time, may modify, amend or
terminate the Plan. Neither the termination of the Plan, nor any modification or
amendment thereof, shall adversely affect any rights under an Option previously
granted under the Plan without the consent of the Optionee. Notwithstanding the
foregoing, the Board may amend the Plan to the extent necessary to cause Options
granted under the Plan to meet the requirements of the Act and the Code and
regulations thereunder.
16. Miscellaneous.
(a) Nothing in the Plan or any Option granted shall
confer upon any employee any right to continue in the service of the Corporation
or a Subsidiary.
(b) The grant of Options under the Plan, the issuance
and delivery of shares upon the exercise of Options, and any other matters
relating thereto shall be subject to all laws, rules and regulations as may from
time to time be applicable, including but not limited to, any and all rules and
regulations of any stock exchange or exchanges upon which the shares of the
Corporation may be listed and all applicable federal and state securities laws.
(c) No person shall acquire any rights as an Optionee
under this Plan unless and until a Stock Option Agreement in the form and
containing the terms specified by the Board or the Committee shall have been
duly executed on behalf of the Corporation by such officer or officers as the
Board or the Committee shall designate for such purpose, delivered to the
Optionee named therein, and executed by such person.
(e) No person shall have any rights as a shareholder
with respect to any shares covered by an Option granted pursuant to the Plan
until the date of the issuance of a share certificate to the Optionee for such
shares.
-5-
<PAGE> 7
17. Execution.
The President of the Corporation has been authorized to
execute this Plan and has executed the Plan on the date indicated below.
ROCKFORD CORPORATION
/s/ W. Gary Suttle
------------------
President
Date: As of October 28, 1997
-6-
<PAGE> 1
Exhibit 10.3
ROCKFORD CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN.
Rockford Corporation, an Arizona corporation (the "Company"),
proposes to grant options ("Options") for purchase of the Company's common
stock, $1 par value ("Common Stock"), to eligible employees of the Company and
its Designated Subsidiaries (as hereinafter defined) pursuant to this 1999
Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "parent
corporation" and "subsidiary" (collectively, "Subsidiaries") shall have the same
meanings as "parent corporation" and "subsidiary corporation" set forth in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code"). The Company intends this Plan to qualify as an
"employee stock purchase plan" under Section 423 of the Code (including any
amendments or successor provisions to such Section), and this Plan shall be so
construed. Any term not expressly defined in this Plan but defined for purposes
of Section 423 of the Code shall have the same definition therein.
2. STOCK SUBJECT TO PLAN.
A total of 84,000 shares of the Common Stock is reserved for
issuance under this Plan. Such number shall be subject to adjustments effected
in accordance with Section 16 of this Plan. Any shares of Common Stock that have
been made subject to an Option that cease to be subject to the Option (other
than by means of exercise of the Option), including, without limitation, in
connection with the cancellation or termination of an Option, shall again be
available for issuance in connection with future grants of Options under this
Plan.
<PAGE> 2
3. PURPOSE.
The purpose of this Plan is to provide employees of the
Company and its designated subsidiaries, as that term is defined in Section 5 of
this Plan ("Designated Subsidiaries"), with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
4. ADMINISTRATION.
This Plan shall be administered by the Compensation Committee
("Committee") appointed by the Company's Board of Directors (the "Board").
Subject to the provisions of this Plan and the limitations of Section 423 of the
Code or any successor provision in the Code, the Committee shall have exclusive
authority, in its discretion, to determine all matters relating to Options
granted under this Plan, including all terms, conditions, restrictions, and
limitations of Options; provided, however, that all participants granted Options
under an offering pursuant to this Plan shall have the same rights and
privileges within the meaning of Code Section 423(b)(5) except as required by
applicable law. The Committee shall also have exclusive authority to interpret
this Plan and may from time to time adopt rules and regulations of general
application for this Plan's administration. The Committee's exercise of
discretion and interpretation of this Plan, its rules and regulations, and all
actions taken and determinations made by the Committee pursuant to this Plan,
shall be conclusive and binding on all parties involved or affected. The
Committee may delegate administrative duties to such of the Company's officers
or employees as it so determines (provided that no such delegation may be made
that would cause the purchase of Common Stock by participants under this Plan to
cease to be exempt from Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")). All expenses incurred
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in connection with the administration of this Plan shall be paid by the Company
and the Designated Subsidiaries; provided, however, that the Committee may
require a participant to pay any costs or fees in connection with the sale by
the participant of shares of Common Stock acquired under this Plan or in
connection with the participant's request for the issuance of a certificate for
shares of Common Stock held in the participant's account under the Plan.
5. ELIGIBILITY.
Any employee of the Company or the Designated Subsidiaries is
eligible to participate in the Plan for any Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who have not been continuously employed by
the Company or Subsidiaries from the date of hire or rehire or of return from an
unapproved leave of absence for a period of at least 60 days before the
beginning of such Offering Period;
(b) employees who are customarily employed for less than
20 hours per week;
(c) employees who are customarily employed for not more
than five months in a calendar year;
(d) employees who, together with any other person whose
stock would be attributed to such employee pursuant to Section 424(d) of the
Code, own stock or hold options to purchase stock possessing five percent or
more of the total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries or who, as a result of being granted Options
under this Plan, would own stock or hold options to purchase stock possessing
five percent or more of the total combined voting power or value of all classes
of stock of the Company or any of its Subsidiaries; and
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(e) employees who are citizens of a foreign country which
prohibits foreign corporations from granting stock options to any of its
citizens.
For all purposes of this Plan, the term Designated
Subsidiaries shall mean all Subsidiaries (including the Company); provided that
any Designated Subsidiary shall cease to be a Designated Subsidiary on the
earlier of (i) the date such Designated Subsidiary ceases for any reason to be a
"parent corporation" or "subsidiary corporation" as defined in Sections 424(e)
and 424(f), respectively, of the Code, or (ii) the date the Committee or the
Board determines that such Subsidiary shall no longer be a Designated Subsidiary
for purposes of the Plan.
6. OFFERING AND PURCHASE PERIODS.
(a) For purposes of this Plan, the Offering Periods of
this Plan (an "Offering Period") shall be of periods not to exceed the maximum
period permitted by Section 423 of the Code.
(b) Until determined otherwise by the Committee or the
Board, or unless paragraph (c) applies, Offering Periods shall be of two years'
duration and shall consist of four consecutive six-month Purchase Periods
(individually, a "Purchase Period"). The first Offering Period shall begin on
July 1, 1999. Unless determined otherwise by the Committee or the Board,
Offering Periods shall be overlapping and shall begin on the first day of the
month every 6 months after the first day of the prior Offering Period. During a
Purchase Period, payroll deductions of the participants are accumulated under
this Plan. The first day of each Offering Period is referred to as the "Offering
Date." The last day of each Purchase Period is referred to as the "Purchase
Date." Subject to the requirements of Section 423 of the Code, the Committee or
the Board shall have the power to change the duration of Offering Periods or
Purchase Periods
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with respect to future offerings if such change is announced at least 30 days
prior to the first day of the first Offering Period to be affected by such
change.
(c) If the fair market value on any Purchase Date is less
than the fair market value at the start of the two-year Offering Period, such
Offering Period will automatically end with that Purchase Date.
7. PARTICIPATION IN THIS PLAN.
Eligible employees may become participants in an Offering
Period under this Plan on the first Offering Date after satisfying the
eligibility requirements by delivering an enrollment form provided by the
Company at the time and in the manner required by the Committee, under such
rules as are consistently applied to all eligible employees with respect to a
given Option. Once an employee becomes a participant in the Plan with respect to
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws from this Plan or terminates further
participation in the Offering Period as set forth in Sections 13 and 14 below,
or otherwise becomes ineligible to participate. Such participant is not required
to file any additional enrollment form in order to continue participation in
this Plan, except that the Committee may require the filing of new enrollment
forms by participants who transfer to another division of the Company or a
Designated Subsidiary.
8. GRANT OF OPTION ON ENROLLMENT.
Subject to the limitations of the Plan, enrollment by an
eligible employee in this Plan with respect to an Offering Period will
constitute the grant by the Company to such employee of an Option to purchase on
each Purchase Date up to that whole number of shares of Common Stock of the
Company, determined by dividing (a) the amount accumulated in such
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employee's payroll deduction account during the Purchase Period ending on such
Purchase Date by (b) the Purchase Price as that term is defined in Section 9.
Fractional shares shall not be issued under this Plan.
9. PURCHASE PRICE.
The purchase price per share (the "Purchase Price") at which a
share of Common Stock will be sold in any Purchase Period shall be the lower of
(a) 85 percent of the fair market value of such share on the first day of the
Offering Period to which such Purchase Period relates or (b) 85 percent of the
fair market value of such share on the Purchase Date; provided, however, that in
no event may the purchase price per share of Common Stock be below the par value
per share of Common Stock.
For purposes of this Plan, the term "fair market value" on a
given date shall be the mean between the highest and lowest reported sales
prices of the Common Stock on the New York Stock Exchange Composite Tape or, if
the Common Stock is not listed on such exchange, any other national securities
exchange on which the Common Stock is listed or on NASDAQ. If there is no
reported sale price of the Common Stock on such date, then the "fair market
value" shall be measured on the next preceding trading day for which such
reported sale price is available. If there is no regular trading market for the
Common Stock, the fair market value of the Common Stock shall be as determined
by the Committee in its sole discretion, exercised in good faith. The Committee
may change the manner in which the Purchase Price is determined with respect to
future offerings (provided such determination does not have the effect of
lowering the Purchase Price to an amount less than that which would be computed
utilizing the method for determining the Purchase Price set forth in the first
paragraph of this Section 9) if
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such changed manner of computation is announced at least 30 days prior to the
first day of the first Offering Period to be affected by such change.
10. PURCHASE OF SHARES; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) Funds contributed by each participant for the
purchase of shares under this Plan shall be accumulated by regular payroll
deductions made during each Purchase Period. The deductions shall be made as a
percentage of the participant's Compensation in 1 percent increments comprising
not less than 1 percent and not more than a total of 10 percent of Compensation
with respect to all Offering Periods. As used herein, "Compensation" shall mean
only the participant's base salary, excluding cash bonuses, commissions,
overtime and similar items; provided, however, that, for purposes of determining
a participant's Compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125, 401(k), or 132(f) of the Code
shall be treated as if the participant did not make such election.
"Compensation" does not include severance pay, hiring and relocation allowances,
pay in lieu of vacation, automobile allowances, imputed income arising under any
Company group insurance or benefit program, income received in connection with
stock options, or any other special items of remuneration. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue through the last payday of the Offering Period unless sooner altered or
terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate
of payroll deductions once during any six-month Purchase Period with respect to
each Offering Period and may increase or decrease the rate of payroll deductions
as of the start of any Purchase Period. Notwithstanding the foregoing, a
participant may lower the rate of payroll deductions to zero for the remainder
of a Purchase Period. Such changes may be made by filing a new authorization
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for payroll deductions, at the time and in the manner specified by the
Committee, in which case the new rate shall continue for the remainder of the
Offering Period unless changed as described herein. A participant who has
decreased the rate of withholding to zero will be deemed to continue as a
participant in the Plan until the participant withdraws from the Plan in
accordance with the provisions of Section 13 or his or her participation is
terminated in accordance with the provisions of Section 14. A participant shall
have the right to withdraw from this Plan in the manner set forth in Section 13
regardless of whether the participant has exercised his or her right to lower
the rate at which payroll deductions are made during the applicable Purchase
Period.
(c) All payroll deductions made for a participant will be
credited to his or her account under this Plan and deposited with the general
funds of the Company. No interest will accrue on payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, provided that the participant
has not terminated employment in accordance with Section 14 or has not submitted
a signed and completed withdrawal form, by the time and in the manner required
by the Committee consistently applied to all eligible employees with respect to
a given Option, or the Plan has not been terminated prior to the 15th day (or if
such date is not a business day, on the immediately preceding business day) of
the last month of the Purchase Period, the Company shall apply the funds then in
the participant's account to the purchase at the Purchase Price of whole shares
of Common Stock issuable under the Option granted to such participant with
respect to the Offering Period to the extent that such Option is exercisable on
the Purchase Date.
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(e) Fractional shares cannot be purchased under this Plan
and any accumulated payroll deductions which would have been used to purchase
fractional shares during the Purchase Period will be held in the participant's
account and used to purchase shares in the next Purchase Period during the
Offering Period. Amounts in a participant's account remaining after whole shares
are purchased with a participant's account will be returned to the participant
promptly, without interest, upon the earliest of the termination of the Offering
Period, the termination of the Plan, or the withdrawal of the participant from
the Plan.
(f) During a participant's lifetime, such participant's
Option to purchase shares hereunder is exercisable only by him or her. The
participant will have no interest or voting right in shares covered by his or
her Option until such Option has been exercised.
11. LIMITATIONS ON RIGHTS TO PURCHASE.
(a) No employee shall be granted an Option to purchase
Common Stock under this Plan at a rate which, when aggregated with his or her
rights to purchase stock under all other employee stock purchase plans of the
Company or any Subsidiary which is intended to meet the requirements of Code
Section 423, exceeds $25,000 in fair market value, determined as of the
applicable date of the grant of the Option, for each calendar year in which the
employee participates in this Plan (or any other employee stock purchase plan
described in this Section 11(a)).
(b) The number of shares that may be purchased by any
employee with respect to an Offering Period shall not exceed 1,000 shares;
provided, that in the event the Committee or Board may specify a different
limitation to be applied in lieu of the foregoing limitation for a future
Offering Period, the number of shares that may be purchased by any employee
during an Offering Period may not exceed such other limitation.
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(c) If the number of shares to be purchased on a Purchase
Date by all employees participating in this Plan exceeds the number of shares
then available for issuance under this Plan, then the Company will make a pro
rata allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Committee shall determine to be equitable. In
such event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant's Option to each
participant affected thereby.
(d) Any payroll deductions accumulated in a participant's
account which are not used to purchase stock due to the limitations in this
Section 11 shall be returned to the participant as soon as practicable after the
end of the applicable Purchase Period without interest.
12. EVIDENCE OF STOCK OWNERSHIP.
(a) Promptly following each Purchase Date, the number of
shares of Common Stock purchased by each participant shall be deposited into an
account established in the participant's name at a stock brokerage or other
financial services firm designated or approved by the Committee (the "Plan
Financial Agent"). The shares must remain in the participant's account at the
Plan Financial Agent until the expiration of one year after the purchase of the
shares by the participant; provided that after such period, a participant shall
be free to undertake a disposition (whether by way of sale, gift, or other
transfer) of the shares in his or her account at any time. With respect to full
shares (but not fractional) for which the holding period set forth in the
previous sentence has been satisfied, the participant may move those shares to
another brokerage account of the participant's choosing or request that a stock
certificate for full (but not fractional) shares be issued and delivered to him
or her. In the event a participant or former participant shall have an account
balance of less than one full share with the Plan Financial Agent as of the
first day of any Offering Period for which such participant has elected not to
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participate in the Plan, the Plan Financial Agent shall cause such fractional
share to be sold as promptly as possible and the cash proceeds from such sale to
be paid to the account holder with no interest.
(b) Following termination of a participant's employment
for any reason, the participant shall have a period of 60 days to notify the
Plan Financial Agent whether such participant desires (i) to receive a
certificate representing all full shares then in the participant's account with
the Plan Financial Agent and cash in lieu of any fractional share interest or
(ii) to sell the shares, including any fractional share, in the participant's
account through the Plan Financial Agent. If the terminated participant fails to
file such notice with the Plan Financial Agent within 60 days after termination,
or within such other time as established by the Committee, he or she shall be
deemed to have elected the alternative set forth in clause (i) above. However,
the participant shall not in any event receive a certificate representing shares
with respect to which the one-year holding period set forth in this section has
not been satisfied until such holding period has been satisfied.
13. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period
under this Plan by signing and delivering to the person designated by the
Committee a written notice to that effect on a form provided for such purpose.
Such withdrawal may be elected at any time on or prior to the 15th day of the
last month (or if such date is not a business day, the immediately preceding
business day) of an Offering Period, unless a different time is set by the
Committee with respect to all eligible employees with respect to an Offering
Period.
(b) Upon withdrawal from this Plan, the accumulated
payroll deductions of the participant not theretofore utilized for the purchase
of shares of Common Stock on a
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Purchase Date shall be returned to the withdrawing participant, without
interest. In the event a participant voluntarily elects to withdraw from this
Plan, he or she may not resume his or her participation in this Plan during the
same Offering Period, but he or she may participate in any subsequent Offering
Period by filing a new authorization for payroll deductions in the same manner
as set forth above for initial participation in this Plan.
14. TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE.
Termination of a participant's employment for any reason,
including retirement, death, or the failure of a participant to remain an
eligible employee, immediately terminates his or her participation in this Plan.
In such event, except as provided in Section 15, the payroll deductions credited
to the participant's account will be returned to him or her or, in the case of
his or her death, to his or her beneficiary or heirs, without interest. For
purposes of this Section 14, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company in the
case of any leave of absence approved by the Company or Designated Subsidiary.
15. RETURN OF PAYROLL DEDUCTIONS.
In the event a participant's interest in this Plan is
terminated by withdrawal, termination of employment, or otherwise, or in the
event this Plan is terminated by the Board, the Company shall promptly deliver
to the participant all contributions of the participant to the Plan which have
not yet been applied to the purchase of stock unless such termination of
participation occurs later than the 15th day of the final month of the Purchase
Period (or if such date is not a business day, on the preceding business day) or
such later date established by the Committee in a uniform and consistent manner,
in which event such contributions will be utilized to purchase
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Common Stock for the participant. No interest shall accrue on the payroll
deductions of a participant in this Plan.
16. CHANGE OF OWNERSHIP AND CAPITAL CHANGES.
(a) If the Company is acquired, whether by merger,
consolidation, or sale of substantially all of its assets, all payroll
deductions for the period in which such acquisition occurs will automatically be
applied to the purchase of Company shares immediately prior to the effective
date of such acquisition.
(b) In the event that at any time or from time to time a
stock dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to stockholders other than
a normal cash dividend, or other change in the Company's corporate or capital
structure results in (a) the outstanding shares of Common Stock or any
securities exchanged therefor or received in their place being exchanged for a
different number or class of securities of the Company or of any other
corporation or (b) new, different, or additional securities of the Company or of
any other corporation being received by the holders of shares of Common Stock,
then the Committee, in its sole discretion, shall make such equitable
adjustments as it shall deem appropriate in the circumstances in the maximum
number and kind of shares of stock subject to this Plan as set forth in the
Plan, the number and kind of shares subject to purchase under outstanding
Options, and the Purchase Price. The determination by the Committee as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
17. NONASSIGNABILITY.
Neither payroll deductions credited to a participant's account
nor any rights with regard to the exercise of an Option or to receive shares
under this Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way (other than by will, the laws of descent
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and distribution, or as provided in Section 24 hereof by the participant). Any
such attempt at assignment, transfer, pledge, or other disposition shall be void
and without effect.
18. REPORTS AND STATUS OF ACCOUNTS.
Individual accounts will be maintained by the Plan Financial
Agent for each participant in this Plan. The Participant shall have all
ownership rights with respect to shares of Common Stock held in his or her
account by the Plan Financial Agent, including the right to vote such shares and
to receive any dividends or distributions which may be declared thereon by the
Board. The Plan Financial Agent shall send to each participant promptly after
the end of each Purchase Period a report of his or her account setting forth
with respect to such Purchase Period the total payroll deductions accumulated,
the number of shares purchased, and the per share price thereof, and also
setting forth the total number of shares then held in his or her account.
Neither the Company nor any Designated Subsidiary shall have any liability for
any error or discrepancy in any such report.
19. NO RIGHTS TO CONTINUED EMPLOYMENT; NO IMPLIED RIGHTS.
Neither this Plan nor the grant of any Option hereunder shall
confer any right on any employee to remain in the employ of the Company or any
Subsidiary or restrict the right of the Company or any Subsidiary to terminate
such employee's employment. The grant of any Option hereunder during any
Offering Period shall not give a participant any right to similar grants
thereafter.
20. EQUAL RIGHTS AND PRIVILEGES.
All eligible employees shall have equal rights and privileges
with respect to this Plan except as required by applicable law so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the
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related regulations. Any provision of this Plan which is inconsistent with
Section 423 or any successor provision of the Code shall, without further act or
amendment by the Company, the Board, or the Committee, be reformed to comply
with the requirements of Section 423. This Section 20 shall take precedence over
all other provisions in this Plan.
21. NOTICES.
All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. AMENDMENT OF PLAN.
The Board may amend this Plan in such respects as it shall
deem advisable; however, stockholder approval will be required for any amendment
that will increase the total number of shares as to which Options may be granted
under this Plan, or, but for such shareholder approval, cause this Plan to fail
to continue to qualify as an "employee stock purchase plan" under Section 423 of
the Code or cause the purchase of shares thereunder to fail to be exempt from
the provisions of Section 16(b) of the Exchange Act.
23. TERMINATION OF THE PLAN.
The Board may suspend or terminate this Plan at any time.
Unless this Plan shall theretofore have been terminated by the Board, this Plan
shall terminate on, and no Options shall be granted after, June 30, 2009. No
Options shall be granted during any period of suspension of this Plan.
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24. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
prior to delivery to him or her (or to the Plan Financial Agent on his or her
behalf) of such shares and cash.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant or, if no spouse, dependent, or relative is known to the
Company, to such other person as the Company may in good faith determine to be
the appropriate designee.
25. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF
SHARES.
Shares shall not be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such shares
pursuant thereto shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or automated quotation system upon which the
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shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
26. EFFECTIVE DATE.
This Plan is adopted effective on July 1, 1999, and shall be
submitted to the stockholders for approval thereof no later than one year before
or after such date. In the event the stockholders have not approved this Plan
within such period, this Plan shall thereupon terminate; all then outstanding
Options shall be cancelled and cease to be in effect; all amounts deducted from
the Compensation of participants and not theretofore applied to the purchase of
shares of Common Stock shall be refunded without interest; and all full shares
held by the Plan Financial Agent for the accounts of participants shall be
delivered to the respective participants and all fractional share interests
shall be sold for the accounts of the participants by the Plan Financial Agent
and the proceeds of such sale distributed to the participants entitled thereto.
27. GOVERNING LAW.
Except to the extent that provisions of this Plan are governed
by applicable provisions of the Code or any other substantive provision of
federal law, this Plan shall be construed in accordance with, and shall be
governed by, the substantive laws of the State of Arizona without regard to any
provisions of Arizona law relating to the conflict of laws.
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Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Rockford Corporation an
Arizona Corporation, (hereinafter called the "Company") and W. Gary Suttle
(hereinafter called the "Employee") as of January 1, 1999.
RECITALS
A. Employee currently serves as the President and Chief Executive
Officer of the Company.
B. The Board of Directors recognizes Employee's value to the
Company and desires to enter into a long-term employment agreement with the
Employee.
C. Employee is willing to accept employment by the Company on the
terms and conditions set forth herein.
NOW THEREFORE, the Company and the Employee agree as follows:
AGREEMENT
1. Employment
1.1 The Company shall employ the Employee and the Employee shall
serve the Company under this Agreement as President and Chief
Executive Officer of the Company. Subject to the termination
provisions in Section 5, the Employee shall be employed by the
Company to perform the duties set forth in this Agreement,
commencing as of the date hereof and until this Agreement is
terminated in accordance with the terms and conditions in this
Agreement.
1.2 In accordance with the Company's procedures for election of
directors, during the term of the Employee's employment the
Board of Directors will nominate and recommend the Employee to
serve on the Company's Board of Directors. If the shareholders
elect the Employee to the Board of Directors, the Employee
will serve at no additional compensation.
2. Duties
2.1 The Employee shall: (i) carry out all such executive and
managerial duties as are consistent with his position as
President and Chief Executive Officer, as shall be lawfully
assigned to him from time to time by the Board of Directors of
the Company (the "Board"), or as are prescribed by the Bylaws
of the Company; (ii) serve the Company diligently and
faithfully according to his best abilities in all respects;
(iii) except as provided herein, devote his full time, energy
and skill to the performance of his duties under this
Agreement; and (iv) obey and observe all lawful and reasonable
orders and instructions of the Board in relation to the
business of the Company. Employee shall be entitled to retain
existing and engage in noncompetitive outside financial
investments so long as they do not interfere with Employer's
devotion of substantially full time to his duties hereunder,
including serving as a member of a Board of Directors.
3. Employment period
3.1 Initial term. The Employee shall be employed by the Company
for the duties set forth in Section 2 for a five-year period,
commencing as of January 1, 1999, and ending on December 31,
2003 (the "Initial Term"), unless sooner terminated in
accordance with the provisions of this Agreement.
<PAGE> 2
3.2 Renewal; Employment Period. This Employment Agreement will be
automatically renewed at the end of the Initial Term for
additional two-year periods commencing on each January 1 and
ending twenty four (24) months later on the following December
31 (the "Renewal Terms"), unless either party serves notice of
desire to terminate or modify this Employment Agreement on the
other. Such notice must be given at least six months before
the end of the Initial Term or the applicable Renewal Term.
The period of time commencing as of the date hereof and ending
on the effective date of the termination of employment of the
Employee under this or any successor Agreement shall be
referred to as the "Employment Period."
4. Compensation and Benefits
4.1 As remuneration for Employee's services hereunder, the Company
shall pay to the Employee, during the continuance of his
employment, a total annual base salary of $400,000 payable in
installments under the Company's standard payroll policies
(base salary). The base salary may be increased as the
Compensation Committee of the Board of Directors of the
Company reasonably determines.
4.2 In addition to the remuneration provided in Section 4.1 above,
the Company shall pay the Employee an annual performance bonus
(the "bonus") based on the Company's profit and bonus plan
(the "plan") as approved by the Board of Directors or the
Compensation Committee. Such annual bonus shall provide
incentives up to 50% of base salary each Fiscal Year in the
event the plan is achieved. This base salary and bonus shall
be referred to as the Employee's "total compensation."
4.2.1 Bonus payments provided herein shall be paid to the
Employee within 30 days after delivery to the Board
of Directors of the audited (or if there is no audit,
Board approved) financial statements of the Company
for the relevant Fiscal Year.
4.2.2 The Employee shall not be entitled to the bonus or
any portion thereof unless he has been employed
throughout the entire relevant Fiscal Year; provided,
however, that if the Employee's employment is
terminated and sections 5.2 or 5.4 below require
payment of partial bonus, then Employee will receive
a pro rata bonus ("Pro Rata Bonus") based on the
number of months which elapsed during the relevant
Fiscal Year before the termination, notwithstanding
that he was not employed on the last day of the
Fiscal Year. Unless Sections 5.2 or 5.4 require
payment of a Pro Rata Bonus, the Employee shall not
be entitled to the bonus or any portion thereof for
the Fiscal Year in which his employment is
terminated.
4.2.3 For the purposes of this Agreement, the term "Fiscal
Year" shall mean the Company's Fiscal Year for
accounting purposes ending December 31.
4.3 The Employee shall be entitled to receive such employee
benefits, including but not limited to, accident, health,
disability and travel insurance, in accordance with the
guidelines applicable to the Company's other senior executive
officers and all employees generally; provided that the
Company shall pay for the cost of coverage under all such
Plans to the same extent as it pays the cost for other senior
executive officers. The Company will reimburse the Employee
for amounts paid by the Employee for any supplemental
disability insurance premiums necessary to provide disability
income equal to the Employee's base salary. The Employee is
entitled to five (5) weeks of paid vacation per calendar year,
with such vacation to be scheduled and taken in accordance
with the Company's standard vacation policies. The Employee
shall be entitled to receive an annual physical from a
physician of his choice with the cost of such physical borne
by the Company (to the extent it is not paid for by the health
insurance provided by Company).
-2-
<PAGE> 3
4.4 The Company shall enter into an agreement with the Employee
establishing a "split dollar" life insurance program in a face
amount agreed by Employee and Company. The Company shall pay
100% of the annual premiums on the underlying life insurance
contract up to a maximum payment of $36,000 per year and upon
the Employee's death, the Company shall be entitled to receive
a payment equal to the premiums paid. Such agreement shall be
subject to such other terms and conditions to which the
Company and Employee agree.
4.5 The Company will reimburse the Employee for any and all
necessary, customary, and usual expenses, properly receipted
in accordance with Company policies, incurred by the Employee
on behalf of the Company. Additionally, the Company shall pay
membership dues for the Employee to join various civic and
professional organizations mutually agreed to by the Employee
and the Company.
4.6 If the Employee is unable to perform his duties hereunder
because of his physical or mental illness, the Company will
continue to pay the Employee his then annual base salary for
up to 100 business days of such period of physical or mental
illness during any Fiscal Year. The Company shall have the
right to require a medical certificate for absences of more
than 20 business days and have the Employee examined by a
physician of its choice for any absence exceeding 45 days. Any
payments hereunder shall be reduced by any payments made to or
with respect to the Employee as salary continuation under the
provisions of any disability or workers compensation program
or arrangement to which the Company contributes or reimburses
the Employee for premiums.
4.7 Employee shall be entitled to participate in the Company's
Stock Option Plan as determined by the Board. The Board and
Compensation Committee intend to grant Employee an initial
option under this Agreement to purchase up to 20,000 shares
under the Plan.
5. Termination
5.1 The Company may terminate the Employee's employment at any
time after the first anniversary date of this Agreement by
giving written notice to the Employee not less than six months
prior to the effective date of such termination; provided,
that the Company may terminate the Employee's employment
immediately upon written notice to Employee of termination for
Good Cause (as defined below). Employee may terminate his
employment with the Company immediately upon written notice to
the Company of termination for Good Reason (as defined below).
After delivery of a termination notice described in this
Section 5.1, the Company shall have the right to exclude the
Employee from the Company's premises or from performing any
services for the Company; provided that the Company shall
continue to compensate the Employee as otherwise required by
the terms of this Agreement.
5.1.1 For the purposes of this Agreement, "Good Reason" for
termination by Employee shall be deemed to occur in
the event (i) the Company changes the Employee's
position as Chief Executive Officer or materially
changes the Employee's functions, duties, or
reporting responsibilities which would cause
Employee's position with the Company to become of
materially lesser responsibility or importance than
those associated with his functions, duties, or
responsibilities as of the date hereof, (ii) the
Employee is required without the Employee's consent
to relocate to an employment location that is outside
metropolitan Phoenix, Arizona, (iii) the Employee's
annualized base salary rate or target bonus amount
during the Employment Period is reduced from the
rates set forth in Sections 4.1 and 4.2, as such
rates may be adjusted by the Compensation Committee,
unless
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<PAGE> 4
the Employee agrees to a reduction; or (iv) there
exists a "Charge in Control" (as defined on Exhibit A
attached hereto and incorporated herein) of the
Company prior to an initial public offering of
Company's common stock in one or more series of
related transactions.
5.1.2 For purposes of this Agreement, "Good Cause" for
termination by the Company means: (i) the Employee's
indictment, conviction or plea of guilty to any act
or acts constituting a felony under the laws of the
United States, any state thereof or any foreign
jurisdiction, (ii) failing or refusing, after a
30-day written notice from the Company and an
opportunity during such 30-day period for the
Employee to cure, to comply in a material respect
with the Company's policies, written or otherwise, or
with the material duties or obligations imposed upon
him under this Agreement, (iii) any act by the
Employee that is unlawful or brings the Company into
disrepute unless the Employee believed in good faith
that the act was lawful and not opposed to the
Company's best interests, or (iv) any act by the
Employee involving theft or dishonesty involving
$1,000 or more of the Company's property. Good cause
shall be determined by a vote of the Board of
Directors.
5.2 If the Company terminates the employment of the Employee
during the Employment Period for other than Good Cause or if
Employee terminates his employment with the Company during the
Employment Period for Good Reason then the Company shall pay
to Employee any portion of his annual base salary which has
been accrued but not been paid as of the termination date
("Accrued Salary") and his Pro Rata Bonus. In addition, the
Company shall pay the Employee an amount equal to the
Employee's base salary for the 18-month period immediately
preceding the Employee's termination of employment. Such
amount shall be paid according to the Company's payroll
practices over the 18-month period immediately following the
Employee's termination of employment. Further, the Company
will maintain all benefits as described in Section 4.3,
including without limitation all medical and disability
benefits, for the 18-month period immediately following the
Employee's termination of employment. Alternatively, at
Employee's election, Company shall reimburse the cost of the
Employee's COBRA premium during the applicable "period of
coverage" as defined in Section 4980B(f)(2)(B) of the Internal
Revenue Code should the Employee elect to receive such COBRA
coverage.
5.3 If the Employee's employment is terminated for any reason
other than those set forth in Sections 5.2 or 5.4, the Company
shall not be obligated to pay any severance, pay any bonus, or
provide any benefits to the Employee; provided, that the
Company shall pay to Employee his Accrued Salary.
5.4 The employment of the Employee shall terminate upon the
Employee's death. In the event of the Employee's death, the
Company shall be obliged within 30 days thereafter to pay to
Employee's estate all Accrued Salary and, if applicable, Pro
Rata Bonus. The Company shall have the right to terminate the
Employee's employment upon 100 business days prior written
notice in the event of the Employee's total disability. In the
event of the Employee's termination as the result of his total
disability, the Company shall, for a period of 12 months
following termination pay to the Employee in each such month
1/12 of his total compensation for the 12 month period prior
to termination; provided, however, that the dollar amount of
any payment hereunder shall be reduced by any payments made to
or with respect to the Employee as salary continuation under
the provisions of any disability or workers compensation
program or arrangement to which the Company contributes or
reimburses the Employee for premiums. For purposes hereof, a
total disability is a physical or mental disability which
results in the Employee's inability to substantially perform
his duties for a period of six consecutive months or for a
period of 180 days within any period of 12 consecutive months.
-4-
<PAGE> 5
5.5 Upon termination of his employment with the Company, the
Employee shall promptly return to the Company of his own
accord all documents, memoranda, computer discs, data,
electronically-stored files, notes and drafts in whatever
medium relating to the Company's business, together with any
and all carbon or other copies thereof. The Employee shall not
be entitled to withhold from the Company any of the
aforementioned papers or documents.
5.6 The Employee's receipt of any of the benefits to be provided
under this Agreement following termination of the Employee's
employment with the Company shall be subject to the Employee's
compliance with any reasonable and lawful policies or
procedures of the Company relating to employee severance,
including the execution and delivery by the Employee of a
release reasonably satisfactory to the Company of any and all
claims that the Employee may have against the Company or any
related person, except for the continuing obligations provided
herein.
6. Covenants
6.1 Nondisclosure. The Employee shall not make use of, divulge, or
otherwise disclose, directly or indirectly, whether during the
term of this Agreement or at any time thereafter, any trade
secret or other confidential or proprietary information
concerning the business (including, but not limited to, its
products, employees, customers, suppliers, services,
practices, or policies) of the Company of which the Employee
may learn or be aware as a result of the Employee's employment
during the term of the Agreement, except to the extent such
use or disclosure is (i) required by applicable law; (ii)
lawfully obtainable from other sources not under a duty of
confidentiality with the Company, (iii) authorized in writing
by the Company, or (iv) necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this provision shall survive the expiration,
suspension, or termination, for any reason, of this Agreement.
6.2 Trade Secrets. The Employee, during the term of employment
under this Agreement, will have access to and become
acquainted with various trade secrets and proprietary and
confidential information, consisting of, but not limited to,
processes, computer programs, compilation of information,
records, sales procedures, customer requirements, pricing
techniques, customer lists, methods of doing business and
other confidential information (collectively referred to as
"Trade Secrets"), which are owned by the Company and regularly
used in the operation of its business, but in connection with
which the Company takes precautions to prevent dissemination
to persons other than certain directors, officers and
employees. The Employee agrees not to disclose any of the
Trade Secrets, directly or indirectly, or use them in any way,
either during the term of this Agreement or at any time
thereafter, except as required in the course of employment by
the Company and for its benefit. All records, files,
information, data, documents, drawings, specifications,
software, electronically-stored data, equipment, and similar
items (and all reproductions thereof) relating to the business
of the Company, including without limitation, all records
relating to suppliers or customers ("Documents"), shall remain
the exclusive property of the Company and shall not be removed
from the premises of the Company or its affiliates under any
circumstances whatsoever, except in the normal course of
business or with the prior consent of the Company. Upon
termination of employment, the Employee agrees to promptly
deliver to the Company all Documents in the possession or
under the control of Employee.
6.3 Non-Competition. Without the prior written consent of the
Company:
6.3.1 During the Employment Period, the Employee shall not
directly or indirectly, either as an individual, a
partner, or a joint venturer, or in any other
capacity (A) engage in any business that competes
with the Company by marketing to customers who are
substantially similar to the customers of the Company
during
-5-
<PAGE> 6
the Employment Period, (B) accept employment with or
render services to a competitor of the Company as a
director, officer, agent, employee, or consultant,
(C) contact, solicit, or attempt to solicit or accept
or direct business that is competitive with business
conducted by the Company during the Employment Period
from any of the Company's customers, or (D) take any
action inconsistent with the fiduciary relationship
of an Employee to his employer.
6.3.2 Until the later of (1) 12 months after termination of
the Employment Period or (2) 6 months after final
payment of severance or disability payments under
Sections 5.2 or 5.4 after the Employment Period ends,
the Employee shall not, directly or indirectly,
either as an individual, a partner, or a joint
venturer, or in any other capacity, (A) engage in any
business that competes with the Company by marketing
to customers who are substantially similar to the
customers of the Company during the Employment
Period, (B) accept employment with or render services
to a competitor of the Company as a director,
officer, agent, employee, or consultant, or (C)
contact, solicit, or attempt to solicit or accept or
direct business that is competitive with business
conducted by the Company during the Employment Period
from any of the Company's customers.
6.4 Non-Solicitation. During the term of this Agreement and until
the later of (1) 12 months after termination of the Employment
Period or (2) 6 months after final payment of severance or
disability payments under Sections 5.2 or 5.4 after the
Employment Period ends, the Employee will not, on behalf of
the Employee or on behalf of any other individual,
association, or entity, call on any of the customers of the
Company for the purpose of soliciting or inducing any of such
customers to acquire, or providing to any of such customers,
any product or service provided by the Company nor will the
Employee in any way, directly or indirectly, as agent or
otherwise, in any other manner solicit, influence, or
encourage such customers to take away or to divert or direct
their business to the Employee or any other individual,
association, or entity.
6.5 No Raiding of Employees. During the term of this Agreement and
until the later of (1) 12 months after termination of the
Employment Period or (2) 6 months after final payment of
severance or disability payments under Sections 5.2 or 5.4
after the Employment Period ends, the Employee will not (A)
induce any employee of the Company to leave the Company or to
accept any other employment or position or (B) assist any
other individual, association, or entity in hiring any such
employee.
6.6 Special Remedies and Enforcement. The Employee recognizes and
agrees that a breach by the Employee of any of the covenants
set forth in this Section 6 would cause irreparable harm to
the Company, that the Company's remedies at law in the event
of such breach would be inadequate, and that, accordingly, in
the event of such breach, a restraining order or injunction or
both may be issued against the Employee, in addition to any
other rights and remedies which are available to the Company.
The Company and the Employee agree that, if the Company
breaches its obligation to pay the Employee severance under
Section 5.2, the Employee shall not be bound by the terms of
any provision of this Section 6.
7. STOCK PURCHASING RIGHTS.
7.1 To the extent the Company makes any future equity offerings
prior to its initial public offering the Company will use best
efforts to offer Employee the right to participate on terms
and conditions similar to those offered to any other existing
stockholder.
8. REGISTRATION RIGHTS OF EMPLOYEE.
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<PAGE> 7
8.1 LOCK-UP PROVISIONS. Employee acknowledges and understands that
if the Company is able to complete an initial public offering,
all common stock owned by Employee may not be registered by
the Company in connection with the initial public offering.
Employee further acknowledges and agrees that the managing
underwriter of the initial public offering of the Company's
common stock or a subsequent offering of the Company's common
stock may require all shareholders, including the Employee, to
agree not to sell any common stock of their common stock for
up to 180 days. The Employee will sign a "lock-up" agreement
for up to 180 days upon request of the managing underwriter
and on terms substantially similar to those agreed by other
shareholders.
8.2 REGISTRATION. If at any time after an initial public offering
the Company will determine to register any of its common
stock, either for its own account or the account of a security
holder or holders, the Company will:
8.2.1 Promptly (and in any event within five (5) business
days) give to Employee written notice thereof; and
8.2.2 Use best efforts to include in such registration (and
any related qualification under blue sky laws or
other compliance), and in any underwriting involved
therein, up to 50% of the common stock held by
Employee ("Registrable Securities") specified in a
written request or requests, made within ten (10)
days after receipt of such written notice from the
Company, by Employee. Company shall not be obligated
to include any Registrable Securities if there would
be a conflict with any other shareholder's rights.
8.2.3 Employee will furnish to the Company such information
regarding Employee, the Registrable Securities held
by Employee, and the distribution proposed by
Employee as the Company may request in writing and as
will be required in connection with any registration,
qualification, or compliance referred to in this
Section 6.
8.3 1934 ACT COMPLIANCE. When and if the Company becomes subject
to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company
will comply with such requirements so that the "current public
information" requirement of Rule 144 of the Securities Act may
be met.
9. Indemnification. The Company and the Employee will enter into a
separate indemnification agreement governing the Employee's right to
indemnification from the Company.
10. Attorneys Fees
The Employee and the Company agree that in any arbitration or legal
proceedings arising out of this Agreement the prevailing party shall be
entitled to its reasonable attorney's fees and costs of litigation in
addition to any other relief granted.
11. Entire Agreement
This Agreement records the whole of the terms agreed between the
Company and the Employee with respect to the subject matter hereof and
no variation or modification shall be valid unless it is recorded in
writing approved by the Compensation Committee and signed by a senior
executive officer of the Company and by the Employee.
12. Severability
Should any provision of this Agreement be found to be or become
invalid, this shall not prejudice the validity of the remaining
provisions.
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<PAGE> 8
13. Specific Performance
In the event of a breach by the Employee or Company of any of the
provisions of this Agreement, the Company or Employee may, in addition
to other rights and remedies existing in its favor, apply to any court
of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce or prevent any violation of the provisions
of this Agreement.
14. Arbitration.
All disputes or claims by Employee against Company relating to this
Agreement or to Employee's employment shall be submitted for resolution
exclusively to arbitration under the Commercial Rules of Arbitration of
the American Arbitration Association in Phoenix, Arizona, no later than
one (1) year from the date such claim arises against Company.
15. Survival.
The provisions of Sections 6, 8, and 9 shall survive termination of
this Agreement.
16. Applicable Law
The Agreement shall be governed by the laws of the State of Arizona.
Signed by the Employee:
Dated: 19 Feb 99
/s/ W. Gary Suttle ------------------
- ----------------------------------------
Signed for and on behalf of the Company:
ROCKFORD CORPORATION
Dated: 2/26/99
By: /s/ Timothy S. Bartol ------------------
----------------------------------------
Title: General Partner, Monument Investors LP
----------------------------------------
-8-
<PAGE> 1
EXHIBIT 10.5
INDEMNITY AGREEMENT
This Agreement is made as of January 1, 1999, by and among ROCKFORD CORPORATION,
an Arizona corporation, ("Corporation") and W. Gary Suttle ("Agent")
RECITALS
1. The Agent has or is currently serving as a Director and
Officer the Corporation and the Corporation wishes the Agent to continue in such
capacity;
2. The Agent is willing, under certain circumstances, to continue
in such capacity provided he is indemnified from and against loss, claim or
expense, including attorneys' fees, incurred by virtue of the fact that Agent
was a Director or Officer of the Corporation;
3. The Agent has indicated that he does not regard in the
indemnities available under the Corporation's Charters or Bylaws and any
insurance remaining in effect as adequate to protect him against the risks
associated with his service to the Corporation;
NOW THEREFORE, in order to induce the Agent to continue to serve as
Director and Officer for the Corporation and in consideration of his continued
service, the Corporation hereby agrees to indemnify the Agent as follows:
a. Subject to the terms of this Agreement, the
Corporation will pay upon request and on behalf of the Agent or his spouse,
executors, administrators or assigns, any amount which he is or becomes legally
obligated to pay because of any claim or claims made against him because of any
act or omission or neglect or breach of duty, including any actual or alleged
error or misstatement or misleading statement, whether or not claimed to be
intentional or made in bad faith, which he commits or suffers while acting in
his capacity as a Director or Officer of the Corporation or solely because of
his being a Director or Officer. This Indemnity Agreement shall cover claims
made which relate to acts or failure to act prior to the date hereof including
claims pursuant to which litigation has either commenced or been threatened. The
payments which the Corporation will be obligated to make hereunder shall include
all attorneys' fees, damages, judgments, settlements and costs, cost of
investigation, and costs of defense of legal actions, claims or proceedings and
appeals therefrom, and costs of attachment or similar bonds.
b. If a claim under this Agreement is not paid by the
Corporation, or on its behalf, within sixty days after written request has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and if
successful in whole or in part, the claimant shall be entitled to be paid also
all the costs and expenses of prosecuting such claim.
c. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights,
<PAGE> 2
including the execution of such documents necessary to enable the Corporation
effectively to bring suit to enforce such rights.
d. Although it is the intent of this Indemnity Agreement
to hold Agent harmless from and against any claim, cost or expense, the
Corporation shall not be liable under this Agreement to make any payment in
connection with any claim made against the Agent:
(i) for which payment is actually made to the
Agent under a valid and collectible insurance policy, except in respect of any
excess beyond the amount of payment under such insurance;
(ii) based upon or attributable to the Agent
gaining in fact any personal profit or advantage to which he was not legally
entitled;
(iii) for an accounting of profits made from the
purchase or sale by the Agent of securities of the Corporation within the
meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statutory law or common law;
(iv) for an intentional infliction of harm on the
corporation or its shareholders;
(v) for a violation of Arizona Revised Statutes
section 10-833 relating to unlawful distributions;
(vi) for Agent's gross negligence, willful
misconduct, or intentional violation of law; or
(vii) if indemnity is prohibited by applicable
law.
e. This Indemnity Agreement and the obligations of the
Corporation hereunder shall survive and continue to benefit the Agent with
respect to any claims made after the date Agent is no longer a Director,
Officer, or employee of the Corporation, and after termination of Agents
employment agreement with Corporation, regardless of the reason for discharge or
termination.
f. No costs, charges or expenses for which indemnity
shall be sought hereunder shall be incurred without the Corporation's consent,
which consent shall not be unreasonably withheld.
g. The Agent shall give to the Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation shall be
directed to ROCKFORD CORPORATION, 546 South Rockford Drive, Tempe, Arizona
85231, Attention: Corporate Secretary (or such other address as the Corporation
shall designate in writing to the Agent); notice shall be deemed received if
sent by prepaid mail properly addressed, the date of such notice being the date
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<PAGE> 3
postmarked. In addition, the Agent shall give the Corporation such information
and cooperation as it may reasonably require and as shall be within the Agent's
power.
h. When the Corporation receives notice of a claim it is
entitled to participate in the Proceeding at its own expense and to assume the
defense of the Proceeding with counsel reasonably acceptable to Agent. After
notice from Corporation to Agent of its election to assume the defense,
Corporation is not liable for any legal or other expenses subsequently incurred
by Agent in connection with the Proceeding, other than reasonable costs of
investigation or as otherwise provided in this section.
i. Costs and expenses including attorneys' fees incurred
by the Agent in defending or investigating any action, suit, proceeding or
investigation shall be paid by the Corporation in advance of the final
disposition of such matter, if the Agent shall undertake in writing to repay any
such advances in the event that it is ultimately determined that the Agent is
not entitled to indemnification under the terms of this Agreement.
j. Agent may employ his or her own counsel in the
proceeding, but the fees and expenses of counsel, incurred after notice of the
Corporation's assumption of the defense, will be at Agents expense unless (1)
Corporation has authorized Agent's employment of counsel, (2) Agent has
reasonably concluded, based on the opinion of his or her counsel, that there is
a conflict of interest or position between Corporation and Agent in the conduct
of the defense, or (3) Corporation has not in fact employed counsel to assume
the defense. In each of these cases the fees and expenses of counsel for Agent
will be at Corporation's expense if Corporation is determined ultimately to be
responsible to indemnify Agent with respect to the Proceeding.
k. Corporation is not obligated to reimburse the costs
of a settlement unless it has agreed to the settlement. If Agent unreasonably
fails to enter into a settlement agreed to by the opposing party and
Corporation, then Corporation's indemnification obligation to Agent in the
Proceeding will not exceed (1) the amount of the agreed settlement plus (2)
expenses incurred before the settlement could have been effected.
1. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument. This
Agreement shall survive termination of all agreements between Agent and
Corporation. The termination Agent as an employee of the Corporation shall not
effect the right of Agent to seek indemnity thereafter regardless of the basis
for termination.
m. Nothing herein shall be deemed to diminish or
otherwise restrict the Agents right to indemnification under any provision of
the respective Charters or Bylaws of the Corporation or under applicable law or
available insurance coverage.
m. This Agreement shall be governed by and construed in
accordance with Arizona Law.
n. This Agreement shall be binding upon all successors
and assigns of the Corporation (including any transferee of all or substantially
all of its assets and any successor by
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<PAGE> 4
merger or operation of law) and shall inure to the benefit of the Agent's
spouse, heirs, personal representatives and estate of Agent.
IN WITNESS WHEREOF, the parties hereto have. caused this Agreement to
be duly executed and signed as of the day and year first above written.
ROCKFORD CORPORATION:
Attest: By: /s/ Timothy S. Bartol
----------------- ----------------------------------------
Its General Partner, Monument Investors LP
----------------------------------------
AGENT:
/s/
----------------------------------------
W. Gary Suttle
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<PAGE> 1
Exhibit 10.6
[BEST BUY LOGO]
HIGHLY CONFIDENTIAL
September 30, 1998
Dan McLeod
Vice President Sales
Rockford Corporation
546 South Rockford Drive
Tempe, AZ 85281
Dan,
Following is a recap of the various topics we have discussed over the past
several months regarding the terms and conditions of the Rockford and Best Buy
business relationship. This letters purpose is to confirm your agreement with
these points and serve as a "letter of intent" to begin doing business together
in January of 1999.
Following are the specifics.
RETURNS - Returns agreement varies by product category and is as follows:
SPEAKERS-Return for credit. Review return rates after six months.
Returns to be processed monthly through BBY devo centers. Best Buy will
call for RA#. Freight on defective returns to be paid by Best Buy.
AMPLIFIERS - Return for credit for first 30 days after the date of
sale. After 30 days product will be returned for repair. Best Buy (or
customer) will pay for return freight to Rockford. Rockford will pay
for return freight of repaired product to Best Buy. Call for RA#. After
30 days, customer can return for repair through Best Buy Service Center
or return direct to Rockford. Rockford to supply 800 number to Best Buy
stores and customers to process returns. Rockford agrees to expedite
repairs and maintain average repair turnaround under 7 days.
HEAD UNITS - TBD.
ACCESSORIES - One half of one percent defective allowance. If defective
rates are greater than twice the experienced rate of defective items
(catastrophic failure) Rockford will accept that defective accessories
be returned to them.
TERMS - Net 60. (Confidential material redacted and filed separately
with the Commission)
Page 1
<PAGE> 2
DISCOUNTS - (Confidential material redacted and filed separately with
the Commission) off sheet on electronics, (Confidential material
redacted and filed separately with the Commission) off sheet on
speakers, subwoofers and box product.
MDF - (Confidential material redacted and filed separately with the
Commission) MDF will be taken in two ways. (Confidential material
redacted and filed separately with the Commission) will be a monthly
accrual to be paid automatically by the 10th of the following month
based on net purchases. The remaining (Confidential material redacted
and filed separately with the Commission) will be paid no later than 10
days after the end of the calendar quarter based on net purchases for
the quarter. No proof of performance required.
COOP - (Confidential material redacted and filed separately with the
Commission)paid monthly no later than the 10th day of the following
month based on net purchases. No proof of performance required.
Examples of discounts, mdf and coop:
<TABLE>
<CAPTION>
(REDACTED) (REDACTED) MDF (REDACTED) MDF
MODEL SHEET DISC INV. COST COOP MONTHLY QTRLY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Confidential material redacted and filed separately with the Commission)
DEMO PROGRAM - (Confidential material redacted and filed separately
with the Commission) off sheet minus discounts. One product per store
per year. Demo discount to be taken in either MDF funds or discounts on
purchase orders to be taken annually in June.
FORECASTS - Best Buy will supply Rockford with six month rolling
forecasts, updated monthly. Best Buy will supply sixty day commitments
to purchase by sku and purchase orders 30 days in advance of shipment.
NEW STORE FUNDING - (Confidential material redacted and filed
separately with the Commission) per store. Paid quarterly. Subject to
review semi-annually.
ACCESSORIES - All terms and conditions are identical with the following
additions:
<TABLE>
<CAPTION>
<S> <C> <C>
Defective allowance (Confidential material redacted
and filed separately with the
Commission.) Paid monthly.
Conference allowance (Confidential material redacted and filed separately
with the Commission. ) Paid monthly.
VIR (Confidential material redacted and filed separately
with the Commission.) Volume rebate levels to be
determined. Paid quarterly.
</TABLE>
QUARTERLY REVIEW - Both parties agree that the sales objectives and
business plan should be reviewed on a quarterly basis to assure that we
are on track to achieve our mutual goals.
CONFIDENTIALITY - Due to the sensitive nature of this agreement both
parties agree to maintain strict confidentiality on all issues until
the relationship has been formally announced on December 5, 1998.
Rockford and Best Buy agree that, when asked, we
Page 2
<PAGE> 3
can confirm that we have an ongoing dialogue but neither party will, at
any time, disclose the nature of our discussions or the status of our
relationship.
After you have had an opportunity to review this information, and
providing that you find everything is agreeable, please sign this
letter of intent in the space provided on page 3 and forward the
document to Phil Kalleberg.
Everyone at Best Buy looks forward to a long and mutually profitable
relationship between our companies.
Best regards,
/s/
Phil Kalleberg
Senior Buyer
cc: Gary Suttle
Dan McLeod
Dave Richards
Bill Jackson
Steve Stamy
Phil Schoonover
Dan Moe
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ /s/ /s/
- ------------------------------- -------------------------------- ---------------------------
Gary Suttle Dan McLeod Dave Richards
President Vice President Sales Vice President MIS
/s/ /s/ /s/
- ------------------------------- -------------------------------- ---------------------------
Phil Schoonover Dan Moe Phil Kalleberg
Senior Vice President Merchandise Manager Senior Buyer
Marketing
</TABLE>
Page 3
<PAGE> 1
EXHIBIT 10.7
Joint Development and Supply Agreement
This Joint Development and Supply Agreement("Agreement") made and entered into
this 8th day of April, 1999("Effective Date") by and between Rockford
Corporation, a corporation organized and existing under the laws of USA with its
principal place of business at 546 South Rockford Drive, Tempe, Arizona,
USA("Rockford") and Hyundai Electronics Industries Co., Ltd., a corporation
organized and existing under the laws of Republic of Korea with its principal
place of business at San 136-1, Ami-ri, Bubal-eub, Ichon-shi, Kyoungki-do,
467-860, Republic of Korea ("Hyundai")
WITNESSETH:
Whereas, Rockford is engaged in the business, among other things, of electronic
products for automotive vehicles and audio applications; and
Whereas, Hyundai possesses certain technical and proprietary information,
know-how and expertise regarding the design and manufacture of electronic
products for automotive vehicles and audio applications; and
Whereas, both parties desire to jointly develop vehicle audio receiver units for
use: in aftermarket installations of automotive vehicle audio systems ("Source
Units"), for Hyundai to manufacture Source Units and for Rockford to market,
distribute and sell Source Units.
Now, therefore, in consideration of the foregoing premises and mutual covenants
and obligations hereinafter set forth, the parties hereto agree as follows:
1. SCOPE OF WORK
1.1 In accordance with the schedule and other requirements set forth in the
Minutes of Meeting attached hereto("MOM"), Hyundai shall design and build test
production samples of such Source Units("T/P Samples").
1.2 Subject to a successful commercial production of the Source Units by
Hyundai, Hyundai acquires a right to supply the Source Units for Rockford and
Rockford shall purchase the Source Units from Hyundai on an exclusive basis in
accordance with the terms and conditions of this Agreement ("Sales
Transactions").
2. TERM
The term of this Agreement shall commence as of the Effective Date, which shall
mean the date at which this Agreement is executed by both parties and shall
remain in effect for an initial term through July 31, 2003, unless sooner
terminated in accordance with Section 17 below.
<PAGE> 2
3. DEVELOPMENT FEE
In full and complete consideration of the Source Units Development performed by
Hyundai under this Agreement and Hyundai's obligations or duties set forth in
this Agreement, Rockford shall pay to Hyundai, by wire transfer, the amounts set
forth in the MOM attached hereto("Development Fee").
The Development Fee shall be non-refundable in any event and shall be without
any deductions and/or setoff against any amount of money owed by Hyundai to
Rockford hereunder. If there is a change in the scope as delineated hereunder,
Hyundai shall notify Rockford of the change and its associated cost impact after
change notification. Rockford and Hyundai shall negotiate and agree to an
additional cost prior to start of work associated with the change.
4. DEVELOPMENT SCHEDULE
Hyundai agrees to manufacture the Source Units in accordance with the MOM
attached hereto for completion of the Source Units. Hyundai recognizes that its
failure to timely complete the Source Units Development will result in expense
and damage to Rockford. Accordingly, Hyundai acknowledges that time is of the
essence of this Agreement with respect to Hyundai's completing any milestone set
forth in the MOM attached hereto (each, a "Development Milestone" and
collectively, the "Development Milestones").
Rockford and Hyundai realize that changes to the Source Units Development may
affect the Development Schedule. In case of such changes, a Development
Milestone deadline will be adjusted accordingly. Rockford shall monitor the
progress of such Development works by Hyundai and Hyundai shall keep Rockford
advised of the progress status in such a manner described hereunder.
5. PAYMENT SCHEDULE
As Hyundai reaches each Development Milestone, it shall so notify Rockford in
writing and provide the T/P Samples, documentation or other deliverable items
(collectively, "Deliverables") as will evidence that the relevant Development
Milestone has been met. Rockford shall pay Hyundai the Development Fee. in two
equal installments as more described in the MOM. Payment therefor shall not be
due until ten(10) days after such acceptance and receipt of invoice.
In the event that Hyundai fails to achieve the final Development Milestone in
accordance with the MOM for reasons solely attributable to Hyundai, Hyundai
shall, upon Rockford's request, pay as liquidated damages, at the per diem rate
of a tenth percent(O.1%) out of the Development Fee under Section 3 hereof.
Provided, however, that in no event shall the liquidated damages exceed ten
percent(10%) of the Development Fee. Interest at the rate of two percent(2%) per
month, prorated, shall be charged until payment is actually received on any
amount of the Development Fee that remains unpaid beyond the due date.
6. ACCEPTANCE
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<PAGE> 3
Each Development Milestone completed by Hyundai hereunder shall be subject to
final review and acceptance by Rockford based upon the test procedures mutually
agreed upon. Unless otherwise specified herein, Rockford shall have five(5) days
to conduct such review, and any major deficiencies found by Rockford during such
review shall be promptly corrected by Hyundai and subject to repeated review
(not to exceed an additional five(5) working days by Rockford before acceptance
of the Development Milestone.
For the purposes of this Agreement, a Development Milestone deadline shall be
deemed to have been met or satisfied at the time of delivery by Hyundai to
Rockford of a complete set of the Deliverables upon which the completion of such
Development Milestone is conditioned, and which is accepted by Rockford in
accordance with the foregoing review procedures.
7. ASSISTANCE FROM ROCKFORD
It is understood by both parties that Rockford will dispatch certain of its
engineers and provide certain components and equipments in order to support and
expedite Hyundai's Source Units Development. Notwithstanding any provision of
components and equipments or assistance by Rockford, it is further understood by
both parties that the entire responsibility for the Development of the Source
Units shall belong to Hyundai.
All the expenses including, but not limited to, round trip air fare,
accommodation fee and food fee incurred by the dispatched Rockford engineers
shall be borne by Hyundai. Subject to Hyundai's successful achievement of
commercial production of the Source Units in the wake of Rockford's acceptance
of the final Development Milestone as described hereinabove. Rockford undertakes
to guarantee purchase of the Source Units on the following terms and conditions
set forth in Sections 8 through 12.
8. FORECASTS AND ORDERS
8.1 Rockford shall provide Hyundai with forecasts of its requirements for
delivery of the Source Units on a monthly basis in accordance with the MOM. All
such purchase orders shall be deemed (to have been) accepted by Hyundai unless
Hyundai notifies Rockford otherwise by the 10th day of such order month.
8.2 Hyundai understands that Rockford's demand is dependent on market and other
factors beyond Rockford's control. This may result in demand being reduced or
eliminated. Rockford may, however, increase or decrease the volume thus ordered
and accepted not more than three percent (3%), by notifying Hyundai in writing
in not less than thirty(30) days after the date of such purchase order.
8.3 Rockford shall place purchase orders with Hyundai in writing to reach
Hyundai at least thirty (30) days before the shipment date specifying quantity,
delivery date and delivery place.
8.4 In the event Rockford:
(a) cancels any part of any order, or
(b) fails to meet any obligation hereunder, causing cancellation of any order
of portion thereof.
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<PAGE> 4
Rockford agrees to pay to Hyundai the following cancellation charges:
- ------------------------------------- ------------------------------------------
Cancellation Notices are received Cancellation Charges
- ------------------------------------- ------------------------------------------
- ------------------------------------- ------------------------------------------
Sixty (60) days or less prior to Thirty percent (30%) of Source Units
Scheduled Delivery Date
Thirty (30) days or less prior to Fifty percent (50%) of Source Units
Scheduled Delivery Date
- ------------------------------------- ------------------------------------------
Recognizing that Hyundai's costs and damages arising from any cancellation of
any order will be difficult to estimate, both parties agree that the foregoing
charges are reasonable and are intended as liquidated damages to cover Hyundai's
costs and time and not as a penalty.
9. PRICES AND PAYMENT
The prices of and payment terms for the Source Units shall be determined in
accordance with the MOM.
10. PACKAGING, PACKING AND MARKING
All Packaging, Packing and Marking of the Source Units shall be made, at
Hyundai's expenses, in accordance with Rockford's direction. Hyundai shall
package and pack all goods in a manner which ( i ) follows good commercial
practice, ( ii ) is acceptable to common carriers for shipment, and ( iii ) is
adequate to ensure safe arrival. Hyundai shall mark all containers with
necessary lifting, handling and shipping information and with purchase order
numbers, date of shipment, and the names of the consignee and consignor. An
itemized packing list must accompany each shipment which shall include ( i )
prominently the purchase order number and ( ii ) the description, part number,
revision level, and quantity of the Source Units so shipped.
11. DELIVERY, TITLE AND RISK
The Source Units sold hereunder shall be delivered to Rockford F.O.B basis in
accordance with the shipping instructions on Rockford's purchase order. Title
and risk of loss or damages to the Source Units shall transfer from Hyundai to
Rockford upon delivery of the Source Units to a common carrier acceptable to
Rockford.
12. TRADEMARKS AND TRADENAMES
The Source Units to be sold under this Agreement shall bear the trademarks,
tradenames and/or other marks as directed by Rockford. Hyundai shall not use nor
register, as Hyundai's tradenames, trademarks or the like, any tradename,
trademark, service mark or any other words, characters, symbols or marks owned
by Rockford.
13. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS
For the purpose of this Agreement, "Intellectual Property Rights" shall mean
rights under, but not limited to, all patents, patents applications, industrial
design, utility models and copy rights
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<PAGE> 5
necessary to use all inventions, discoveries, improvements and any other
patentable or copyrightable know-how ( i ) incorporated into, used or useful in
connection with the Source Units and/or ( ii ) created, written, manufactured,
made, reduced to practice or constructively reduced to practice by Hyundai,
alone or jointly with others, while engaged in performing services for Hyundai
pursuant to this Agreement, which shall be jointly owned by both parties.
This Agreement shall be construed as Rockford granting to Hyundai a
non-exclusive license in the event that the Source Units incorporates Rockford's
Intellectual Property Rights acquired, owned by or in the possession of Rockford
on or prior to the Effective Date of this Agreement.
14. WARRANTY
Amounts equal to each percentage of the value of shipments of the Source Units
as spare parts for the purpose of warranty set forth in the MOM under the Sales
Transactions shall be provided by Hyundai at Rockford's order for repairing (or
replacing) purposes and the balance of such spare parts accumulated on
Rockford's account after the Sales Transactions shall only be credited at
Rockford's order against the equivalent amount of spare parts (or Source Units
in a completed product) required for a new project initiated by the parties.
Both parties expressly agree that the warranty in respect to the Source Units
under the Sales Transactions shall be provided pursuant to the MOM and this
warranty shall be exhaustive and shall be the exclusive remedy of Rockford for
Hyundai's failure to supply non-defective Source Units under Section 8 hereof
All other claims, costs, liabilities, damages of any kind whatsoever in
conjunction with the warranty are hereby disclaimed.
15. INDEMNIFICATION
Hyundai represents that the Source Units Development is based on its knowledge
and expertise in this field and independent work, not in violation of
confidential or proprietary information of a third party including without
limitation illegally or surreptitiously imitating, misappropriation, copying or
using the third party's intellectual property rights. In the event that Hyundai
receives written notice of a claim by any third party that Rockford's use of any
Source Units under this Agreement violates any patents, copyrights, trade
secrets, proprietary or intellectual property rights of any person or entity,
Rockford shall promptly give notice thereof to Hyundai. (Any failure to give, or
delay in giving, such notice will affect Rockford's rights under this Section 15
only to the extent of damage actually caused thereby.)
Both parties shall mutually consult and agree to jointly (or otherwise alone if
deemed necessary) defend and/or settle the action. Hyundai reserves the right to
offer non-infringing designs to Rockford or to settle with such third parties.
The cost and expenses (including attorney's fees) for such defense or settlement
plus an amount finally awarded or settled shall be equally borne by both
parties, provided that Hyundai's aggregate liability in respect of such action
or settlement shall not exceed Development Fee paid by Rockford to Hyundai under
Section 3 hereof
16. TAX
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<PAGE> 6
All amounts to be paid by Rockford to Hyundai pursuant to this Agreement shall
be paid net of any tax, assessment or other charges which may be imposed on by
the government of Rockford with respect to such amounts, and such tax,
assessment or other charges shall be paid by Rockford.
17. TERMINATION AND DELIVERY OF SOURCE UNITS
17.1 Termination for Default
Either party may immediately terminate this Agreement by written notice to the
other party upon the occurrence of any of the following events;
(a) If either party fails to meet, to the satisfaction of the other party as
evidenced by such other party, any obligations hereunder within thirty (30) days
of its due date
(b) The breach by either party of any obligations, terms, covenants or
conditions of this Agreement (other than as described in subparagraph (a) above)
which is not cured within thirty(30) days after written notice thereof from
Rockford.
17.2 This Agreement shall be immediately terminated upon the occurrence of any
of the following events on any party:
( i ) Bankruptcy or insolvency
( ii ) Appointment of receiver
( iii ) Assignment for the benefit of creditors
( iv ) Voluntary or involuntary dissolution
( v ) Other similar events
17.3 Effect of Termination
Each party understands that the rights of termination hereunder are absolute.
Neither party shall incur any liability whatsoever for any damage, loss or
expenses of any kind suffered or incurred by the other (or for any compensation
to the other) arising from or incident to any termination of this Agreement by
such party which complies with the terms and conditions of the Agreement whether
or not such party is aware of any such damage, loss or expense. Termination is
not the sole remedy under this Agreement and, whether or not termination is
effected, all other remedies will remain available
17.4 Failure of Source Unit Development
In the event of termination of this Agreement by Rockford prior to the
completion of the Source Units Development described in Section 1 due to
Hyundai's inability to perform the works and services as required by the Source
Units Development, Rockford shall be obligated to pay Hyundai only the fees
relative to such Development Milestones as have been completed and accepted by
Rockford as provided herein. In such event, Hyundai will immediately deliver to
Rockford any and all Deliverables in its possession or under its control.
18. GENERAL PROVISIONS
18.1 LIMITATION OF LIABILITY
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<PAGE> 7
HYUNDAI SHALL NOT BE LIABLE TO ROCKFORD UNDER ANY CIRCUMSTANCES FOR ANY LOST
REVENUE, LOST PROFITS OR OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES UNDER ANY LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
18.2 Export Control Matters
Rockford shall be responsible for assisting Hyundai in complying with all laws
and regulations of the United States government relating to the export from the
United States of technical information or technical data or Source Units, if
any.
18.3 Survival
The provisions containing the parties' rights and obligations which, by their
nature, would continue beyond or are intended to survive any termination and/or
expiration hereof shall so survive including Sections 15, 18.6 and 18.8 hereof
18.4 Interpretation and Construction
The language of all parts of this Agreement is the language of all parties
hereto and shall in all cases be construed according to its fair meaning and not
for or against any party. Each party has been independently advised of the tax
and accounting consequences and other legal aspects of this transaction, has
relied on the advice of its own counsel and accountants and has not relied in
any way upon any representations, warranties or advice in these matters from any
other third party.
18.5 Applicable Law
This Agreement shall be construed under and governed by the laws of Korea.
18.6 Arbitration
Any disputes or differences between the parties hereto in connection with this
Agreement shall be finally settled by an arbitration. The arbitration will be
held in Seoul, Korea under the Arbitration Rules of the Korean Commercial
Arbitration Board, if Hyundai demands arbitration and in Arizona, USA under the
Arbitration Rules of the American Arbitration Association, if Rockford demands
arbitration. The award rendered by the arbitrator(s) shall be final and binding
upon both parties.
18.7 Assignment
This Agreement, in whole or in part, shall not be assigned to a third party
without prior written consent of the other party. Notwithstanding the foregoing,
Hyundai is permitted, with written notice to Rockford, to assign any of its
rights and/or obligations under this Agreement to an affiliate which shall be
defined, for this purpose, as a person who is holding thirty percent(30%) or
more of voting shares of Hyundai, whose thirty percent(30%) or more of voting
shares or equity interest is owned by Hyundai or any Hyundai's business group
company under common control with Hyundai. In the event that this Agreement is
assigned to a third party, this Agreement shall be bound upon successors to and
assigns of the parties hereto.
18.8 Non Disclosure
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<PAGE> 8
Either party agrees that the terms and conditions in this Agreement, and any
information or documents disclosed with regard to this Agreement are
confidential and will not be disclosed to third parties without prior written
approval of the other party.
18.9 Force Majeure
Neither party shall be liable to the other party for failure or delay in
performance of any obligation under this Agreement, directly or indirectly,
owing to acts of God, war, war-like condition, embargoes, riots, strike and
other events beyond its reasonable control. In the event that such failure or
delay occurs, the affected party shall notify the other party of the occurrence
thereof as soon as possible. In the event that Force Majeure occurs to a party
("Affected party"), Affected party shall immediately notify the other party of
the Force Majeure and non-Affected party may terminate this Agreement by written
notice unless the Force Majeure event is removed within three(3) months
following the occurrence of it,
18.10 Notice
All notices provided for in this Agreement shall be given in writing and shall
be effective, upon receipt, unless otherwise provided, when served by personal
delivery, by facsimile followed by a mailed letter, or deposited postage prepaid
in the Registered or Certified Mail of the sender's country, addressed to the
party as follows, or to a changed address as the party shall have specified by
prior written notice:
<TABLE>
<S> <C>
Rockford: 546 South Rockford Drive Hyundai: San 136-1, Ami-ri, Bubal-eub, Ichon- shi,
Tempe, Arizona, USA Kyoungki-do 467-860, Republic of Korea
Attention: Jon M.Graham Attention: 0. S. Kwon
Facsimile:(602)784-2280 Facsimile: 0336) 636-4138
</TABLE>
18.11 Waiver
The waiver by either party of the remedy for the breach of or right under
this Agreement will not constitute a waiver of any other or subsequent remedy or
right.
18.12 Severability
If any provision of this Agreement is or becomes, at any time or for any
reason, unenforceable or invalid, no other provision of this Agreement shall be
affected thereby, and the remaining provisions of this Agreement shall continue
with the same force and effect as if such unenforceable or invalid provisions
shall not have been inserted in this Agreement.
18.13 Change in Contract
No changes, modifications or alterations to this Agreement shall be valid
unless reduced to writing and duly signed by respective authorized
representatives of the parties.
18.14 Contract Document
This Agreement shall be composed of this body Agreement and the MOM.
Basically, the contract documents are intended and so arranged to supplement
each other. However, in the event of any ambiguity or conflicts among the
documents, this Agreement shall apply in the following descending order of
priority:
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<PAGE> 9
1) this body Agreement
2) the MOM
In the event of any conflict or discrepancies between this Agreement and a
separate purchase order to be placed by Rockford, this Agreement shall govern
unless the parties hereto specifically agree in writing to the contrary.
18.15 Entire Agreement
The terms and conditions set forth in this Agreement shall supersede any
other prior correspondences, proposals and agreements, written or verbal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
For and on behalf of Rockford: For and on behalf of Hyundai:
By: /s/ By:
Name: /s/ Name: O.S. Kwon
Title: Strategic Sourcing Manager Title: Senior Manager
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<PAGE> 10
------------------------------------------
MINUTES OF MEETING
------------------------------------------
*Attendants
Rockford: Mr. Jon Graham, Mr. Garry Springgay, Mr. Ronald Trout, Mr. Brian
Soefje
Hyundai: M. J. Kim O. S. Kwon, B. N. Jung, K. D. Lee and Kevin Kim
*Place of meeting: Rockford office in Tempe, AZ
*Date of meeting: Aug. 19/20, 1998
I. Unit price
<TABLE>
<CAPTION>
- ----------------------- ----------------------- --------------------------------------------------
MODEL UNIT PRICE REMARKS
- ----------------------- ----------------------- --------------------------------------------------
RFX-8210 (Confidential
(CDI) material redacted and
filed separately with
the Commission)
- ----------------------- ----------------------- --------------------------------------------------
RFX-8220 (Confidential
(CD2) material redacted and
filed separately with
the Commission)
- ----------------------- ----------------------- --------------------------------------------------
RFX-8230 (Confidential
(CD3) material redacted and
filed separately with
the Commission)
- ----------------------- ----------------------- --------------------------------------------------
<S> <C> <C>
RFX-8610 (Confidential Based on Hyundai existing size of 8disc CDC
(CD Changer) material redacted and
filed separately with
the Commission)
- ----------------------- ----------------------- --------------------------------------------------
</TABLE>
Conditions:
1. Head unit: FOB China, CD Changer FOB Korea
2. Above price are based on the features attached
3. Above price are based on our suggested specification, which was handed
over to Rockford at the meeting (we will use Rockford standard
specification for our guideline reference purpose).
II. Expected Quantity
Rockford will inform Hyundai of the expected quantity per model after
checking with Rockford customers.
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<PAGE> 11
III. Tooling/development cost
1. Tooling cost- (Confidential material redacted and filed separately
with the Commission)
a. Invoice will be submitted by Aug. 24, 1998
b. 1st half shall be paid within two weeks upon receipt of the
invoice.
c. 2nd half shall be paid immediately upon approval on tooling
sample.
2. Development cost: (Confidential material redacted and filed
separately with the Commission)
a. Invoice will be submitted by Aug. 24, 1999
b. 1st half shall be paid within two weeks upon receipt of the
invoice.
c. 2nd half shall be paid immediately upon approval on T/P sample.
IV. Commercial point
1. Payment terms: Irrevocable L/C at sight
2. Purchase order
a. Firm P/O release: 3 months
b. Forecast: 4-5 months
c. Estimate: 4-12 months
3. Agreement
Hyundai received Rockford standard agreement draft and will send
our counter proposal after fully reviewing it.
4. Price break-point for price discount
1. Hyundai shall overview this matter but, we shall reconsider
after 6 months from present.
2. Both parties shall discuss either upon the following cases:
a. More than a certain quantity/year.
b. According to the accumulated quantity.
V. Warranty
1) Hyundai warranty against Rockford
1. (Confidential material redacted and filed separately with
the Commission).
2. (Confidential material redacted and filed separately
with the Commission)
3. (Confidential material redacted and filed separately
with the Commission)
* Repair will be done by Rockford
11) Warranty reference information
1. Hyundai will send our top five high failure rate parts with
price list
2. Schematic diagram
Hyundai will send schematic diagram at every step of sample
dispatch
3. Service manual: within 2 months after 1st shipment
4. Lead-time for spare parts: 3-4 months after receipt
of s/parts order
*Hyundai will send lead-time for each size components and
assembly parts
5. Hyundai will send our recommended equipment list for
testing and repair, respectively
6. Technical information
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<PAGE> 12
a. Hyundai were requested to give technical
information on our products for technical
product training for dealers before CES '98.
b. Rockford will inform us of your required
information list and accordingly Hyundai
will prepare.
c. Hyundai engineers will provide product
training at working sample/test production
stage in Korea and/or Rockford.
7. Repair of deck mechanism
Hyundai recommended Rockford to replace deck itself in case of
defective deck instead of repair since it is sensitive
product.
8. Hyundai were requested to supply 2pcs of following test CDs
- Sony YEDS- 18 test CD type 4
- ABEX test CD TCD-784
9. Hyundai were requested to provide followings.
a. test data for vibration/shock, temperature, etc. of
Matsushita CDP/CDC deck
b. data for up/down, front/rear and left/right vibration
c. spec of 8disc CDC
d. data of tuner
e. our accept/reject standard at tea with test CDs
10. Inspection
a. Outgoing inspection by Rockford's nominated Asian
inspector at Hyundai factory to be final.
b. AQL: 1.0/major, 2.5/minor
*******
VI. Development schedule: attached
V1L Technical matters
(This section contains confidential material redacted and filed separately with
the Commission).
FEATURE COMPARISON TABLE
(This table contains confidential material redacted and filed separately with
the Commission).
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<PAGE> 13
Major Key Operation
<TABLE>
<CAPTION>
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
No Button key When pressing short When pressing long (press and hold)
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
1 SEL Bass->treble->balance->fader->sum Menu mode is activated
-character position set/character CD eject/mute ->LO/DX->tuner sel(American/Europe)
memory set: to be determined -each selection is implemented by SEEK key
-LOC is activated in only during SEEK
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
2 DISP Display selection function 1st. Time adjust mode (display flashed)
-radio: clock->freq.->(title) 2nd. Default set
-CDP mode:CD display->clock -each selection is implemented by SEEK key
-CDX mode:CDX display->clock->(title)
-AUX mode: AUX display->clock
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
3 MUTE -CDP and CDX mode
activated together with pause
function-Other mode
function as mute
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
4 LOUD Loud function is activated Illumination (amber/green inDC2/3)
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
5 BAND Operates the band Enable title memory
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
6 AS/PS PS AS
6 strongest frequency from low to high preset button
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
7 PRESET BUTTON Radio mode: calling preset Writing preset
CDP &CDX: 1->SCAN
2->REPEAT
3->SHUFFLE
- ------- ------------------ ---------------------------------------- ------------------------------------------------------
</TABLE>
I. Default condition
1. Menu selection
-CD eject/mute: sound
-Lo/DX: DX
-Tuner Sel: America
2. Display default set
-Radio: clock
-CDP: clock
-CDX: clock
-AUX: clock
3. Illumination: amber
II: How to enable title memory
1. Press band button for more than 2sec.
2. Locate desired character position by "Sel" key.
3. Search a character by "Seek" key.
4. The character is memorized by "Sel" key or we will consider
using the other key, which will be decided again. (Rockford
prefer the operation "Sel" key)
III: Characters for title memory
A,B_________Z
a,b _________z
0,1,1 _______0
/\,-+?!*'"
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<PAGE> 14
FRONT COSMETIC
I. LCD
1. LCD layout
Hyundai banded over our final layout to Rockford at the meeting.
*LCD size is not fixed, which can be decided according to
front PCB circuit and Japanese
ISO Din size.
2. Dot matrix (5x7 type):
The view angle will be narrower than normal type LCD.
HEI will make it in the consideration of practical use in
general car. However, it is impossible to adjust its view
angle manually according to your model.
3. Flashing
-Mute: When mute function is engaged
-Frequency: While holding under preset scan
-Time: While time adjustment mode is engaged
*Time adjustment is implemented by pressing together with
"DISP" key and "SEEK" up (hr.) or "SEEK" down (min.) key under
time adjustment mode
II. Conclusion of Design
1. CDC: B rendering is confirmed
2. Card Remocon: C1 rendering is confirmed
3. CDP: Basically C
*both parties adjusted and agreed design layout, which was
handed over to Rockford together with diskette.
-14-
<PAGE> 15
Development Schedule
<TABLE>
<CAPTION>
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
No Description Offered Date *Adjusted Date Remark
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
<S> <C> <C> <C> <C>
? Mock-up sample for mechanical approval 10/21/98 10/21/98 *Rockford visit our facility on Oct. 21-22
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Rockford's comments 10/28/98
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Working sample (mock-up) 11/02/98 11/02/98 *Rockford visit our facility on Nov. 3-4
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Rockford's comment 11/09/98
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Tooling:
Start 11/05/98 10/29/98
Off 12/11/98 12/04/98
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Test production 12/28/98 12/24/98 *Provide 2-3 samples of each model for CES
by 1/5/99 (arrive in Las Vegas)
*Provide 10 samples of each model for
Rockford's dealer training by 1/10/99
*Rockford comments and approval by 1/15/99
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Pre-production 02/25/99 02/21/99
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
? Mass production 03/20/99 03/16/99
- ----- ---------------------------------------- ------------ --------------- ------------------------------------------------
</TABLE>
1. In order to speed up the process, Rockford may send their engineers to
Hyundai for evaluation and approval on mock-up sample and working sample, which
will be decided by Rockford after receipt of Hyundai updated development
schedule.
2. As above schedule is not detailed one, Hyundai will send updated schedule in
detail.
3. Rockford will use working sample for dealer training in '99 CES in case
working sample condition is okay.
4. In order to shorten production schedule by 20 days to 30 days, OTP (one time
programmable) IC can be used for production of which additional cost (price
difference between OTP and masking IC) will be applied U$10.00 max. in case
Rockford want.
5. Above adjusted date is based on Rockford engineers visiting to Hyundai at
working sample stage.
<PAGE> 1
EXHIBIT 10.8
(LOGO)
ROCKFORD
CORPORATION
Dealership Agreement
<PAGE> 2
ROCKFORD CORPORATION DEALER AGREEMENT
This Agreement is between Rockford Corporation, an Arizona corporation
("Rockford"), and the person or entity names on the signature page of this
Agreement ("Dealer"). This Agreement supersedes any previous Agreement between
Rockford and Dealer. Rockford and Dealer agree as follows:
1. BACKGROUND.
1.1 ROCKFORD BUSINESS. Rockford is a manufacturer of high quality
consumer electronic products used in automotive, professional, and home
sound reproduction systems.
1.2 DEALER EXPERIENCE. Dealer has experience in the retail sale of high
quality consumer electronic products, is in a good and substantial
financial position, and is skilled at installing mobile audio and
associated electronics equipment in automobiles.
1.3 RELIANCE UPON DEALER ABILITY. The Products, as defined below, are
of a highly technical nature, their proper installation requires great
skill and experience, and their sale requires dealers who promote the
sale of Products vigorously and adhere to high sales and service
standards. Rockford has selected Dealer based on Dealer's
representations and agreements about its skill, experience, and ability
as set forth in this Agreement.
1.4 PURPOSE. The purpose of this Agreement is to state the terms and
conditions of Rockford's appointment of Dealer as an outlet for retail
sales of Products and of Dealer's acceptance of such appointment.
2. DEALERSHIP.
2.1 APPOINTMENT, PRODUCTS, AND TERRITORY. Rockford appoints Dealer and
Dealer accepts appointment as a retail dealer for sale of the Rockford
products (the "Products") from the retail outlets (the "Outlets") and
with primary responsibility for sales in the territory (the
"Territory") as each is described in the Addendum to this Agreement.
Dealer may not advertise or sell the Products outside the Territory, as
described in the Addendum.
2.2 LIMITED LICENSE OF NAMES. Rockford grants Dealer a right to use
during the term of this Agreement Rockford's trademarks and other
identification (the "Names") described in the Addendum, solely in
connection with advertising, promotion, and sales of the Products and
subject to the limitations set forth in this Agreement. Dealer may not
make other use of the Names, and may not use any other Rockford
trademarks, products, or other identification, unless Rockford gives
its prior written consent.
2.3 CHANGES; APPOINTMENT NOT EXCLUSIVE. Rockford may change the Outlets
or Territory, or may add or delete Products or Names from Dealer's
authority, at any time by giving notice of the change to Dealer which
notice shall be deemed an amendment to the Addendum. Dealer's
responsibility for the Territory is non-exclusive and Rockford may
appoint other dealers in the Territory.
3. TERMS AND CONDITIONS OF SALE. Dealer shall purchase and pay for
Products at Rockford's bona fide wholesale prices and on the terms and
conditions specified in the Addendum. Such terms and conditions may be
modified by Rockford upon notice to Dealer and such modified terms
shall be effective for orders accepted by Rockford after the date of
notice.
4. DUTIES OF ROCKFORD. Rockford shall:
4.1 supply Dealer with reasonable quantities of Rockford's standard
sales promotion, advertising, and product related materials without
cost to Dealer;
4.2 provide sales assistance and support as deemed necessary by
Rockford in the form of technical information or advisory personnel,
including information necessary to keep Dealer's sales personnel
informed about the Products; and
4.3 fill orders submitted by Dealer and accepted by Rockford. Rockford
shall have the right to accept, reject, or negotiate any order
submitted by Dealer. Rockford shall use its best efforts to make
deliveries with reasonable promptness; however, Rockford shall not be
liable to Dealer or any other person for any direct, indirect,
incidental or consequential damages incurred as a result of any delay
in delivery or error in filling an order.
<PAGE> 3
5. DUTIES OF DEALER. Dealer shall:
5.1 actively and diligently promote the retail sale of Products from
the Outlets, and solicit sales from and provide support to existing and
potential Rockford retail customers within the Territory, on a regular
basis consistent with good business practice and the high standards
established by Rockford;
5.2 refrain from mail order, sales, telephone sales, and sales made
using the internet or other electronic media. Dealer shall sell
Products only to retail customers who visit an Outlet in connection
with each sale of the Products for resale without Rockford's prior
written consent;
5.3 in order to maintain and enhance the reputation of the Products for
high quality and service, thereby enhancing the prospects of Rockford
and Dealer for sales of the Products, focus its advertising of the
Products on the high quality of the Products;
5.4 achieve or exceed standards of performance, including minimum
purchase requirements for Products, established from time to time by
Rockford in its sole discretion. Dealer's initial minimum purchase
requirement shall be as listed in the Addendum and shall thereafter be
adjusted by Rockford on a regular basis by giving notice to Dealer,
which notice shall be deemed an amendment to the Addendum;
5.5 establish and maintain a staff of sales personnel familiar with
information about the Products provided by Rockford (including their
operating manuals) and capable of providing consumers with a full
explanation of the features and characteristics of the Products;
5.6 display Products so that each line of goods sold may be properly
demonstrated in a vehicle or in a store display. Rockford may delete
any Products that Dealer cannot properly demonstrate to a consumer;
5.7 maintain adequate facilities and personnel to meet Rockfords'
standards of performance, employ competent installation personnel, and
have appropriate installation equipment at each Outlet;
5.8 assist in any reasonable way any purchaser or prospective purchaser
of Products who may have either an inquiry or complaint;
5.9 follow Rockford's written instructions for proper installation of
Products;
5.10 not modify, repackage, adulterate, mishandle, alter, add labels
to, or remove labels from any of the Products;
5.11 conduct its own business under its individual, partnership or
corporate name. Dealer shall not use any Names as part of Dealer's
name; and
5.12 not engage in any practices or make any representations to any
customer or other person which are false, misleading, incomplete,
fraudulent, untrue or contrary to Rockford's sales policies or this
Agreement. Dealer shall make no representations to customers or others
with respect to Products except those approved in the current warranty
program or approved in writing by Rockford.
6. TERM AND TERMINATION. This Agreement is for an initial term of one year
from the date of acceptance by Rockford, and thereafter shall renew
each year for an additional one year term; provided, however, that this
Agreement may be terminated at any time by either party upon 30 days
notice of termination to the other. No termination shall (1) create any
liability for direct or consequential damages or (2) release Dealer
from any of its obligations accrued prior to termination.
7. SECURITY INTEREST. Dealer grants to Rockford a security interest in all
Products purchased from Rockford (and the proceeds of such Products),
to secure payment and performance of all obligations of Dealer to
Rockford. Dealer shall cooperate with Rockford to perfect this security
interest and shall execute any financing statements (including
amendments and continuation statements) and other documents reasonably
requested by Rockford. Dealer authorizes Rockford to execute on
Dealer's behalf and file any financing statements (including amendments
and continuation statements) and other documents as deemed necessary by
Rockford to evidence and perfect this security interest.
8. DEFAULT REMEDIES. Upon any default by Dealer, Rockford shall have the
right:
-2-
<PAGE> 4
8.1 to terminate this Agreement immediately upon notice to Dealer. Such
termination shall not limit or exclude any and all other rights of
Rockford (including rights to recover damages, to offset damages
against any other amounts due, and to equitable relief) and shall not
act as an election of its remedies;
8.2 to declare, in its sole discretion, the entire amount then due
Rockford (including reasonable collection and attorneys fees and costs)
to be immediately due and payable;
8.3 to cancel orders placed by Dealer, or refuse or delay their
shipment, until the default is corrected in a manner satisfactory to
Rockford in its sole discretion;
8.4 to terminate Dealer's right to participate in Rockford special
program funds (such as Cooperative Advertising and Growth/Volume
Incentive Rebate programs) and cancel any outstanding amounts credited
to dealer in connection with such programs;
8.5 to establish additional requirements that Dealer must satisfy,
including credit or financial requirements, in order to continue as a
Rockford dealer;
8.6 to secure both temporary and permanent injunctive relief against
any actual or threatened default;
8.7 to recover direct, indirect, incidental, and consequential damages
resulting to Rockford as a result of the breach (which shall include
its costs in connection with the default, including reasonable
attorneys fees and costs); and
8.8 to exercise all rights and remedies as secured party under the
Uniform Commercial Code to enforce the security interest granted in
this Agreement.
The remedies set forth above shall be cumulative and shall not be
exclusive and Rockford's pursuit of one remedy shall not preclude its
simultaneous or subsequent pursuit of other remedies.
9. ROCKFORD'S OPTION TO REPURCHASE UPON TERMINATION. Upon termination of
this Agreement, Rockford may, at its option, repurchase all Products
still owned by Dealer at the original dealer cost, less freight and
reconditioning changes are required.
10. FINANCIAL CONDITION. Dealer shall provide to Rockford upon request
appropriate financial record to confirm Dealer's ability to fulfill its
obligations under this Agreement to Rockford and to Dealer's customers.
If, in Rockford's sole discretion, Dealer's ability to meet its
obligations is uncertain or Rockford is insecure, Rockford may suspend
or terminate this Agreement at any time without any liability. Dealer
agrees that Rockford may conduct confidential, periodic credit checks
at its discretion.
11. TAXES. Dealer is responsible for and shall pay promptly when due any
and all taxes, levies and assessments upon any Products in Dealer's
inventory, whether paid for or not.
12. MODIFICATION OF PRODUCTS. Rockford shall have the sole right to change
the design of the Products or terminate the production of Products, as
its business judgment requires and without liability to Dealer.
13. GOODWILL AND USE OF NAMES. All goodwill generated by the use of the
Names or promotion of the Products shall accrue to Rockford's benefit
and Dealer disclaims any ownership rights in the Names and goodwill of
Rockford. Dealer shall use the Names only in a manner and form approved
before use in writing by Rockford. Dealer acknowledges Rockford's
exclusive ownership of the Names and agrees not to use, advertise,
incorporate, or otherwise appropriate the Names for use in the
promotion of any other line of goods whether manufactured by Rockford
or not. Each use of the Names or any variation thereof must be
accompanied by a trademark designation "(R)" or "(TM)" (as instructed
by Rockford) and must include as a footnote to the ad copy in a size of
type no smaller than the type of the main body of the ad the words "A
Trademark of Rockford Corporation, Tempe, Arizona, U.S.A."
14. BUSINESS RELATIONSHIP. This Agreement does not create a relationship of
principal and agent, franchisor and franchisee, joint venture,
partnership, or employment. Neither party shall have any authority to
bind or obligate the other or shall be liable for any obligations
incurred by the other except as expressly provided herein. Dealer is an
-3-
<PAGE> 5
independent retailer responsible for hiring its own employees,
exercising sole and absolute discretion, judgment and control over the
management and day-to-day operations of its business, and achieving the
objectives of its business. Dealer shall not act or represent itself,
directly or by implication, as an agent of Rockford with any authority
to bind or obligate Rockford in matters of contract, agreement,
warranty or otherwise.
15. INDEMNIFICATION. Dealer shall defend, indemnify and hold harmless
Rockford, and its employees and agents, from all fines, suits,
proceedings, claims, demands, debts, obligations, liabilities or
actions of any kind by anyone (including reasonable attorneys' fees and
costs) arising from or connected with the activities or operations of
Dealer, its employees, or agents. Rockford shall indemnify Dealer in
product liability actions brought against Dealer involving solely the
defective manufacture or design of Products; however, Rockford shall
not indemnify Dealer against product liability actions arising from any
practices or representations by Dealer to any customer or to the trade
which are false, misleading, incomplete, fraudulent, untrue or contrary
to Rockford's sales policies, standard contract terms or this
Agreement.
16. NOTICES. Notices under this Agreement shall be in writing and effective
upon delivery, in person or by facsimile, or three days after mailing,
first class mail, postage prepaid and return receipt requested, to the
addresses stated on the signature page of this Agreement (which may be
changed by notice). Notices sent by facsimile shall be confirmed by
mailing (in the same manner as mailed notices), but shall be effective
upon receipt of the facsimile transmission.
17. ADDENDUM. The Addendum is an integral part of this Agreement and is
incorporated in this Agreement by reference. All references to this
Agreement refer to this Agreement and the Addendum.
18. AMENDMENT AND WAIVER. This Agreement is the entire agreement of the
parties with respect to Dealer's appointment as a Rockford dealer and
supersedes all prior agreements and undertakings with respect to
agreements and undertakings with respect to its subject matter. Except
for changes to the Addendum, which may be made unilaterally by Rockford
upon notice to Dealer, this Agreement may be amended only by a written
document signed by both parties. Any waiver of a right, obligation or
default must be in writing and signed by all parties; no failure to
exercise any right or power under this Agreement or to insist upon
strict compliance by the other party hereunder shall constitute a
waiver for the right to exercise such right or power or insist on
strict compliance. A waiver of one right, obligation or default shall
not be construed as a waiver of any other or subsequent right,
obligation or default.
19. GOVERNING LAW. Arizona law shall govern this Agreement and any dispute
arising out of or in any way relating to this Agreement or the parties'
relationship under this Agreement.
20. JURISDICTION AND VENUE. The exclusive jurisdiction and venue for any
dispute arising out of or in any way relating to this Agreement or the
parties' relationship under this Agreement shall be in the Superior
Court for Maricopa County, Arizona, and each party consents to the
jurisdiction of such court of this purpose.
21. WAIVER OF JURY TRIAL. Any dispute arising out of or in any way relating
to this Agreement or the parties' relationship under this Agreement
shall be tried to the court, without a jury, and each party hereby
irrevocably waives any right to request a jury trial in connection with
such a dispute.
22. DISCLAIMER OF DAMAGES. Dealer irrevocably waives and relinquishes any
right to recover consequential or punitive damages in any dispute
arising out of or in any way relating to this Agreement or the parties'
relationship under this Agreement.
23. ATTORNEYS' FEES. In any proceeding arising out of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs
and other expenses incurred in connection with such proceeding.
24. SEVERABILITY. If any provision of the Agreement is deemed contrary to,
prohibited by, or invalid under applicable law, or is inoperative for
any reason, that provision shall be deemed modified to the extent
necessary to make it valid and
-4-
<PAGE> 6
operative, or if it cannot be so modified, then severed. The remainder
of this Agreement shall continue in full force and effect as if the
Agreement had been signed with the invalid provision so modified or
eliminated.
25. NO THIRD PARTY BENEFICIARIES. This Agreement shall not create any third
party beneficiary rights.
26. EXECUTION AND EFFECTIVE DATE. This Agreement is executed by each party
on the dates indicated below. Dealer acknowledges that this Agreement
is effective only on the date accepted by Rockford at its headquarters
in Arizona.
Executed on ____________ , 19__ .
"Dealer"
_________________________________
Entity Name
Type:____________________________
(Sole Proprietor, Partnership,
or Corporation)
State of Organization:___________
By_______________________________
Its:_____________________________
Address:_________________________
_________________________________
Accepted in Tempe, Arizona
on ____________ , 19__ .
"ROCKFORD"
Rockford Corporation, an Arizona corporation
By_______________________________
Its:_____________________________
Address:
546 South Rockford Drive
Tempe, Arizona 85281
-5-
<PAGE> 1
EXHIBIT 10.9
AMENDMENT TO STANDARD INDUSTRIAL COMMERCIAL
MULTI-TENANT-GROSS
This Amendment to Lease dated as of June 26, 1998 is entered into by and between
Rockford River, L.L.C., an Arizona Limited Liability Company ("Lessor"), and
Rockford Corporation, an Arizona Corporation ("Lessee"), with reference to the
following facts:
A. Lessor and Lessee entered into a Standard Industrial
Commercial Multi-Tenant Lease Gross dated March 7, 1998, (the
"Lease") which affects certain leasable space designated as
approximately 15,000 square feet located at 636, 644 and 648
South River Drive, Tempe, Arizona 85281.
B. The Lease is in full force and effect, and neither Lessee nor
Lessor has actual knowledge of any default or breach by the
other under the Lease.
C. Lessor and Lessee desire to amend the Lease as provided in
this Amendment.
NOW, THEREFORE FOR VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, Lessor and Lessee hereby agree as follows:
ARTICLE 1 - AMENDMENTS
1.1 The lease term shall be extended for an additional twelve (12)
months. The Expiration Date of December 31, 1999 shall be
deleted and the new Expiration Date shall be December 31,
2000.
1.2 Beginning January 1, 2000 through December 31, 2000, the
monthly base rent payable shall be $12,051.00 per month
(equivalent to $.8034 per square foot) plus estimated Common
Area Operating Expenses, subject to change, plus applicable
sales taxes, subject to change, and other sums which may be
due under the terms of the Lease.
Initial_________
_________
Industrial/Commercial Multi-Tenant Lease - Gross
Page 1 of 34
<PAGE> 2
ARTICLE 2 - GENERAL PROVISIONS
2.1 The effective date of this Amendment shall be June 26, 1998.
2.2 The Lease, as amended by this Amendment, is hereby confirmed.
All other terms and conditions of the Lease shall remain in
full force and effect. In the event of a conflict between the
terms and provisions of the Lease and this Amendment, this
Amendment shall control.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first above set forth.
LESSEE: Rockford Corporation, an LESSOR: Rockford River, L.L.C. an
Arizona Corporation Arizona Limited Liability Company
By: /s/ By: Yale, Inc.
-------------------------------- --------------------------------
W. Gary Suttle
Its: President and CEO Its: Manager
-------------------------------- --------------------------------
By: /s/
--------------------------------
Reginald Winssinger
Its: President
--------------------------------
Initial-------
-------
Industrial/Commercial Multi-Tenant Lease - Gross
Page 2 of 34
<PAGE> 3
STANDARD INDUSTRIAL COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, March 7, 1997, is made by and between ROCKFORD RIVER, LLC, an Arizona
Limited Liability Company ("LESSOR") and Rockford Corporation, an Arizona
Corporation ("LESSEE") (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
Improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 636, 644 and 648 South River Drive,
located in the City of Tempe, County of Maricopa, State of Arizona, with zip
code 85281 as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Multi-Tenant office/warehouse
Industrial Building. The leased premises consist of approximately 15,000 square
feet.
In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and Improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: Open unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: Two (2) years and Zero (0) months ("ORIGINAL TERM")
commencing January 1998 ("Commencement Date") and ending December 31, 1999
("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: Existing Tenant ("EARLY POSSESSION DATE").
(Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $11,700.00 per month ("BASE RENT"), payable on the
First(1st) day of each month commencing January 1, 1998 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be adjusted
per Addendum _____ attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $ 0 as Base Rent for the period
________________________.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Fourteen
point six-seven percent (14.67%) ("LESSEE'S SHARE") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the Industrial Center or
[X] other criteria as described in Addendum _____
1.7 SECURITY DEPOSIT: $6,300.00 (currently on deposit with
Lessor), ("SECURITY DEPOSIT"). (Also see Paragraph 5.)
1.8 PERMITTED USE: General Office ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist In this
transaction and are consented to by the Parties (check applicable boxes):
[X] Horizon Real Estate Group, Inc. represents Lessor exclusively ("LESSOR'S
BROKER");
[_] represents Lessee exclusively ("LESSEE'S BROKER"); or
[_] represents both Lessor and Lessee ("DUAL AGENCY"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate In writing, a fee as set forth In a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ ) for
brokerage services rendered by said Broker(s) in connection with this
transaction.
Initial_________
_________
Industrial/Commercial Multi-Tenant Lease - Gross
Page 3 of 34
<PAGE> 4
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by ____________________________ ("GUARANTOR") (Also see
Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 49 through 50, and Exhibits A through B, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be In good operating condition on
the Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
noncompliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee or
at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a Commencement Date. Said
warranty shall not apply to any Alterations or Utility Installations (defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranties, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and Me
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, Is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease', and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
or warranties with respect to said matters other than as set forth in this
Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor
in this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth In Paragraph 1.1 Lessee was the owner or occupant of the
Initial_________
_________
Industrial/Commercial Multi-Tenant Lease - Gross
Page 4 of 34
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EXHIBIT 10.10
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[Logo]
1. PARTIES. This lease, dated, for reference purposes only, May 11, 1989, is
made by and between Cloyce Clark (herein called "Lessor") and Rockford
Corporation, an Arizona Corporation (herein called "Lessee").
2. PREMISES. Lessor hereby leases to lessee and Lessee leases from lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Maricopa , State of Arizona
commonly known as 2075 and 2055 East 5th Street, Tempe and described as Building
1 and Building 2 of the Rockford 5 Business Park, approximately, 46,492 square
feet of industrial buildings located on tax parcel #132-37-153D.
Said real property including the land and all improvements therein, is herein
called "the Premises". - (See Exhibit 'D')
3. TERM.
3.1 TERM. The term of this Lease shall be for Sixty-Three (63) months
commencing on October 1, 1989 and ending on December 31, 1994 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
See Exhibit "A" -
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $ Rent Schedule in advance, on the First day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $ 10,017.00 as rent
for October 1989 plus applicable rental tax. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$23,522.73* as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a material breach of this Lease.
If the monthly rent shall, from time to time, increase during the term of this
Lease, Lessee shall thereupon deposit with Lessor additional security deposit so
that the amount of security deposit held by Lessor shall at all times bear the
same proportion to current rent as the original security deposit bears to the
original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied by Lessor, shall be returned, without
payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said Security Deposit.
*Includes $10,670.73 credit from previous security deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for light
manufacturing and warehousing of audio components, related office activity and
related business or any other use which is reasonably comparable and for no
other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term COMMENCEMENT date. In the event It is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2
(a) shall be of no force or effect if, prior to the date of this Lease, Lessee
was the owner or occupant of the Premises, and, in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating
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the use by Lessee of the Premises. Lessee shall not use nor permit the use of
the Premises in any manner that will tend to create waste or a nuisance or, if
there shall be more than one tenant in the building containing the Premises,
shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee
clean and free of debris on Lease commencement date (unless Lessee is already in
possession) and Lessor further warrants to Lessee that the plumbing, lighting,
air conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 6, 7.2,
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and maintain, at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass, and skylights, located within the Premises, and all landscaping,
driveways, parking lots, fences and signs located in the Premises and all
sidewalks and parkways adjacent to the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the buildings) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations improvements, additions and Utility installations
(whether or not such Utility installations constitute trade fixtures of
Lessee),which may be made on the Premises, shall become the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year. with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
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8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition
to the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increased In the event that
the Premises have been occupied previously, the words "Base Period" shall mean
the last twelve months of the prior occupancy. In the event that the Premises
have never been previously occupied, the premiums during the "Base Period" shall
be deemed to be the lowest premiums reasonably obtainable for said insurance
assuming the most nominal use of the Premises.
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In no event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $1,000,000
procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
amount was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining waiver of
subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair, is less than 50% of the fair market value of such building
as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a),in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
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9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, If any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay. in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 19 89 19 90. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial-lease year shall be prorated
on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (1) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of .,real property tax," or (H) the nature of
which was hereinbefore included within the definition of "real property tax," or
(Iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) lf any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or - by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or In the Premises
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any CORPORATION which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULT.. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 3O days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be In default If Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (I) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (III) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
<PAGE> 5
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within 30 days. Provided, however, in the
event that any provision of this paragraph 13.1
(d) is contrary to any applicable law, such provision
shall be of no force or effect
(e) The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises: expenses of reletting. including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall be at interest from the date due
at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that If the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Rand Commercial Brokers Licensed real estate broker(s), a fee as set forth in a
separate agreement between Lessor and said broker(s)
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(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of
Lessor but also on behalf of any person, corporation, association, or other
entity having an ownership interest in said real property or any part thereof,
when such fee is due hereunder. Any transferee of Lessor's interest in this
Lease, whether such transfer is by agreement or by operation of law, shall be
deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker
shall be a third party beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
<PAGE> 6
uncured defaults in Lessor's performance, and (iii) that not more than one
moth's rent has been paid in advance or such failure may be considered by Lessor
as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall Include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser In confidence and shall be
used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time In question of the fee title or a lessee's Interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, In the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
Interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
Interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time Is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties In interest at
the time of the modification. Except as otherwise stated In this Lease, Lessee
hereby acknowledges that neither the real estate broker listed In Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations In effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act
,shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains In possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, If any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
l7, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed If Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease Is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or groundlease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents In accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the
<PAGE> 7
Premises any ordinary "For Sale" signs and Lessor may at any time during the
last 120 days of the term hereof place on or about the Premises any ordinary
"For Lease" signs, all without rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 3 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) it any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice
of such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1 (c) within 30 days after the date
that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1 (a), 13.1 (d) or 13.1 (e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1
(b), where a late charge becomes payable under paragraph 13.4 for each such
default, or paragraph 13.1 (c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably,
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted
shall have the right to make payment "UNDER protest" and such payment shall not
be regarded as a voluntary payment, and there shall survive the right on the
part of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trustor
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled BY the typewritten or
handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47
through 53 which constitutes a PART OF this Lease.
<PAGE> 8
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at Clark and Associates Cloyce Clark
- -------------------------------- --------------------------------------------
on 5-22-89 By /s/ Mr. Cloyce Clark
- -------------------------------- --------------------------------------------
Address 2000 East 5th Street By
- -------------------------------- --------------------------------------------
Tempe, Arizona "LESSOR" (Corporate Seal)
- --------------------------------
Executed at Rockford Corporation Rockford Corporation, an Arizona corporation
- -------------------------------- --------------------------------------------
on 5/22/89 By /s/ Mr. Robert Pothier, President
- -------------------------------- --------------------------------------------
Address 648 South River Drive By
- -------------------------------- --------------------------------------------
Tempe, Arizona "LESSOR" (Corporate Seal)
- --------------------------------
<PAGE> 9
ADDENDUM TO LEASE CONTRACT
BETWEEN CLOYCE CLARK (LESSOR) AND
ROCKFORD CORPORATION (LESSEE)
DATED: MAY 12, 1989
47. TENANT IMPROVEMENTS FOR BUILDING 2, 2055 EAST 5TH STREET,
ROCKFORD 5 BUSINESS PARK:
1. Warehouse Area Improvements:
a. Warehouse floor to be sealed and expansion joints caulked.
b. Warehouse walls to be painted.
c. Warehouse area to be evaporative cooled throughout.
d. Approximately fifty (50), eight foot double-tube
fluorescent light fixtures installed.
2. Office Area Improvements:
a. Office, lunchroom, restroom facilities, and warranty
repair areas to be air conditioned with drop ceiling
and fluorescent lighting. Demising walls to be
constructed in accordance with the attached 'Exhibit
B - Office layout' (Final layout to be approved by
Lessor and Lessee. The linear feet of wall will not
exceed what is shown on Exhibit B; approximately 402
linear feet)
b. Floor coverings:
-Office area to be carpeted. Allowance of $14.00 per yard.
-Lunchroom, warranty repair area and restrooms to be VA
tile.
3. Rest Room Facilities:
a. First Floor:
-Mens room to include two (2) stalls, two (2)
urinals, and four (4) hand sinks.
-Womens room to include four (4) stalls and
four (4) hand sinks.
b. Second Floor:
-Mens room to include one (1) stall, one (1) urinal,
and two (2) hand sinks.
-Womens room to include two (2) stalls and two
(2) hand sinks.
4. Maintenance Room to include one (1) janitorial sink and one
(1) thirty gallon electric water heater.
48. RENT SCHEDULE
See the attached 'Exhibit A - Rent Schedule'.
49. MUTUAL CANCELLATION
See the attached 'Exhibit C - Mutual Cancellation Agreement'.
<PAGE> 10
PAGE 2
ADDENDUM TO LEASE CONTRACT
CLOYCE CLARK/ROCKFORD CORPORATION
50. EARLY POSSESSION
Lessor grants Lessee early possession of Building 2, located at
2055 East 5th Street, when a Certificate of Occupancy is granted by
the City of Tempe. Lessee's early occupancy shall be subject to all
the terms and conditions of the Lease and no rent shall be payable
by Lessee to Lessor for its early occupancy of Building 2 of the
Premises until January 1, 1990 in accordance with the provisions of
'Exhibit A - Rent Schedule' referred to in Paragraph 4 hereof.
51. LATE POSSESSION
In the event Lessor cannot deliver possession of Building 2 of the
Premises to Lessee on or before October 1, 1989 and Lessee does not
exercise its right of cancellation of this Lease pursuant to
Paragraph 3.2, then (A) the date of commencement of the rent
payments set forth on 'Exhibit A - Rent Schedule' referred to in
Paragraph 4 hereof, with regard to Building 2 of the Rockford 5
Business Park, shall be deferred until the first day of, the
calender month next occurring after the passage of three months
following actual delivery of possession to Lessee by Lessor, (B)
the initial rental payment for Building 2 shall be the amount
required to be paid on January 1, 1990 and (C) the rents required
to be paid by the Rent Schedule thereafter shall be deferred and
fall due in sequence until termination of this Lease on December
31, 1994.
52. WAIVER OF LANDLORD'S LIEN
Lessor hereby waives the benefit of any Arizona statutory or other
provision granting it a lien upon any personal property of Lessee
which may be at any time located on the Premises and which is
covered by a lien under the Arizona Uniform Commercial Code in
favor of any bank lender, other institutional lender or any
equipment vendor, whether such lien secures the repayment of a
purchase money' security interest or other indebtedness.
53. ASSIGNMENT AND SUBLETTING; PERMITTED USES
In the event Lessee exercises the right to transfer any or part of
Lessee's interest in this Lease or in the Premises in accordance
with Paragraphs 12.1 through 12.4, any other use of the premises
under the provisions of the City of Tempe Zoning Code for I-2
zoning shall be permitted except the following:
A. Manufacture, fabrication, or assembly of wood products.
B. Storage of towed motor vehicles or motor vehicle
assembling, repairing including body and fender
shops.
LESSOR: CLOYCE CLARK LESSEE: ROCKFORD CORPORATION
- ------------------------------ -------------------------------------
Mr. Cloyce Clark Mr. Robert Pothier, President
DATE: 5-22-89 DATE: 5/22/89
- ------------------------------ -------------------------------------
<PAGE> 11
[ROCKFORD LOGO]
ROCKFORD FOSGATE
AMENDMENT NO. 2
TO ROCKFORD ACOUSTIC DESIGNS
STANDARD INDUSTRIAL LEASE - GROSS
(AMENDING OPTIONS) HAFLER PROFESSIONAL
CONNECTING PUNCH
This Amendment No. 2 to Standard Industrial Lease - Gross is made
this 13 day of September, 1996, effective as of the date set forth below:
PARTIES
P.1 BAYEUX B. BAKER, in his capacity as Executor of the Estate of
Irma C. Kellogg, deceased ("Estate"), is the successor in title to Cloyce Clark,
who is the Lessor under that certain Standard Industrial Lease - Gross, dated
May 11, 1989 (the "Lease"), a copy of which is attached hereto as Exhibit "A"
and made a part hereof by this reference.
P.2 ROCKFORD CORPORATION, an Arizona corporation ("Rockford"), is the
Lessee under the Lease.
P.3 Estate and Rockford amended the Lease by an Amendment dated
August 30, 1994 ("Amendment No. 1"), a copy of which is attached hereto as
Exhibit "B" and made a part hereof by this reference. Amendment No. 1 extended
the Term of the Lease and granted Rockford an Option to extend the Lease for an
additional 5-year term. All references to the "Lease" are to the Lease as
amended by Amendment No. 1.
AMENDMENT TO LEASE
The parties hereby agree to amend the Lease in the following
particulars only.
1. The option to extend the Lease granted to Lessee in Amendment No.
1 is amended and replaced by the changed Options described below.
2. Subject to the provisions of the Lease, Lessor hereby grants to
Lessee five options to extend the term of the Lease for one (1) year periods
beyond the Extended Term of the Lease. The options are for the following terms
(the "Option Terms"):
Option 1 January 1, 1998 through December 31, 1998
Option 2 January 1, 1999 through December 31, 1999
Option 3 January 1, 2000 through December 31, 2000
Option 4 January 1, 2001 through December 31, 2001
Option 5 January 1, 2002 through December 31, 2002
The options shall give Lessee the right to continue its possession of the
Premises and its tenancy (if said option to extend is exercised by Lessee), upon
the same terms and conditions as set forth in the Lease. Lessee shall give
Lessor written notice of Lessee's intention to exercise each option to extend no
later than twelve months before the commencement of the Option Term (for
example, Lessee must give notice of exercise for Option 1 no later than January
1, 1997 and for Option 2 no later than January 1, 1998).
<PAGE> 12
Such notice shall be given in accordance with the notice provisions set forth in
the Lease. Time is of the essence in giving notice of exercise of the option.
3. The monthly rent for each month of the Option Terms shall be
$24,946 (consisting of $11,106 per month for the 2075 East 5th Street Building
and $13,840 per month for the 2055 East 5th Street Building).
4. All provisions of the Lease not changed by this Amendment No. 2
shall remain in full force and effect.
5. Upon request of either party, each party agrees to execute and
record a memorandum of lease describing the Lease as amended by this Amendment
No. 2.
Executed at Santa Barbara, Ca. on the dates set forth next to the
parties' respective signatures below, effective as of the date of the last
signature below.
LESSOR:
Estate of Irma C. Kellogg, deceased, as successor
in title to Cloyce Clark
Dated: 9/11/96 By: /s/ _____________________________________
Bayeux B. Baker, Executor
LESSEE:
Rockford Corporation, an Arizona corporation
Dated: 9/13/96 By: /s/ _____________________________________
W. Gary Suttle, President
Dated: 9/13/96 By: /s/ _____________________________________
James M. Thomson, Asst. Secretary
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<PAGE> 1
EXHIBIT 10.11
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into
this 31st day of October, 1986, but shall become effective as of September 1,
1986, by and between ROCKFORD CORPORATION, an Arizona corporation, of 613 South
Rockford Drive, Tempe, Arizona 85281 ("Lessee") and CARBONNEAU INDUSTRIES, INC.,
a Michigan corporation, of 609 Myrtle, N.W., Grand Rapids, Michigan 49504
("Lessor").
W I T N E S S E T H :
WHEREAS, Lessor is the owner of certain premises located at
609 Myrtle Street, N.W., Grand Rapids, Michigan, improved with a three-story and
basement factory building and appurtenant parking facilities, as shown on the
diagram marked Exhibit A attached hereto and made a part hereof, subject to
easements, restrictions and encumbrances of record ("the Grand Rapids Plant");
and
WHEREAS, Lessor has leased approximately 20,000 square feet in
the Grand Rapids Plant to Lessee for a period of one year from November 7, 1985,
at a rental of $3,000 per month ("the Existing Lease"); and
WHEREAS, Lessor and Lessee desire to resettle and extend until
1991 the terms of the Existing Lease on the Grand Rapids Plant, by terminating
the Existing Lease and entering into a new Lease on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual promises
hereinafter set forth, and intending to be legally bound hereby, Lessee and
Lessor hereby agree that Lessor shall lease to Lessee, and Lessee will rent from
Lessor, the Grand Rapids Plant for a period of five (5) years, commencing
September 1, 1986, and ending August 31, 1991, upon the following terms and
conditions:
1. Termination of Existing Lease. The Existing Lease is hereby
rescinded and terminated effective as of midnight, August 31, 1986.
2. Obligation to Pay Rent. Lessee shall pay rent to Lessor for the term
of this Lease in the sum of Four Hundred Fourteen Thousand Dollars ($414,000),
in monthly installments, in advance, without demand, setoff, deduction or
counterclaim, as follows:
<PAGE> 2
(a) From September 1, 1986, through December 31, 1986, at
the rate of $4,000 per month,
(b) From January 1, 1967, through April 30, 1987, at the
rate of $5,000 per month,
(c) From May 1, 1987, through August 31, 1987, at the rate
of $6,000 per month,
(d) From September 1, 1987, through August 31, 1989, at
the rate of $7,000 per month,
(e) From September 1, 1989, through August 31, 1990, at
the rate of $7,500 per month,
(f) From September 1, 1990, through August 31, 1991, at
the rate of $8,000 per month.
Rent shall be paid to Lessor at its address noted above, or at such other
address as Lessor shall designate by notice to LESSEE. The rental provided for
in this Lease shall be an absolutely net return to Landlord for the term, free
from any losses, expenses or charges with respect to the Grand Rapids Plant,
including, without limitation, maintenance, repairs, cost of replacement of
buildings or improvements, insurance, taxes, assessments or other charges
imposed upon or related to the Grand Rapids Plant, except to the extent
expressly provided by Sections 3 (a), 4 and 5 below. All additional charges
payable hereunder by Tenant shall be deemed "additional rent."
3. Insurance Obligation.
(a) Lessor shall carry and pay for fire, extended coverage and
casualty insurance on the Grand Rapids Plant, for its full replacement
cost in at least the present policy face amounts, under policies naming
as insureds both Lessor and Lessee as their interests may appear, with
the present or mutually acceptable carriers, for the period commencing
September 1, 1986, and ending November 30, 1986. Thereafter, and during
the term of this Lease and any extensions, Lessee shall carry and pay
for such insurance coverages.
(b) Lessee shall maintain workers' compensation insurance
covering all of its employees to at least the statutory limits set
forth under Michigan law, and a policy of general public liability
insurance in an amount at least equal to One Million Dollars
($1,000,000) single limit coverage for property damage, bodily injury
or death. Such policy of general public liability insurance shall name
Lessor as an additional insured and shall be underwritten by a carrier
and on such other terms and conditions as Lessor shall
-2-
<PAGE> 3
approve. It shall provide by endorsement or otherwise that such
insurance may not be cancelled, terminated, amended or modified for any
reason whatsoever, except upon thirty (30) days' prior written notice
to Lessor.
(c) Prior to the time the fire, extended coverage, casualty
and liability insurance required by this Section is first required to
be carried by a party hereto, and thereafter at least fifteen (15) days
prior to the expiration of any such policy, the party responsible for
maintaining- the same shall deliver to the other party either duplicate
originals of the aforesaid policies or a certificate evidencing such
insurance coverage together with evidence of payment for the policies.
In addition, any fire, extended coverage and casualty insurance policy
maintained by Lessor or Lessee with respect to the Grand Rapids Plant
or the content thereof, shall contain a clause or endorsement under
which the insurer waives, or permits the waiver by the insured
thereunder, of all rights of subrogation against the other party
hereto, and its agents, employees, customers, invitees, guests or
licensees, with respect to losses payable under such policy.
Notwithstanding the provisions of Section 8 below, the parties hereto
waive all right of recovery which they might otherwise have against one
another, and their respective agents, employees, customers, invitees,
guests or licensees, for any damage to their respective properties
which is covered by a policy of insurance, notwithstanding that such
damage may result from the negligence or fault of the other party, or
its agents, employees, customers, invitees, guests or licensees.
4. Obligation to Pay Taxes. Lessor shall pay all real estate taxes and
installments of special assessments last due and payable without penalty on the
Grand Rapids Plant during the period commencing September 1, 1986, and ending
December 31, 1987, before the same are delinquent, without proration.
Thereafter, during the term of this Lease and any extensions, Lessee shall pay
all real estate taxes and installments of special assessments with respect to
the Grand Rapids Plant before the same are delinquent, without proration, and
indemnify Lessor against any liability therefor. The party responsible for the
payment of such taxes and assessments shall, upon request, promptly provide
evidence of payment to the other party.
5. Maintenance and Repair Obligation. Lessee shall keep and maintain
the Grand Rapids Plant in good and clean order, condition and repair at all
times during the term of this Lease and any extensions, and will deliver the
same to Lessor at the expiration of the term in as good condition as when
received, except for reasonable use and wear thereof, and as provided in Section
12 below; provided, however, that Lessor shall reimburse Lessee for the
out-of-pocket cost in excess of $500 of any single item of repair or replacement
which was approved in advance by Lessor (which approval shall not be
unreasonably withheld). Lessee shall, at its sole expense, enter into and
maintain during the term of this Lease and any extensions, a contract for the
provision and maintenance of a security system for the Grand Rapids Plant, and
contracts for the regular repair and maintenance of the boiler and elevators
located in the Grand Rapids Plant, all of which shall be in form and substance
reasonably acceptable -to Lessor; provided, however, that Lessee may elect to
have an employee of Lessee maintain the boiler and/or elevators if Lessor first
consents to such arrangement. Lessor shall not unreasonably withhold or delay
such
-3-
<PAGE> 4
consent; provided that Lessee demonstrates to Lessor that the employee is
competent and qualified to perform such repairs and maintenance. Lessee's duties
with respect to the Grand Rapids Plant under this Paragraph shall include,
without limitation, responsibility for: (a) compliance with all applicable laws,
ordinances and regulations; (b) certification of boilers and elevators; (c)
cleaning, lawn maintenance, snowplowing and snow removal; and (d) replacement of
broken windows.
6. Obligation to Pay for Utilities. Lessee shall pay for all costs of
heat, light, power, telephone and other utilities it desires, used at the Grand
Rapids Plant during the term of this Lease and any extensions. Lessor shall not
be liable to Lessee in damages or otherwise for any failure or interruption of
any utility service furnished to the Grand Rapids Plant.
7. Peaceable Enjoyment, Right to Sublet and Office Facility for Lessor.
During the term of this Lease and any extensions, Lessee shall have the sole and
exclusive right to occupancy of the Grand Rapids Plant, and to the peaceable
enjoyment thereof, including the right to sublease all or any portion(s) of the
Grand Rapids Plant to any person(s) of its selection, so long as it is not then
in default of any of its obligations hereunder, and so long as it first obtains
the written consent of Lessor to such subletting, which consent shall not be
unreasonably withheld or delayed; provided, however, that Lessor shall have the
right to continue to occupy its current office facility in the Grand Rapids
Plant or such other space comprising at least 400 to 500 square feet upon which
the parties shall mutually agree, and to continue its exclusive use of the
fireproof room identified in Exhibit A for the storage of its records, as a
subtenant of Lessee, without any obligation for the payment of rent, for the
period ending August 31, 1987, with a right to extend upon terms mutually agreed
upon between Lessor and Lessee. Lessor's consent to any assignment or subletting
shall not be construed as a consent to any further assignment or subletting and
shall in no event release Lessee from any liability hereunder. Lessor shall have
24 hour security clearance with EPS or any other security firm employed by
Lessee for the office area of the Grand Rapids Plant until August 31, 1987.
Thereafter, Lessor shall have access to any portion of the Grand Rapids Plant
occupied or used by it pursuant to this Section during normal business hours
and, with Lessee's prior consent, during non-business hours.
8. Mutual Indemnification. Each party hereto shall indemnify the other
against and hold it harmless from any and all liabilities, obligations, damages,
penalties, claims, costs and expenses, including, without limitation, reasonable
attorneys' fees, paid or incurred as a result of or in connection with (i) such
party's ownership, use or occupancy of the Grand Rapids Plant, (ii) any breach
by such party, any subtenant or any of their agents, contractors, employees,
customers, invitees or licensees, of any covenant or condition of this Lease, or
(iii) the carelessness, negligence or improper conduct of such party, any
subtenant, or any of their contractors, employees, customers, invitees or
licensees. If any action or proceeding is brought against the other party by
reason of such claim, the indemnifying party, upon written notice from the other
party, will, at the indemnifying party's expense, resist or defend such action
or proceeding by counsel approved by the other party in writing.
-4-
<PAGE> 5
9. Use of Grand Rapids Plant. Lessee shall use and occupy the Grand
Rapids Plant for office, warehouse and manufacturing purposes, and for no other
purpose whatsoever. Lessee shall not use the Grand Rapids Plant, or permit the
Grand Rapids Plant to be used, in a manner that constitutes a violation of any
applicable law, ordinance, order or regulation, or that may be dangerous; nor
shall Lessee commit any waste in the Grand Rapids Plant, or permit any
objectionable noise or odor to be emitted, or permit anything to be done in the
Grand Rapids Plant tending to create a nuisance or disturb others.
10. Condition of Grand Rapids Plant. As Lessee has used and occupied
the Grand Rapids Plant for some time, Lessee is quite familiar with the current
condition of the Grand Rapids Plant. Lessee acknowledges that it has inspected
the Grand Rapids Plant, found it to be in satisfactory condition for its
intended use and accepts the Grand Rapids Plant in its current "AS IS"
condition, with no warranties whatsoever concerning its condition or permitted
use.
11. Alterations and Additions. Lessee may not alter or add to the Grand
Rapids Plant without Lessor's prior written consent, which consent shall not be
unreasonably withheld or delayed. Lessor shall have no obligation to make any
alteration or addition to the Grand Rapids Plant during the term. All right,
title and interest to any alterations and additions to the Grand Rapids Plant
during the term, except for trade fixtures and removable equipment, shall be the
property of Lessor and shall be deemed to be a part of the Grand Rapids Plant,
and shall remain on, and be surrendered with the Grand Rapids Plant upon the
termination of this Lease, without cost or expense to Lessor.
12. Restoration.
(a) If the Grand Rapids Plant is damaged or destroyed, in
whole or in part, Lessee shall repair, restore, replace or rebuild the
Grand Rapids Plant, or the part thereof so damaged, as nearly as
possible to the value, condition and character of the Grand Rapids
Plant immediately prior to the occurrence of such damage or
destruction. Lessee shall not be entitled to an abatement of rent
during the construction period.
(b) All insurance proceeds payable as a result of any damage
to or destruction of the Grand Rapids Plant shall be paid to Lessor and
shall be disbursed by Lessor to Lessee as reconstruction work
progresses. If the insurance proceeds are insufficient to pay for all
restoration work, then Lessee shall pay any additional amounts
necessary to restore the Grand Rapids Plant. Upon completion of the
restoration, and payment for all restoration work, all remaining
insurance proceeds shall be retained by Lessor.
(c) Notwithstanding the foregoing provisions of this Section,
if the damage to or destruction of the Grand Rapids Plant cannot be
repaired within one hundred twenty (120) days of the damage, either
Lessor or Lessee may terminate this Lease by giving ten (10) days'
prior written notice to the other party within thirty (30) days after
the damage
-5-
<PAGE> 6
or destruction occurs. If the Lease is terminated pursuant to this
subsection, all insurance proceeds payable as a result of the damage or
destruction shall be retained by Lessor.
(d) The provisions of this Section shall not apply to the
proceeds of any policy of business interruption insurance which Lessee
may place to cover its operations in the Grand Rapids Plant, all
proceeds of which policy shall be and remain the property of the
Lessee.
13. Condemnation. If all or any substantial part of the Grand Rapids
Plant is taken or condemned by a governmental authority, or shall be conveyed by
Lessor under a threat of such taking or condemnation, the rights and obligations
of Lessor and Lessee with respect to such taking or condemnation shall be as
provided in this Section. If twenty-five percent (25%) or more of the gross
floor area within the Grand Rapids Plant is so taken, condemned or conveyed,
this Lease shall terminate as of the date of such taking, condemnation or
conveyance, and rent shall be prorated as of such date. If less than twenty-five
percent (25%) of the gross floor area within the Grand Rapids Plant is taken,
condemned or conveyed, this Lease shall remain in effect; provided, however,
that the rent payable by Lessee shall be reduced for the remainder of the term
in the same proportion which the number of square feet of gross floor area
within the buildings comprising the Grand Rapids Plant following such taking,
condemnation or conveyance bears to the number of square feet of gross floor
area within the buildings comprising the Grand Rapids Plant prior to such
taking, condemnation or conveyance. To the extent that the award made for the
taking is available to Lessor, Lessor shall, at its own cost and expense, make
all necessary repairs or alterations to the Grand Rapids Plant so as to
constitute the portion of the Grand Rapids Plant not taken as a complete unit,
and Lessee shall have no obligation to make any such repairs or alterations.
Lessor shall be entitled to the entire award made for any taking, condemnation
or conveyance, except that Lessee shall not be precluded from pursuing any claim
directly against the condemning authority for its loss.
14. Lessor's Right to Perform. Lessor may perform any obligations of
Lessee hereunder which Lessee has failed to perform. Lessee shall reimburse
Lessor for all payments made and expenses incurred. Such payments and expenses
shall be additional rent which is immediately due and payable, together with
interest thereon at the lesser of the rate of twelve percent (12%) per annum or
the highest legal rate of interest.
15. Default. If default is made by Lessee in the payment of rent or
additional rent or in the performance of any of the conditions or covenants in
this Lease, and if such default shall continue for a period of ten (10) days
after written notice is given to Lessee by Lessor specifying the default, then
Lessor shall have the right to re-enter the Grand Rapids Plant and remove Lessee
and all persons therefrom and shall have the right to terminate this Lease. If
default is made by Lessee and Lessor exercises its option to terminate this
Lease, in addition to all other remedies now or hereafter provided to Lessor,
Lessor may proceed to re-rent the Grand Rapids Plant and collect from Lessee any
deficiency between the rent payable hereunder and the rent received from any
replacement tenant.
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<PAGE> 7
16. Miscellaneous Provisions.
(a) Sale of the Grand Rapids Plant. If Lessor sells the Grand
Rapids Plant during the term of this Lease or any extensions, Lessor
shall require the purchaser to honor Lessee's rights under this Lease
Agreement, subject to Lessee making all required rental and other
payments falling due thereafter, and complying with all the terms and
conditions of this Lease.
(b) Extension of Lease. Lessor or Lessee shall give ninety
(90) days' notice to the other if either wishes to terminate this Lease
at the end of its term, or at any time thereafter; and until the
passage of ninety (90) days after such giving of notice, this Lease
shall continue on a month-to-month basis.
(c) Notices. All notices herein required shall be given in
writing upon the parties at the addresses indicated on page 1 hereof.
Any notice shall be deemed to have been given when personally delivered
or when sent by certified mail, return receipt requested and postage
prepaid. The addresses specified for notices herein may from time to
time be changed by the written notice of one party to the other.
(d) Remedies Cumulative; Waiver. All rights and remedies
hereunder are cumulative, and not exclusive, and shall be in addition
to all other rights and remedies provided by applicable law. Failure to
exercise or delay in exercising any right or remedy hereunder shall not
operate as a waiver thereof, nor excuse future performance. No waiver,
discharge or renunciation of any claim or right arising out of a breach
of these terms and conditions shall be effective unless in a writing
signed by the party so waiving. Any waiver of any breach shall be a
waiver of that breach only and not any other breach, whether prior or
subsequent thereto.
(e) Successors and Assigns. Subject to Section 7 hereof, this
Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective personal representatives, heirs, successors
and assigns.
(f) Legal Expenses. The losing party shall pay all reasonable
attorney's fees and expenses incurred by the winning party in enforcing
any provision of this Lease.
(g) Entire, Agreement Lessor and Lessee agree that this Lease
shall constitute the entire agreement between them and that all prior
negotiations, discussions,- correspondence and documentation are hereby
merged into this Lease and shall exist as finally defined herein.
(h) Applicable Law. This Lease Agreement is entered into, and
shall be interpreted and enforced, under the laws of the State of
Michigan.
-7-
<PAGE> 8
(i) Other and Confirmatory Documents. Each party hereto
agrees, upon the reasonable request of the other, to execute and
acknowledge all such other and confirmatory documents as may be needed
to give formal evidence of the consummation of the transactions
provided for in this Lease.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease
Agreement to be executed by their duly authorized officers on the day, month and
year first above appearing.
ROCKFORD CORPORATION
By /s/
-------------------------------
Robert F. Pothier
Its President
CARBONNEAU INDUSTRIES, INC.
By /s/
-------------------------------
James Carbonneau
Its President
-8-
<PAGE> 9
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE is made as of the lst day of October
1988, by and between CARBONNEAU INDUSTRIES, INC., a Michigan corporation, of 609
Myrtle, N.W., Grand Rapids, Michigan 49504 (the "Lessor"), and ROCKFORD
CORPORATION, an Arizona corporation, of 613 South Rockford Drive, Tempe, Arizona
85281 (the "Lessee").
R E C I T A L S :
A. On October 27, 1986, Lessor and Lessee entered into a
certain Lease Agreement (the "Lease"), effective as of September 1, 1986, for
the demise of certain premises commonly known as 609 Myrtle Street, N.W., Grand
Rapids, Michigan (the "Existing Plant").
B. Lessee desires to expand its operations by contracting with
Lessor for the construction by Lessor and lease to Lessee, on real estate
commonly known as 600 Webster, N.W., Grand Rapids, Michigan, and adjoining the
Existing Plant, additional space for Lessee's operations (the "New Plant"). The
Existing Plant and New Plant are collectively referred to in the Lease, as the
"Grand Rapids Plant".
C. To accomplish such purposes, Lessor and Lessee desire to
amend the Lease as provided herein.
NOW, THEREFORE, LESSOR AND LESSEE, IN CONSIDERATION OF THE
MUTUAL COVENANTS CONTAINED HEREIN, AMEND THE LEASE AS FOLLOWS:
1. Term. The fifth introductory paragraph of the Lease is
amended in part to provide that the Lease shall be "for a period commencing
September 1, 1986, and ending ten (10) years after the New Plant Completion Date
(as hereinafter defined)".
2. Rent.
(a) The initial sentence of Paragraph 2 is amended in
part to read:
"Lessee shall pay rent to Lessor for the Existing Plan for the
terms of this Lease, in monthly installments, in advance,
without demand, setoff, deduction or counterclaim, as follows:
<PAGE> 10
(b) Paragraph 2(f) is amended in its entirety to
substitute the following subparagraphs:
"(f) From September 1, 1990, through August 31, 1992, at the
rate of $8,000 per month,
(g) From September 1, 1992, through August 31, 1994, at the
rate of $8,500 per month,
(h) From September 1, 1994, through August 31, 1996, at the
rate of $9,000 per month,
(i) From September 1, 1996, through August 31, 1998, at the
rate of $9,500 per month, and
(j) From September 1, 1998, through the balance of the term,
at the rate of $10,000 per month. [4-1-99]
Lessee shall pay rent to Lessor for the New Plant for the term of this
Lease, in monthly installments, in advance, without demand, setoff,
deduction or counterclaim, as follows:
[2000/ft(2)](k) At the rate of $3.35 per square foot for the first two (2)
years following the New Plant Completion Date, [4/89 - 4/90 =
1st yr 4/90 - 4/91 = 2nd yr $6700]
(l) At the rate of $3.65 per square foot for the third and
fourth years following the new Plant Completion Date, [4/91 -
4/92 = 3rd 4/92 - 4/93 = 4th $7300]
(m) At the rate of $3.98 per square foot for the fifth and
sixth years following the New Plant Completion Date, and [4/93
- 4/94 = 5th 4/94 - 4/95 = 6th $7960]
(n) At the rate of $4.34 per square foot for the seventh an
eighth years following the New Plant Completion Date, and
[4/95 - 4/96 = 7th 4/96 - 4/97 = 8th $8680]
-2-
<PAGE> 11
(o) At the rate of $4.73 per square foot for the ninth and
tenth years following the New Plant Completion Date." [4/97 -
4/98 = 9th 4/98 - 4/99 = 10th $9460]
3. Maintenance. The proviso set forth in the initial sentence
of Paragraph 5 of the Lease shall be amended to read "provided, however, that
Lessor shall reimburse Lessee for the out-of-pocket cost in excess of $1,000 of
any single item of repair or replacement which was approved in advance by Lessor
(which approval shall not be unreasonably withheld) and was not the result of
the intentional act or negligence of Lessee, its employees, agents or invitees."
4. Construction of New Plant. A new Paragraph 17, with respect
to the construction of the New Plant, is added to the Lease, as follows:
"17. Construction and Occupation of the New Plant.
(a) Lessor shall diligently proceed to have the New Plant
constructed by contractors and suppliers selected by it, in
accordance with Exhibit B attached hereto, and place the
heating and ventilation equipment in good working order as of
the date of delivery of possession to Lessee (hereinafter
sometimes referred to as "Lessor's Work"). All Lessor's Work
shall be fully inspected by Lessee and shall not carry any
warranty from Lessor whatsoever, whether express or implied.
However, Lessee shall have the right to claim directly against
Lessor's contractors and suppliers for the breach of their
warranties.
(b) Other than Lessor's Work, any alterations, improvements,
additions, physical changes or other work necessary or
desirable to place the New Plant in a condition suitable for
Lessee's business purposes ("Lessee's Work") shall be
performed in a good and workmanlike manner by and for Lessee
at Lessee's sole cost and expense on or before thirty (30)
days following the completion of Lessor's Work. No
construction or installation by Lessee shall begin until
Lessor has approved the plans therefor, which approval shall
not be unreasonably withheld or delayed.
-3-
<PAGE> 12
All construction shall be performed in accordance with the
approved plans, at Lessee's sole cost and expense, by a
contractor or contractors first approved in writing by Lessor
(which approval shall not be unreasonably withheld or
delayed). Lessee's Work shall fully conform to all applicable
statutes, ordinances, regulations and codes. Prior to
commencing any work, Lessee shall require its contractors and
subcontractors to furnish Lessor with evidence of such
insurance coverage in such amounts as may be required by
Lessee.
(c) Upon the substantial completion of the Lessor's Work and
the Lessee's Work, the Lease term shall commence with respect
to the New Plant (the "New Plant Completion Date"). Once the
New Plant Completion Date has been determined, the parties
hereto agree to execute an addendum to this Lease setting
forth the actual New Plant Completion Date, the resultant
expiration date of this Lease, the square footage of the New
Plant, and the resultant rental rate payable with respect
thereto.
(d) The target New Plant Completion Date is April 1, 1989. If
possession of the New Plant shall for any reason not be
delivered to Lessee on such date, this Lease shall
nevertheless continue in full force and effect, and no
liability whatsoever shall arise against Lessor out of any
delay other than the abatement of rent, at the rate of
one-thirtieth (1/30th) of the monthly installment of rent for
the New Plant for each day of delay, until the Lessor's Work
and the Lessee's Work is completed.
(e) Lessor has entered into agreements, subject to customary
contingencies, for the construction of the New Plant and the
financing of such construction on terms satisfactory to
Lessor. Lessor shall comply with those agreements and exercise
every reasonable effort to obtain the construction and
financing of the New Plant in accordance with the terms of
those agreements. However, if Lessor is unable to do so for
any
-4-
<PAGE> 13
cause beyond its reasonable control, Lessor may terminate this
Amendment by notice to Lessee and neither party shall have any
further liability hereunder.
5. Ratification. Except as expressly amended hereby, the Lease
shall continue in full force and effect, as written.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Lease as of the date first above written.
WITNESSES: CARBONNEAU INDUSTRIES
__________________________ By /s/ _________________________
Daniel N. Grzywacz
Owner
__________________________ Its ____________________________
Nancy A. Panfil "Lessor"
ROCKFORD CORPORATION
/s/ ______________________
By /s/ Robert F. Pothier
_____________________________
Its
President
/s/ ______________________ ______________________________
"Lessee"
-5-
<PAGE> 14
EXHIBIT A
ROCKFORD/CARBONNEAU
Legal Description:
All of Lots 443, 445 & 447 & all that part of Lots 440, 442, 444, 446 & 448
lying E of E line P M RR Co S Rt of Way* Leonard & Co S Addition* also part of
SW 1/4 of Sec 13 T 7 N R 12 W Com at SE cor lot 440 Leonard & Co S addition th N
263 ft E 66 ft S 159 ft W 33 ft S 104 ft th W 33 ft to beg.
P.P. #41-13-13-330-004
609 Myrtle Street, N.W.
[Map]
-6-
<PAGE> 15
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE ("Amendment") is made as of October 5, 1998, by
and between CARBONNEAU FAMILY LIMITED PARTNERSHIP, a Michigan limited
partnership, of 133 Robinhood Drive, S.E., Grand Rapids, Michigan 49546
("Lessor"), and ROCKFORD CORPORATION, an Arizona corporation, of 613 South
Rockford Drive, Tempe, Arizona 85281 ("Lessee") based on the following facts:
A. Lessor's predecessor in title, Carbonneau Industries, Inc., and
Lessee, entered into a certain Lease Agreement dated October 27, 1986, effective
as of September 1, 1986 and amended as of October 1, 1988 (collectively,
"Lease") for the demise of certain premises commonly known as 609 Myrtle Street,
N.W., and 600 Webster, N.W., Grand Rapids, Michigan (collectively, "Grand Rapids
Plant").
B. By its terms, the Lease is scheduled to terminate as of midnight,
March 31, 1999, which is ten years after the "New Plant Completion Date," as
defined in the Lease. However, Lessor and Lessee desire to extend the Lease
term, and provide Lessee with additional options to renew the Lease.
C. To accomplish such purposes, Lessor and Lessee desire to amend the
Lease as provided in this Agreement.
NOW, THEREFORE, Lessor and Lessee amend the Lease as follows:
1. TERM. The fifth introductory paragraph of the Lease is amended in
part to provide that the Lease shall be "for a period commencing September 1,
1986, and ending march 31, 2001."
2. RENT.
(a) Paragraph 2(j) of the Lease is amended in its entirety to
substitute the following paragraphs:
(j-1) From September 1, 1998, through March 31, 1999, at the
rate of $10,000 per month.
(j-2) From April 1, 1999, through March 31, 2001, at the rate
of $11,000 per month.
(b) Paragraph 2(o) is amended in its entirety to substitute
the following subparagraph:
(o) At the rate of $4.73 per square foot from April 1, 1997,
through March 31, 2001.
<PAGE> 16
3. RENEWAL OPTIONS. The following additional subparagraph is added to
Paragraph 16 of the Lease.
(j) Options to Renew. So long as Lessee is not then in default
under this Lease, Lessee shall have three (3) options to renew this
Lease for additional terms of one (1) year each, upon giving Lessor at
least one hundred eighty (180) days written notice of the exercise of
such option prior to the then scheduled termination date of the Lease.
Each such renewal shall be on the same terms and conditions as set
forth in this Lease, with the exception that the Rent payable under
this Lease shall be increased at the commencement of each such renewal
term by three percent (3%) over the Rent payable for the period
immediately prior to such renewal.
4. RATIFICATION. Except as expressly amended by this Amendment, the
Lease shall continue in full force and effect, as written.
Lessor and Lessee have signed and delivered this Amendment to Lease as
of the date set forth above.
WITNESSES: CARBONNEAU FAMILY LIMITED PARTNERSHIP
[NOTARY SEAL]
/s/ By: /s/
- ------------------------ -----------------------------
James T. Carbonneau
Its General Partner
Lessor
/s/
- ------------------------
ROCKFORD CORPORATION
/s/
- ------------------------
By: /s/ David Richards
------------------------------------------
/s/ Its Vice President Information Technology
- ------------------------
Lessee
[NOTARY SEAL]
-2-
<PAGE> 1
EXHIBIT 10.12
MASTER LEASE AGREEMENT
[LOGO]
BANC ONE LEASING CORPORATION
This MASTER LEASE AGREEMENT is made, entered and dated as of October 22, 1998,
by and between:
LESSOR: LESSEE:
BANC ONE LEASING CORPORATION ROCKFORD CORPORATION
-----------------------------------
1111 Polaris Parkway, Suite A-3 - 546 E. ROCKFORD DRIVE
-----------------------------------
Columbus, Ohio 43240 PHOENIX, AZ 85281
-----------------------------------
1. LEASE OF EQUIPMENT: Lessor leases to Lessee, and Lessee leases from Lessor,
all the property described in the Lease Schedules which are signed from time to
time by Lessor and Lessee.
2. CERTAIN DEFINITIONS: "Schedule" means each Lease Schedule signed by Lessee
and Lessor which incorporates the terms of this Master Lease Agreement together
with all exhibits, riders, attachments and addenda thereto. "Equipment" means
the property described in each Schedule, together with all attachments,
additions, accessions, parts, repairs, improvements, replacements and
substitutions thereto. "Lease", "herein", "hereunder, "hereof" and similar words
mean this Master Lease Agreement and all Schedules, together with all exhibits,
riders, attachments and addenda to any of the foregoing, as the same may from
time to time be amended, modified or supplemented. 'Prime Rate' means the prime
rate of interest announced from time to time as the prime rate by Bank One,
Columbus, NA; provided, that the parties acknowledge that the Prime Rate is not
intended to be the lowest rate of interest charged by said bank in connection
with extensions of credit. "Lien" means any security interest, lien, mortgage,
pledge, encumbrance, judgment, execution, attachment, warrant, writ, levy, other
judicial process or claim of any nature whatsoever by or of any person. "Fair
Market Value" means the amount which would be paid for an item of Equipment by
an informed and willing buyer (other than a used equipment or scrap dealer) and
an informed and willing seller neither under a compulsion to buy or sell.
"Lessor's Cost" means the invoiced price of any item of Equipment plus any other
cost to lessor of acquiring an item of Equipment. All terms defined in the Lease
are equally applicable to both the singular and plural form of such terms.
3. LEASE TERM AND RENT: The term of the lease of the Equipment described in each
Schedule ('Lease Term') commences on the date stated in the Schedule and
continues for the term stated therein. As rent for the Equipment described in
each Schedule, Lessee shall pay Lessor the rent payments and all other amounts
stated in such Schedule, payable on the dates specified therein. All payments
due under the Lease shall be made in United States dollars at Lessor's office
stated in the opening paragraph or as otherwise directed by Lessor in writing.
4. ORDERING, DELIVERY, REMOVAL AND INSPECTION OF EQUIPMENT: If an event of
default occurs or if for any reason Lessee does not accept, or revokes its
acceptance of, equipment covered by a purchase order or purchase contract or it
any commitment or agreement of Lessor to lease equipment to Lessee expires,
terminates or is otherwise canceled, then automatically upon notice from Lessor,
any purchase order or purchase contract and all obligations thereunder shall be
assigned to Lessee and Lessee shall pay and perform all obligations thereunder.
Lessee agrees to pay, defend, indemnity and hold Lessor harmless from any
liabilities, obligations, claims, costs and expenses (including reasonable
attorney fees and expenses) of whatever kind imposed on or asserted against
Lessor in any way related to any purchase orders or purchase contracts. Lessee
shall make all arrangements for, and Lessee shall pay all costs of,
transportation, delivery, installation and testing of Equipment. The Equipment
shall be delivered to Lessee's premises stated in the applicable Schedule and
shall not be removed without Lessor's prior written consent. Lessor has the
right upon reasonable notice to Lessee to inspect the Equipment wherever
located. Lessor may enter upon any premises where Equipment is located and
remove it immediately, without notice or liability to Lessee, upon the
expiration or other termination of the Lease Term.
5. MAINTENANCE AND USE: Lessee agrees it will, at its sole expense: (a) repair
and maintain the Equipment in good condition and working order and supply and
install all replacement parts or other devices when required to so maintain the
Equipment or when required by applicable law or regulation, which parts or
devices shall automatically become part of the Equipment; (b) use and operate
the Equipment in a careful manner in the normal course of its business and only
for the purposes for which it was designed in accordance with the manufacturer's
warranty requirements, and comply with all laws and regulations relating to the
Equipment, and obtain all permits or licenses necessary to install, use or
operate the Equipment; and (c) make no alterations, additions, subtractions,
upgrades or improvements to the Equipment without Lessor's prior written
consent, but any such alterations, additions, upgrades or improvements shall
automatically become part of the Equipment. The Equipment will not be used or
located outside of the United States.
6. NET LEASE; NO EARLY TERMINATION: The Lease is a net lease. Lessee's
obligation to pay all rent and all other amounts payable under the Lease is
absolute and unconditional under any and all circumstances and shall not be
affected by any circumstances of any character including, without limitation,
(a) any setoff, claim, counterclaim, defense or reduction which Lessee may have
at any time against Lessor or any other party for any reason, or (b) any defect
in the condition, design or operation of, any lack of fitness for use of, any
damage to or loss of, or any lack of maintenance or service for any of the
Equipment. Each Schedule is a noncancelable lease of the Equipment described
therein and Lessee's obligation to pay rent and perform all other obligations
thereunder and under the Lease are not subject to cancellation or termination by
Lessee for any reason.
7. NO WARRANTIES BY LESSOR: LESSOR LEASES THE EQUIPMENT AS-IS, WHERE-IS, AND
WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR
IMPLIED, OF ANY KIND AS TO THE EQUIPMENT INCLUDING, WITHOUT LIMITATION: ITS
MERCHANTABILITY; ITS FITNESS FOR ANY PARTICULAR PURPOSE; ITS DESIGN, CONDITION,
QUALITY, CAPACITY, DURABILITY, CAPABILITY, SUITABILITY OR WORKMANSHIP; ITS
NON-INTERFERENCE WITH OR NON-INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR
OTHER INTELLECTUAL PROPERTY RIGHT; OR ITS COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION, PURCHASE ORDER OR CONTRACT PERTAINING THERETO. Lessor hereby
assigns to Lessee the benefit of any assignable manufacturer's or supplier's
warranties, but Lessor, at Lessee's written request, will cooperate with Lessee
in pursuing any remedies Lessee may have under such warranties. Any action taken
with regard to warranty claims against any manufacturer or supplier by Lessee
will be at Lessee's sole expense. LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OF ANY KIND AS TO THE FINANCIAL CONDITION OR FINANCIAL
STATEMENTS OF ANY PARTY OR AS TO THE TAX OR ACCOUNTING TREATMENT OR CONSEQUENCES
OF THE LEASE, THE EQUIPMENT OR THE RENTAL PAYMENTS.
8. INSURANCE: Lessee at its sole expense shall at all times keep each item of
Equipment insured against all risks of loss or damage from every cause
whatsoever for an amount not less than the greater of the full replacement value
or the Lessors Cost of such item of Equipment. Lessee at its sole expense shall
at all times carry public liability and property damage insurance in amounts
satisfactory to Lessor protecting Lessee and Lessor from liabilities for
injuries to persons and damage to property of others relating in any way to the
Equipment. All insurers shall be reasonably satisfactory to lessor. Lessee shall
deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 9 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor.
9. LOSS AND DAMAGE: (a) Lessee bears the entire risk of loss, theft, damage or
destruction of Equipment in whole or in part from any reason whatsoever
("Casualty Loss'). No Casualty Loss to Equipment shall relieve Lessee from the
obligation to pay rent or from any other obligation under the Lease.
Page 1 of 4
<PAGE> 2
9. LOSS AND DAMAGE (CONTINUED): In the event of Casualty Loss to any item of
Equipment, Lessee shall immediately notify Lessor of the same and Lessee shall,
it so directed by Lessor, immediately repair the same. If Lessor determines
that any item of Equipment has suffered a Casualty Loss beyond repair ("Lost
Equipment"), then Lessee, at the option of Lessor, shall: (1) Immediately
replace the Lost Equipment with similar equipment in good repair, condition and
working order free and clear of any Liens and deliver to Lessor a bill of sale
covering the replacement equipment, in which event such replacement equipment
shall automatically be Equipment under the Lease; or (2) On the rent payment
date which is at least 30 but no more than 60 days after the date of the
Casualty Loss, pay to Lessor all amounts then due and payable by Lessee under
the Lease for the Lost Equipment plus the Stipulated Loss Value for such Lost
Equipment as of the date of the Casualty Loss. Upon payment by Lessee of all
amounts due under the above clause (2), the lease of the Lost Equipment will
terminate and Lessor shall transfer to Lessee all of Lessor's right, title and
interest in such Equipment on an "as-is, where-is" basis with all faults,
without recourse and without representation or warranty of any kind, express or
implied.
(b) "Stipulated Loss Value" of any item of Equipment during its Lease Term
equals the present value discounted in arrears to the applicable date at the
applicable SLV Discount Rate of (1) the remaining remits and all other amounts
[including, without limitation, any balloon payment and, as to a terminal rental
adjustment clause ("TRAC") lease, the TRAC value stated in the Schedule, and any
other payments required to be paid by Lessee at the end of the applicable Lease
Term] payable under the Lease for such item on and after such date to the end of
the applicable Lease Term and (2) an amount equal to the Economic Value of the
Equipment. For any item of Equipment, "Economic Value" means the Fair Market
Value of the Equipment at the end of the applicable Lease Term as originally
anticipated by Lessor at the Commencement Date of the applicable Schedule;
provided, that Lessee agrees that such value shall be determined by the books of
Lessor as of the Commencement Date of the applicable Schedule. After the
payment of all rent due under the applicable Schedule and the expiration of the
Lease Term of any item of Equipment, the Stipulated Loss Value of such item
equals the Economic Value of such item. Stipulated Loss Value shall also include
any Taxes payable by Lessor in connection with its receipt thereof. For any item
of Equipment, "SLV Discount Rate" means an interest rate equal to the Prime Rate
in effect on the Commencement Date of the Schedule for such item minus two
percentage points.
10. TAX BENEFITS INDEMNITY. (a) The Lease has been entered into on the basis
that Lessor shall be entitled to such deductions, credits and other tax benefits
as are provided by federal, state and local income tax law to an owner of the
Equipment (the "Tax Benefits") including, without limitation: (1) modified
accelerated cost recovery deductions on each item of Equipment under Section 168
of the Code (as defined below) in an amount determined commencing with the
taxable year in which the Commencement Date of the applicable Schedule occurs,
using the maximum allowable depreciation method available under Section 168 of
the Code, using a recovery period (as defined in Section 168 of the Code)
reasonably determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the expenses paid
by Lessor in connection with the Lease on a straight-line basis over the term of
the applicable Schedule; and (3) Lessor's federal taxable income Will be subject
to the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
(b) IF on an one or more occasions (1) Lessor shall lose, shall not have or
shall lose the riqht to claim all or any part of the Tax Benefits, (2) there
shall be reduced, disallowed, recalculated or recaptured all or any part of the
Tax Benefits, or (3) all or any part of the Tax Benefits is reduced by a change
in law or regulation (each of the events described in subparagraphs 1, 2 or 3 of
this paragraph (b) will be referred to as a "Tax Loss"), then, upon 30 days
written notice by Lessor to Lessee that a Tax Loss has occurred, Lessee shall
pay Lessor an amount which, in the reasonable opinion of Lessor and after the
deduction of all taxes required to be paid by Lessor with respect to the receipt
of such amount, will provide Lessor with the same after-tax net economic yield
which was originally anticipated by Lessor as of the Commencement Date of the
applicable Schedule.
(c) A Tax Loss shall occur upon the earliest of: (1) the happening of any
event (such as disposition or change in use of an item of Equipment) which may
cause such Tax Loss; (2) Lessor's payment to the applicable taxing authority of
the tax increase resulting from such Tax Loss; or (3) the adjustment of Lessor's
tax return to reflect such Tax Loss.
(d) Lessor shall not be entitled to payment under this section for any Tax
Loss caused solely by one or more of the following events: (1) a disqualifying
sale or disposition of an item of Equipment by Lessor prior to any default by
Lessee; (2) Lessor's failure to timely or properly claim the Tax Benefits in
Lessors tax return; (3) a disqualifying change in the nature of Lessor's
business or liquidation thereof; (4) a foreclosure by any person holding through
Lessor a security interest on an item of Equipment which foreclosure results
solely from an act of Lessor; or (5) Lessors failure to have sufficient taxable
income or tax liability to utilize the Tax Benefits.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended. For
the purposes of this section 10, the term "Lessor" shall include any affiliate
group (within the meaning of section 1504 of the Code) of which Lessor is a
member for any year in which a consolidated income tax return is filed for such
affiliated Group. Lessee's obligations under this section shall survive the
expiration, cancellation or termination of the Lease.
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend, indemnify and hold
Lessor harmless on an after-tax basis from, any and all Taxes (as defined below)
and related audit and contest expenses on or relating to (a) any of the
Equipment, (b) the Lease, (c) purchase, acceptance, ownership, lease,
possession, use, operation, transportation, return or other disposition of any
of the Equipment, and (d) rentals or earnings relating to any of the Equipment
or the Lease. 'Taxes' means present and future taxes or other governmental
charges that are not based on the net income of Lessor, whether they are
assessed to or payable BY Lessee or Lessor, including, without limitation (i)
sales, use, excise, licensing, registration, titling, franchise, business and
occupation, gross receipts, stamp and personal property taxes, (ii) levies,
imposts, duties, assessments, charges and withholdings, (iii) penalties, fines,
and additions to tax and (iv) interest on any of the foregoing. Unless Lessor
elects otherwise, Lessor will prepare and file all reports and returns relating
to any Taxes and will pay all Taxes to the appropriate taxing authority. Lessee
will reimburse Lessor for all such payments promptly on request. On or after any
applicable assessment/levy/lien date for any personal property Taxes relating to
any Equipment, Lessee agrees that upon Lessors request Lessee shall pay to
Lessor the personal property Taxes which Lessor reasonably anticipates will be
due, assessed, levied or otherwise imposed on any Equipment during its Lease
Term. If Lessor elects in writing, Lessee will itself prepare and file all such
reports and returns, pay all such Taxes directly to the taxing authority, and
send Lessor evidence thereof. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
12. GENERAL INDEMNITY: Lessee assumes all risk and liability for, and shall
defend, indemnify and keep Lessor harmless on an after-tax basis from, any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses, including reasonable attorney fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor,
in any way relating to or arising out of the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, any claim for latent or other defects,
whether or not discoverable by Lessee or any other person, any claim for
negligence, tort or strict liability, any claim under any environmental
protection or hazardous waste law and any claim for patent, trademark or
copyright infringement). Lessee will not indemnify Lessor under this section for
loss or liability arising from events which occur after the Equipment has been
returned to Lessor or for loss or liability caused directly and solely by the
gross negligence or willful misconduct of Lessor. In this section, 'Lessor" also
includes any director, officer, employee, agent, successor or assign of Lessor.
Lessee's obligations under this section shall survive the expiration,
cancellation or termination of the Lease.
13. PERSONAL PROPERTY: Lessee represents and agrees that the Equipment is, and
shall at all times remain, separately identifiable personal properly. Upon
Lessor's request, Lessee shall furnish Lessor a landlord's and/or mortgagee's
waiver and consent to remove all Equipment. Lessor may display notice of its
interest in the Equipment by any reasonable identification. Lessee shall not
alter or deface any such [???] of Lessor's interest.
14. DEFAULT: Each of the following events shall constitute an event of default
under the Lease: (a) Lessee fails to pay any rent or other amount due under the
Lease within ten days of its due date; or (b) Lessee fails to perform or observe
any of its obligations in Sections 8, 18, or 22 hereof; or (c) Lessee fails to
perform or observe any of its other obligations in the Lease for more than 30
days after Lessor notifies Lessee of such failure; or (d) Lessee or any Lessee
affiliate defaults in the payment, performance or observance of any obligation
under any loan, credit agreement or other lease in which Lessor or any
subsidiary (direct or indirect) of Bank One Corporation (which is Lessor's
ultimate parent corporation) is the creditor or lessor; or (e) any statement,
representation or warranty made by Lessee in the Lease, in any Schedule or in
any document, certificate or financial statement in connection with the Lease
proves at any time to have been untrue or misleading in any material respect as
of the time when made; or (f) Lessee becomes insolvent or bankrupt, or Lessee
admits its inability to pay its debts as they mature, or Lessee makes an
assignment for the benefit of creditors, or Lessee applies for, institutes or
consents to the appointment of a receiver, trustee or similar official for
Lessee or any substantial part of its property or any such official is appointed
without Lessee's consent, or Lessee applies for, institutes or consents to any
bankruptcy, insolvency, reorganization, debt moratorium, liquidation, or similar
proceeding relating to Lessee or any substantial part of its property under the
laws of any jurisdiction or any such proceeding is instituted against Lessee
without stay or dismissal for more than 30 days, or Lessee commences any act
amounting to a business failure or a winding up of its affairs, or Lessee ceases
to do business as a doing concern; or (g) with respect to any guaranty, letter
of credit, pledge agreement, security agreement, mortgage, deed of trust, debt
subordination agreement or other credit enhancement or credit support agreement
(whether now existing of hereafter arising) signed or issued by any party in
connection with all or any part of Lessee's obligations under the Lease, the
party signing or issuing any such agreement defaults in its obligations
thereunder or any such agreement shall cease to be in full force and effect or
shall be declared to be null, void, invalid or unenforceable by the party
signing or issuing it; or (h) there shall occur in Lessor's reasonable opinion
any material adverse change in the financial condition, business or operations
of Lessee.
Page 2 of 4
<PAGE> 3
14. DEFAULT (CONTINUED):
As used in this section 14, the term "Lessee" also includes any guarantor
(whether now existing or hereafter arising) of all or any part of Lessee's
obligations under the Lease and/or any issuer of a letter of credit (whether now
existing or hereafter arising) relating to all or any part of Lessee's
obligations under the Lease, and the term "Lease" also includes any guaranty or
letter of credit (whether now existing or hereafter arising) relating to all or
any part of Lessee's obligations under the Lease.
15. REMEDIES. It any event of default exists, Lessor may exercise in any order
one or more of the remedies described in the lettered subparagraphs of this
action, and Lessee shall perform its obligations imposed thereby:
(a) Lessor may require Lessee to return any or all Equipment as provided in
the Lease.
(b) Lessor or its agent may repossess any or all Equipment wherever found,
may enter the premises where the Equipment is located and disconnect, render
unusable and remove it, and may use such premises without charge to store or
show the Equipment for sale.
(c) Lessor may sell any or all Equipment at public or private sale, with or
without advertisement or publication, may re-lease or otherwise dispose of it or
may use, hold or keep it.
(d) Lessor may require Lessee to pay to Lessor on a date specified by Lessor,
with respect to any or all Equipment (i) all accrued and unpaid rent, late
charges and other amounts due under the Lease on or before such date, plus (ii)
as liquidated damages for loss of a bargain and not as a penalty, and in lieu of
any further payments of rent, the Stipulated Loss Value of the Equipment on such
date, plus (iii) interest at the Overdue Rate on the total of the foregoing
("Overdue Rate" means an interest rate per annum equal to the higher of 18% or
2% over the Prime Rate, but not to exceed the highest rate permitted by
applicable law). The parties acknowledge that the foregoing money damage
calculation reasonably reflects Lessor's anticipated loss with respect to the
Equipment and the related Lease resulting from the event of default. If an event
of default under section 14 (f) of this Master Lease Agreement exists, then
Lessee will be automatically liable to pay Lessor the foregoing amounts as of
the next rent payment date unless Lessor otherwise elects in writing.
(e) Lessee shall pay all costs, expenses and damages incurred by Lessor
because of the event of default or its actions under this section, including,
without limitation any collection agency and/or attorney fees and expenses, any
costs related to the repossession, safekeeping, storage, repair, reconditioning
or disposition of the Equipment and any incidental and consequential damages.
(f) Lessor may terminate the Lease and/or any or all Schedules, may sue to
enforce Lessee's performance of its obligations under the Lease and/or may
exercise any other right or remedy then available to Lessor at law or in equity.
Lessor is not required to take any legal process or give Lessee any notice
before exercising any of the above remedies. None of the above remedies is
exclusive, but each is cumulative and in addition to any other remedy
available to Lessor. Lessor's exercise of one or more remedies shall not
preclude its exercise of any other remedy. No action taken by Lessor shall
release Lessee from any of its obligations to Lessor. No delay or failure on the
part of Lessor to exercise any right hereunder shall operate as a waiver
thereof, nor as an acquiescence in any default, nor shall any single or partial
exercise of any right preclude any other exercise thereof or the exercise of any
other right. After any default, Lessor's acceptance of any payment by Lessee
under the Lease shall not constitute a waiver by Lessor of such default,
regardless of Lessor's knowledge or lack of knowledge at the time of such
payment, and shall not constitute a reinstatement of the Lease if the Lease has
been declared in default by Lessor, unless Lessor has agreed in writing to
reinstate the Lease and to waive the default.
If Lessor actually repossesses any Equipment, then it will use commercially
reasonable efforts under the then current circumstances to attempt to mitigate
its damages; provided, that Lessor shall not be required to sell, re-lease or
otherwise dispose of any Equipment prior to Lessor enforcing any of the remedies
described above. Lessor may sell or re-lease the Equipment in any manner it
chooses, free and clear of any claims or rights of Lessee and without any duty
to account to Lessee with respect thereto except as provided below. If Lessor
actually sells or re-leases the Equipment, it will credit the net proceeds of
any sale of the Equipment, or the net present value (discounted at the then
current Prime Rate) of the rents payable under any new lease Of the Equipment,
against and up to (but not exceeding) the Stipulated Loss Value of the Equipment
and any other amounts Lessee owes Lessor, or will reimburse Lessee for and up to
(but not exceeding) Lessee's payment thereof. The term "net" as used above shall
mean such amount after deducting the costs and expenses described in clause (e)
above of this section. If Lessor elects in writing not to sell or re-lease any
Equipment, it will similarly credit or reimburse Lessee for Lessor's reasonable
estimate of such Equipment's Fair Market Value.
16. LESSOR'S RIGHT TO PERFORM: If Lessee fails to make any payment under the
Lease or fails to perform any of its other agreements in the Lease including,
without limitation, its agreement to provide insurance coverage as stated in the
Lease), Lessor may itself make such payment or perform such agreement, and the
amount of such payment and the amount of the expenses of Lessor incurred in
connection with such payment or performance shall be deemed to be additional
rent, payable by Lessee on demand.
17. FINANCIAL REPORTS: Lessee agrees to furnish to Lessor: (a) annual financial
statements setting forth the financial condition and results of operation of
Lessee (financial statements shall include the balance sheet, income statement
and changes in financial position and all notes thereto) within 120 days of the
end of each fiscal year of Lessee; (b) quarterly financial statements setting
forth the financial condition and results OF operation of Lessee within 60 days
of the end of each of the first three fiscal quarters of Lessee; and (c) such
other financial information as Lessor may from time to time reasonably request
including, without limitation, financial reports filed by Lessee with federal or
state regulatory agencies. All such financial information shall be prepared in
accordance with generally accepted accounting principles. If Lessee fails to
furnish the annual financial statements to Lessor within 30 days of Lessor's
written request, then Lessor may, at its option, charge Lessee a non-performance
fee equal to all the rentals due under the Lease for the then current month
(unless otherwise prohibited by law) and such fees shall be deemed to be
additional rent, payable by Lessee on demand.
18. NO CHANGES IN LESSEE: Lessee shall not: (a) liquidate, dissolve or suspend
business; (b) sell, transfer or otherwise dispose of all or a majority of its
assets, except that Lessee may sell its inventory in the ordinary course of its
business; (c) enter into any merger, consolidation or similar reorganization
unless it is the surviving corporation; (d) transfer all or any substantial part
of its operations or assets outside of the United States of America; or (e)
without 30 days advance written notice to Lessor, change its name or chief place
of business. Lessee shall at all times maintain a tangible net worth which is no
less than the greater of 75% of its tangible net worth as of the date of the
Master Lease Agreement or 75% of its highest tangible net worth thereafter.
19. LATE CHARGES: If any rent or other amount payable under the Lease is not
paid when due, then as compensation for the administration and enforcement of
Lessee's obligation to make timely payments, Lessee shall pay with respect to
each overdue payment on demand an amount equal to the greater of fifteen dollars
($15.60) or five percent (5%) of the each overdue payment (but not to exceed the
highest late charge permitted by applicable LAW) plus any collection agency
fees and expenses.
20. NOTICES; POWER OF ATTORNEY: (a) Service of all notices under the Lease shall
be sufficient if given personally or couriered or mailed to the party involved
at its respective address set forth herein or at such other address as such
party may provide in writing from time to time. Any such notice mailed to such
address shall be effective three days after deposit in the United States mail
with postage prepaid. (b) With respect to any power of attorney covered by the
Lease, the powers conferred on Lessor thereby: are powers coupled with an
interest; are irrevocable; are solely to protect Lessor's interests under the
Lease; and do not impose any duty on Lessor to exercise such powers. Lessor
shall be accountable solely for amounts it actually receives as a result of its
exercise of such powers.
21. ASSIGNMENT BY LESSOR: Lessor and any assignee of Lessor, with or without
notice to or consent of Lessee, may sell, assign, transfer or grant a security
interest in all or any part of Lessor's rights, obligations, title or interest
in the Equipment, the Lease, any Schedule or the amounts payable under the Lease
or any Schedule to any entity ("transferee"). The transferee shall succeed to
all of Lessor's rights in respect to the Lease (including, without limitation,
all rights to insurance and indemnity protection described in the Lease). Lessee
agrees to sign any acknowledgement and other documents reasonably requested by
Lessor or the transferee in connection with any-such transfer transaction.
Lessee, upon receiving notice of any such transfer transaction, shall comply
with the terms and conditions thereof. Lessee agrees that it shall not assert
against any transferee any claim, defense, setoff, deduction or counterclaim
which Lessee May now or hereafter be entitled to assert against Lessor. Unless
otherwise agreed in writing, the transfer transaction shall not relieve Lessor
of any of its legations to Lessee under the Lease and Lessee agrees that the
transfer transaction shall not be construed as being an assumption of such
obligations by the transferee.
22. NO ASSIGNMENT, SUBLEASE OR LIEN BY LESSEE: LESSEE SHALL NOT, DIRECTLY OR
INDIRECTLY, (a) MORTGAGE, ASSIGN, SELL. TRANSFER, OR OTHERWISE DISPOSE OF THE
LEASE OR ANY INTEREST THEREIN OR THE EQUIPMENT OR ANY PART. THEREOF, OR (b)
SUBLEASE, RENT, LEND OR TRANSFER POSSESSION OR USE OF THE EQUIPMENT OR ANY PART
THEREFOR TO ANY PARTY, OR (c) CREATE, INCUR, GRANT, ASSUME OR ALLOW TO EXIST ANY
LIEN ON THE LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF.
Page 3 of 4
<PAGE> 4
23. EXPIRATION OF LEASE TERM: (a) At east 90 days (or earlier if otherwise
specified), but no more than 270 days prior to expiration of the Lease Term of
each Schedule, Lessee shall give Lessor written notice of its electing one of
the following options for all (but not less than all) of the Equipment covered
by such Schedule: return the Equipment under clause (b) below; or purchase the
Equipment under clause (c) below. The election of an option shall be
irrevocable. If Lessee fails to give timely notice of its election, it shall be
deemed to have elected to return the Equipment.
(b) If Lessee elects or is deemed to have elected to return the Equipment
at the expiration of the Lease Term of a Schedule or if Lessee is obligated at
any time to return the Equipment, then Lessee shall, at its sole expense and
risk, deinstall, disassemble, pack, crate, insure and return the Equipment to
Lessor (all in accordance with applicable industry standards) at any location in
the continental United States of America selected by Lessor. The Equipment shall
be in the same condition as when received by Lessee, reasonable wear, tear and
depreciation resulting from normal and proper use excepted (or, if applicable,
in the condition set forth in the Lease or the Schedule), shall be in good
operating order and maintenance as required by the Lease, shall be certified as
being eligible for any available manufacturer's maintenance program, shelf be
free and clear of any Liens as required by the Lease, shall comply with all
applicable laws and regulations and shall include all manuals, specifications,
repair and maintenance records and similar documents. Until Equipment is
returned as required above, all terms of the Lease shall remain in full force
and effect including, without limitation, obligations to pay rent and insure the
Equipment; provided, that after the expiration of any Schedule and before Lessee
has completed its return of the Equipment or its purchase option (if elected),
the term of the lease of the Equipment covered by such Schedule shall be
month-to-month or such shorter period as may be specified by Lessor.
(c) If Lessee gives Lessor timely notice of its election to purchase
Equipment, then on the expiration date of the applicable Schedule Lessee shall
purchase all (but not less than all) of the Equipment and shall pay to Lessor
the Fair Market Value of the Equipment plus all Taxes (other than income taxes
on lessor's gains on such sale), costs and expenses incurred or paid by lessor
in connection with such sale plus all accrued but unpaid amounts due with
respect to the Equipment and/or the Schedule. The Stipulated Loss Value or
Economic Value of any item of Equipment shall have no bearing or influence on
the determination of Fair Market Value under this clause (c). Upon payment in
full of the above amounts, and if no default has occurred and is continuing
under the Lease, Lessor shall transfer title to such Equipment to Lessee "as-is,
where-is" with all faults and without recourse to Lessor and without any
representation or warranty of any kind whatsoever by Lessor, express or implied.
(d) For purposes of the purchase option of the Lease, the determination of
the Fair Market Value of any Equipment shall be determined (1) without deducting
any costs of dismantling or removal from the location of use, (2) on the
assumption that the Equipment is in the condition required by the applicable
return and maintenance provisions of the Lease and is free and clear of any
Liens as required by the Lease, and (3) shall be determined by mutual agreement
of Lessee and Lessor or, if Lessor and Lessee are not able to agree on such
value, by the Appraisal Procedure. "Appraisal Procedure" means the determination
of Fair Market Value by an independent appraiser acceptable to Lessor and
Lessee, or, if the parties are unable to agree on an acceptable appraiser, by
averaging the valuation (disregarding the one which differs the most from the
other two) of three independent appraisers, the first appointed by Lessor, the
second appointed by Lessee and the third appointed by the first two appraisers.
For purposes of the "Remedies" section of the Lease, the Fair Market Value shall
be determined by lessor in good faith and any such valuation shall be on an
"as-is, where is" basis without regard to the first sentence of this clause (d).
Lessee, at its sole expense, shall pay all fees, costs and expenses of the above
described appraisers.
24. GOVERNING LAW: THE INTERPRETATION, CONSTRUCTION AND VALIDITY OF THE LEASE
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO. WITH RESPECT TO ANY ACTION
BROUGHT BY LESSOR AGAINST LESSEE TO ENFORCE ANY TERM OF THE LEASE, LESSEE HEREBY
IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
IN THE FRANKLIN COUNTY, OHIO, WHERE LESSOR HAS ITS PRINCIPAL PLACE OF BUSINESS
AND WHERE PAYMENTS ARE TO BE MADE BY LESSEE.
25. MISCELLANEOUS: (a) Subject to the limitations herein, the Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, administrators, successors and assigns. (b) This Master Lease Agreement
and each Schedule may be executed in any number of counterparts, which together
shall constitute a single instrument. Only one counterpart of each Schedule
shall be marked 'Lessor's Original" and all other counterparts shall be marked
"Duplicate". A security interest in any Schedule may be created through transfer
and possession only of the counterpart marked "Lessor's Original". (c) Section
and paragraph headings in this Master Lease Agreement and the Schedules are for
convenience only and have no independent meaning. (d) The terms of the Lease
shall be severable and if any term thereof is declared unconscionable, invalid,
illegal or void, in whole or in part, the decision so holding shall not be
construed as impairing the other terms of the Lease and the Lease shall continue
in full force and effect as if such invalid, illegal, void or unconscionable
term were not originally included herein. (e) All indemnity obligations of
Lessee under the Lease and all rights, benefits and protections provided to
Lessor by warranty disclaimers shall survive the cancellation, expiration or
termination of the Lease. (f) Lessor shall not be liable to Lessee for any
indirect, consequential or special damages for any reason whatsoever. (g) Each
payment made by Lessee shall be applied by lessor in such manner as Lessor
determines in its discretion which may include, without limitation, application
as follows: first, to accrued late charges; second, to accrued rent, and third,
the balance to any other amounts then due and payable by Lessee under the Lease.
(h) If the Lease is signed by more than one Lessee, each of such Lessees shall
be jointly and severally liable for payment and performance of all of Lessee's
obligations under the Lease.
26. ENTIRE AGREEMENT: THE LEASE REPRESENTS THE FINAL, COMPLETE AND ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO. THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS
OR UNDERSTANDINGS AFFECTING THE LEASE OR THE EQUIPMENT. Lessee agrees that
Lessor is not the agent of any manufacturer or supplier, that no manufacturer or
supplier is an agent of Lessor, and that any representation, warranty or
agreement made by a manufacturer, supplier or their employees, sales
representatives or agents shall not be binding on Lessor.
27. JURY WAIVER: ALL PARTIES TO THIS MASTER LEASE AGREEMENT WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY
AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY RELATED TO THIS MASTER LEASE AGREEMENT.
BANC ONE LEASING CORPORATION ROCKFORD CORPORATION
-----------------------------------------
(Name of Lessee)
Lessor
By: By: /s/ James M. Thomson
------------------------------- -------------------------------------
Title: Title: Vice President Finance & CFO
----------------------------- ----------------------------------
Lessee's Witness: /s/
------------------------
<TABLE>
<S> <C>
ROCKFORD CORPORATION
-------------------------------------------
Regardless of any prior, present or future oral agreement or course (Name of Lessee)
of dealing, no term or condition of the Lease may be amended,
modified, waived, discharged, cancelled or terminated except by a
written instrument signed by the party to be bound; except Lessee By:
authorizes Lessor to complete the Acceptance Date of each Schedule ---------------------------------------
and the serial numbers of any Equipment. Title:
------------------------------------
</TABLE>
Page 4 of 4
<PAGE> 5
LEASE SCHEDULE NO. 1000092431 FINANCING LEASE
(Per Diem Interim Rent)
Master Lease Agreement dated 10-22-98
Lessor: Banc One Leasing Corporation
Lessee: ROCKFORD CORPORATION
1. GENERAL. This Lease Schedule is signed and delivered under the Master Lease
Agreement identified above, as amended from time to time ("Master Lease"),
between Lessee and Lessor. Capitalized terms defined in the Master Lease will
have the same meanings when used in this Schedule.
2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor, all
of the property ("Equipment') described in Schedule A-1 attached hereto (and
Lessee represents that all Equipment is new unless specifically identified as
used):
<TABLE>
<S> <C> <C>
3. AMOUNT FINANCED: EQUIPMENT COST: $ 1,074,096.96
SET-UP/FILING FEE: 375.00
TOTAL: $ 1,074,471.96
--------------
</TABLE>
4. FINANCING TERM. The Base Term of this Schedule shall be THIRTY-SIX (36)
months and the Base Term shall commence on 12-28-98 ("Commencement Date"). The
total Lease Term consists of the Interim Term plus the Base Term. The Interim
Term begins on the date that Lessor accepts this Schedule as stated below
Lessor's signature ("Acceptance Date") and continues up to the Commencement
Date.
5. INSTALLMENT PAYMENTS/FEES. As financing for the Equipment, Lessee shall pay
to Lessor all amounts stated below on the due dates stated below. There shall be
added to each installment payment all applicable Taxes as in effect from time to
time.
(a) For the Interim Term, Lessee shall pay to Lessor on the Commencement Date an
amount equal to one-thirtieth (1/30th) of the Installment Payment multiplied by
the number of days in the Interim Term. "Installment Payment" means the total of
all installment payments due and payable during the Base Term divided by the
number of months in the Base Term.
(b) During the Base Term, Lessee shall pay to Lessor installment payments in the
amounts and according to the timing set forth below, provided however, that
notwithstanding the following, the final installment payment due hereunder shall
be equal to the remaining principal balance hereunder together with all accrued
interest and fees.
(1) Amount of each installment payment during the Base Term (including
principal and interest):
36 Monthly Payments OF $33,198.64
<PAGE> 6
(2) Frequency of installment payments during the Base Term: MON
(3) Timing of installment payments during the Base Term: IN ARREARS
(c) Lessee shall pay Lessor a Set-Up/Filing Fee as follows:
(1) N/A shall be paid on the Acceptance Date, or
(2) $375.00 has been included in the above Amount Financed of the
Equipment.
(d) Security Deposit: $ N/A. On the Acceptance Date, Lessee shall pay Lessor
said Security Deposit which shall be held in accordance with paragraph 6 below.
6. SECURITY INTEREST. This Schedule is intended to be a secured debt financing
transaction, not a true lease. See Paragraph 7 below regarding Lessee's
ownership of the Equipment. As collateral security for payment and performance
of all Secured Obligations (defined in Paragraph 8 below) and to induce Lessor
to extend credit from time to time to Lessee (under the Lease or otherwise),
Lessee hereby grants to Lessor a first priority security interest in all of
Lessee's right, title and interest in the Equipment, whether now existing or
hereafter acquired, any sums specified in this Schedule as a "Security Deposit",
and in all Proceeds (defined in Paragraph 8 below). At its option, Lessor may
apply all or any part of any Security Deposit to cure any default of Lessee
under the Lease. If upon final termination of this Schedule, Lessee has
fulfilled all of the terms and conditions hereof, then Lessor shall pay to
Lessee upon Lessee's written request any remaining balance of the Security
Deposit for this Schedule, without interest.
7. TITLE TO EQUIPMENT; FIRST PRIORITY LIEN. Lessee represents, warrants and
agrees: that Lessee currently is the lawful owner of the Equipment; that good
and marketable title to the Equipment shall remain with Lessee at all times;
that Lessee has granted to Lessor a first priority security interest in the
Equipment and all Proceeds; and that the Equipment and all Proceeds are, and at
all times shall be, free and clear of any Liens other than Lessor's security
interest therein. Lessee at its sole expense will protect and defend Lessor's
first priority security interest in the Equipment against all claims and demands
whatsoever.
8. CERTAIN DEFINITIONS. "Secured Obligations" means (a) all payments and other
obligations of Lessee under or in connection with this Schedule, and (b) all
payments and other obligations of Lessee (whether now existing or hereafter
incurred) under or in connection with the Master Lease and all present and
future Lease Schedules thereto, and (c) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or contingent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or BANK ONE CORPORATION. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
proceeds of insurance, indemnities and/or warranties.
9. AMENDMENTS TO MASTER LEASE. FOR PURPOSES OF THIS SCHEDULE ONLY, Lessee and
Lessor agree to amend the Master Lease as follows: (a) public liability or
property insurance as described in the second sentence of Section 8 will not be
required; (b) the definition of
-2-
<PAGE> 7
"Stipulated Loss Value" in clause (b) of Section 9 is deleted and replaced by
Paragraph 10 below; (c) the text of Section 10 is deleted in its entirety; (d)
Subsections 23(a) and 23(c) are deleted; (e) subsection 23(b) and the last
sentence of section 4 will apply only if an event of default occurs; (f) Lessor
and Lessee hereby agree that any and all references to "Bank One Corporation" in
the Lease, wherever located, are amended to refer to "BANK ONE CORPORATION, and
its successors and assigns' and (g) all references in the Lease as it relates to
this Schedule to "Lessee" and "Lessor" shall be changed to "Borrower" and
"Lender" respectively.
10. STIPULATED LOSS VALUE. FOR PURPOSES OF THIS SCHEDULE ONLY, the "Stipulated
Loss Value" of any item of Equipment during its Lease Term equals the aggregate
of the following as of the date specified by Lessor: (a) all accrued and unpaid
interest, late charges and other amounts due under this Schedule and the Master
Lease to the extent it relates to this Schedule as of such specified date, plus
(b) the remaining principal balance due and payable by Lessee under this
Schedule as of such specified date, plus (c) interest on the amount described in
the foregoing clauses (a) and (b) at the Overdue Rate commencing with the
specified date; provided, that the foregoing calculation shall not exceed the
maximum amount which may be collected by Lessor from Lessee under applicable law
in connection with enforcement of Lessor's rights under this Schedule and the
Master Lease to the extent it relates to this Schedule.
11. LESSEE TO PAY ALL TAXES. FOR PURPOSES OF THIS SCHEDULE AND ITS EQUIPMENT
ONLY: Lessee shall pay any and all Taxes relating to this Schedule and its
Equipment directly to the applicable taxing authority; Lessee shall prepare and
file all reports or returns concerning any such Taxes as may be required by
applicable law or regulation (provided, that Lessor shall not be identified as
the owner of the Equipment in such reports or returns); and Lessee shall, upon
Lessor's request, send Lessor evidence of payment of such Taxes and copies of
any such reports or returns.
12. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally: (a) reaffirms
all of the terms and conditions of the Master Lease and agrees that the Master
Lease remains in full force and effect; (b) agrees that the Equipment is and
will be used at all times solely for commercial purposes, and not for personal,
family or household purposes; and (c) incorporates all of the terms and
conditions of the Master Lease as if fully set forth in this Schedule.
13. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants that: (a)
Lessee is a corporation, partnership or proprietorship duly organized, validly
existing and in good standing under the laws of the state of its organization
and is qualified to do business and is in good standing under the laws of each
other state in which the Equipment is or will be located; (b) Lessee has full
power, authority and legal right to sign, deliver and perform the Master Lease,
this Schedule and all related documents and such actions have been duly
authorized by all necessary corporate/partnership/ proprietorship action; and
(c) the Master Lease, this Schedule and each related document has been duly
signed and delivered by Lessee and each such document constitutes a legal, valid
and binding obligation of Lessee enforceable in accordance with its terms.
-3-
<PAGE> 8
14. CONDITIONS. No lease of Equipment under this Schedule shall be binding on
Lessor, and Lessor shall have no obligation to purchase the Equipment covered
hereby, unless: (a) Lessor has received evidence of all required insurance; (b)
in Lessor's sole judgment, there has been no material adverse change in the
financial condition or business of Lessee or any guarantor; (c) Lessee has
signed and delivered to Lessor this Schedule, which must be satisfactory to
Lessor, and Lessor has signed and accepted this Schedule; (d) no change in the
Code or any regulation thereunder, which in Lessor's sole judgment would
adversely affect the economics to Lessor of the lease transaction, shall have
occurred or shall appear to be imminent; (e) Lessor has received, in form and
substance satisfactory to Lessor, such other documents and information as Lessor
shall reasonably request; and (f) Lessee has satisfied all other reasonable
conditions established by Lessor.
15. OTHER DOCUMENTS: EXPENSES: Lessee agrees to sign and deliver to Lessor any
additional documents deemed desirable by Lessor to effect the terms of the
Master Lease or this Schedule including, without limitation, Uniform Commercial
Code financing statements which Lessor is authorized to file with the
appropriate filing officers. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact with full power and authority in the place of Lessee
and in the name of Lessee to prepare, sign, amend, file or record any Uniform
Commercial Code financing statements or other documents deemed desirable by
Lessor to perfect, establish or give notice of Lessor's interests in the
Equipment or in any collateral as to which Lessee has granted Lessor a security
interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
16. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees that (1) Lessor
has not selected, manufactured, sold or supplied any of the Equipment, (ii)
Lessee has selected all of the Equipment and its suppliers, and (iii) Lessee has
received a copy of, and approved, the purchase orders or purchase contracts for
the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE AGREES THAT: (A) LESSEE HAS
RECEIVED, INSPECTED AND APPROVED ALL OF THE EQUIPMENT; (B) ALL EQUIPMENT IS IN
GOOD WORKING ORDER AND COMPLIES WITH ALL PURCHASE ORDERS OR CONTRACTS AND ALL
APPLICABLE SPECIFICATIONS; (C) LESSEE IRREVOCABLY ACCEPTS ALL. EQUIPMENT FOR
PURPOSES OF THE LEASE "AS-IS, WHERE-IS" WITH ALL FAULTS; AND (D) LESSEE
UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO REVOKE ITS ACCEPTANCE OF
THE EQUIPMENT.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE AGREES
THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE.
-4-
<PAGE> 9
BANC ONE LEASING CORPORATION ROCKFORD CORPORATION
(Lessor) (Lessee)
By: /s/ By: /s/ James M. Thomson
------------------------------ -------------------------------
Title: Title: CFO
--------------------------- ----------------------------
Acceptance Date 12/28/97 Witness: /s/ Sylvia Moreland
------------------ --------------------------
-5-
<PAGE> 10
CORPORATE LEASE ACKNOWLEDGMENT
State of Arizona :
: SS
County of Maricopa :
The above mentioned foregoing instrument, was acknowledged before me this ___23
of December, 1998 by (Officers' Name) James Thomson, (Officer's Title),
of ROCKFORD CORPORATION, a Arizona corporation, on behalf of the corporation.
/s/
---------------------------------------
[Notary Seal] Notary Public
Commission Expires
--------------------
-6-
<PAGE> 11
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
ALL PROPERTY DESCRIBED IN THE INVOICES IDENTIFIED BELOW, WHICH PROPERTY MAY BE
GENERALLY DESCRIBED AS MANUFACTURING AND ASSEMBLING, AND 1998 DODGE TRUCK.
EQUIPMENT LOCATION: 546 S. ROCKFORD DRIVE
MARICOPA COUNTY
TEMPE, AZ 85281
EQUIPMENT COST: $29,228.60
1 1998 DODGE RAM TRUCK
VIN: 3B7HC13Z3WG186227
EQUIPMENT COST: $1,044,868.36
<TABLE>
<CAPTION>
Invoice Invoice
Vendor Name Number Amount
----------- ------ ------
<S> <C> <C>
QUAD SYSTEMS 30072 $ 61,508.00
ROYONIX/REIMB 3221 $122,373.46
ROYONIX/REIMB 3121 $ 45,536.22
TDK/RIEMB 66168 $ 61,120.00
QUAD/RIEMB 71338 $ 96,538.50
QUAD SYSTEMS 71338A $193,077.00
TDK TCH375016B $152,800.00
GATEWAY LEASING 980817 $ 2,986.42
HELLER INDUSTRIES 117137 $ 31,778.00
QUAD SYSTEMS 71338 $ 32,179.50
QUAD SYSTEMS 30765 $ 1,458.87
QUAD SYSTEMS 31293 $ 1,458.42
ONE SOURCE RF9802A $ 41,070.00
ONE SOURCE/REIMB RF9802A $ 10,000.00
ONE SOURCE RF9802B $ 5,653.97
CROWN SIMPLIMATIC 129218 $ 42,050.00
TDK TCH375016C $ 91,680.00
MPM 103387 $ 12,900.00
MPM 103388 $ 12,900.00
</TABLE>
-7-
<PAGE> 12
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 2
<TABLE>
<S> <C> <C>
MPM 103553 $ 12,900.00
MPM 104040 $ 12,900.00
</TABLE>
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS, ACCESSIONS, PARTS, REPAIRS,
IMPROVEMENTS, REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000092431 and
constitutes a true and accurate description of the equipment.
<PAGE> 13
Lessee:
ROCKFORD CORPORATION
- -------------------------------------
By:
---------------------------------
Date:
--------------------------------
scheda-1.057
-9-
<PAGE> 1
EXHIBIT 10.13
FINOVA
LOAN AND SECURITY AGREEMENT
BORROWER: ROCKFORD CORPORATION
ADDRESS: 648 SOUTH RIVER DRIVE
TEMPE, ARIZONA 85281
DATE: JUNE ___, 1997
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the borrower named above (jointly and severally,
the "Borrower"), whose address is set forth above and FINOVA CAPITAL CORPORATION
("Lender"), whose address is 355 South Grand Avenue, Suite 2400, Los Angeles,
California 90071.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and
provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, Lender shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed the Total Facility amount (the "Total Facility") set forth on the
schedule hereto (the "Schedule"), subject to deduction of reserves for accrued
interest and such other reserves as Lender deems proper from time to time, and
less amounts Lender may be obligated to pay in the future on behalf of Borrower.
The Schedule is an integral part of this Agreement and all references to
"herein", "herewith" and words of similar import shall for all purposes be
deemed to include the Schedule.
1.2 Loans. Loan advances shall be comprised of the amounts shown on the
Schedule.
1.3 Overlines. If at any time or for any reason the outstanding amount of
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overline"), then
Borrower shall, upon Lender's demand, immediately pay to Lender, in cash, the
full amount of such Overline. Without limiting Borrower's obligation to repay to
Lender on demand the amount of an, Overline, Borrower agrees to pay Lender
interest on the outstanding principal amount of any Overline, on demand, at the
rate set forth in on the Schedule.
1.4 [RESERVED].
1.5 Loan Account. All advances made hereunder shall be added to and deemed
part of the Obligations when made. Lender may from time to time charge all
Obligations of Borrower to Borrower's; loan account with Lender.
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of Lender to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule: (a) Loan Documents. Lender shall have received (i) each of the
Loan Documents, executed by each of the parties thereto and, if applicable, duly
acknowledged for recording or filing in the appropriate governmental offices;
(ii) such Blocked Account or Dominion Account agreements as it shall determine;
and (iii) such other documents, instruments and agreements in connection
herewith as Lender shall require, executed, certified and/or acknowledged by
such parties as Lender shall designate, (b) Terminations by Existing Lender.
Borrower's existing lender shall have executed and delivered UCC termination
statements and other documentation evidencing the termination of its liens and
security interests in the assets of Borrower or a subordination agreement in
form and substance satisfactory to Lender in its sole discretion; (c) Charter
Documents.
-1-
<PAGE> 2
FINOVA LOAN AND SECURITY AGREEMENT
Lender shall have received copies of Borrower's By-laws and Articles or
Certificate of Incorporation, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower; (d) Good Standing. Lender
shall have received a certificate of corporate status with respect to Borrower,
dated within ten (10) days of the Closing Date, by the Secretary of State of the
state of incorporation of Borrower, which certificate shall indicate that
Borrower is in good standing in such state; (e) Foreign Qualification. Lender
shall have received certificates of corporate status with respect to Borrower
and each other Loan Party, each dated within ten (10) days of the Closing Date,
issued by the Secretary of State of each state in which its failure to be duly
qualified or licensed would have a material adverse effect on the financial
condition or assets of Borrower, indicating that Borrower is in good standing;
(f) Authorizing Resolutions and Incumbency. Lender shall have received a
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors and Shareholders (if necessary)
authorizing the borrowing of money from Lender and execution and delivery of
this Agreement and the other Loan Documents to which Borrower is a party, and
authorizing specific officers of Borrower to execute same, and (ii) the
authenticity of original specimen signatures of such officers; (g) Insurance.
Lender shall have received the insurance certificates and certified copies of
policies required by Section 4.4 hereof, in form and substance satisfactory to
Lender and its counsel; (h) Title Insurance. Lender shall have received binding
commitments to issue such title insurance with respect to Collateral comprised
of real property as it shall determine; (i) Searches, Certificates of Title.
Lender shall have received searches reflecting the filing of its financing
statements and fixture filings in such jurisdictions as it shall determine, and
shall have received certificates of title with respect to the Collateral which
shall have been duly executed in a manner sufficient to perfect all of the
security interests granted to Lender, (j) Landlord and Mortgagee Waivers. Lender
shall have received landlord and mortgagee waivers from the lessors and
mortgagees of all locations where any Collateral is located; the landlord
waivers shall include, without limitation, a Landlord's Waiver and Consent, in
form and substance satisfactory to Lender, which shall provide, among other
items, for certain rights in favor of Lender to cure defaults under such lease,
for a subordination to the Loans of such landlord's lien rights, and for
Lender's right to continue occupancy of such premises in the event of defaults
by Borrower pursuant either to the lease or the Loan Documents; (k) Fees.
Borrower shall have paid all fees payable by it on the Closing Date pursuant to
this Agreement; (1) Opinion of Counsel. Lender shall have received an opinion of
Borrower's counsel covering such matters as Lender shall determine in its sole
discretion, (m) Officer Certificate. Lender shall have received a certificate of
the President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in the Agreement and the fulfillment of all conditions
precedent to the initial advance thereunder; (n) Solvency Certificate. Lender
shall have received a signed certificate of the Borrower's duly elected Chief
Financial Officer concerning the solvency and financial condition of Borrower,
in a form satisfactory to Lender; (o) Interest Rate Protection. In the event
Borrower elects a variable rate of interest with respect to any Term Loan,
Borrower shall have entered into one or more interest rate protection agreements
(collectively, the "Rate Cap Agreement") in form and substance and with a
financial institution acceptable to Lender with respect to no less than 50% of
the beginning principal balance of such Term Loan; (p) Environmental -
Assessment. Borrower shall provide evidence satisfactory to Lender that the
subject transaction is environmentally acceptable. If required by Lender,
Borrower shall have retained a firm acceptable to Lender and, knowledgeable in
environmental matters to perform a Phase I environmental investigation of the
real property owned, operated or occupied by Borrower and the surrounding areas.
Such investigation may include, but not be limited to, soil and ground water
testing and core samplings to fully identify the scope of any environmental
issues impacting the transaction. All costs incurred in performing such
investigation shall be borne by Borrower. The scope and results of such
investigation must be satisfactory to Lender in form and substance. All costs
associated with compliance with the Applicable Laws, as indicated by such
investigation, shall be the sole responsibility of Borrower. Prior to the
Closing, there shall have been reported to the appropriate regulatory agencies
such matters concerning the condition of all real property owned, occupied, or
operated by Borrower as Lender, in its sole discretion, has determined are
subject to a reporting obligation under Applicable Laws; (q) Schedule
Conditions. Borrower shall have compiled with all additional conditions
precedent as set forth in the Schedule attached hereto; and (r) Other Matters.
All other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been executed, delivered, and recorded
and/or filed (where applicable), and shall be in form and substance satisfactory
to Lender and its counsel.
2.2 Subsequent Advances. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a) The
representations and warranties of Borrower set forth in this Agreement shall be
accurate, before and after giving effect to such advance or issuance and to the
application of any proceeds thereof, (b) No Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred and is continuing, or would result from such advance or issuance or
from the application of any proceeds thereof, (c) no material adverse change has
occurred in the Borrower's business, operations, financial condition, or assets
or in the condition of the Collateral, or in the prospect of repayment
-2-
<PAGE> 3
FINOVA LOAN AND SECURITY AGREEMENT
of the Obligations; and (d) Lender shall have received such other approvals,
opinions or documents as Lender shall reasonably request.
3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at the per annum rate set forth
on the Schedule. Borrower shall also pay Lender the fees set forth on the
Schedule.
3.2 Default Interest Rate. Upon the occurrence of an Event of Default,
Borrower shall pay Lender interest on the daily outstanding balance of
Borrower's loan account at a rate per annum which is two percent (2%) in excess
of the highest rate of interest (in the absence of an Event of Default) at which
any part of the Obligations accrue pursuant to the Schedule.
3.3 Examination Fees. Borrower agrees to pay to Lender an examination fee in
the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by Lender prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to Lender
an initial examination fee in an amount equal to the amount set forth on the
Schedule. Such initial examination fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to Lender prior to the
date of this Agreement.
3.4 Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the principal
balance of the Obligations in accordance with the provisions of this Agreement,
(ii) interest after an Event of Default, calculated and applied to the amount of
the Obligations in accordance with the provisions hereof, and (iii) all
Additional Sums, if any. Borrower agrees to pay an effective contracted for rate
of interest which is the sum of the above-referenced elements. The examination
fees, attorneys' fees, expert witness fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, Termination Fees, Unused Line
Fees, other charges, goods, things in action or any other sums or things of
value paid or payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury laws of the State
of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
whatsoever shall this Agreement or such documents require the payment or permit
the collection of interest or other charges in the nature of interest in excess
of the maximum contract rate permitted by the Applicable Usury Law (the "Maximum
Interest Rate"). In the event (a) any such excess of interest otherwise would be
contracted for, charged or received from Borrower or otherwise in connection
with the Loans evidenced hereby, (b) the maturity of the Obligations is
accelerated in whole or in part, or (c) all or part of the Obligations shall be
prepaid, so that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the Loans evidenced
hereby, would exceed the Maximum Interest Rate, then in any such event (1) the
provisions of this Section 3.4 shall govern and control, (2) neither Borrower
nor any other person or entity now or hereafter liable for the payment of the
Obligations shall be obligated to pay the amount of such interest to the extent
that it is in excess of the Maximum Interest Rate, (3) any such excess which may
have been collected shall be either be applied as a credit against the then
unpaid principal amount of the Obligations or refunded to Borrower, at Lender's
option, and (4) the effective rate of interest shall be automatically reduced to
the Maximum Interest Rate. It is further agreed, without limiting the generality
of the foregoing, that to the extent permitted by the Applicable Usury Law, (x)
all calculations of interest which are made for the purpose of determining
whether such rate would exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the Loans evidenced hereby, all interest at any time contracted
for, charged or received from Borrower or otherwise in connection with such
Loans; and (y) in the event that the effective rate of interest on the Loans
should at any time exceed the Maximum Interest Rate, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Lender from time to time, if and when the
effective interest rate on the Loans otherwise falls below the Maximum Interest
Rate, to the extent that interest paid to the date of calculation does not
exceed the Maximum Interest Rate, until the entire amount of interest which
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law has been paid in full. Borrower further agrees that should
the Maximum Interest Rate be increased at anytime hereafter because of a change
in the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
-3-
<PAGE> 4
FINOVA LOAN AND SECURITY AGREEMENT
prohibited by the Applicable Usury Law, should the Maximum Interest Rate be
decreased because of a change in the Applicable Usury Law, such decreases shall
not apply to the indebtedness evidenced hereby regardless of when incurred.
4. COLLATERAL
4.1 Security Interest in the Collateral. To secure the payment and
performance of the Obligations when due, Borrower hereby grants to Lender a
first priority security interest in all of Borrower's now owned or hereafter
acquired or arising Inventory, Equipment, Receivables, Trademarks, Licenses, and
Patents and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, Investment Property, money, any and all property
now or at any time hereafter in Lender's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Lender may be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower shall, at
Borrower's expense, take all actions requested by Lender at any time to perfect,
maintain, protect and enforce Lender's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as Lender shall require, all in form and
substance satisfactory to Lender, (ii) maintaining a perpetual inventory and
complete and accurate stock records, (iii) delivering to Lender warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued, and transferring Inventory to warehouses
designated by Lender, (iv) placing notations on Borrower's books of account to
disclose Lender's security interest therein and (v) delivering to Lender all
letters of credit on which Borrower is named beneficiary. Lender may file,
without Borrower's signature, one or more financing statements disclosing
Lender's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession, or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrower shall notify such Person of Lender's
security interest in such Collateral and, upon Lender's request, instruct them
to hold all such Collateral for Lender's account subject to Lender's
instructions. From time to time, Borrower shall, upon Lender's request, execute
and deliver confirmatory written instruments pledging the Collateral to Lender,
but Borrower's failure to do so shall not affect or limit Lender's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and. Lender's obligation to make further advances hereunder
has terminated, Lender's security interest in the Collateral shall continue in
full force and effect.
4.3 Preservation of Collateral. Lender may, in its sole discretion, at any
time discharge any lien or encumbrance on the Collateral or bond the same, pay
any insurance, maintain guards, pay any service bureau, obtain any record or
take any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
4.4 Insurance. Borrower shall maintain and deliver evidence to Lender of
such insurance as is required by Lender, written by insurers, in amounts, and
with lender's loss payee and other endorsements, satisfactory to Lender. All
premiums with respect to such insurance shall be paid by Borrower as and when
due. Accurate and complete copies of the policies shall be delivered by Borrower
to Lender. If Borrower fails to comply with this Section 4.4, Lender may (but
shall not be required to) procure such insurance at Borrower's expense and
charge the cost thereof to Borrower's loan account as an Obligation.
5. EXAMINATION OF RECORDS, FINANCIAL REPORTING.
5.1 Examinations. Lender shall at all reasonable times have full access to
and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral, Borrower shall deliver to Lender any instrument
necessary for Lender to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon Lender's
request, by copies of related purchase orders and invoices. Lender may, at any
time after the occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to Lender. Lender may, without expense
to Lender, use such of Borrower's personnel, supplies and premises as may be
reasonably necessary for maintaining or enforcing Lender's security interest.
5.2 Reporting Requirements. Borrower shall furnish Lender, upon request,
such information and statements as Lender shall request from time to time
regarding Borrower's business affairs, financial condition and the results of
its operations. Without limiting the generality of the foregoing, Borrower shall
provide Lender with: (i) copies of sales journals, cash receipts journals,
deposit slips and Lender's standard form collateral and loan reports, daily;
(ii) upon Lender's request, copies of sales invoices,
-4-
<PAGE> 5
FINOVA LOAN AND SECURITY AGREEMENT
customer statements and credit memoranda issued, remittance advices and reports;
(iii) copies of shipping and delivery documents, upon request. (iv) on or prior
to the dates set forth on the Schedule, monthly agings (aged from invoice date)
and reconciliations of Receivables (with listings of concentrated accounts),
payables reports (including agings), inventory reports (including a perpetual
inventory listing) and unaudited financial statements with respect to the prior
month prepared on a basis consistent with such statements prepared in prior
months and otherwise in accordance with generally accepted accounting
principles, consistently applied; (v) audited annual financial statements,
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the most recent Prepared Financials provided to Lender
by Borrower, with the unqualified report thereon of independent certified public
accountants acceptable to Lender, as soon as available, and in any event, within
one hundred and twenty (120) days after the end of each of Borrower's fiscal
years; (vi) an annual operating budget (including income statements, balance
sheets and cash flow statements by month) for the upcoming fiscal year, at least
thirty (30) days prior to the end of Borrower's fiscal year; (vii) such
certificates relating to the foregoing as Lender may request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default, and (viii) a borrowing base report in
connection with and together with each request for an advance hereunder.
6. COLLATERAL REPORTING; INVENTORY
6.1 Invoices. Borrower shall not re-date any invoice or sale. from the
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify Lender in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to Lender
appropriately endorsed to Lender and, regardless of the form of any presentment,
demand, notice of dishonor, protest or notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
6.3 Physical Inventory. Borrower shall conduct a physical count of the
Inventory at such intervals as Lender requests and promptly supply Lender with a
copy of such accounts accompanied by a report of the value (calculated at the
lower of cost or market value on a first in, first out basis) of the Inventory
and such additional information with respect to the Inventory as Lender may
request from time to time.
6.4 Returns. For so long as no Event of Default has occurred and is
continuing and subject to the provisions of Section 9.2, if any account debtor
returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the account debtor (sending a copy to Lender if the
amount of such credit memorandum exceeds $25,000) in the appropriate amount. In
the event any attempted return occurs after the occurrence of any Event of
Default, Borrower shall (i) hold the returned Inventory in trust for Lender,
(ii) segregate all returned Inventory from all of its other property, (iii)
conspicuously label the returned Inventory as Lender's property and (iv)
immediately notify Lender of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
Lender's request deliver such returned Inventory to Lender. Borrower shall not
consign any Inventory.
7. PRINCIPAL PAYMENTS, PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 7.1 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), that
portion of the Obligations consisting of principal payable on account of
Receivable Loans shall be payable by Borrower to Lender immediately upon the
earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 16 hereof, provided, however, that any Overline shall be payable on
demand pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until Lender notifies Borrower to the contrary, Borrower
may make collection of all Receivables for Lender and shall receive all payments
as trustee of Lender and immediately deliver all payments to Lender in their
original form as set forth below, duly endorsed in blank. Lender or its designee
may, at any time, notify account debtors that the Receivables have been assigned
to Lender and of Lender's security interest therein, and may collect the
Receivables directly and charge the collection costs and expenses to Borrower's
loan account. Borrower agrees that, in computing the charges under this
Agreement, all items of payment shall be deemed applied by Lender on account of
the Obligations one (1) Business Day after receipt by Lender of good funds which
have been finally credited to Lender's account, whether such funds are received
directly from Borrower or from the Blocked
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FINOVA LOAN AND SECURITY AGREEMENT
Account bank or the Dominion Account bank, pursuant to Section 7.3, and this
provision shall apply regardless of the amount of the Obligations outstanding or
whether any Obligations are outstanding. Lender is not, however, required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Lender in its sole discretion and Lender may charge Borrower's
loan account for the amount of any item of payment which is returned to Lender
unpaid.
7.3 Establishment of a Lockbox Account or Dominion Account. All proceeds of
Collateral shall, at the direction of Lender, be deposited by Borrower into a
lockbox account, or such other "blocked account" as Lender may require (each, a
"Blocked Account") pursuant to an arrangement with such bank as may be selected
by Borrower and be acceptable to Lender. Borrower shall issue to any such bank
an irrevocable letter of instruction directing said bank to transfer such funds
so deposited to Lender, either to any account maintained by Lender at said bank
or by wire transfer to appropriate account(s) of Lender. All funds deposited in
a Blocked Account shall immediately become the sole property of Lender and
Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. Lender assumes no responsibility for any Blocked
Account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Alternatively, Lender may establish depository accounts in the name:
of Lender at a bank or banks for the deposit of such funds (each, a "Dominion
Account") and Borrower shall deposit all proceeds of Receivables and all cash
proceeds of any sale of Inventory or, to the extent permitted herein, Equipment
or cause same to be deposited, in kind, in such Dominion Accounts of Lender in
lieu of depositing same to Blocked Accounts.
7.4 Payments Without Deductions. Borrower shall pay principal, interest, and
all other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower repays the
Obligations in full at any time hereafter, such payment in full shall be
credited (conditioned upon final collection) to Borrower's loan account one (1)
Business Day after Lender's receipt thereof.
7.6 Monthly Accountings. Lender shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications; of
payments made and correction of manifest error in calculation), unless Borrower
notifies Lender in writing to the contrary within sixty (60) days after each
account is rendered, describing the nature of any alleged errors or omissions.
7.7 Excess Cash Flow Prepayments. Until the Term Loans are paid in full,
Lender may deliver a notice to Borrower, such notice to be delivered within
thirty (30) days after the receipt by Lender of Borrower's audited financial
statements for any fiscal year of' Borrower, commencing with the fiscal quarter
ending December 31, 1997, requiring Borrower to make a prepayment to be applied
against the Term Loans, in an amount of up to fifty percent (50%) of Borrower's
Excess Cash Flow (the "Required Excess Cash Flow Payment") for the fiscal year
represented by such financial statements. Any prepayments required under this
Section 7.7 are strictly at the sole option of Lender. All payments required
hereunder shall be paid by Borrower within thirty (30) days following the
delivery by Lender of a written demand for such payment hereunder. Failure of
Lender to demand or require a Required Excess Cash Flow Payment with respect to
a particular fiscal year of Borrower or the failure of Lender to demand a
payment of the entire Required Excess Cash Flow Payment with respect to a
particular fiscal year of Borrower shall not constitute a waiver of Lender's
right to demand a payment of the entire Required Excess Cash Flow Payment for
any subsequent fiscal year of Borrower. All amounts paid pursuant to this
Section 7.7 shall be applied first against the outstanding principal balance of
Term Loan A, in the inverse order of the maturity of payments accruing under
Term Note A, until all amounts due under Term Note A have been paid in full, and
next against the outstanding principal balance of the Capex Note, in the inverse
order of the maturity of payments accruing under the Capex Note, until all
amounts due under the Capex Note have been paid in full. No fee or other form of
prepayment premium shall be applied to any payments required under this Section
7.7. No Termination Fee, Make Whole Premium or other form of prepayment premium
shall be applied to any payments made under this Section 7.7.
8. POWER OF ATTORNEY.
Borrower appoints Lender and its designees as Borrower's attorney, with the
power to endorse Borrower's name on any checks, notes, acceptances, money orders
or other forms of payment or security that come into Lender's possession; to
sign Borrower's name on any invoice or bill of lading relating to any
Receivable, on drafts against customers, on assignments of Receivables, on
notices of assignment, financing statements and other public records, on
verifications of accounts and on notices to customers or account debtors; to
send requests for verification of Receivables to customers or account debtors;
after the occurrence of any Event of Default, to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender and to open and dispose of all mail addressed to Borrower,
and to do all other things Lender deems necessary or desirable to carry out the
terms of this Agreement. Borrower hereby ratifies and approves all acts of such
attorney. Neither Lender nor any of its designees shall be liable for any acts
or omissions
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FINOVA LOAN AND SECURITY AGREEMENT
nor for any error of judgment or mistake of fact or law while acting as
Borrower's attorney. This power, being coupled with an interest, is irrevocable
until the Obligations have been fully satisfied and Lender's obligation to
provide loans hereunder shall have terminated.
9. RECEIVABLES.
9.1 Eligibility. Borrower represents and warrants that each Receivable
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and Lender's security interest shall not be
subject to any offset. deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation and warranty herein
is breached as to any Receivable or any Receivable ceases to be an Eligible
Receivable for any reason other than payment thereof, then Lender may, in
addition to its other rights hereunder, designate any and all Receivables owing
by that account debtor as not Eligible Receivables; provided, that Lender shall
in any such event retain its security interest in all Receivables, whether or
not Eligible Receivables, until the Obligations have been fully satisfied and
Lender's obligation to provide loans hereunder has terminated.
9.2 Disputes. Borrower shall notify Lender promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to Lender, but
no discount, credit or allowance shall be granted to any account debtor and no
returns of merchandise shall be accepted by Borrower without Lender's consent,
except for discounts, credits and allowances made or given in the ordinary
course of Borrower's business. Lender may, at any time after the occurrence of
an Event of Default, settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which Lender considers advisable in its
reasonable credit judgment and, in all cases, Lender shall credit Borrower's
loan account with only the net amounts received by Lender in payment of any
Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with
Borrower's past practice, ordinary wear and tear excepted. Borrower shall not
permit any item of Equipment to become a fixture (other than a tirade fixture)
to real estate or an accession to other property.
11. OTHER LIENS NO DISPOSITION OF COLLATERAL
Borrower represents, warrants and covenants that (a) all Collateral is and
shall continue to be owned by it free and clear of all liens, claims and
encumbrances whatsoever (except for Lender's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by Lender in its sole discretion from time to time in writing), and (b) Borrower
shall not, without Lender's prior written approval, sell, encumber or dispose of
or permit the sale, encumbrance or disposal of any Collateral or any interest
of Borrower therein, except for (i) the sale of Inventory in the ordinary
course of Borrower's business and (ii) the sale or other disposition of
Equipment having a fair market value of less than $50.000 for any one (1) item
or $100,000 in the aggregate for all items in any one (1) FISCAL year. In the
event Lender gives any such prior written approval, the same may be conditioned
on the sale or disposition price being equal to, or greater than, an amount
acceptable to Lender. The proceeds of any such sale or disposition shall be
remitted to Lender pursuant to this Agreement for application to the
Obligations.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Except as set forth in the Disclosure Schedule attached hereto as Exhibit A
and incorporated herein by this reference, Borrower represents and warrants
that:
12.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states in
which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party and
perform all of its Obligations thereunder, and has not taken any steps to
wind-up, dissolve or otherwise liquidate its assets;
12.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any person
during such time except as set forth on the Schedule.
12.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles or Certificate of Incorporation or
By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
it in accordance with its terms;
12.5 Intangible Property. Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade
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FINOVA LOAN AND SECURITY AGREEMENT
names for the present and planned future conduct of its business without any
known conflict with the rights of others, and each is valid and has been duly
registered or flied with the appropriate domestic governmental authorities and
such foreign governmental authorities as Borrower deems necessary in the
exercise of Borrower's reasonable business judgment;
12.6 Capital. Borrower has capital sufficient to conduct its business, is
able to pay its debts as they mature, and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
12.7 Material Litigation. Borrower has no pending or overtly threatened
litigation, actions or proceedings which would materially and adversely affect
its business, assets, operations, prospects or condition, financial or
otherwise, or the Collateral or any of Lender's interests therein;
12.8 Title; Security Interests of Lender. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the filing of UCC-1 Financing
Statements and the recording of any mortgages or deeds of trust with respect to
real property, in each case in the appropriate offices, this Agreement and such
documents shall create valid and perfected first priority liens in the
Collateral, subject only to Permitted Encumbrances;
12.9 Restrictive Agreements: Labor Contracts. Borrower is not a party or
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to Lender in writing prior
to the date hereof,
12.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition. financial or otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained or issued any
required consent of a governmental agency or other Person in connection with the
financing contemplated hereby;
12.12 Defaults. Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;
12.13 Financial Condition. The Prepared Financials fairly present Borrower's
financial condition and results of operations and those of such other Persons
described therein as of the date thereof, there are no material omissions from
the Prepared Financials or other facts or circumstances not reflected in the
Prepared Financials, and there has been no material and adverse change in such
financial conditions or operations since the date of the initial Prepared
Financials delivered to Lender hereunder other than those disclosed in
subsequent Prepared Financials;
12.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor have Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
12.15 Taxes. Borrower has filed all tax returns and such other reports as it
is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
12.16 Locations. Borrower's chief executive office and the offices and
locations where it keeps the Collateral (except for Inventory in transit) are at
the locations set forth on the Schedule, except to the extent that such
locations may have been changed after notice to Lender in accordance with
Section 13.5 below;
12.17 Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and
12.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Event of Default
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FINOVA LOAN AND SECURITY AGREEMENT
and (ii) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and
this Agreement is in effect, it shall:
13.1 Expenses. Borrower shall reimburse Lender for all costs, fees and
expenses incurred by Lender in connection with the negotiation, preparation,
execution, delivery, administration and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, lien, title search and insurance fees, appraisal
fees, all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all other
costs, expenses, taxes and filing or recording fees payable in connection with
the transactions contemplated by this Agreement including without limitation all
such costs, fees and expenses as Lender shall incur or for which Lender shall
become obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and Lender's
security interest therein, including, without limitation, the defense or
prosecution of any action involving Lender and Borrower or any third party, (iv)
enforcement of any of Lender's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with Lender's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed.
Borrower shall also pay all Lender charges in connection with bank wire
transfers, forwarding of loan proceeds, deposits of checks and other items of
payment, returned checks, establishment and maintenance of lock boxes and other
blocked accounts, and all other bank and administrative matters, in accordance
with Lender's schedule of bank and administrative fees and charges in effect
from time to time.
13.2 Taxes. File all tax returns and pay or make adequate provision for the
payment of all taxes, assessments and other charges on or prior to the date when
due;
13.3 Notice of Litigation. Promptly notify Lender in writing of any
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance, involving the amount of $50,000 or more in any one (1) matter or the
amount of $100,000 in the aggregate for all matters in any one (1) fiscal year;
13.4 ERISA. Notify Lender in writing (i) promptly upon the occurrence of any
event described in Paragraph 4043 of ERISA, other than a termination, partial
termination or merger of a Plan or a transfer of a Plan's assets and (ii) prior
to any termination, partial termination or merger of a Plan or a transfer of a
Plan's assets;
13.5 Change in Location. Notify Lender in writing forty-five (45) days prior
to any change in the location of Borrower's chief executive office or the
location of any Collateral, or Borrower's opening or closing of any other place
of business;
13.6 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
13.7 Labor Disputes. Promptly notify Lender in writing of any labor dispute
to which Borrower is or may become subject and the expiration of any labor
contract to which Borrower is a party or bound,
13.8 Violations of Law. Promptly notify Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to Borrower which may materially and adversely
affect the Collateral or Borrower's business, assets, prospects, operations or
condition, financial or otherwise;
13.9 Defaults. Notify Lender in writing within five (5) Business Days of
Borrower's default under any note, indenture, loan agreement mortgage, lease or
other agreement to which Borrower is a party or bound, or of any other default
under any Indebtedness of Borrower,
13.10 Capital Expenditures. Promptly notify Lender in writing of the making
of Capital Expenditures exceeding the amount of $100,000 for any one (1) item or
$200,000 in the aggregate in any thirty (30) day period;
13.11 Books and Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with generally accepted accounting principles consistently applied,
reflecting all its financial transactions;
13.12 Leases, Warehouse Agreements. Provide Lender with (i) copies of all
agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Collateral may, from time to time, be located, and (ii)
without limiting the landlord and mortgagee waivers to be provided pursuant to
Section 2. (j) above, landlord and mortgagee waivers in form acceptable to
Lender with respect to all locations where any Collateral is hereafter located.
13.13 Additional Documents. At Lender's request, promptly execute or cause
to be executed and delivered to Lender any and all documents, instruments or
agreements deemed necessary by Lender to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any
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FINOVA LOAN AND SECURITY AGREEMENT
of the other Loan Documents. Without limiting the generality of the foregoing,
if any of the Receivables with a face value in excess of $ 1,000.00 arises out
of a contract with the United States of America or any department, agency,
subdivision or instrumentality thereof, Borrower shall promptly notify Lender of
such fact in writing and shall execute any instruments and take any other action
required or requested by Lender to comply with the provisions of the Federal
Assignment of Claims; Act;
13.14 Financial Covenants. Comply with the financial covenants set forth on
the Schedule.
14. NEGATIVE COVENANTS.
Without Lender's prior written consent, which consent Lender may withhold in
its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower shall not: (a) Mergers. Merge or consolidate
with or acquire any other Person, or make any other material change in its
capital structure or in its business or operations which might adversely affect
the repayment of the Obligations; (b) Loans. Other than travel advances or loans
to Borrower's officers and employees not to exceed the amount outstanding at any
one time of $5,000 to any one (1) employee or $50,000 in the aggregate for all
employees, make advances, loans or extensions of credit to, or invest in, any
Person; (c) Dividends. Declare or pay cash dividends upon any of its stock or
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock; (d) Adverse Transactions. Enter into any
transaction which materially and adversely affects the Collateral or its ability
to repay the Obligations in full as and when due; (e) Indebtedness of Others.
Become directly or contingently liable for the Indebtedness of any Person,
except by endorsement of instruments for deposit; (f) Repurchase. Make a sale to
any customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or any other repurchase or return basis; (g) Name. Use
any corporate or fictitious name other than its corporate name as set forth in
its Articles or Certificate of Incorporation on the date hereof or the Schedule;
(h) Prepayment. Prepay any Indebtedness other than trade payables and other than
the Obligations; (i) Capital Expenditure. Make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed the amount set forth on
the Schedule; (j) Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule; (k)
Indebtedness. Create, incur, assume or permit to exist any Indebtedness
(including Indebtedness in connection with Capital Leases) in excess of the
amount set forth on the Schedule, other than (i) the Obligations, (ii) trade
payables and other contractual obligations to suppliers and customers incurred
in the ordinary course of business, and (iii) other Indebtedness existing on the
date of this Agreement and reflected in the Prepared Financials (other than
Indebtedness paid on the date of this Agreement from proceeds of the initial
advances hereunder); (1) Affiliate Transactions. Except as set forth below,
sell, transfer, distribute or pay any money or property to any Affiliate, or
invest in (by capital contribution or otherwise) or purchase or repurchase any
stock or Indebtedness, or any property, of any Affiliate, or become liable on
any guaranty of the indebtedness, dividends or other obligations of any
Affiliate. Notwithstanding the foregoing, Borrower may pay compensation
permitted by Section 140) to employees who are Affiliates and, if no Event of
Default has occurred, Borrower may engage in transactions with Affiliates in the
normal course of business, in amounts and upon terms which are fully disclosed
to Lender and which are no less favorable to Borrower than would be obtainable
in a comparable arm's length transaction with a Person who is not an Affiliate;
(m) Nature of Business. Enter into any new business or make any material change
in any of Borrower's business objectives, purposes and operations; (n) Lender's
Name. Use the name of Lender in connection with any of Borrower's business or
activities, except in connection with internal business matters or as required
in dealings with governmental agencies and financial institutions or with trade
creditors of Borrower, solely for credit reference purposes, or (o) Margin
Security. Own, purchase or acquire (or enter into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect.
15 ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
Section 15: (i) The term "Applicable Law" shall include, but shall not be
limited to, each statute named or referred to in this Section 15.1 and all rules
and regulations thereunder, and any other local, state and/or federal laws,
rules, regulations or ordinances, whether currently in existence or hereafter
enacted, which govern, to the extent applicable to the Property or to Borrower,
(a) the existence, cleanup and/or remedy of contamination on real property, (b)
the protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (c) the emission or
discharge of hazardous substances into the environment, (d) the control of
hazardous wastes; or (e) the use, generation, transport, treatment, removal or
recovery of Hazardous Substances. (ii) The term "Hazardous Substance" shall mean
(a) any oil, flammable substance, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other wastes, materials
or pollutants which (i) pose a hazard to the Property or to persons on or about
the Property or (ii) cause the Property to be in violation of any Applicable
Law; (b) asbestos in any form which is or could become friable, urea
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FINOVA LOAN AND SECURITY AGREEMENT
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls, or radon gas;
(c) any chemical, material or substance defined as or included in the definition
of "hazardous substances," "waste," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic substance"
or words of similar import under any Applicable Law, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 USC Sections 9601 et seg.; the Resource Conservation and
Recovery Act ("RCRA"), 42 USC Sections 690V et seq.; the Hazardous
Materials Transportation Act, 49 USC Sections 1801 et seg., and the
Federal Water Pollution Control Act, 33 USC Sections 1251 et seg.; (d) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority which may or could pose a hazard to
the health or safety of the occupants of the Property or the owners and/or
occupants of property adjacent to or surrounding the Property, or any other
person coming upon the Property or adjacent property; and (e) any other
chemical, materials or substance which may or could pose a hazard to the
environment. (iii) The term "Property" shall mean all real property, wherever
located, in which Borrower or any Affiliate of Borrower has any right, title or
interest, whether now existing or hereafter arising, and including, without
limitations as owner, lessor or lessee.
15.2 Covenants and Representations. Borrower represents and warrants that
there have not been during the period of Borrower's possession of any interest
in the Property and, to the best of its knowledge after reasonable inquiry,
there have not been at any other times, any activities on the Property
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances except in compliance with Applicable Law
(a) under, on or in the land included the Property, whether contained in soil,
tanks, sumps, ponds, lagoons, barrels, cans or other containments, structures or
equipment, (b) incorporated in the buildings, structures or improvements
included in the Property, including any building material containing asbestos,
or (c) used in connection with any operations on or in the Property. Without
limiting the generality of the foregoing and to the extent not included within
the scope of this Section 15.2, Borrower represents and warrants that it is in
full compliance with Applicable Law and has received no notice from any person
or any governmental agency or other entity of any violation by Borrower or its
Affiliates of any Applicable Law. Borrower shall be solely responsible for and
agrees to indemnity Lender, protect and defend with counsel reasonably
acceptable to Lender, and hold Lender harmless from and against any claims,
actions, administrative proceedings, judgments, damages, punitive damages,
penalties, fines, costs, liabilities (including sums paid in settlements of
claims), interest or losses, attorneys' fees (including any fees and expenses
incurred in enforcing this indemnity), consultant fees, expert fees, and other
out-of-pocket costs or expenses actually incurred by Lender (collectively, the
"Environmental Costs"), that may, at any time or from time to time, arise
directly or indirectly from or in connection with: (a) the presence, suspected
presence, release or suspected release of any Hazardous Substance whether into
the air, soil, surface water or groundwater of or at the Property, or any other
violation of Applicable Law, or (b) any breach of the foregoing representations
and covenants; except to the extent any of the foregoing result from the actions
of Lender, its employees, agents and representatives. All Environmental Costs
incurred or advanced by Lender shall be deemed to be made by Lender in good
faith and shall constitute Obligations hereunder.
16 TERM, TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on the
Schedule (the "Initial Term") and shall be automatically renewed for successive
periods of one (1) year (each, a "Renewal Term") unless earlier terminated as
provided herein.
16.2 Prior Notice. Each party shall have the right to terminate this
Agreement at the end of the Initial Term or at the end of any Renewal Term by
giving the other party written notice not less than sixty (60) days prior to the
effective date of such termination, by registered or certified mail.
16.3 Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure set
forth in Section 16.2, Borrower may terminate this Agreement at any time but
only upon sixty (60) days prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by Lender upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to Lender upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
on the Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(i) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(ii) Unless such Obligation is specifically dealt with elsewhere in this
Section 17. 1, Borrower or any other Loan Party fails or neglects to perform,
keep, or observe any Obligation including, but not limited to, any term,
provision, condition, covenant or agreement contained in any Loan Document to
which such Loan Party is a party,
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FINOVA LOAN AND SECURITY AGREEMENT
unless such failure or neglect is cured within fifteen (15) days after Lender
has given notice to Borrower, in accordance with Section 19.13 hereof, of such
failure or neglect;
(iii) Any material adverse change occurs in Borrower's business, assets,
operations or condition, financial or otherwise;
(iv) The prospect of repayment of an, portion of the Obligations or the
value or priority of Lender's security interest in the Collateral is materially
impaired;
(v) Any material portion of Borrower's assets is seized, attached, subjected
to a writ or distress warrant, is levied upon or comes into the possession of
any judicial officer,
(vi) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower,
(vii) Any bankruptcy or other insolvency proceeding is commenced by
Borrower, or any such proceeding is commenced. against Borrower and remains
undischarged or unstayed for forty-five (45) clays;
(viii) Any notice of lien, levy or assessment is filed of record with
respect to any of Borrower's assets unless such lien, levy or assessment which
is the subject of such notice is paid in full, bonded over or stayed in a manner
acceptable to Lender within the earlier of thirty (30) days following filing of
such notice or twenty (20) days before the holder of such lien, levy or
assessment is legally entitled to realize upon the same;
(ix) Any judgments are entered against Borrower in an aggregate amount
exceeding $25,000 unless such judgments are paid in full, bonded over or stayed
in a manner acceptable to Lender within the earlier of thirty (30) days
following the entry of any judgment or twenty (20) days before the holder of any
judgment is legally entitled to realize upon the same;
(x) Any default shall have occurred under any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party, and the period to cure such
default, if any, shall have passed;
(xi) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to Lender in connection
therewith shall prove to have been misleading in any material respect;
(xii) Any Guarantor dies, terminates or attempts to terminate its Guaranty
or becomes subject to any bankruptcy or other insolvency proceeding;
(xiii) Any Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; any lien upon the assets of Borrower in connection with
any Plan shall arise; Borrower or any of its ERISA Affiliates shall fail to make
full payment when due of all amounts which Borrower or any of its ERISA
Affiliates may be required to pay to any Plan or any Multiemployer Plan as one
or more contributions thereto; Borrower or any of its ERISA Affiliates creates
or permits the creation of any accumulated funding deficiency, whether or not
waived; or
(xiv) The Control Group owns, on a fully-diluted basis, less than sixty-five
percent (65.0%) of the issued and outstanding shares of common stock or other
evidence of ownership of Borrower.
(xv) Borrower fails or neglects to perform, keep or observe Borrower's
obligations under Section 5.2 hereof and such failure continue for a period of
five (5) days; provided, however, that Borrower shall be entitled to take
advantage of the foregoing five (5) day grace period only five (5) times within
any calendar year and in the event Borrower fails to timely perform its
obligations under Section 5.2 hereof more than five (5) times during any
calendar year, such failure shall be governed by the provisions of Section 17.
I(xvi); or
(xvi) Borrower fails or neglects to perform, keep or observe the Obligations
set forth in Sections 4.2, 4.4, 5.1, 5.2 (subject to Section 17. 1(xv)), 13.6,
13.9., 13.14, or in Article 14 hereof.
17.2 Remedies. Upon the occurrence of an Event of Default, Lender may, at
its option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, terminate this Agreement and declare all of the
Obligations to be immediately payable in full. Borrower agrees that Lender shall
also have all of its rights and remedies under applicable law, including,
without limitation, the default rights and remedies of a secured party under the
Code, and upon the occurrence of an Event of Default, Borrower hereby consents
to the appointment of a receiver by Lender in any action initiated by Lender
pursuant to this Agreement and to the jurisdiction and venue set forth in
Section 19.7, and Borrower waives notice and posting of a bond in connection
therewith. Further, Lender may, at, any time, take possession of the Collateral
and keep it on Borrower's premises, at no cost to Lender, or remove any part of
it to such other place(s) as Lender may desire or Borrower shall, upon Lender's
demand, at Borrower's sole cost, assemble the Collateral and make it available
to Lender at a place reasonably convenient to
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FINOVA LOAN AND SECURITY AGREEMENT
Lender and Lender may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
Lender deems advisable, at Lender's discretion, and may, if Lender deems it
reasonable, postpone or adjourn any sale of the Collateral by an announcement at
the time and place of sale or of such postponed or adjourned sale without giving
a new notice of sale. Borrower agrees that Lender has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, name, trade secrets, trade
names, trademarks and advertising matter, or any similar property, in completing
production, advertising or selling any Collateral and Borrower's rights under
all licenses and all franchise agreements shall inure to Lender's benefit. Any
requirement of reasonable notice shall be met if such notice is mailed postage
prepaid to Borrower at its address set forth in the heading to this Agreement at
least five (5) days before sale or other disposition. The proceeds of sale shall
be applied, first, to all attorneys fees and other expenses of sale, and second,
to the Obligations in such order as Lender shall elect, in its sole discretion.
Lender shall return any excess to Borrower and Borrower shall remain liable for
any deficiency to the fullest extent permitted by law.
17.3 Standards for Determining Commercial Reasonableness. Borrower and
Lender agree that the following conduct by Lender with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by Lender, including, but not limited to, Lender's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition as to which on no later than the fifth calendar
day prior thereto written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later than the fifth
calendar day prior thereto notice thereof describing in general nonspecific
terms, the Collateral to be disposed of is published once in a newspaper of
general circulation in the county where the sale is to be conducted. The public
disposition shall be at any place designated by Lender, with or without the
Collateral being present, and which commences at any time between 8:00 a.m. and
5:00 p.m. (provided that no notice of any public or private disposition need be
given to the Borrower if the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market).
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of accounts, instruments and general
intangibles, it shall be commercially reasonable for Lender to direct any
prospective purchaser thereof to ascertain directly from Borrower any and all
information concerning the same, including, but not limited to, the terms of
payment aging and delinquency, if any, the financial condition of any obligor or
account debtor thereon or guarantor thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below:
"Additional Sums" has the meaning set forth in Section 3.4 above.
"Affiliate" means any Person controlling, controlled by or under common control
with Borrower. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of Borrower, whether through ownership of common or
preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder or subsidiary of Borrower, and any other Person with whom or which
Borrower has common shareholders, officers or directors.
"Blocked Account" has the meaning given to it in Section 7.3 above.
"Capital Expenditures" means all expenditures made and liabilities incurred for
the acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance with
generally accepted accounting principles, should be capitalized for financial
reporting purposes and reflected as a liability on the balance sheet of
Borrower.
"Closing" means the initial advance made by Lender pursuant to this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Uniform Commercial Code as adopted, amended, and in effect in
the State of Arizona, from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Collateral Assignments" means, collectively, (a) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Borrower and Lender and (b) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Borrower and Lender and (b) that certain Collateral
Assignment of Trademarks, Licenses and Patents and Security Agreement, of even
date herewith, between Rockford Europe Elektronik Vertriebs GmBH and Lender.
"Control Group" means, collectively, Borrower's employees as of the date hereof,
3G, W. Gary Suttle and Bartol.
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FINOVA LOAN AND SECURITY AGREEMENT
"Current Assets" at any date means the amount at which the current assets of
Borrower would be shown on a balance sheet of Borrower as at such date, prepared
in accordance with generally accepted accounting principles, provided that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at such
date, prepared in accordance with generally accepted accounting principles.
"Default" means an event which, with passage of time or giving of notice, or
both, would constitute an Event of Default.
"Deposit Accounts" has the meaning set forth in Section 47-9105 of the Code.
"Discounted Value" shall refer to the amount determined by discounting the
Remaining Scheduled Payment Amounts (based on the amortization schedule
applicable to the Term Loan being prepaid) from their respective due dates to
the date of a prepayment of the applicable Term Loan, in accordance with
accepted financial practice and at a discount factor equal to the Reinvestment
Yield.
"Dominion Account" has the meaning given to it in Section 7.3 above.
"Earnings Before Interest, Taxes, Depreciation and Amortization" (or "EBITDA")
for any fiscal period of Borrower means the net income of Borrower for such
fiscal period, plus interest expense, depreciation, amortization and other
non-cash expenses and provision for income taxes for such fiscal period, and
minus nonrecurring miscellaneous income and expenses, all calculated in
accordance with generally accepted accounting principles, consistently applied.
"Eligible Inventory" means Inventory which Lender, in its sole judgment, deems
Eligible Inventory, based on such considerations as Lender may from time to time
deem appropriate. Without limiting the generality of the foregoing, no Inventory
shall be Eligible Inventory unless, in Lender's sole judgment, such Inventory
(i) consists of finished goods or raw materials, in good, new and salable
condition which are not obsolete or unmerchantable, and are not comprised of
work in process, packaging and shipping materials or supplies, and are not
slow-moving, obsolete or held on consignment or held by outside processors, and
are not bill and hold goods, custom items or returned and/or defective goods;
(ii) meets all standards imposed by any governmental agency or authority; (iii)
conforms in all respects to the warranties and representations set forth herein;
(iv) is at all times subject to Lender's duly perfected, first priority security
interest; and (v) is situated at a location in compliance with Section 12.16
hereof
"Eligible Receivables" means Receivables which Lender, in its sole judgment,
shall deem eligible based on such considerations as Lender may from time to time
deem appropriate. Without limiting the foregoing, a Receivable shall not be
deemed to be an Eligible Receivable if (i) the account debtor has failed to pay
the Receivable within a period of one hundred and twenty (120) days after
invoice date, to the extent of any amount remaining unpaid after such period,
(ii) the account debtor has failed to pay more than twenty-five percent (25.0%)
of all outstanding Receivables owed by it to Borrower within one hundred and
twenty (120) days after invoice date; (iii) the account debtor is an Affiliate
of Borrower, (iv) the goods relating thereto are placed on consignment,
guaranteed sale, "bill and hold" or other terms pursuant to which payment by the
account debtor may be conditional; (v) the account debtor is not located in the
United States, unless the Receivable is supported by foreign credit insurance, a
letter of credit or other form of guaranty or security, in each case in form and
substance satisfactory to, and in the possession of, Lender, (vi) the account
debtor is the United States or any department, agency or instrumentality thereof
(unless such Receivable is subject to Lender's first priority security interest
and is otherwise properly assigned to Lender pursuant to the Assignment of
Claims Act of 1940, 31 U.S.C. Section 3727 et seq., as amended), or any State,
city or municipality of the United States; (vii) Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower; (viii) the account debtor's total obligations to Borrower
exceed fifteen percent (15.0%) of all Eligible Receivables, to the extent of
such excess; (ix) the account debtor disputes liability or makes any claim with
respect thereto (up to the amount of such liability or claim), or is subject to
any insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out
of a material portion of its business; (x) the amount thereof consists of late
charges or finance charges; (xi) the face amount thereof exceeds $100,000,
unless accompanied by evidence of shipment of the goods relating thereto
satisfactory to Lender in its sole discretion; or (xii) the Receivable is a
"cash on delivery" (or "C.O.D.") account.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated and
whether or not foreign) which is or may hereafter become a member of a group of
which
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FINOVA LOAN AND SECURITY AGREEMENT
Borrower is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 17.1 of this
Agreement.
"Fixed Asset Loans" has the meaning set forth on the Schedule.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitations all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Lender, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit, liability,
property and other insurance), tax refunds and claims, computer programs, discs,
tapes and tape files, claims under guaranties, security interests or other
security held by or granted to Borrower to secure payment of any of the
Receivables by an account debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Guarantors" means the persons set forth on the Schedule.
"Guaranty" means individually and collectively, that certain Continuing Guaranty
of even date herewith from Guarantor in favor of Lender in a form acceptable to
Lender.
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities, (v)
deferred taxes, (vi) indebtedness to Subordinating Creditors and (vii) so called
"off-balance sheet" obligations with respect to Equipment financing.
"Initial Term" has the meaning set forth on the Schedule.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth on the Schedule.
"Investment Property" has the meaning given to it in the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Loan Documents" means, collectively, this Agreement, the Guaranty, the Support
Agreement, the Collateral Assignments, the Subordination Agreement, the Rate Cap
Agreement, the Powers of Attorney, any note or notes executed by Borrower and
payable to Lender, and any other agreement entered into in connection with this
Agreement, such security agreements, intellectual property assignments and
mortgages as Lender may require with respect to this Agreement or the Guaranty,
together with all alterations, amendments, changes, extensions, modifications,
refinancings, refundings, renewals, replacements, restatements, or supplements,
of or to any of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating Creditor and
each other party (other than Lender) to any Loan Document.
"Make Whole Premium" shall equal the excess, if any, of (a) the Discounted Value
immediately prior to any prepayment of that portion of the Term Loan which is
being prepaid over (b) the principal balance of the Term Loan being prepaid as
of the date of any such prepayment. Expressed mathematically, the difference, if
greater than zero, arising when the amount determined pursuant to clause (b) of
the preceding sentence is subtracted from the amount determined pursuant to
clause (a) of the preceding sentence.
"Multiemplover Plan" means a "multiemployer plan" as defined in ERISA Sections
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or
any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
accordance with generally accepted accounting principles, consistently applied.
"Obligations" means all present and future loans, advances, debts, liabilities,
obligations, covenants, duties and
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FINOVA LOAN AND SECURITY AGREEMENT
indebtedness at any time owing by Borrower to Lender, whether evidenced by this
Agreement any note or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by Lender
in Borrower's debts owing to others), absolute or contingent, due or to become
due, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, expert witness fees, examination fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees,
Unused Line Fees and any other sums chargeable to Borrower hereunder or under
any other agreement with Lender.
"Operating Cash Flow - Actual" means, for any period, Borrower's consolidated
net income or loss (excluding the effect of any extraordinary gains or losses
from sales of property not in the ordinary course of business), determined in
accordance with generally accepted accounting principles, plus each of the
following items to the extent deducted from the revenues of Borrower in the
calculation of net income or loss: (i) depreciation; (ii) amortization; (iii)
interest expense paid, (iv) income taxes accrued; (v) depletion; and (vi) other
non-cash expense; less (i) income taxes paid; (ii) other non-cash income; and
(iii) all actual Capital Expenditures made during such period.
"Operating Cash Flow - Permitted" means, for any period, Borrower's consolidated
net income or loss (excluding the effect of any extraordinary gains or losses
from sales of property not in the ordinary course of business), determined in
accordance with generally accepted accounting principles, plus each of the
following to the extent deducted from the revenue of Borrower in the calculation
of net income or loss: (i) depreciation; (ii) amortization; (iii) interest
expense paid; (iv) income taxes accrued; (v) depletion; and (vi) other non-cash
expense; less (i) income taxes paid; (ii) other non-cash income; and (iii) all
permitted Capital Expenditures made during such period (without regard to any
waiver given by Lender as to the limitation on Capital Expenditures set forth in
Article 14).
"Overlines" has the meaning set forth in Section 1.3.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means each of the liens, mortgages and other security
interests set forth on the Schedule and incorporated herein by this reference.
"Person" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for employees
of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Powers of Attorney" means one or more powers of attorney of even date herewith,
executed by Borrower in favor of Lender with respect to any part of the
Collateral.
"Prepared Financials" means the balance sheets of Borrower as of the date set
forth in the Schedule, and as of each subsequent date on which audited balance
sheets are delivered to Lender from time to time hereunder, and the related
statements of operations, changes in stockholder's equity and changes in cash
flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of ERISA
which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Rate Cap Agreement" has the meaning set forth in Section 2. I(o) of this
Agreement.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), proceeds of any letters of credit naming
Borrower as beneficiary, contract rights, chattel paper, instruments, documents
and all other forms of obligations at any time owing to Borrower, all guaranties
and other security therefor, whether secured or unsecured, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"Reinvestment Yield" means the rates shown under the column heading "Ask Yld."
for "Govt. Bonds & Notes" in the "Treasury Bonds, Notes & Bills" Section of The
Wall Street Journal - Western Edition published on the Business Day prior to the
date of an, proposed prepayment of the Term Loan for the government bond or note
with a maturity date having the closest matching maturity to the Weighted
Average Life to Maturity, or, if there are more than one government bonds or
notes with a maturity date having the closest matching maturity to the Weighted
Average Life to Maturity, the highest of the rates shown in the "Ask Yld."
column for any such bond or note.
"Remaining Scheduled Payment Amount" means the amount of each scheduled payment
of principal of and interest on a Term Loan being prepaid that would be due on
or after the date of a prepayment of such Term Loan if no payment of such Term
Loan were made prior to its scheduled due date.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
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<PAGE> 17
FINOVA LOAN AND SECURITY AGREEMENT
"Schedule" has the meaning given to it in Section 1.1 above.
"Senior Contractual Debt Service" means, for any period, the sum of payments
made or required to be made by Borrower during such period for interest and
scheduled principal payments due on the Indebtedness owed to Lender.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations, pursuant to a
subordination agreement on Lender's standard form.
"Subordinating Creditor" means the persons set forth on the Schedule.
"Subordination Agreement" means the Subordination Agreement of even date
herewith, by and between each Subordinating Creditor and Lender, as such
Subordination Agreement may be amended, supplemented or otherwise modified from
time to time.
"Support Agreement" means the Support Agreements of even date herewith, executed
by each of W. Gary Suttle and James M. Thomson in favor of Lender, as such
agreements may be supplemented or otherwise modified from time to time.
"Termination Fee" has the meaning set forth in Section 16.4 above.
"Total Contractual Debt Service" means, for any period, the sum of payments made
or required to be made by Borrower during such period for interest and scheduled
principal payments due on any and all Indebtedness of Borrower.
"Total Facility" has the meaning set forth on the Schedule.
"Trademarks, Licenses and Patents" means all of Borrower's right, title and
interest in and to: (i) trademarks, trademark registrations, trade names, trade
name registrations, and trademark or trade name applications, including without
limitation such as are listed on the Schedule, attached hereto and made a part
hereof, as the same may be amended from time to time, and (a) renewals thereof,
(b) all income, royalties, damages and payments now and hereafter due and/or
payable with respect thereto, including, without limitation, damages and
payments for past or future infringements thereof, (c) the right to sue for
past, present and future infringements thereof, (d) all rights corresponding
thereto throughout the world, and (e) the goodwill of the business operated by
Borrower connected with and symbolized by any trademarks or trade names, (ii)
license agreements, including without limitation such as are listed on the
Schedule attached hereto and made a part hereof, and the right to prepare for
sale, sell, and advertise for sale any Inventory now or hereafter owned by
Borrower and now or hereafter covered by such licenses, and (iii) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule, attached hereto, together with all income,
royalties, shop rights, damages and payments thereto, the right to sue for
infringements thereof, and all rights thereto throughout the world and all
reissues, divisions, continuations, renewals, extensions and
continuations-inpart-thereof, and the goodwill of the business connected with
the use of and symbolized by such patents.
"Unused Line Fee" has the meaning set forth in Section 3. 1 (IV) of the
Schedule.
"Weighted Average Life to Maturity" shall mean the number of years (calculated
to the nearest one-twelfth year) obtained by dividing (i) the sum of the
products obtained by multiplying each remaining scheduled payment of principal
under the Term Loan being prepaid by the number of years (calculated to the
nearest one-twelfth year) which will elapse between the date of a prepayment of
' such Term Loan and the scheduled due date of such remaining scheduled
principal payments, by (ii) the outstanding principal balance of Term Loan being
prepaid on such prepayment date.
18.2 Other Terms. All accounting terms used in this Agreement unless
otherwise indicated, shall have the meanings given to, such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
19 MISCELLANEOUS.
19.1 Recourse to Security, Certain Waivers. All Obligations shall be payable
by Borrower as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
19.2 No Waiver by Lender. Neither Lender's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents or any
other agreement between Lender and Borrower nor any delay by Lender in
exercising the same shall operate as a waiver. No waiver by Lender shall be
effective unless in writing and then only to the extent stated. No waiver by
Lender shall affect its right to require strict performance of this Agreement.
Lender's rights and remedies shall be cumulative and not exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions, promises,
covenants, provisions and warranties shall inure to the benefit of and bind
Lender's and Borrower's respective representatives, successors and assigns.
19.4 Severability. If any provision of this Agreement shall be prohibited or
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
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<PAGE> 18
FINOVA LOAN AND SECURITY AGREEMENT
19.5 Amendments, Assignments. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and Lender.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any Time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, Lender's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
Lender may disclose all documents and information which Lender now or hereafter
may have relating to Borrower or Borrower's business. To the extent that Lender
assigns its rights and obligations hereunder to a third party, Lender shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
19.6 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding of
the parties with respect to the transactions contemplated hereby.
19.7 Governing Law, Waivers. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF ARIZONA AND SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS OF ARIZONA AND NOT THE CONFLICT OF LAWS RULES OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY AGREES TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA, STATE OF ARIZONA OR, AT THE SOLE OPTION
OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 19.13 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
19.8 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
thereof by the parties. No termination of this Agreement or of any guaranty of
the Obligations shall affect or impair the powers, obligations, duties, rights,
representations, warranties or liabilities of the parties hereto and all shall
survive such termination.
19.9 Evidence of Obligations. Each Obligation may, in Lender's discretion,
be evidenced by notes or other instruments issued or made by Borrower to Lender.
If not so evidenced, such Obligation shall be evidenced solely by entries upon
Lender's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan secured
by the Collateral. Lender may, in its sole discretion, (i) exchange, enforce,
waive or release any of the Collateral, (ii) apply Collateral and direct the
order or manner of sale thereof as it may determine and (iii) settle,
compromise, collect or otherwise liquidate any Collateral in any manner without
affecting its right to take any other action with respect to any other
Collateral.
19.11 Application of Collateral. Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations in such order and manner as Lender shall determine in
its sole discretion. To the extent that Borrower makes a payment or Lender
receives any payment or proceeds of the Collateral for Borrower's benefit which
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in possession, receiver or
any other party under any bankruptcy law, common law or equitable cause, then,
to such extent, the Obligations or part thereof intended to be satisfied shall
be revived and continue as if such payment or proceeds had not been received by
Lender.
19.12 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower shall
be made to Lender on or prior to 10:00 a.m., Los Angeles time, on the Business
Day on which the proceeds thereof are requested to be paid to Borrower and shall
be conclusively presumed to be made by a Person authorized by Borrower to do so
and the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs Lender in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
19.13 Notices. Any notice required hereunder shall be in writing and
addressed to the Borrower and Lender at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or three (3) days after deposit in the United States mail, postage prepaid.
19.14 Brokerage Fees. Borrower represents and warrants to Lender that, with
respect to the financing transaction herein contemplated, and except for a
commission payable by Borrower to Vrolyk & Co. in an
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<PAGE> 19
FINOVA LOAN AND SECURITY AGREEMENT
amount not to exceed $350,000, no Person is entitled to any brokerage fee or
other commission and Borrower agrees to indemnify and hold Lender harmless
against any and all such claims.
19.15 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to Lender in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
19.16 Publicity. Lender is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
19.17 Captions. The Section titles contained in this Agreement are without
substantive meaning and arc not part of this Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to Lender.
Therefore, Lender, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
19.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19.20 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
19.21 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against Lender, or any of Lender's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, whether or not relating hereto
or thereto, occurred, done, omitted. or suffered to be done by Lender, or by
Lender's directors, officers, employees, agents, accountants or attorneys,
whether sounding in contract or in tort or otherwise, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based and service of a summons and complaint on an officer
of Lender or any other person authorized to accept service of process on behalf
of Lender, within 30 days thereafter. Borrower agrees that such one-year period
of time is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one year period provided herein
shall not be waived, tolled, or extended except by a specific written agreement
of Lender. This provision shall survive any termination of this Loan Agreement
or any other agreement.
19.23 Liability. Neither Lender nor any Lender Affiliate shall be liable for
any indirect, special, incidental or consequential damages in connection with
any breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitations damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if LENDER has been advised of the possibility of such
damages. Neither Lender, nor any Lender Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of Lender,
or any Lender Affiliate. "Lender Affiliate" shall mean Lender's directors,
officers, employees, agents, attorneys or any other person or entity affiliated
with or representing Lender.
19.24 Notice of Breach by Lender. Borrower agrees to give Lender written
notice of (i) any action or inaction by Lender or any attorney of Lender in
connection with any Loan Documents that may be actionable against Lender or any
attorney of Lender or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
19.25 Application of Insurance Proceeds. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at Lender's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Lender, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as Lender
may elect. In no event shall such application relieve
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<PAGE> 20
FINOVA LOAN AND SECURITY AGREEMENT
Borrower from payment in full of all installments of principal and interest
which thereafter become due in the order of maturity thereof.
19.26 MUTUAL WAIVER OF RIGHT TO JURY TRIAL LENDER AND BORROWER EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN LENDER AND BORROWER; OR (iii) ANY
CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
LENDER OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
[SIGNATURE PAGE FOLLOWS]
-20-
<PAGE> 21
FINOVA LOAN AND SECURITY AGREEMENT
"BORROWER"
ROCKFORD CORPORATION
WITNESS
/s/ BY: /s/ W. Gary Suttle
- ----------------------------- ---------------------------------
NAME: W. Gary Suttle
TITLE: President
"LENDER"
FINOVA CAPITAL CORPORATION
WITNESS
/s/ BY: /s
- ----------------------------- ---------------------------------
NAME:
-------------------------------
TITLE: Vice President
State of Arizona )
) ss.
County of Maricopa )
The foregoing was acknowledged before me this 18 day of June, 1997, by
W. Gary Suttle the President of ROCKFORD CORPORATION, an Arizona corporation, on
behalf of said corporation.
/s/
-------------------------------------
Notary Public
My Commission Expires:
State of )
--------------
) ss.
County of )
--------------
The foregoing was acknowledged before me this day of June, 1997,
-----
by , the of FINOVA
------------------------------ -------------------------
CAPITAL CORPORATION, a Delaware corporation, on behalf of said corporation.
-------------------------------------
Notary Public
My Commission Expires:
<PAGE> 22
STATE OF California
) SS.
COUNTY OF Los Angeles
On June 24, 1997, before me, Lisa Willis, Notary Public,
personally appeared Carleton S. Breed,
personally known to me
---
X proved to me on the basis of satisfactory evidence
---
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
[Notary Seal] /s/
---------------------------------
Lisa Willis
My Commission Expires Feb 2, 2001
<PAGE> 23
SCHEDULE OF EXCEPTIONS OF GENERAL REPRESENTATIONS AND
WARRANTIES
Section
12.1 Due Organization
Response: No exceptions
12.2 Other Names
Response: No exceptions
12.3 Due Authorization
Response: No exceptions
12.4 Binding Obligation
Response: No exceptions
12.5 Intangible Property
Response: Rockford Corporation conducts business in the following
countries and has not trademarked the Rockford name: Barbados, Lebanon,
Belgium, Netherlands Antilles, Bermuda, Netherlands, Croatia, New
Caledonia, Cyprus, Panama, Egypt, Puerto Rico, French Polynesia,
Slovenia, Honduras, South Africa, Jamaica, Syria, Jordan, Virgin
Islands
Rockford's plans to apply for trademarks in these countries over the
next several years due to the expense.
Connecting Punch has not been trademarked domestic and internationally.
We are in process of applying for the trademark in the United States.
We have yet to determine the need of trademarking Connecting Punch
internationally.
<PAGE> 24
12.6 Capital
Response: No exceptions
12.7 Material Litigation
Response: See attached listing of pending litigation
letter.
12.8 Title: Security Interest of Lender
Response: No exceptions
12.9 Restrictive Agreements: Labor Contracts
Response: No exceptions
12.10 Laws
Response: No exceptions
12.11 Consents
Response: No exceptions
12.12 Defaults
Response: The Senior Notes that remain outstanding have a waiver
through December 31, 1997. If the notes are not called it could
possibility result in a default of the loan covenants within the
agreement.
12.13 Financial Condition
Response: No exceptions
<PAGE> 25
12.14 ERISA
Response: No exceptions
12.15 Taxes
Response: No exceptions
12.16 Locations
Response: No exceptions
12.17 Business Relationships
Response: Harkzell Manufacturing is a company that produces our heat
sinks for our electronics products. Harkzell is one of our largest
vendors. On June 12' Harkzell visited Rockford and announce about a
150/o price increase on our existing heat sinks. We are reviewing our
options of either moving the production to a new vendor or continuing
working with a vendor we are experiencing a difficult relationship. We
expect to have a plan in place shortly to address this situation.
Rockford Corporation has in process the termination of 3 to 5 dealers
on a monthly basis. The dealers usually represent a small portion of
the companies total business. This is a process that we see continuing
into the future.
12.18 Reaffirmations
Response: No exceptions
<PAGE> 1
EXHIBIT 10.14
THE PRINCIPAL FINANCIAL GROUP PROTOTYPE
BASIC SAVINGS PLAN
IRS SERIAL NO.:
BASIC PLAN NO.: 03 TO BE USED WITH
ADOPTION AGREEMENT PLAN NOS.: 001-002
APPROVED:
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION
ARTICLE I - FORMAT AND DEFINITIONS
Section 1.01 - Format
Section 1.02 - Definitions
ARTICLE II - MEMBERSHIP
Section 2.01 - Active Membership
Section 2.02 - Ceasing Active Membership
Section 2.03 - Adopting Employers - Separate Plans
Section 2.04 - Adopting Employers - Single Plan
ARTICLE III - CONTRIBUTIONS
Section 3.01 - Employer Contributions
Section 3.02 - Voluntary Contributions by Members
Section 3.03 - Rollover Contributions
Section 3.04 - Forfeitures and Restoration
Section 3.05 - Allocation
Section 3.06 - Contribution Limitation
Section 3.07 - Excess Amounts
ARTICLE IV - INVESTMENT OF CONTRIBUTIONS
Section 4.01 - Investment of Contributions
Section 4.02 - Purchase of Insurance
Section 4.03 - Transfer of Ownership
Section 4.04 - Termination of Insurance
ARTICLE V - BENEFITS
Section 5.01 - Retirement Benefits
Section 5.02 - Death Benefits
Section 5.03 - Vested Benefits
Section 5.04 - When Benefits Start
Section 5.05 - Withdrawal Benefits
Section 5.06 - Loans to Members
ARTICLE VI - DISTRIBUTION OF BENEFITS
Section 6.01 - Automatic Forms of Distribution
Section 6.02 - Optional Forms of Distribution and
Distribution Requirements
Section 6.03 - Election Procedures
TABLE OF CONTENTS
-2-
<PAGE> 3
Section 6.04 - Notice Requirements
Section 6.05 - Transitional Rules
ARTICLE VII - TERMINATION OF PLAN
ARTICLE VIII - ADMINISTRATION OF PLAN
Section 8.01 - Administration
Section 8.02 - Records
Section 8.03 - Information Available
Section 8.04 - Claim and Appeal Procedures
Section 8.05 - Unclaimed Vested Account Procedures
Section 8.06 - Delegation of Authority
ARTICLE VIIIA - TRUST PROVISIONS
Section 8A.01 - The Trust and Trust Fund
Section 8A.02 - The Trustee
Section 8A.03 - Duties of Trustee
Section 8A.04 - Powers of Trustee
Section 8A.05 - Expenses
Section 8A.06 - Accounting
ARTICLE IX - GENERAL PROVISIONS
Section 9.01 - Amendments
Section 9.02 - Mergers and Direct Transfers
Section 9.03 - Provisions Relating to the Insurer and Other
Parties
Section 9.04 - Employment Status
Section 9.05 - Rights to Plan Assets
Section 9.06 - Beneficiary
Section 9.07 - Nonalienation of Benefits
Section 9.08 - Facility of Payment
Section 9.09 - Construction
Section 9.10 - Legal Actions
Section 9.11 - Small Amounts
Section 9.12 - Word Usage
Section 9.13 - Transfers Between Plans
Section 9.14 - Partnership or Sole Proprietorship
Section 9.15 - Qualification of Plan
ARTICLE X - TOP-HEAVY PLAN REQUIREMENTS
Section 10.01 - Application
Section 10.02 - Definitions
Section 10.03 - Modification of Vesting Requirements
Section 10.04 - Modification of Contributions
Section 10.05 - Modification of Contribution Limitation
-3-
TABLE OF CONTENTS
<PAGE> 4
INTRODUCTION
The provisions of this Plan apply as of the date specified in Item A or such
other dates as may be specified in this Plan with the following exceptions:
1. The provisions included to comply with the technical corrections to the
Deficit Reduction Act and the Retirement Equity Act (REA) contained in
the Tax Reform Act of 1986 are effective as if included in the
respective bills to which the corrections apply.
2. The provisions included to comply with the provisions of the Tax Reform
Act of 1986 other than the technical corrections to DEFRA and REA are
effective as of the dates specified in the law.
3. The provisions included to comply with the provisions of the Omnibus
Budget Reconciliation Act of 1986 (OBRA 86) are effective as of the
dates specified in the law.
4. The provisions included to comply with the provisions of the Omnibus
Budget Reconciliation Act of 1987 (OBRA 87) are effective as of the
dates specified in the law.
5. The provisions included to comply with the final regulations on optional
forms of benefit issued July 11, 1988, are effective as of the effective
date prescribed by such regulations.
6. The provisions included to comply with the final REA regulations issued
August 22, 1988, are effective as of the effective date prescribed by
such regulations.
7. The provisions included to comply with the provisions of the Technical
and Miscellaneous Revenue Act of 1988 are effective as of the dates
specified in the law.
8. The provisions included to comply with the final regulations on loans
issued July 20, 1989, are effective as of the effective date prescribed
by such regulations.
-4-
INTRODUCTION
<PAGE> 5
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01 - FORMAT.
Our retirement plan is set out in this document, the attached Adoption Agreement
which we signed, and any amendments to these documents.
Words and phrases defined in Section 1.02 shall have that defined meaning when
used in this Plan, unless the context clearly indicates otherwise. These words
and phrases have initial capital letters to aid in identifying them as defined
terms. References to "Section" are references to parts of this document;
references to "Item" are references to parts of the Adoption Agreement.
Some of the defined terms and phrases in Section 1.02 and some of the provisions
contained in the following articles do not apply to our Plan and shall have no
meaning when used in our Plan. The provisions of the attached Adoption Agreement
shall determine whether or not the terms apply.
SECTION 1.02 - DEFINITIONS.
ACCOUNT means a Member's share of the Investment Fund plus the cash value of any
insurance coverage on his life under this Plan. Separate accounting records
shall be kept for those parts of the Member's Account resulting from the
following:
(a) Required Contributions, if any.
(b) Nondeductible Voluntary Contributions, if any.
(c) Deductible Voluntary Contributions, if any.
(d) Rollover Contributions, if any.
(e) Elective Deferral Contributions.
(f) Qualified Matching Contributions.
(g) Matching Contributions that are not Qualified Matching Contributions.
(h) Qualified Nonelective Contributions.
(i) All other Employer Contributions.
If the Member's Vesting Percentage is less than 100% as to any of these
Contributions, a separate accounting record will be kept for any part
of his Account resulting from such
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Contributions and, if there has been a prior Forfeiture Date, from such
Contributions made before a prior Forfeiture Date.
The Account shall be reduced by any distribution of the Member's Vested Account
and by any Forfeitures. The Account shall participate in the earnings credited,
expenses charged and any appreciation or depreciation of the Investment Fund.
The Account is subject to any minimum guarantees applicable under the Annuity
Contract or other investment arrangement.
ACCRUAL SERVICE PERIOD means the period defined in Item Q of the Adoption
Agreement - Plus.
ACTIVE MEMBER means an Eligible Employee who is actively participating in the
Plan according to the provisions of Section 2.01.
ADDITIONAL CONTRIBUTIONS means additional contributions we make to fund this
Plan. (See Item P and Section 3.01.)
ADJUSTMENT FACTOR means the cost of living adjustment factor prescribed by the
Secretary of the Treasury under Section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide.
ADOPTING EMPLOYER means an employer controlled by or affiliated with us and
listed in Item Z of the Adoption Agreement - Plus. If the Adoption Agreement -
Plus is not used, all members of the Controlled Group and the Affiliated Service
Group, whether or not listed in Item Y, shall be Adopting Employers
participating in a single plan.
ADOPTION AGREEMENT means the attached document which contains our selections and
specifications for our Plan.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships or other
organizations of which we are a part and which is affiliated within the meaning
of Code Section 414(m) and regulations thereunder. Such a group includes at
least two organizations one of which is either a service organization (that is,
an organization the principal business of which is performing services), or an
organization the principal business of which is performing management functions
on a regular and continuing basis. Such service is of a type historically
performed by employees. In the case of a management organization, the Affiliated
Service Group shall include organizations related, within the meaning of Code
Section 144(a)(3), to either the management organization or the organization for
which it performs management functions. The term Controlled Group, as it is used
in our Plan, shall include the term Affiliated Service Group.
ANNUAL PAY means the Employee's annual pay as defined in Item M.
ANNUITY CONTRACT means the annuity contract or contracts into which the Trustee
enters (into which we enter, if our Plan is not trusteed) with the Insurer for
the investment of Contributions and the payment of benefits under this Plan. The
term Annuity Contract as it is used in this Plan shall include the plural unless
the context clearly indicates the singular is meant.
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ANNUITY STARTING DATE means, for a Member,
(a) the first day of the first period for which an amount is
payable as an annuity, or
(b) in the case of a benefit not payable in the form of an
annuity, the first day on which all the events have occurred
which entitle the Member to such benefit.
BENEFICIARY means the person or persons named by a Member to receive any
benefits under the Plan when the Member dies. (See Section 9.06.)
CLAIMANT means any person who makes a claim for benefits under this Plan. (See
Section 8.04.)
CODE means the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT means an individual named by a Member to receive a lifetime
benefit according to a survivorship life annuity after the Member dies.
CONTRIBUTIONS means Elective Deferral, Additional, Discretionary, Matching,
Qualified Nonelective, Voluntary and Rollover Contributions, and Required
Contributions made under the Prior Plan, unless the context clearly indicates
only one is, or certain of these are, meant.
CONTROLLED GROUP means any group of corporations, trades or businesses of which
we are a part that are under common control. A Controlled Group includes any
group of corporations, trades or businesses, whether or not incorporated, which
is either a parent-subsidiary group, a brother-sister group or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and regulations
thereunder and, for the purpose of determining contribution limitations under
Section 3.06, as modified by Code Section 415(h) and, for the purpose of
identifying Leased Employees, as modified by Code Section 144(a)(3).
The term Controlled Group, as it is used in our Plan, shall include the term
Affiliated Service Group.
DISCRETIONARY CONTRIBUTIONS means discretionary contributions we make to fund
this Plan. (See Item P and Section 3.01.)
EARLY RETIREMENT DATE means the date a Member selects for beginning his early
retirement benefit. Early retirement benefits may begin whether the Member met
the age requirement, if any, before or after ceasing to be an Employee. (See
Item X.)
EFFECTIVE DATE means the date in Item D.
ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions we make to fund this Plan in
accordance with elective deferral agreements between Eligible Employees and us.
Elective deferral agreements shall be made, changed, or terminated according to
procedures and limitations set up by the Plan Administrator. The elective
deferral agreement must be in writing and completed
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before the beginning of the pay period in which Elective Deferral Contributions
are to begin. (See Item N and Section 3.01.)
A Member's Account resulting from Elective Deferral Contributions may not be
distributed before the Member's separation from service, death, the date the
Member becomes Totally Disabled, before the events described in the last
paragraph of Section 5.04, or before termination of the Plan as described in
Article VII. Elective Deferrals (but no earnings credited after December 31,
1988) may be withdrawn in the case of hardship if Item W(2) is selected.
ELIGIBLE EMPLOYEE means an Employee who meets the requirements specified in Item
J.
EMPLOYEE means an individual who is employed by us or any other employer
required to be aggregated with us under Code Sections 414(b), (c), (m) or (o). A
Controlled Group member is required to be aggregated with us.
The term Employee shall also include any Leased Employee deemed to be an
employee of any employer described in the preceding paragraph as provided in
Code Sections 414(n) or 414(o).
EMPLOYER means the Employer named in Item B and any successor corporation, trade
or business which will, by written agreement, assume the obligations of this
Plan or any Predecessor which maintained this Plan. The terms we, us, and ours
as they are used in this Plan refer to the Employer.
EMPLOYER CONTRIBUTIONS means the Contributions made by us to fund the Plan. (See
Section 3.01.)
ENTRY BREAK means, when the elapsed time method is used, a one-year Period of
Severance beginning on an Employee's Severance Date. An Employee incurs an Entry
Break on the last day of a one-year Period of Severance.
When the hours method is used, Entry Break is defined in Item K. However, if the
Adoption Agreement - Plus is not used, Entry Break means an Entry Service Period
in which an Employee does not have more than one-half of the Hours of Service
required in Item K for a year of Entry Service. An Employee incurs an Entry
Break on the last day of the Entry Service Period in which he has an Entry
Break.
ENTRY DATE means the date an Employee first enters the Plan as an Active Member.
(See Item L and Section 2.01.)
ENTRY SERVICE means an Employee's service as defined in Item K. Entry Service
shall include service with a Controlled Group member while we are both members
of the Controlled Group.
Entry Service shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Entry Service. If the hours method is
used, an Hour of Service shall be credited (without regard to the 501 Hours of
Service limitation) for each hour the Employee would normally have been
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scheduled to work for us during such Period of Military Duty to the extent such
hour has not already been counted for purposes of Entry Service.
If the elapsed time method is used and an Employee has more than one countable
Period of Service, Entry Service shall be determined by adjusting his Hire Date
so that the Employee has one continuous period of Entry Service equal to the
total of all his countable Periods of Service. This period of Entry Service
shall be expressed as whole years (on the basis that 365 days equal one year)
and days.
If the elapsed time method is used, Entry Service shall include a Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the hours method is used and the Entry Service Period shifts to the Plan
Year, an Employee will be credited with two years of Entry Service if he has the
Hours of Service required for a year of Entry Service in both his first and
second Entry Service Periods.
If the method of crediting Entry Service changes, the provisions of Section 9.13
shall apply.
ENTRY SERVICE PERIOD means the period defined in Item K. However, if the
Adoption Agreement - Plus is not used, Entry Service Period means a
12-consecutive month period beginning on an Employee's Hire Date and each
following 12-consecutive month period beginning on an anniversary of that Hire
Date. If an Employee has a Rehire Date, a new Entry Service Period shall begin
on that date in the same manner as if it were a Hire Date.
ERISA means the Employee Retirement Income Security Act of 1974.
FAMILY MEMBER means an individual described in Code Section 414(q)(6)(B). FISCAL
YEAR means our taxable year. (See Item F.)
FORFEITURE means the part, if any, of a Member's Account which is forfeited.
(See Section 3.04.)
FORFEITURE DATE means, as to a Member, the date the Member incurs five
consecutive Vesting Breaks. Before the first Yearly Date in 1985, the Forfeiture
Date is the date the Member incurs a Vesting Break.
HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee or a
highly compensated former Employee.
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A highly compensated active Employee means any Employee who performs service for
us during the determination year and who, during the look-back year:
(a) received compensation from us in excess of $75,000 (as adjusted
pursuant to Code Section 415(d));
(b) received compensation from us in excess of $50,000 (as adjusted
pursuant to Code Section 415(d)) and was a member of the top-paid group
for such year; or
(c) was an officer of ours and received compensation during such year that
is greater than 50 percent of the dollar limitation in effect under
Code Section 415(b)(1)(A).
The term Highly Compensated Employee also means:
(d) Employees who are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and
the Employee is one of the 100 Employees who received the most
compensation from us during the determination year; and
(e) Employees who are 5 percent owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation requirement of (c) above during
either a determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the twelve-month period immediately preceding the determination
year.
A highly compensated former Employee means any Employee who separated from
service (or was deemed to have separated) prior to the determination year,
performs no service for us during the determination year, and was a highly
compensated active Employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most highly compensated
Employees ranked on the basis of compensation paid by us during such year, then
the family member and the 5 percent owner or top-ten highly compensated Employee
shall be aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single Employee
receiving compensation and Plan contributions or benefits equal to the sum of
such compensation and contributions or benefits of the family member and 5
percent owner or top-ten highly compensated Employee. For purposes of this
definition, family member includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouses of such lineal ascendants and
descendants.
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<PAGE> 11
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Code Section
414(q) and the regulations thereunder.
HIRE DATE means the date an Employee first performs an Hour of Service.
HOUR OF SERVICE means, for the elapsed time method of crediting service in this
Plan, each hour for which an Employee is paid, or entitled to payment, for
performing duties for us. Hour of Service means, for the hours method of
crediting service in this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for us during the applicable service period.
(b) Each hour for which an Employee is paid, or entitled to payment, by us
on account of a period of time in which no duties are performed
(irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty, or leave of absence. Notwithstanding
the preceding provisions of this subparagraph (b) no credit shall be
given to the Employee
(1) for more than 501 Hours of Service under this subparagraph (b)
on account of any single continuous period in which the
Employee performs no duties (whether or not such period occurs
in a single service period); or
(2) for an Hour of Service for which the Employee is directly or
indirectly paid, or entitled to payment, on account of a
period in which no duties are performed if such payment is
made or due under a plan maintained solely for the purpose of
complying with applicable worker's or workmen's compensation,
or unemployment compensation or disability insurance laws; or
(3) for an Hour of Service for a payment which solely reimburses
the Employee for medical or medically related expenses
incurred by him.
For purpose of this subparagraph (b), a payment shall be deemed to be made by or
due from us regardless of whether such payment is made by or due from us
directly or indirectly through, among others, a trust fund or insurer, to which
we contribute or pay premiums and regardless of whether contributions made or
due to the trust fund, insurer, or other entity are for the benefit of
particular employees or are on behalf of a group of employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by us. The same Hour of Service shall not
be credited under both this subparagraph (c) and under either
subparagraph (a) or (b) above. Crediting of Hours of Service for back
pay awarded or agreed to with respect to periods described in
subparagraph (b) above shall be subject to the limitations set forth in
that subparagraph.
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The crediting of Hours of Service above shall be applied under the rules of
paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2
(including any interpretations or opinions implementing said rules); which
rules, by this reference, are specifically incorporated in full within this
Plan. The reference to paragraph (b) applies to the special rule for determining
hours of service for reasons other than the performance of duties such as
payments calculated (or not calculated) on the basis of units of time and the
rule against double credit. The reference to paragraph (c) applies to the
crediting of hours of service to service periods.
Hours of Service shall be credited for employment with any other employer
required to be aggregated with us under Code Section 414(b), (c), (m) or (o) and
the regulations thereunder for purposes of entry, vesting and, when the Adoption
Agreement - Plus is not used, for purposes of determining eligibility for
contributions. Hours of Service shall also be credited for any individual who is
considered an employee for purposes of this Plan pursuant to Code Section 414(n)
or Code Section 414(o) and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service has
occurred for entry or vesting purposes, during a Parental Absence an Employee
shall be credited with the Hours of Service which would otherwise have been
credited to the Employee but for such absence, or in any case in which such
hours cannot be determined, eight Hours of Service per day of such absence. The
Hours of Service credited under this paragraph shall be credited in the service
period in which the absence begins if the crediting is necessary to prevent a
break in service in that period; or in all other cases, in the following service
period.
INACTIVE MEMBER means a former Active Member who has an Account. (See Section
2.02.)
INSURANCE POLICY means, for trusteed plans, the life insurance policy or
policies issued by the Insurer as provided in Item T and Article IV. The term
Insurance Policy as it is used in this Plan is deemed to include the plural
unless the context clearly indicates the singular is meant.
INSURER means Principal Mutual Life Insurance Company and, if our Plan is
trusteed, any other insurance company or companies named by the Trustee.
INTEGRATION LEVEL means the Integration Level defined in Item P. If a Member
also participates in a Controlled Group member's plan which uses an integration
level to determine the allocation or amount of contributions, his Integration
Level shall be adjusted based upon the ratio of the Member's Pay from us to his
total pay from us and the Controlled Group member.
INVESTMENT FUND means that part of the Plan assets held under the Trust,
excluding the cash values of any Insurance Policy. (See Article VIIIA.)
If our Plan is not trusteed, Investment Fund means the total assets held under
the Annuity Contract which result from Contributions made under our Plan. The
Investment Fund shall be valued at current fair market value as of the last day
of the last calendar month ending in the Plan Year and, at the discretion of the
Insurer, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made, and
changes in the values of the assets held in the fund.
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The Investment Fund shall be allocated at all times to Members. The Account of a
Member shall be credited with its share of the gains and losses of the
Investment Fund. That part of a Member's Account invested in a funding
arrangement which establishes an account or accounts for such Member thereunder
shall be credited with the gain or loss from such account or accounts. That part
of a Member's Account which is invested in other funding arrangements shall be
credited with a proportionate share of the gain or loss of such investments. The
share shall be determined by multiplying the gain or loss of the investment by
the ratio of the part of the Member's Account invested in such funding
arrangement to the total of the Investment Fund invested in such funding
arrangement.
INVESTMENT MANAGER means any fiduciary (other than a Trustee or Named Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of the
plan;
(b) who (1) is registered as an investment adviser under the Investment
Advisers Act of 1940, or (2) is a bank, as defined in the Investment
Advisers Act of 1940, or (3) is an insurance company qualified to
perform services described in subparagraph (a) above under the laws of
more than one state; and
(c) who has acknowledged in writing being a fiduciary with respect to the
Plan.
ITEM means the specified item in the Adoption Agreement we signed.
LATE RETIREMENT DATE means the earliest first day of any month which is after a
Member's Normal Retirement Date and on which retirement benefits begin. If a
Member continues to work for us after Normal Retirement Date, his Late
Retirement Date shall be the first day of the month on or after he ceases to be
an Employee. An earlier or a later Retirement Date may apply if the Member so
elects. An earlier Retirement Date may apply if the Member is 70 1/2. (See
Section 5.04.)
LEASED EMPLOYEE means any person (other than an employee of the recipient) who
pursuant to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the recipient
and related persons determined in accordance with Code Section 414(a)(6)) on a
substantially full time basis for a period of at least one year, and such
services are of a type historically performed by employees in the business field
of the recipient employer. Contributions or benefits provided a Leased Employee
by the leasing organization which are attributable to service performed for the
recipient employer shall be treated as provided by the recipient employer.
A Leased Employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan
providing (1) a nonintegrated employer contribution rate of at
least 10 percent of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the
employee's gross
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income under Code Sections 125, 402(a)(8), 402(h) or 403(b),
(2) immediate participation, and (3)full and immediate vesting
and
(b) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
LOAN ADMINISTRATOR means the person or positions named in Item T(b)(iii).
MATCHING CONTRIBUTIONS means matching contributions we make to fund this Plan.
(See Item O and Section 3.01.)
MAXIMUM Integration Rate means the Maximum Integration Rate defined in Item P.
Member means either an Active Member or an Inactive Member.
MEMBER CONTRIBUTIONS means Voluntary Contributions and Required Contributions
made under the Prior Plan, if any, unless the context clearly indicates only one
is meant.
MONTHLY DATE means the Yearly Date and the same day of each following month
during the Plan Year which begins on that Yearly Date.
NAMED FIDUCIARY means the person named in Item G.
NET PROFITS means our current or accumulated net earnings, determined according
to generally accepted accounting practices, before any Contributions made by us
under this Plan and before any deduction for Federal or state income tax,
dividends on our stock, and capital gains or losses. If we are a nonprofit
organization under Code Section 501(c)(3), Net Profits means excess revenues
(excess of receipts over expenditures).
NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who is neither
a Highly Compensated Employee nor a Family Member.
NONVESTED ACCOUNT means the excess, if any, of a Member's Account over his
Vested Account.
NORMAL FORM means a single life annuity with installment refund.
NORMAL RETIREMENT AGE means, for a Member, the age defined in Item X.
NORMAL RETIREMENT DATE means the earliest first day of the month on or after a
Member reaches Normal Retirement Age. Retirement benefits shall begin on Normal
Retirement Date if the Member is not an Employee, has a Vested Account, and has
not elected to have retirement benefits begin later. However, retirement
benefits shall not begin before the later of age 62 or Normal Retirement Age
unless the qualified election procedures of Article VI are met. Even if the
Member is an Employee on his Normal Retirement Date, he may choose to have
retirement benefits begin on such date. An earlier Retirement Date may apply if
the Member is 70 1/2. (See Section 5.04.)
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<PAGE> 15
PARENTAL ABSENCE means an Employee's absence from work which begins on or after
the first Yearly Date after December 31, 1984
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection
with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
PAY means the pay defined in Item M. For any Plan Year beginning after December
31, 1988, only the first $200,000 (multiplied by the Adjustment Factor) of the
Member's Pay shall be taken into account under the Plan. In determining the Pay
of a Member for purposes of this limitation, the rules of Code Section 414(q)(6)
shall apply, except that in applying such rules, the term "family" shall include
only the spouse of the Member and any lineal descendants of the Member who have
not attained age 19 before the close of the Plan Year. If, as a result of the
application of such rules the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of Pay up to the Integration
Level if this Plan provides for permitted disparity), the limitation shall be
prorated among the affected individual's Pay as determined under this definition
prior to the application of this limitation.
Pay means, for a Leased Employee, Pay for the services the Leased Employee
performs for us, determined in the same manner as the Pay of Employees who are
not Leased Employees, regardless of whether such Pay is received directly from
us or from the leasing organization.
PAY YEAR means the period defined in Item M of the Adoption Agreement - Plus.
PERIOD OF MILITARY DUTY means, for an Employee
(a) who served as a member of the armed forces of the United States, and
(b) who was reemployed by us at a time when the Employee had a right to
reemployment in accordance with seniority rights as protected under
Section 2021 through 2026 of Title 38 of the United States Code,
the period of time from the date the Employee was first absent from work for us
because of such military duty to the date the Employee was reemployed.
PERIOD OF SERVICE means a period of time beginning on an Employee's Hire or
Rehire Date, whichever applies, and ending on his Severance Date.
PERIOD OF SEVERANCE means a period beginning on an Employee's Severance Date and
ending on the date he again performs an Hour of Service.
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A one-year Period of Severance means a Period of Severance of 12 consecutive
months.
Solely for purposes of determining whether a one-year Period of Severance has
occurred for entry or vesting purposes, the 12-consecutive month period
beginning on the first anniversary of the first date of a Parental Absence shall
not be a one-year Period of Severance.
PLAN means our retirement plan set forth in the attached Adoption Agreement and
this document, including any later amendments to them. If this Plan is trusteed,
the term Plan shall include the term Trust, unless the context clearly indicates
otherwise.
PLAN ADMINISTRATOR means the person named in Item H.
PLAN YEAR means a 12-consecutive month period beginning on a Yearly Date and
ending on the day before the next Yearly Date. If the Yearly Date changes, the
change will result in a short Plan Year. If a service period or the Pay Year is
based on the Plan Year, corresponding years before the Effective Date shall be
included.
PREDECESSOR means a Predecessor designated in Item I.
PRIOR PLAN means a retirement plan of ours or of a Predecessor which was
qualifiable under Code Section 401(a), and of which this Plan is a restatement,
as specified in the initial Adoption Agreement. If, because of a merger,
consolidation or transfer of assets or liabilities, this Plan is a continuation
of a plan which was qualifiable under Code Section 401(a), that plan shall be a
Prior Plan. If, with the approval of any governmental agency to which it is
subject, the assets of a terminated plan of ours which was qualified under Code
Section 401(a) are transferred to this Plan, that terminated plan shall be
deemed to be the Prior Plan.
PRIOR PLAN ASSETS means the assets accumulated under the Prior Plan which have
not been distributed and which are held under this Plan.
QUALIFIED JOINT AND SURVIVOR FORM means, for a Member who has a spouse, a
survivorship life annuity with installment refund, where the Contingent
Annuitant is the Member's spouse and the survivorship percentage is 50%. A
former spouse will be treated as the spouse to the extent provided under a
qualified domestic relations order as described in Code Section 414(p). If a
Member does not have a spouse, the Qualified Joint and Survivor Form means the
Normal Form.
The amount of the benefit payable under the Qualified Joint and Survivor Form
shall be the amount of benefit which may be provided by the Member's Vested
Account.
QUALIFIED MATCHING CONTRIBUTIONS means Matching Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of Plan as described in Article VII. Our Matching
Contributions shall be Qualified Matching Contributions if so elected in Item O.
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ARTICLE I
<PAGE> 17
QUALIFIED NONELECTIVE CONTRIBUTIONS means Employer Contributions which are 100%
vested when made and which (including investment gain) may not be distributed
before the Member's separation from service, death, the date the Member becomes
Totally Disabled, before the events described in the last paragraph of Section
5.04, or before termination of the Plan as described in Article VII. (See Item P
of the Adoption Agreement - Plus and Section 3.01.)
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means a life annuity with installment
refund payable to the surviving spouse of a Member who dies before his Annuity
Starting Date. A former spouse will be treated as the surviving spouse to the
extent provided under a qualified domestic relations order as described in Code
Section 414(p).
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth Monthly
Date after each Yearly Date which is within the same Plan Year.
REENTRY DATE means the date a former Active Member reenters the Plan. (See
Section 2.01.)
REHIRE DATE means the date an Employee first performs an Hour of Service
following an Entry Break, when the hours method is used, or a Period of
Severance, when the elapsed time method is used.
REQUIRED CONTRIBUTIONS means nondeductible contributions required from a Member
in order to participate in the Prior Plan.
RESTATEMENT DATE means the date our retirement plan was last restated. (See Item
A of the initial Adoption Agreement.)
RETIREMENT DATE means the date a retirement benefit will begin and is a Member's
Early, Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made by or for
a Member. (See Section 3.03.)
SEMI-YEARLY DATE means each Yearly Date and the sixth Monthly Date after each
Yearly Date which is within the same Plan Year.
SEVERANCE DATE means the earlier of
(a) the date on which an Employee quits, retires, dies or is discharged, or
(b) the first anniversary of the date an Employee begins a one-year absence
from service (with or without pay). This absence may be the result of
any combination of vacation, holiday, sickness, disability, leave of
absence, or layoff.
Solely to determine whether a one-year Period of Severance has occurred for
entry or vesting purposes for an Employee who is absent from service beyond the
first anniversary of the first day of a Parental Absence, Severance Date is the
second anniversary of the first day of the Parental
-17-
ARTICLE I
<PAGE> 18
Absence. The period between the first and second anniversaries of the first day
of the Parental Absence is not a Period of Service and is not a Period of
Severance.
TAXABLE WAGE BASE means the maximum amount of earnings which may be considered
wages for a year under Code Section 3121(a)(1).
TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982.
TEFRA COMPLIANCE DATE means the date our Plan is to comply with the provisions
of TEFRA. The TEFRA Compliance Date as used in this Plan is,
(a) for purposes of determining the Maximum Permissible Amount and
contribution limitations of Section 3.06,
(1) if this Plan was in effect on July 1, 1982, the first day of
the first Limitation Year which begins after December 31,
1982, or
(2) if this Plan was not in effect on July 1, 1982, the first day
of the first Limitation Year which ends after July 1, 1982.
(b) for all other purposes, the first Yearly Date after December 31, 1983.
TOTALLY DISABLED means that a Member is disabled, as a result of sickness or
injury, to the extent that he is prevented from engaging in any substantial
gainful activity, and is eligible for and receives a disability benefit under
Title II of the Federal Social Security Act.
If our Employees are not covered under Title II of the Federal Social Security
Act, Totally Disabled means that a Member is disabled as a result of sickness or
injury, to the extent that he is completely prevented from performing any work,
engaging in any occupation for wage or profit and has been continuously disabled
for six months. Initial written proof that the disability exists and has
continued for at least six months must be furnished to the Plan Administrator by
the Member within one year after the date the disability begins. The Plan
Administrator, upon receipt of any notice of proof of a Participant's total
disability, shall have the right and opportunity to have physician it designates
examine the Member when and as often as it may reasonably require, but not more
than once each year after the disability has continued uninterruptedly for at
least two years beyond the date of furnishing the first proof.
TRUST means, for trusteed plans, the Agreement of Trust set out in Article
VIIIA.
TRUST FUND means, for trusteed plans, the total funds held under the Trust as
provided in Article VIIIA.
TRUSTEE means, for trusteed plans, the party or parties named in Item T. The
term Trustee as it is used in this Plan shall include the plural unless the
context clearly indicates the singular is meant.
ARTICLE I -18-
<PAGE> 19
VESTED ACCOUNT means, on any date, the vested part of a Member's Account
(including the cash values of any insurance coverage on his life under this
Plan). If the Member's Vesting Percentage is 100%, the Vested Account equals his
Account. If the Member's Vesting Percentage is not 100%, the Vested Account
equals the sum of (a) and (b) below:
(a) The part of the Member's Account resulting from vested Employer
Contributions made before any prior Forfeiture Date, and from Member
Contributions and Rollover Contributions. The Member is fully (100%)
vested in this part of his Account.
(b) The balance of the Member's Account in excess of the amount in (a)
above multiplied by his Vesting Percentage.
If the Member has withdrawn any part of his Account resulting from our
Contributions, other than vested Employer Contributions included in (a)
above, the amount determined under this subparagraph (b) shall be equal
to P(AB + D) - D as defined below:
P The Member's Vesting Percentage.
AB the balance of the Member's Account in excess of the amount in
(a) above.
D The amount of withdrawal resulting from our Contributions,
other than our vested Contributions included in (a) above.
VESTING BREAK means, when the elapsed time method is used, a one-year Period of
Severance. An Employee incurs a Vesting Break on the last day of a one-year
Period of Severance.
When the hours method is used, Vesting Break is defined in Item V. However, if
the Adoption Agreement - Plus is not used, Vesting Break means a Vesting Service
Period in which an Employee does not have more than one-half of the Hours of
Service required in Item V for a year of Vesting Service. An Employee incurs a
Vesting Break on the last day of the Vesting Service Period in which he has a
Vesting Break.
VESTING PERCENTAGE means the Vesting Percentage of a Member determined under
Item U. If the computation of Vesting Percentage is changed (whether directly or
indirectly), a Member's Vesting Percentage as of the day before the change shall
not be reduced due to the change. Indirect changes include, but are not limited
to, changes in Early Retirement Date requirements or the method of crediting
Vesting Service. The provisions of Section 9.01 regarding changes in the
computation of Vesting Percentage shall apply.
VESTING SERVICE means an Employee's service determined under Item V. Vesting
Service is subject to the modifications selected under that item. Vesting
Service shall include service with a Controlled Group member while we are both
members of the Controlled Group.
If, under Item V(4), Vesting Service is determined under the Prior Plan
provisions, service before the date the Prior Plan became subject to ERISA may
be disregarded if such service
ARTICLE I -19-
<PAGE> 20
would have been disregarded under the Prior Plan break in service rules as in
effect on the day before such date.
VESTING SERVICE shall include a Period of Military Duty. If the elapsed time
method is used, the entire Period of Military Duty shall be included to the
extent it has not already been counted as Vesting Service. If the hours method
is used, an Hour of Service shall be credited (without regard to the 501 Hours
of Service limitation) for each hour the Employee would normally have been
scheduled to work for us during such Period of Military Duty, to the extent such
hour has not already been credited as Vesting Service.
If the elapsed time method is used and the Employee has more than one countable
Period of Service or if all or a part of a Period of Service is not counted,
Vesting Service shall be determined by adjusting his Hire Date so that the
Employee has one continuous period of Vesting Service equal to the total of all
his countable Periods of Service. This period of Vesting Service shall be
expressed as whole years (on the basis that 365 days equal one year) and days.
If the elapsed time method is used, Vesting Service shall include a Period of
Severance (service spanning rule) if
(a) the Period of Severance immediately follows a period during which an
Employee is not absent from work and ends within twelve months, or
(b) the Period of Severance immediately follows a period during which an
Employee is absent from work for any reason other than quitting, being
discharged, or retiring (such as a leave of absence or layoff) and ends
within twelve months of the date he was first absent.
If the Prior Plan applied the rule of parity before the first Yearly Date in
1985, an Employee's Vesting Service, accumulated before a Vesting Break which
occurred before that date, shall be excluded according to the Prior Plan
provisions if (a) his Vesting Percentage is zero, and (b) his latest period of
consecutive Vesting Breaks equals or exceeds his prior Vesting Service
(disregarding any Vesting Service that was excluded because of a previous period
of Vesting Breaks).
For a Member who is not credited with an Hour of Service on or after the first
Yearly Date in 1985, Vesting Service accrued before such date and before an age
greater than 18 (before the beginning of the Vesting Service Period in which he
attained that age, when the hours method is used) shall be excluded if the Prior
Plan excluded such service.
If the method of crediting Vesting Service changes, the provisions of Sections
9.01 and 9.13 shall apply.
VESTING SERVICE PERIOD means the period defined in Item V. However, if the
Adoption Agreement - Plus is not used, Vesting Service Period means a
12-consecutive month period ending on the last day of the Plan Year.
ARTICLE I -20-
<PAGE> 21
VOLUNTARY CONTRIBUTIONS means the Contributions by a Member that are not
required as a condition of employment or membership or for obtaining additional
benefits from our Contributions. (See Item S and Section 3.02.)
YEARLY DATE means the Yearly Date defined in Item E.
YEARS OF SERVICE means an Employee's Vesting Service as defined in Item V,
disregarding any modifications which exclude service.
If Vesting Service is not defined in Item V, then for purposes of determining
Years of Service, Vesting Service shall be deemed to be determined using the
elapsed time method.
ARTICLE I -21-
<PAGE> 22
ARTICLE II
MEMBERSHIP
SECTION 2.01 - ACTIVE MEMBERSHIP.
An Employee shall first become an Active Member (begin active participation in
the Plan) on the earliest date specified in Item L on which he is an Eligible
Employee and has met all of the entry requirements selected in Item K. This date
is the Member's Entry Date.
Each Employee who was an active member under the Prior Plan on the day before
the Restatement Date shall become an Active Member under this Plan on the
Restatement Date if he is still an Eligible Employee. The Member's entry date
under the Prior Plan is deemed to be his Entry Date under this Plan.
If a person has been an Eligible Employee who has met all of the entry
requirements selected in Item K but is not an Eligible Employee on the date
which would have been his Entry Date, he shall become an Active Member on the
date he again becomes an Eligible Employee. This date is the Member's Entry
Date.
A former Active Member shall reenter the Plan as an Active Member on the date he
again performs an Hour of Service as an Eligible Employee. This date is the
Member's Reentry Date. An Inactive Member ceases to be an Inactive Member on his
Reentry Date.
A Member's benefits under this Plan shall not be duplicated because of more than
one period as an Active Member.
SECTION 2.02 - CEASING ACTIVE MEMBERSHIP.
An Active Member shall become an Inactive Member (stop accruing benefits under
the Plan) on the earlier of the following:
(a) The date the Member ceases to be an Eligible Employee (his Retirement
Date if he ceases to be an Eligible Employee within one month of his
Retirement Date).
(b) The effective date of complete termination of the Plan under Article
VII.
An Employee or former Employee who was an inactive member under the Prior Plan
on the day before the Restatement Date shall become an Inactive Member under
this Plan on the Restatement Date. Eligibility for any benefits payable to the
Member or on his behalf and the amount of the benefits shall be determined
according to the provisions of the Prior Plan.
A Member shall cease to be a Member on the date he is no longer an Eligible
Employee and his Account is zero.
ARTICLE II -22-
<PAGE> 23
SECTION 2.03 - ADOPTING EMPLOYERS - SEPARATE PLANS.
If Item Z(1)(a)(i) of the Adoption Agreement - Plus is selected, each Adopting
Employer listed in Item Z maintains this Plan as a separate and distinct plan
for the exclusive benefit of its employees. If Item Z(1)(a)(ii) of the Adoption
Agreement - Plus is selected, each Adopting Employer identified in Item
Z(1)(a)(ii) maintains this Plan as a separate and distinct plan for the
exclusive benefit of its employees. An Adopting Employer's adoption of the Plan
shall be in writing. If the Adopting Employer did not maintain a Prior Plan, the
date of adoption specified in Item Z is the Effective Date of its Plan. This
date is the first Yearly Date for the Adopting Employer's Plan and shall be the
Entry Date for any of its employees who have met the requirements in Section
2.01 as of that date. If the Adopting Employer did maintain a Prior Plan, the
date of adoption is the Restatement Date of its Plan.
An Adopting Employer shall be deemed to be the Employer but only with respect to
its Plan and for those Employees who are on its payroll. In interpreting the
Adoption Agreement and this document as to an Adopting Employer, the terms
Employer, we, us, and ours shall be deemed to refer to the Adopting Employer and
the Adopting Employer's fiscal year is deemed to be the Fiscal Year. The primary
Employer in Item B is deemed to be an Adopting Employer for purposes of the
following two paragraphs.
The Contributions made by an Adopting Employer, and Forfeitures arising from
such Contributions, shall not be used to fund the benefits for Employees of any
other Adopting Employer. Service with an Adopting Employer shall be included as
service with all other Adopting Employers and transfer of employment, without
interruption, between Adopting Employers shall not be an interruption of
service. If an Active Member ceases to be an Employee of an Adopting Employer on
other than the last day of the Plan Year and immediately becomes an Employee of
another Adopting Employer, he shall be an Active Member under the first Adopting
Employer's Plan until the next annual Contribution, if any, is due, regardless
of whether he has also become an Active Member in the other Adopting Employer's
Plan. Both Adopting Employers' Contributions on his behalf will be
proportionately reduced on that date based upon his period of employment with
and Pay from each.
If an integrated allocation formula is in effect and a Member received Pay from
more than one Adopting Employer during a Pay Year, the Integration Level used to
determine the allocation of an Adopting Employer's Contributions is equal to his
Integration Level multiplied by the ratio of (a) the Member's Pay from the
Adopting Employer for that year to (b) the Member's Pay from all Adopting
Employers for that year.
Any amendment to the Plan by the primary Employer in Item B of the Adoption
Agreement shall be deemed to be an amendment to each Adopting Employer's Plan.
Without the consent of any other Adopting Employer, an Adopting Employer may
restate its Plan in the form of a separate document at any time and, in that
event, cease to be an Adopting Employer. An employer shall not be an Adopting
Employer if it ceases to be controlled by us or affiliated with us. Such an
employer may continue its Plan by restating it in the form of a separate
document. This Plan shall be amended to delete a former Adopting Employer from
Item Z of the Adoption Agreement.
ARTICLE II -23-
<PAGE> 24
If the Plan of the Adopting Employer terminates, the provisions of Article VII
shall apply to its Plan.
SECTION 2.04 - ADOPTING EMPLOYERS - SINGLE PLAN.
If the Adoption Agreement - Plus is not used, each Adopting Employer listed in
Item Y and each Controlled Group member, whether or not listed in that item,
shall be an Adopting Employer who participates with us in this Plan. If Item
Z(1)(b)(i) of the Adoption Agreement - Plus is selected, each Adopting Employer
listed in Item Z participates with us in this Plan. If Item Z(1)(b)(ii) of the
Adoption Agreement - Plus is selected, each Adopting Employer identified in Item
Z(1)(b)(ii) participates with us in this Plan. An Adopting Employer's agreement
to participate in this Plan shall be in writing. Employees of Adopting Employers
who do not make such written agreement shall be eligible to become Members and
shall be entitled to Contributions in the same manner as if their employers had
agreed to participate in the Plan. An Adopting Employer has no rights or
privileges under this Plan.
If the Adopting Employer did not maintain a Prior Plan, the date of
participation in Item Z (Item Y) shall be the Entry Date for any of its
employees who have met the requirements in Section 2.01 as of that date. Service
with and pay from an Adopting Employer shall be included as service with and pay
from us. Transfer of employment, without interruption, between an Adopting
Employer and another Adopting Employer or us shall not be considered an
interruption of service. Our Fiscal Year in Item F shall be the Fiscal Year used
in interpreting this Plan for Adopting Employers.
Contributions made by an Adopting Employer shall be treated as Contributions
made by us. Forfeitures arising from those Contributions shall be used for the
benefit of all Members.
An employer shall not be an Adopting Employer if it ceases to be controlled by
us or affiliated with us. Such an employer may continue a retirement plan for
its employees in the form of a separate document. This Plan shall be amended to
delete a former Adopting Employer from the list of Adopting Employers in the
Adoption Agreement.
If an employer ceases to be an Adopting Employer and does not continue a
retirement plan for the benefit of its employees, partial termination may result
and the provisions of Article VII apply.
ARTICLE II -24-
<PAGE> 25
ARTICLE III
CONTRIBUTIONS
SECTION 3.01 - EMPLOYER CONTRIBUTIONS.
Our Contributions are conditioned on initial qualification of the Plan. If the
Plan is denied initial qualification, the provisions of Section 9.15 shall
apply.
The amount of our Contributions is specified in the Adoption Agreement. Our
Contributions are made from Net Profits unless otherwise specified in Item Q.
Notwithstanding the foregoing, the Plan shall continue to be designed to qualify
as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and
417.
No Member shall be permitted to have Elective Deferral Contributions, as defined
in Section 3.07, made under this Plan, or any other qualified plan maintained by
us, during any taxable year, in excess of the dollar limitation contained in
Code Section 402(g) in effect at the beginning of such taxable year.
If Matching Contributions, Additional Contributions or Qualified Nonelective
Contributions under Item P(l)(a) of the Adoption Agreement - Plus are made from
Net Profits, Item Q, and our Net Profits are not sufficient to provide such
Contributions, such Contributions shall be proportionately reduced.
Our Contributions are allocated according to the provisions of Section 3.05.
If Item Q(2)(a) is selected, we may make all or part of our annual Contributions
before the end of the Plan Year. Such Contributions shall be allocated when made
in a manner which approximates the allocation which would otherwise have been
made as of the last day of the Plan Year. Succeeding allocations shall take into
account amounts previously allocated for the Plan Year. The percentage of our
Contributions allocated to the Member for the Plan Year shall be the same
percentage which would have been allocated to him if the entire allocation had
been made as of the last day of the Plan Year.
We shall pay to the Insurer or Trustee our Contributions used to determine the
Actual Deferral Percentage, as defined in Section 3.07, (Elective Deferral
Contributions, Qualified Nonelective Contributions, and Qualified Matching
Contributions) to the Plan for each Plan Year not later than the end of the
twelve-month period immediately following the Plan Year for which they are
deemed to be paid. Any such Contributions accumulated through payroll deductions
shall be paid within 90 days of the date withheld or the date it is first
reasonably practical for us to do so, if earlier.
A portion of the Plan assets resulting from our Contributions (but not more than
the original amount of those Contributions) may be returned if our Contributions
are made because of a mistake of fact or are more than the amount deductible
under Code Section 404 (excluding any amount which is not deductible because the
Plan is disqualified). The amount involved must be
ARTICLE III -25-
<PAGE> 26
returned to us within one year after the date our Contributions are made by
mistake of fact or the date the deduction is disallowed, whichever applies.
Except as provided under this paragraph and Articles VII and IX, the assets of
the Plan shall never be used for our benefit and are held for the exclusive
purpose of providing benefits to Members and their Beneficiaries and for
defraying reasonable expenses of administering the Plan.
Prior Plan Assets which result from contributions made by us shall be treated in
the same manner as Employer Contributions made under this Plan. They shall be
treated in the same manner as Employer Contributions made under this Plan before
a Forfeiture Date if the Prior Plan Assets are transferred from a terminated
plan.
SECTION 3.02 - VOLUNTARY CONTRIBUTIONS BY MEMBERS.
If permitted under Item S, an Active Member may make Voluntary Contributions.
Voluntary Contributions shall be made according to nondiscriminatory procedures
and limitations set up by the Plan Administrator.
A Member's membership in the Plan is not affected by stopping or changing
Voluntary Contributions. An Active Member's request to start, change, or stop
Voluntary Contributions must be in writing on a form furnished for that purpose.
The form must be delivered to the Plan Administrator before the date the Member
is to start, change, or stop Voluntary Contributions.
The part of the Member's Account resulting from Voluntary Contributions is fully
(100%) vested and nonforfeitable at all times.
Prior Plan Assets which result from voluntary contributions made by the Member
shall be treated in the same manner as Voluntary Contributions made under this
Plan. These Prior Plan Assets may include deductible Voluntary Contributions
which were made according to the provisions of the Prior Plan.
SECTION 3.03 - ROLLOVER CONTRIBUTIONS.
With our consent, a Rollover Contribution may be made by or for an Eligible
Employee if the following conditions are met:
(a) The Contribution is a rollover contribution which the Code permits to
be transferred to a plan that meets the requirements of Code Section
401(a).
(b) If the Contribution is made by the Eligible Employee, it is made within
sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the Plan
Administrator that the proposed transfer is in fact a rollover
contribution which meets conditions (a) and (b) above.
ARTICLE III -26-
<PAGE> 27
The Rollover Contribution may be made by the Eligible Employee or the Eligible
Employee may direct the trustee or named fiduciary of another plan to transfer
the funds which would otherwise be a Rollover Contribution directly to this
Plan. Such transferred funds shall be called a Rollover Contribution. The
Contribution shall be made according to procedures set up by the Plan
Administrator.
If an Eligible Employee participated in a retirement plan which met the
requirements of Code Section 401(a), with our consent, the trustee or named
fiduciary of that plan may transfer funds which could not have been a Rollover
Contribution to this Plan on behalf of the Eligible Employee. The transferred
funds shall be called a Rollover Contribution. If such Rollover Contributions
were made for a period when the Eligible Employee was a five-percent owner of
the employer that maintained the plan, the Rollover Contributions shall be
treated in the same manner as if they were Contributions made under this Plan
for a period when he was a five-percent owner of us.
If the Eligible Employee is not an Active Member when the Rollover Contribution
is made, he shall be deemed to be an Active Member only for the purpose of
investment and distribution of the Rollover Contribution. Our Contributions
shall not be made for or allocated to the Eligible Employee and he may not make
Member Contributions, until the time he meets all of the requirements to become
an Active Member.
Rollover Contributions made by or for an Eligible Employee shall be credited to
his Account. The part of the Member's Account resulting from Rollover
Contributions is fully (100%) vested and nonforfeitable at all times. A separate
accounting record shall be maintained for that part of his Rollover Contribution
consisting of voluntary contributions which were deducted from the Member's
gross income for Federal income tax purposes.
Prior Plan Assets which result from the Member's rollover contributions shall be
treated in the same manner as Rollover Contributions made under this Plan.
SECTION 3.04 - FORFEITURES AND RESTORATION.
The Nonvested Account of a Member shall be forfeited as of the earlier of the
following: the date the Member dies, if prior to such date he had ceased to be
an Employee; or his Forfeiture Date. All or part of a Member's Nonvested Account
will be forfeited if, after he ceases to be an Employee, he receives a
distribution of his entire Vested Account or a distribution of his Vested
Account derived from our Contributions which were not 100% vested when made
according to the provisions of Section 5.03 or Section 9.11. If a Member's
Vested Account is zero on the date he ceases to be an Employee, he shall be
deemed to have received a distribution of his entire Vested Account on such
date. The forfeiture will occur as of the date he receives the distribution or
on the date such provision became effective, if later. If he receives a
distribution of his entire Vested Account, his entire Nonvested Account will be
forfeited. If he receives a distribution of his Vested Account from our
Contributions which were not 100% vested when made, but less than his entire
Vested Account, the amount to be forfeited will be determined by multiplying his
Nonvested Account by a fraction. The numerator of the fraction is the amount of
the distribution derived from our Contributions which were not 100% vested when
made and the denominator of
ARTICLE III -27-
<PAGE> 28
the fraction is his entire Vested Account derived from such Contributions on the
date of the distribution.
If the Adoption Agreement - Plus is used, Forfeitures shall be allocated as of
the last day of the Plan Year in which such Forfeitures arise or applied to
reduce the earliest Employer Contribution made after the Forfeitures are
determined as provided in Item P(4). Forfeitures shall be determined at least
once during each taxable year of ours. If the Adoption Agreement - Plus is not
used and Item P(2) is selected, Forfeitures shall be allocated with our
Discretionary Contributions and deemed to be Discretionary Contributions as of
the last day of the Plan Year in which such Forfeitures arise. If the Adoption
Agreement - Plus is not used and Item P(2) is not selected, Forfeitures shall be
applied to reduce the earliest Employer Contribution made after the Forfeitures
are determined. Forfeitures of Matching Contributions which relate to excess
amounts shall be applied as provided in Section 3.07.
Forfeitures may first be applied to pay expenses under the Plan which would
otherwise be paid by us before they are applied or allocated as provided above.
Upon their application or allocation, such Forfeitures shall be deemed to be
Employer Contributions.
If a Member again becomes an Eligible Employee after receiving a distribution
which caused his Nonvested Account to be forfeited, he shall have the right to
repay to the Plan the entire amount of the distribution he received (excluding
any amount of such distribution resulting from Contributions which were 100%
vested when made). The repayment must be made before the earlier of the date
five years after the date he again becomes an Eligible Employee or the end of
the first period of five consecutive Vesting Breaks which begin after the date
of the distribution.
If the Member makes the repayment provided above, the Plan Administrator shall
restore to his Account an amount equal to his Nonvested Account which was
forfeited on the date of distribution, unadjusted for any investment gains or
losses. If the Member was deemed to have received a distribution because his
Vested Account was zero or the Plan did not have the repayment provisions in
effect on the date the distribution was made and he again performs an Hour of
Service as an Eligible Employee within the repayment period, the Plan
Administrator shall restore the Member's Account as if he had made a required
repayment on the date he performed such Hour of Service. Restoration of the
Member's Account shall include restoration of all Code Section 411(d)(6)
protected benefits with respect to the restored Account, according to applicable
Treasury regulations. Provided, however, the Plan Administrator shall not
restore the Nonvested Account if a Forfeiture Date has occurred after the date
of the distribution and on or before the date of repayment and that Forfeiture
would result in a complete forfeiture of the amount the Plan Administrator would
otherwise restore.
The Plan Administrator shall restore the Member's Account by the close of the
Plan Year following the Plan Year in which repayment is made.
SECTION 3.05 - ALLOCATION.
Our Contributions which are not subject to the requirements of Item Q(2) shall
be allocated to the Members for whom they were made and credited to the Members'
Accounts. Our
ARTICLE III -28-
<PAGE> 29
Contributions which are subject to the requirements of Item Q(2) plus any
Forfeitures released for allocation for the Plan Year, shall be allocated among
all persons meeting the requirements in Items P and Q. The amount allocated to
such a person shall be determined under the allocation formula selected in the
Adoption Agreement and Article X.
In determining the amount of our Contributions allocated to a Member who is a
Leased Employee, contributions and benefits provided by the leasing organization
which are attributable to services such Leased Employee performs for us shall be
treated as provided by us. Those contributions or benefits shall not be
duplicated under this Plan.
SECTION 3.06 - CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set forth in
this section, the following terms are defined:
ANNUAL ADDITIONS mean the sum of the following amounts credited to a
Member's account for the Limitation Year:
(1) employer contributions,
(2) employee contributions,
(3) forfeitures, and
(4) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(l)(2), which
is part of a pension or annuity plan maintained by the
Employer.
These amounts are treated as Annual Additions to a defined contribution
plan. Also amounts derived from contributions paid or accrued after
December 31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits, allocated to the
separate account of a key employee, as defined in Code Section
419A(d)(3), under a welfare benefit fund, as defined in Code Section
419(e), maintained by the Employer are treated as Annual Additions to a
defined contribution plan.
For this purpose, any Excess Amount applied under (d) and (j) below in
the Limitation Year to reduce Employer Contributions will be considered
Annual Additions for such Limitation Year.
COMPENSATION means a Member's earned income, wages, salaries, fees for
professional service, and other amounts received for personal service
actually rendered in the course of employment with the employer
maintaining the plan. Compensation includes, but is not limited to,
commissions for salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, and
bonuses. Compensation excludes the following:
ARTICLE III -29-
<PAGE> 30
(1) Employer contributions to a plan of deferred compensation to
the extent contributions are not included in the gross income
of the Employee for the taxable year in which contributed, or
employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensation.
(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject
to a substantial risk of forfeiture.
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(4) Other amounts which receive special tax benefits, or
contributions made by the employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
described in Code Section 403(b) (whether or not the amounts
are actually excludible from the gross income of the
Employee).
For purposes of applying the limitations of this section, Compensation
for a Limitation Year is the Compensation actually paid or made
available to the Member within the Limitation Year (accrued for the
Member within the Limitation Year, if so elected in the Adoption
Agreement - Plus).
For any Limitation Year beginning after December 31, 1988, only the
first $200,000 (multiplied by the Adjustment Factor) of the Member's
Compensation shall be taken into account under the Plan.
DEFINED BENEFIT PLAN FRACTION means a fraction, the numerator of which
is the sum of the Member's Projected Annual Benefits under all the
defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of 125 percent of
the dollar limitation determined for the Limitation Year under Code
Sections 415 (b) and (d) or 140 percent of the Highest Average
Compensation, including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Member was a member as of the first
day of the first Limitation Year beginning after December 31, 1986, in
one or more defined benefit plans maintained by the Employer which were
in existence on May 6, 1986, the denominator of this fraction will not
be less than 125 percent of the sum of the annual benefits under such
plans which the Member had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code
Section 415 for all Limitation Years beginning before January 1, 1987.
ARTICLE III -30-
<PAGE> 31
DEFINED CONTRIBUTION DOLLAR LIMITATION means $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in Code
Section 415(b)(1) as in effect for the Limitation Year.
DEFINED CONTRIBUTION PLAN FRACTION means a fraction, the numerator of
which is the sum of the Annual Additions to the Member's account under
all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior Limitation
Years (including the Annual Additions attributable to the Member's
nondeductible employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the Annual
Additions attributable to all welfare benefit funds, as defined in Code
Section 419(e), and individual medical accounts, as defined in Code
Section 415(l)(2), maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current and
all prior Limitation Years of service with the Employer (regardless of
whether a defined contribution plan was maintained by the Employer).
The maximum aggregate amount in any Limitation Year is the lesser of
125 percent of the dollar limitation determined under Code Section
415(b) and (d) in effect under Code Section 415(c)(1)(A) of the Code or
35 percent of the Member's Compensation for such year.
If the Member was a member as of the end of the first Limitation Year
beginning after December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction shall be adjusted if the sum of
this fraction and the Defined Benefit Plan Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment, an
amount equal to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed
as of the end of the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the
plan made after May 5, 1986, but using the Code Section 415 limitations
applicable to the first Limitation Year beginning on or after January
1, 1987.
The Annual Addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat all employee contributions as
Annual Additions.
EMPLOYER means the employer that adopts this Plan and all members of a
controlled group of corporations (as defined in Code Section 414(b) as
modified by Code Section 415(h)), all commonly controlled trades or
businesses (as defined in Code Section 414(c) as modified by Code
Section 415(h)) or affiliated service groups (as defined in Code
Section 414(m)) of which the adopting employer is a part, and any other
entity required to be aggregated with the employer pursuant to
regulations under Code Section 414(o).
EXCESS AMOUNT means the excess or the Member's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
ARTICLE III -31-
<PAGE> 32
Highest Average Compensation means the average Compensation for the
three consecutive Years of Service (see Section 1.02) with the Employer
that produces the highest average.
LIMITATION YEAR means a calendar year or the 12-consecutive month
period elected by the Employer in Item R. If the Limitation Year ends
on the last day of the Fiscal Year and the Fiscal Year is a 52-53 week
period, then the Limitation Year shall be such period. All qualified
plans maintained by the Employer must use the same Limitation Year. If
the Limitation Year is amended to a different 12-consecutive month
period, the new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
MASTER OR PROTOTYPE PLAN means a plan the form of which is the subject
of a favorable opinion letter from the Internal Revenue Service.
MAXIMUM PERMISSIBLE AMOUNT means the maximum Annual Addition that may
be contributed or allocated to a Member's Account under the Plan for
any Limitation Year. This amount shall not exceed the lesser of:
(1) the Defined Contribution Dollar Limitation, or
(2) 25 percent of the Member's Compensation for the Limitation
Year.
The compensation limitation referred to in (2) shall not apply to any
contribution for medical benefits (within the meaning of Code Section
401(h) or Code Section 419A(f)(2)) which is otherwise treated as an
Annual Addition under Code Section 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive month period, the
Maximum Permissible Amount will not exceed the Defined Contribution
Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
PROJECTED ANNUAL BENEFIT means the annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor form) to which the Member would be entitled under
the terms of the plan assuming:
(1) the Member will continue employment until normal retirement
age under the plan (or current age, if later), and
ARTICLE III -32-
<PAGE> 33
(2) the Member's Compensation for the current Limitation Year and
all other relevant factor used to determine benefits under the
plan will remain constant for all future Limitation Years.
(b) If the Member does not participate in, and has never participated in
another qualified plan maintained by the Employer or a welfare benefit
fund, as defined in Code Section 419(e) maintained by the Employer, or
an individual medical account, as defined in Code Section 415(l)(2) of
the Code, maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the
Member's Account for any Limitation Year will not exceed the lesser of
the Maximum Permissible amount or any other limitation contained in
this Plan. If the Employer Contribution that would otherwise be
contributed or allocated to the Member's Account would cause the Annual
Additions for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so that the
Annual Additions for the Limitation Year will equal the Maximum
Permissible Amount.
(c) Prior to determining the Member's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible
Amount for a Member on the basis of reasonable estimation of the
Member's Compensation for the Limitation Year, uniformly determined for
all Members similarly situated.
(d) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Member's actual Compensation for the
Limitation Year.
(e) If pursuant to (d) above or as a result of the allocation of
forfeitures, there is an Excess Amount, the excess will be disposed of
as follows:
(1) Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Member;
(2) If after the application of (1) above an Excess Amount still
exists, and the Member is covered by the Plan at the end of
the Limitation Year, the Excess Amount in the Member's Account
will be used to reduce Employer Contributions (including any
allocation of forfeitures) for such Member in the next
Limitation Year, and each succeeding Limitation Year if
necessary.
(3) If after the application of (1) above an excess amount still
exists, and the Member is not covered by the Plan at the end
of a Limitation Year, the Excess Amount will be held
unallocated in a suspense account. The suspense account will
be applied to reduce future Employer Contributions for all
remaining Members in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(4) If a suspense account is in existence at any time during a
Limitation Year pursuant to this (d), it will not participate
in the allocation of the trust's investment gains or losses.
If a suspense account is in existence at any time during a
ARTICLE III -33-
<PAGE> 34
particular Limitation Year, all amounts in the suspense
account must be allocated and reallocated to Member's Accounts
before any Employer or any Member contributions may be made to
the Plan for that Limitation Year. Excess amounts may not be
distributed to Members or former Members.
(e) This (e) applies if, in addition to this Plan, the Member is covered
under another qualified defined contribution Master or Prototype Plan
maintained by the Employer, a welfare benefit fund, as defined in Code
Section 419(e), maintained by the Employer, or an individual medical
account, as defined in Code Section 415(l)(2), maintained by the
Employer, which provides an Annual Addition, during any Limitation
Year. The Annual Additions which may be credited to a Member's Account
under this Plan for any such Limitation Year will not exceed the
Maximum Permissible Amount reduced by the Annual Additions credited to
a Member's account under the other plans and welfare benefit funds for
the same Limitation Year. If the Annual Additions with respect to the
Member under other defined contribution plans and welfare benefit funds
maintained by the Employer are less than the Maximum Permissible Amount
and the Employer Contribution that would otherwise be contributed or
allocated to the Member's Account under this Plan would cause the
Annual Additions for the Limitation Year to exceed this limitation, the
amount contributed or allocated will be reduced so that the Annual
Additions under all such plans and funds for the Limitation Year will
equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Member under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated
to the Member's Account under this Plan for the Limitation Year.
(f) Prior to determining the Member's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible
Amount for a Member in the manner described in (b) above.
(g) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Member's actual Compensation for the
Limitation Year.
(h) If pursuant to (g) above or as a result of the allocation of
forfeitures, a Member's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year, the
Excess Amount will be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a welfare
benefit fund or individual medical account will be deemed to have been
allocated first regardless of the actual allocation date.
(i) If an Excess Amount was allocated to a Member on an allocation date of
this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of,
(1) the total Excess Amount allocated as of such date, times
ARTICLE III -34-
<PAGE> 35
(2) the ratio of (i) the Annual Additions allocated to the Member
for the Limitation Year as of such date under this Plan to
(ii) the total Annual Additions allocated to the Member for
the Limitation Year as of such date under this and all the
other qualified defined contribution Master and Prototype
Plans.
(j) Any excess amount attributed to this Plan will be disposed in the
manner described in (d) above.
(k) If the Member is covered under another qualified defined contribution
plan maintained by the Employer which is not a Master or Prototype Plan,
Annual Additions which may be credited to the Member's Account under
this Plan for any Limitation Year will be limited in accordance with (e)
through (j) above as though the other plan were a Master or Prototype
Plan unless the Employer provides other limitations in Item R.
(l) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Member in this Plan, the sum of the
Member's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction will not exceed 1.0 in any Limitation Year. The Annual
Additions credited to the Member's Account under this Plan for any
Limitation Year will be limited in accordance with Item R.
SECTION 3.07 - EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are
defined:
ACTUAL DEFERRAL PERCENTAGE means the ratio (expressed as a
percentage) of Elective Deferral Contributions under this Plan
on behalf of the Eligible Member for the Plan Year to the
Eligible Member's Pay for the Plan Year (whether or not the
Eligible Member was a Member for the entire Plan Year). For
the first Plan Year of the cash or deferred arrangement, the
amount of Pay for the entire 12-month period ending on the
last day of such Plan Year shall be taken into account. If
selected in Item M, for Plan Years beginning before January 1,
1992, or such later date as provided in Internal Revenue
Service regulations, and in modification of the foregoing, Pay
shall be limited to the Pay received while an Active Member of
the Plan. The Elective Deferral Contributions used to
determine the Actual Deferral Percentage shall include Excess
Elective Deferrals, but shall exclude Elective Deferral
Contributions that are used in computing the Contribution
Percentage (provided the Average Actual Deferral Percentage
test is satisfied both with and without exclusion of these
Elective Deferral Contributions). Under such rules as the
Secretary of the Treasury shall prescribe, we may elect to
include Qualified Nonelective Contributions and Qualified
Matching Contributions under this Plan in computing the Actual
Deferral Percentage. For an Eligible Member for whom such
Contributions on his behalf for the Plan Year are zero, the
percentage is zero.
AGGREGATE LIMIT means the sum of
ARTICLE III -35-
<PAGE> 36
(1) 125 percent of the greater of the Average Actual
Deferral Percentage of the Nonhighly Compensated
Employees for the Plan Year or the Average
Contribution Percentage of Nonhighly Compensated
Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the
Plan Year of the cash or deferred arrangement and
(2) the lesser of 200% or two plus the lesser of such
Average Actual Deferral Percentage or Average
Contribution Percentage.
AVERAGE ACTUAL DEFERRAL PERCENTAGE means the average
(expressed as a percentage) of the Actual Deferral Percentages
of the Eligible Members in a group.
AVERAGE CONTRIBUTION PERCENTAGE means the average (expressed
as a percentage) of the Contribution Percentages of the
Eligible Members in a group.
CONTRIBUTION PERCENTAGE means the ratio (expressed as a
percentage) of the Eligible Member's Contribution Percentage
Amounts to the Eligible Member's Pay for the Plan Year
(whether or not the Eligible Member was a Member for the
entire Plan Year). For the first Plan Year of the Plan, the
amount of Pay for the entire 12-month period ending on the
last day of such Plan Year shall be taken into account. If
selected in Item M, for Plan Years beginning before January 1,
1992, or such later date as provided in Internal Revenue
Service regulations, and in modification of the foregoing, Pay
shall be limited to the Pay received while an Active Member of
the Plan. For an Eligible Member for whom such Contribution
Percentage Amounts for the Plan Year are zero, the percentage
is zero.
CONTRIBUTION PERCENTAGE AMOUNTS means the sum of the Member
Contributions and Matching Contributions (that are not
Qualified Matching Contributions) under this Plan on behalf of
the Eligible Member for the Plan Year. Under such rules as the
Secretary of the Treasury shall prescribe, we may elect to
include Qualified Nonelective Contributions and Qualified
Matching Contributions under this Plan which were not used in
computing the Actual Deferral Percentage in computing the
Contribution Percentage. We may also elect to use Elective
Deferral Contributions in computing the Contribution
Percentage so long as the Average Actual Deferral Percentage
test is met before the Elective Deferral Contributions are
used in the Average Contribution Percentage test and continues
to be met following the exclusion of those Elective Deferral
Contributions that are used to meet the Average Contribution
Percentage test.
ELECTIVE DEFERRAL CONTRIBUTIONS means employer contributions
made on behalf of a member pursuant to an election to defer
under any qualified cash or deferred arrangement as described
in Code Section 401(k), any simplified employee pension cash
or deferred arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation plan under
Code Section 457, any plan as described under Code Section
501(c)(18), and any employer contributions made
ARTICLE III -36-
<PAGE> 37
on behalf of a member for the purchase of an annuity contract
under Code Section 403(b) pursuant to a salary reduction
agreement.
ELIGIBLE MEMBER means, for purposes of determining the Actual
Deferral Percentage, any Employee who is otherwise authorized
under the terms of the Plan to have Elective Deferral
Contributions made on his behalf for the Plan Year. Eligible
Member means, for purposes of determining the Average
Contribution Percentage, any Employee who is otherwise
authorized under the terms of the Plan to have Member
Contributions or Matching Contributions made on his behalf for
the Plan Year.
EXCESS AGGREGATE CONTRIBUTIONS means, with respect to any Plan
Year, the excess of:
(1) The aggregate Contributions taken into account in
computing the numerator of the Contribution
Percentage actually made on behalf of Highly
Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Average Contribution Percentage test (determined
by reducing Contributions made on behalf of Highly
Compensated Employees in order of their Contribution
Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining
Excess Elective Deferrals and then determining Excess
Contributions.
EXCESS CONTRIBUTIONS means, with respect to any Plan Year, the
excess of:
(1) The aggregate amount of Contributions actually taken
into account in computing the Actual Deferral
Percentage of Highly Compensated Employees for such
Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Actual Deferral Percentage test (determined by
reducing Contributions made on behalf of Highly
Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such
percentages).
Such determination shall be made after first determining
Excess Elective Deferrals.
EXCESS ELECTIVE DEFERRALS means those Elective Deferral
Contributions that are includible in a Member's gross income
under Code Section 402(g) to the extent such Member's Elective
Deferral Contributions for a taxable year exceed the dollar
limitation under such Code section. Excess Elective Deferrals
shall be treated as Annual Additions under the Plan.
ARTICLE III -37-
<PAGE> 38
MATCHING CONTRIBUTIONS means employer contributions made to
this or any other defined contribution plan, or to a contract
described in Code Section 403(b), on behalf of a member on
account of a Member Contribution made by such member, or on
account of a member's Elective Deferral Contributions, under a
plan maintained by the employer.
MEMBER CONTRIBUTIONS means contributions made to any plan by
or on behalf of a member that are included in the member's
gross income in the year in which made and that are maintained
under a separate account to which earnings and losses are
allocated.
QUALIFIED MATCHING CONTRIBUTIONS means Matching Contributions
which are subject to the distribution and nonforfeitability
requirements under Code Section 401(k) when made.
QUALIFIED NONELECTIVE CONTRIBUTIONS means any employer
contributions (other than Matching Contributions) which an
employee may not elect to have paid to him in cash instead of
being contributed to the plan and which are subject to the
distribution and nonforfeitability requirements under Code
Section 401(k).
(b) A Member may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Member by notifying the Plan
Administrator in writing on or before the first following
March 1 of the amount of the Excess Elective Deferrals to be
assigned to the Plan. The Member's claim for Excess Elective
Deferrals shall be accompanied by the Member's written
statement that if such amounts are not distributed, such
Excess Elective Deferrals, when added to amounts deferred
under other plans or arrangements described in Code Sections
401(k), 408(k) or 403(b), will exceed the limit imposed on the
Member by Code Section 402(g) for the year in which the
deferral occurred. The Excess Elective Deferrals assigned to
this Plan can not exceed the Elective Deferral Contributions
allocated under this Plan for such taxable year.
Notwithstanding any other provisions of the Plan, Elective
Deferral Contributions in an amount equal to the Excess
Elective Deferrals assigned to this Plan, plus any income and
minus any loss allocable thereto, shall be distributed no
later than April 15 to any Member to whose Account Excess
Elective Deferrals were assigned for the preceding year and
who claims Excess Elective Deferrals for such taxable year.
Elective Deferral Contributions under this Plan which are
distributed as Excess Elective Deferrals shall be treated as
Annual Additions under the Plan.
The income or loss allocable to such Excess Elective Deferrals
shall be equal to the sum of:
-38-
ARTICLE III
<PAGE> 39
(1) the income or loss allocable to the Member's Elective
Deferral Contributions for the taxable year in which
the excess occurred multiplied by a fraction and
(2) the income or loss allocable to the Member's Elective
Deferral Contributions for the gap period between the
end of such taxable year and the date of distribution
multiplied by a fraction.
The numerator of the fractions is the Excess Elective
Deferrals. The denominator of the fraction in (1) above is the
closing balance without regard to any income or loss occurring
during such taxable year (as of the end of such taxable year)
of the Member's Account resulting from Elective Deferral
Contributions. The denominator of the fraction in (2) above is
the closing balance without regard to any income or loss
occurring during such gap period (as of the end of such gap
period) of the Member's Account resulting from Elective
Deferral Contributions.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Elective Deferrals, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable. If the
Adoption Agreement - Plus is used, these Forfeitures shall be
applied according to the provisions of Item O(7). If the
Adoption Agreement - Plus is not used, these Forfeitures shall
be used to offset the earliest Employer Contribution due after
the Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective
Deferrals have been determined, one of the following tests
must be met:
(1) The Average Actual Deferral Percentage for Eligible
Members who are Highly Compensated Employees for the
Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Members who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible
Members who are Highly Compensated Employees for the
Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Members who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the
Average Actual Deferral Percentages is not more than
2.
The Actual Deferral Percentage for any Eligible Member who is
a Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferral Contributions (and
Qualified Nonelective Contributions or Qualified Matching
Contributions, or both, if used in computing the Actual
Deferral Percentage) allocated to his account under two or
more plans or arrangements described in Code Section 401(k)
that are maintained by the us or a Controlled Group member
shall be determined as if all such Elective Deferral
Contributions
-39-
ARTICLE III
<PAGE> 40
(and, if applicable, such Qualified Nonelective Contributions
or Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that
have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated
as a single arrangement.
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code sections only if aggregated with
this Plan, then this section shall be applied by determining
the Actual Deferral Percentage of employees as if all such
plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy
Code Section 401(k) only if they have the same Plan Year.
For purposes of determining the Actual Deferral Percentage of
an Eligible Member who is a five-percent owner or one of the
ten most highly-paid Highly Compensated Employees, the
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
used in computing the Actual Deferral Percentage) and Pay of
such Eligible Member include the Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both)
and Pay for the Plan Year of Family Members. Family Members,
with respect to such Highly Compensated Employees, shall be
disregarded as separate employees in determining the Actual
Deferral Percentage both for Members who are Nonhighly
Compensated Employees and for Members who are Highly
Compensated Employees.
For purposes of determining the Actual Deferral Percentage,
Elective Deferral Contributions, Qualified Nonelective
Contributions and Qualified Matching Contributions must be
made before the last day of the twelve-month period
immediately following the Plan Year to which contributions
relate.
We shall maintain records sufficient to demonstrate
satisfaction of the Average Actual Deferral Percentage test
and the amount of Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, used in such test.
The determination and treatment of the Contributions used in
computing the Actual Deferral Percentage shall satisfy such
other requirements as may be prescribed by the Secretary of
the Treasury.
If the Plan Administrator should determine during the Plan
Year that neither of the above tests is being met, the Plan
Administrator may adjust the amount of future Elective
Deferral Contributions of the Highly Compensated Employees.
-40-
ARTICLE III
<PAGE> 41
Notwithstanding any other provisions of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Members to whose Accounts such Excess
Contributions were allocated for the preceding Plan Year. If
such excess amounts are distributed more than 2 1/2 months
after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed
on the employer maintaining the plan with respect to such
amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions
of the Excess Contributions attributable to each of such
employees. Excess Contributions shall be allocated to Members
who are subject to the family member aggregation rules of Code
Section 414(q)(6) in the manner prescribed by the regulations.
Excess Contributions shall be treated as Annual Additions
under the Plan.
The Excess Contributions shall be adjusted for income or loss.
The income or loss allocable to such Excess Contributions
shall be equal to the sum of
(3) the income or loss allocable to the Member's Elective
Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both) for the Plan Year in which
the excess occurred multiplied by a fraction and
(4) the income or loss allocable to the Member's Elective
Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both) for the gap period between
the end of such Plan Year and the date of
distribution multiplied by a fraction.
The numerator of the fractions is the Excess Contributions.
The denominator of the fraction in (3) above is the closing
balance without regard to any income or loss occurring during
such Plan Year (as of the end of such Plan Year) of the
Member's Account resulting from Elective Deferral
Contributions (and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if used in
computing the Actual Deferral Percentage). The denominator of
the fraction in (4) above is the closing balance without
regard to any income or loss occurring during such gap period
(as of the end of such gap period) of the Member's Account
resulting from Elective Deferral Contributions (and Qualified
Nonelective Contributions or Qualified Matching Contributions,
or both, if used in computing the Actual Deferral Percentage).
Excess Contributions shall be distributed from the Member's
Account resulting from Elective Deferral Contributions. If
such Excess Contributions exceed the balance in the Member's
Account resulting from Elective Deferral Contributions, the
balance shall be distributed from the Member's Account
resulting from Qualified Matching Contributions (if
applicable) and Qualified Nonelective Contributions,
respectively.
-41-
ARTICLE III
<PAGE> 42
(d) As of the end of each Plan Year, one of the following tests
must be met:
(1) The Average Contribution Percentage for Eligible
Members who are Highly Compensated Employees for the
Plan Year is not more than the Average Contribution
Percentage for Eligible Members who are Nonhighly
Compensated Employees for the Plan Year multiplied by
1.25.
(2) The Average Contribution Percentage for Eligible
Members who are Highly Compensated Employees for the
Plan Year is not more than the Average Contribution
Percentage for Eligible Members who are Nonhighly
Compensated Employees for the Plan Year multiplied by
2 and the difference between the Average Contribution
Percentages is not more than 2.
If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to the
Average Contribution Percentage test maintained by us or a
Controlled Group member and the sum of the Average Actual
Deferral Percentage and Average Contribution Percentage of
those Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the Contribution
Percentage of those Highly Compensated Employees who also
participate in a cash or deferred arrangement will be reduced
(beginning with such Highly Compensated Employees whose
Contribution Percentage is the highest) so that the limit is
not exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage is reduced shall be treated
as an Excess Aggregate Contribution. The Average Actual
Deferral Percentage and Average Contribution Percentage of the
Highly Compensated Employees are determined after any
corrections required to meet the Average Actual Deferral
Percentage and Average Contribution Percentage tests. Multiple
use does not occur if both the Average Actual Deferral
Percentage and Average Contribution Percentage of the Highly
Compensated Employees does not exceed 1.25 multiplied by the
Average Actual Deferral Percentage and Average Contribution
Percentage of the Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Member who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Contribution Percentage Amounts allocated to
his account under two or more plans described in Code Section
401(a) or arrangements described in Code Section 401(k) that
are maintained by us or a Controlled Group member shall be
determined as if the total of such Contribution Percentage
Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
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ARTICLE III
<PAGE> 43
In the event that this Plan satisfies the requirements of Code
Section 410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements
of Code Section 410(b) only if aggregated with this Plan, then
this section shall be applied by determining the Contribution
Percentages of Eligible Members as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Code Section
401(m) only if they have the same Plan Year.
For purposes of determining the Contribution Percentage of an
Eligible Member who is a five-percent owner or one of the ten
most highly-paid Highly Compensated Employees, the
Contribution Percentage Amounts and Pay of such Member shall
include Contribution Percentage Amounts and Pay for the Plan
Year of Family Members. Family Members, with respect to Highly
Compensated Employees, shall be disregarded as separate
employees in determining the Contribution Percentage both for
employees who are Nonhighly Compensated Employees and for
employees who are Highly Compensated Employees.
For purposes of determining the Contribution Percentage,
Member Contributions are considered to have been made in the
Plan Year in which contributed to the Plan. Matching
Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end
of the twelve-month period beginning on the day after the
close of the Plan Year.
We shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage test and
the amount of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage
of any Member shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
Notwithstanding any other provisions of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if not vested, or
distributed, if vested, no later than the last day of each
Plan Year to Members to whose Accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions shall be allocated to Members
who are subject to the family member aggregation rules of Code
Section 414(q)(6) in the manner prescribed by the regulations.
If such Excess Aggregate Contributions are distributed more
than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a ten (10) percent excise tax will
be imposed on the employer maintaining the plan with respect
to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan.
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ARTICLE III
<PAGE> 44
The Excess Aggregate Contributions shall be adjusted for
income or loss. The income or loss allocable to such Excess
Aggregate Contributions shall be equal to the sum of:
(3) the income or loss allocable to the Member's
Contribution Percentage Amounts for the Plan Year in
which the excess occurred multiplied by a fraction
and
(4) the income or loss allocable to the Member's
Contribution Percentage Amounts for the gap period
between the end of such Plan Year and the date of
distribution multiplied by a fraction.
The numerator of the fractions is the Excess Aggregate
Contributions. The denominator of the fraction in (3) above is
the closing balance without regard to any income or loss
occurring during such Plan Year (as of the end of such Plan
Year) of the Member's Account resulting from Contribution
Percentage Amounts. The denominator of the fraction in (4)
above is the closing balance without regard to any income or
loss occurring during such gap period (as of the end of such
gap period) of the Member's Account resulting from
Contribution Percentage Amounts.
Excess Aggregate Contributions shall be distributed from the
Member's Account resulting from Member Contributions that are
not required as a condition of employment or participation or
for obtaining additional benefits from Employer Contributions.
If such Excess Aggregate Contributions exceed the balance in
the Member's Account resulting from such Member Contributions,
the balance shall be forfeited, if not vested, or distributed,
if vested, on a pro-rata basis from the Member's Account
resulting from Contribution Percentage Amounts. If the
Adoption Agreement - Plus is used, these Forfeitures shall be
applied according to the provisions of Item O(7). If the
Adoption Agreement - Plus is not used, these Forfeitures shall
be used to offset the earliest Employer Contribution due after
the Forfeiture arises.
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ARTICLE III
<PAGE> 45
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01 - INVESTMENT OF CONTRIBUTIONS.
(a) The provisions of this subsection apply to trusteed plans.
All Contributions are forwarded by us to the Trustee to be deposited in
the Trust Fund. Member Contributions shall be forwarded within three
months after they are made.
Investment of Contributions is governed by the provisions of the Trust,
the Annuity Contract and any other funding arrangement in which the
Trust Fund is or may be invested. To the extent permitted by the Trust,
Annuity Contract, or other funding arrangement, the parties named in
Item T of the Adoption Agreement shall direct the Contributions to any
of the accounts available under the Trust and may request the transfer
of assets resulting from those Contributions between such accounts. A
Member may not direct the Trustee to invest the Member's Account in
collectibles. Collectible means-any work of art, rug or antique, metal
or gem, stamp or coin, alcoholic beverage or other tangible personal
property specified by the Secretary of the Treasury. To the extent that
a Member does not direct the investment of his Account, such Account
shall be invested ratably in the accounts available under the Trust in
the same manner as the undirected Accounts of all other Members. The
Vested Accounts of all Inactive Members may be segregated and invested
separately from the Accounts of all other Members.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding
policy of the Plan and to determine appropriate methods of carrying out
the Plan's objectives. The Named Fiduciary shall inform the Trustee and
any Investment Manager of the Plan's short-term and long-term financial
needs so the investment policy can be coordinated with the Plan's
financial requirements.
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not
subject to Member direction.
(b) The provisions of this subsection apply to plans which are not
trusteed.
All Contributions are forwarded by us to the Insurer to be deposited
under the Annuity Contract. Member Contributions shall be forwarded
within three months after they are made.
Investment of Contributions is governed by the provisions of the
Annuity Contract. To the extent permitted by the Annuity Contract, the
parties named in Item T of the Adoption Agreement shall direct the
Contributions to any of the accounts available under the Annuity
Contract and may request the transfer of assets resulting from those
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ARTICLE IV
<PAGE> 46
Contributions between such accounts. To the extent that a Member does
not direct the investment of his Account, such Account shall be
invested ratably in the accounts available under the Annuity Contract
in the same manner as the undirected Accounts of all other Members. The
Vested Accounts of all Inactive Members may be segregated and invested
separately from the Accounts of all other Members.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding
policy of the Plan and to determine appropriate methods of carrying out
the Plan's objectives. The Named Fiduciary shall inform any Investment
Manager of the Plan's short-term and long-term financial needs so the
investment policy can be coordinated with the Plan's financial
requirements.
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not
subject to Member direction.
SECTION 4.02 - PURCHASE OF INSURANCE.
If permitted under Item T of the Adoption Agreement, life insurance may be
purchased under this Plan for Active Members to provide incidental death
benefits. The purchase shall be subject to the provisions of this section, the
distribution of benefits provisions of Article VI, and the beneficiary
provisions of Section 9.06. If the Member has a spouse to whom he has been
continuously married for at least one year, such spouse shall be his Beneficiary
under the Insurance Policy unless (a) a qualified election has been made
according to the provisions of Section 6.03 or (b) the Trustee has been named as
Beneficiary. If the Trustee is named as Beneficiary, upon the death of the
Member, the Trustee shall be required to pay over all proceeds of the Insurance
Policy to the Member's Beneficiary or spouse, as the case may be, according to
the distribution of benefits provisions of Article VI.
The purchase of insurance shall be subject to the limitations that may be
imposed by the Insurer under the applicable Insurance Policy. The Insurance
Policy may provide for waiver of premium for disability.
The total of all insurance premiums for insurance coverage on the life of a
Member provided by our Contributions shall be limited to a percentage of all our
Contributions made for that Member. All such ordinary life insurance premiums
shall be limited to a percentage which is less than 50%. All such term life and
universal life insurance premiums shall be limited to a percentage which is not
more than 25%. If both ordinary life insurance and term life or universal life
insurance is purchased, 1/2 of all such ordinary life insurance premiums and all
such other life insurance premiums shall be limited to a percentage which is not
more than 25%. Ordinary life insurance policies are policies with both
nondecreasing death benefits and nonincreasing premiums. The Member's Account
resulting from deductible Voluntary Contributions (and nondeductible Voluntary
Contributions if the Adoption Agreement - Plus is not used) shall not be applied
to pay life insurance premiums.
Any dividends declared upon an amount of insurance in force on the life of a
Member may, within the terms of the Insurance Policy, be applied to reduce the
earliest premium due, purchase
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ARTICLE IV
<PAGE> 47
paid-up insurance coverage, accumulate under the policy to provide additional
death benefit or be credited to the Member's Account which is included in the
Investment Fund. In the absence of any direction, such dividends shall be
applied to reduce the earliest premium due for such amount of insurance.
A Member may elect to have amounts deducted from his Account to pay insurance
premiums. The total amount deducted cannot exceed the amount of Contributions
credited to his Account which were not used to provide insurance, but could have
been.
If a decrease in the amount of life insurance is necessary, any cash values of
the terminated insurance shall be retained in the Member's Account and added to
the Investment Fund.
SECTION 4.03 - TRANSFER OF OWNERSHIP.
Any transfer of ownership under this section shall be subject to the
distribution of benefits provisions of Article VI.
Upon the request of a Member, we may purchase for its cash value a personal life
insurance policy issued to, and insuring the life of, the Member. Such policy
shall be immediately transferred from us to the Trustee. The cash value of the
purchased policy shall be a part of our Contribution for the Plan Year. Any such
purchase shall be accomplished only under an appropriate written agreement
between the Member, the Trustee and us. In lieu of our purchase of such policy
and at our direction, the Trustee may purchase the policy directly from the
Member. These provisions shall not be available if the policy is subject to a
policy loan or similar lien. The purchase of and future premiums for any such
policy shall be subject to the limitations in Section 4.02.
If the Insurance Policy allows, a Member may pay the Trustee an amount equal to
the cash values of any Insurance Policy on his life. Such payment shall become a
part of his Account. Upon receiving the payment, the Trustee shall transfer
ownership of the policy to the Member. This transfer of ownership is not a
distribution from the Plan. This option shall only be available to a Member if
the policy would, but for the sale, be surrendered by the Plan.
If distribution of a Member's Vested Account would include the cash values of an
Insurance Policy on his life, the Member may have ownership of an Insurance
Policy on his life transferred to him without making payment to the Trustee if
permitted by such Insurance Policy. Any Insurance Policy transferred to the
Member for which he has not made payment to the Trustee is a distribution from
the Plan.
In applying the provisions of this section, all Members in similar circumstances
shall be treated in a similar manner. Members who are Highly Compensated
Employees (officers, shareholders or highly compensated Employees before the
first Yearly Date after December 31, 1988) shall not be treated in a manner more
favorable than that afforded all other Members.
SECTION 4.04 - TERMINATION OF INSURANCE.
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ARTICLE IV
<PAGE> 48
The termination of insurance under this section shall be subject to the
distribution of benefits provisions of Article VI.
No premium payments shall be made under this Plan for an Inactive Member. If a
Member becomes an Inactive Member before Retirement Date, the Trustee may either
use the cash values of the Insurance Policy on his life to provide paid-up
insurance or may surrender the Insurance Policy. The cash values of a
surrendered Insurance Policy are retained in the Member's Account and added to
the Investment Fund. The purchase of paid-up insurance shall be subject to the
provisions of the Insurance Policy. If the Member ceases to be an Employee
before Retirement Date, the Member may elect to have the ownership of the
Insurance Policy transferred as provided in Section 4.03.
On a Member's Retirement Date, any Insurance Policy on his life, the ownership
of which has not been transferred to him, shall terminate. The cash values shall
be paid to the Member in cash or applied to provide an income for him according
to the provisions of the Insurance Policy. In any event, no portion of the value
of any Insurance Policy shall be used to continue life insurance protection
under the Plan beyond actual retirement.
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ARTICLE IV
<PAGE> 49
ARTICLE V
BENEFITS
SECTION 5.01 - RETIREMENT BENEFITS.
On a Member's Retirement Date, the Member's Vested Account shall be distributed
to the Member according to the distribution of benefits provisions of Article VI
and the small amounts provisions of Section 9.11.
SECTION 5.02 - DEATH BENEFITS.
If a Member dies before his Annuity Starting Date, the Member's Vested Account
shall be distributed according to the distribution of benefits provisions of
Article VI and the small amounts provisions of Section 9.11.
SECTION 5.03 - VESTED BENEFITS.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of 9.11, he may elect, but is not required, to receive in a single
sum that part of his Vested Account which results from Member Contributions
after he ceases to be an Employee. The Member's election shall meet the consent
requirements in Section 6.03 for a qualified election of a benefit payable in a
form other than a Qualified Joint and Survivor Form.
If the Inactive Member's Vested Account is not payable under the small amounts
provisions of Section 9.11, he may elect, but is not required, to receive a
distribution of his Vested Account after he ceases to be an Employee. If Item
X(3)(a) of the Adoption Agreement - Plus is selected, distributions from the
Member's Vested Account which results from the designated Contributions shall
not begin before the Member retires, becomes Totally Disabled or dies. If Item
X(3)(b) of the Adoption Agreement - Plus is selected, distributions shall not be
made until he has ceased to be an Employee for the period of time selected in
Item X(3)(b). The Member's election shall be subject to his spouse's consent as
provided in Section 6.03. A distribution under this paragraph will be a
retirement benefit and shall be distributed to the Member according to the
provisions of Article VI.
If an Inactive Member does not receive an earlier distribution according to the
provisions of the preceding paragraph or the small amounts provisions of Section
9.11, upon his Retirement Date or death, his Vested Account shall be applied
according to the provisions of Section 5.01 or 5.02.
A Member may not receive any such distribution under the provisions of this
section after he again becomes an Employee until he subsequently ceases to be an
Employee and again meets the requirements of this section.
Some or all of an Inactive Member's Vested Account may be transferred directly
to the trustee, named fiduciary, or insurer under the retirement plan of the
Inactive Member's current employer if the following requirements are met: the
Inactive Member would be eligible to receive a
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ARTICLE V
<PAGE> 50
distribution of his Vested Account at the time the transfer is to occur; the
amount transferred, if distributed to the Member, would qualify as a rollover
contribution which the Code permits to be transferred to a plan that meets the
requirements of Code Section 401(a); the current employer's plan meets the
requirements of Code Section 401(a). The Member must request the transfer in
writing. The trustee, named fiduciary or insurer under the plan must be willing
to accept such a transfer. Such transferred amount shall be treated as a
distribution under this plan.
The Nonvested Account of an Inactive Member shall remain a part of his Account
until it becomes a Forfeiture; provided, however, if the Inactive Member again
becomes an Employee so that his Vesting Percentage may increase, the Nonvested
Account may become part of his Vested Account.
SECTION 5.04 - WHEN BENEFITS BEGIN.
Benefits under the Plan begin when a Member retires, dies or ceases to be an
Employee, whichever applies, as provided in the preceding sections of this
article. Benefits which begin before Normal Retirement Date for a Member who
became Totally Disabled when he was an Employee shall be deemed to begin because
he is Totally Disabled. The start of benefits is subject to the qualified
election procedures of Article VI.
Unless otherwise elected, benefits shall begin before the sixtieth day following
the close of the Plan Year in which the latest date below occurs:
(a) The date the Member attains the earlier of (i) age 65 or (ii) the later
of Normal Retirement Age or age 62.
(b) The tenth anniversary of the Member's Entry Date.
(c) The date the Member ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Member and spouse to consent to
a distribution while a benefit is immediately distributable, within the meaning
of Section 6.03, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this section.
The Member may elect to have benefits begin after the latest date for beginning
benefits described above, subject to the following provisions of this section.
The Member shall make the election in writing and deliver the signed election to
the Plan Administrator before Normal Retirement Date or the date he ceases to be
an Employee, if later. The election must describe the form of distribution and
the date benefits will begin. The Member shall not elect a date for beginning
benefits or a form of distribution which would result in a benefit payable when
he dies which would be more than incidental within the meaning of governmental
regulations.
Benefits shall begin by the Member's Required Beginning Date, as defined in
Section 6.02. Distribution of the Vested Account resulting from Contributions
made after the Member's
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ARTICLE V
<PAGE> 51
Required Beginning Date shall begin by the April I following the calendar year
in which such Contributions were made.
If a Member receives a taxable distribution (including a withdrawal) of any part
of his Vested Account, he may be subject to a Federal tax penalty. The tax
penalty does not apply if the distribution is:
(a) made on or after age 59 1/2;
(b) made on account of the Member's death to his Beneficiary or estate;
(c) made on account of being disabled;
(d) part of a series of periodic payments after separation from service that
are substantially equal, at least annual, and based on the life
expectancy of the Member or the Member and his Beneficiary; or
(e) made after separation from service after the attainment of age 55.
In addition, no tax is imposed on amounts received and paid during the taxable
year for medical expenses in an amount not to exceed that deductible under Code
Section 213. Disabled means that a Member is disabled to the extent he is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or be of long-continued and indefinite duration. Proof of the existence of
the disability will be in such form and manner as the Secretary of the Treasury
may require.
Contributions which are used to compute the Actual Deferral Percentage, as
defined in Section 3.07, (Elective Deferral Contributions, Qualified Nonelective
Contributions, and Qualified Matching Contributions) may be distributed upon
disposition by us of substantially all of the assets used by us in a trade or
business or disposition by us of our interest in a subsidiary if the transferee
corporation is not a Controlled Group member, the Employee continues employment
with the transferor corporation and the transferor corporation continues to
maintain the Plan. The distribution must be a total distribution.
SECTION 5.05 - WITHDRAWAL BENEFITS.
(a) Distributions on Account of Financial Hardship
If elected by us in Item W(2) of the Adoption Agreement, withdrawals of
part of the Member's Account as provided in Item W(2) will be permitted
in the event of hardship due to an immediate and heavy financial need.
Immediate and heavy financial need shall be limited to: (i) medical
expenses described in Code Section 213(d) incurred by the Member, the
Member's spouse, or any dependents of the Member (as defined in Code
Section 152); (ii) purchase (excluding mortgage payments) of a
principal residence for the Member; (iii) payment of tuition for the
next
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ARTICLE V
<PAGE> 52
semester or quarter of post-secondary education for the Member, his
spouse, children or dependents; (iv) the need to prevent the eviction
of the Member from his principal residence or foreclosure on the
mortgage of the Member's principal residence; or (v) any other
distribution which is deemed by the Commissioner of Internal Revenue to
be made on account of immediate and heavy financial need as provided in
Treasury regulations. The Member's request for a withdrawal shall
include his written statement that an immediate and heavy financial
need exists and explain its nature.
No withdrawal shall be allowed which is not necessary to satisfy such
immediate and heavy financial need. Such withdrawal shall be deemed
necessary only if all of the following requirements are met: (i) the
distribution is not in excess of the amount of the immediate and heavy
financial need of the Member; (ii) the Member has obtained all
distributions, other than hardship distributions, and all nontaxable
loans currently available under all plans maintained by us; (iii) the
Plan, and all other plans maintained by us, provide that the Member's
elective contributions and employee contributions will be suspended for
at least 12 months after receipt of the hardship distribution; and (iv)
the Plan, and all other plans maintained by us, provide that the Member
may not make elective contributions for the Member's taxable year
immediately following the taxable year of the hardship distribution in
excess of the applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Member's elective contributions
for the taxable year of the hardship distribution. The Plan will
suspend elective contributions and employee contributions for 12 months
and limit elective deferrals as provided in the preceding sentence. A
Member shall not cease to be an Eligible Member, as defined in Section
3.07, merely because his elective contributions or employee
contributions are suspended.
(b) Distributions on Account of Other Withdrawals
A Member may withdraw in a single sum any part of his Account resulting
from his Voluntary Contributions subject to the limitations provided in
Item W(1). If selected by us in Item W(3), withdrawals of the Member's
Account as provided in Item W(3) will be permitted at any time after he
attains age 59 1/2 subject to the limitations provided in Item W(3). If
selected by us in Item W(4) of the Adoption Agreement - Plus,
withdrawals of part of the Member's Account as provided in Item W(4)
will be permitted after he has been an Active Member for at least 5
years subject to the limitations provided in Item W(4).
A request for withdrawal shall be in writing on a form furnished for that
purpose and delivered to the Plan Administrator before the withdrawal is to
occur. Withdrawals shall be subject to the qualified election provisions of
Article VI. A forfeiture shall not occur solely as a result of a withdrawal.
SECTION 5.06 - LOANS TO MEMBERS.
Loans shall be made available to all Members on a reasonably equivalent basis.
For purposes of this section, Member means any Member or Beneficiary who is an
Employee. Loans shall not be
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ARTICLE V
<PAGE> 53
made to highly compensated employees, as defined in Code Section 414(q), in an
amount greater than the amount made available to other Members.
No loans will be made to any shareholder-employee or owner-employee. For
purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Code Section 318(a)(1)), on any day
during the taxable year of such corporation, more than 5% of the outstanding
stock of the corporation.
A loan to a Member shall be a Member-directed investment of his Account. The
loan is a Trust investment but no Account other than the borrowing Member's
Account shall share in the interest paid on the loan or bear any expense or loss
incurred because of the loan.
The number of outstanding loans shall be limited to one, unless otherwise
specified in Item T(b)(vi). No more than one loan will be approved for any
Member in any 12-month period, unless otherwise specified in Item T(b)(vii). The
minimum amount of any loan shall be selected in Item T(b)(iv).
Loans must be adequately secured and bear a reasonable rate of interest.
The amount of the loan shall not exceed the maximum amount that may be treated
as a loan under Code Section 72(p) (rather than a distribution) to the Member
and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan-balance of
loans during the one-year period ending on the day before the
new loan is made.
(b) The greater of (i) or (ii), reduced by (iii) below:
(i) One-half of the Member's Vested Account.
(ii) $10,000.
(iii) Any outstanding loan balance on the date the new loan
is made.
For purposes of this maximum, a Member's Vested Account does not include any
accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and all qualified employer plans, as defined in Code Section
72(p)(4), of ours and any Controlled Group member shall be treated as one plan.
The foregoing notwithstanding, the amount of such loan shall not exceed 50% of
the amount of the Member's Vested Account reduced by any outstanding loan
balance on the date the new loan is made. In addition, the amount of the loan
may be further limited to a specified dollar amount, if Item T(b)(v) so
indicates. No collateral other than a portion of the Member's Vested Account
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ARTICLE V
<PAGE> 54
(as limited above) shall be accepted. The Loan Administrator shall determine if
the collateral is adequate for the amount of the loan requested.
A Member must obtain the consent of the Member's spouse, if any, to the, use of
the Vested Account as security for the loan. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the loan to be so secured is made. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a plan
representative or a notary public. Such consent shall thereafter be binding with
respect to the consenting spouse or any subsequent spouse with respect to that
loan. A new consent shall be required if the Vested Account is used for
collateral upon renegotiation, extension, renewal, or other revision of the
loan.
If a valid spousal consent has been obtained in accordance with the above, then,
notwithstanding any other provision of this Plan, the portion of the Member's
Vested Account used as a security interest held by the Plan by reason of a loan
outstanding to the Member shall be taken into account for purposes of
determining the amount of the Vested Account payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Member's Vested Account (determined without regard to the
preceding sentence) is payable to the surviving spouse, then the Vested Account
shall be adjusted by first reducing the Vested Account by the amount of the
security used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
Each loan shall bear a reasonable fixed rate of interest to be determined by the
Loan Administrator. In determining the interest rate, the Loan Administrator
shall take into consideration fixed interest rates currently being charged by
commercial lenders for loans of comparable risk on similar terms and for similar
durations, so that the interest will provide for a return commensurate with
rates currently charged by commercial lenders for loans made under similar
circumstances. The Loan Administrator shall not discriminate among Members in
the matter of interest rates; but loans granted at different times may bear
different interest rates in accordance with the current appropriate standards.
The loan shall by its terms require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five years from the date of the loan. The period of
repayment for any loan shall be arrived at by mutual agreement between the Loan
Administrator and the Member.
The Member shall make a written application for a loan from the Plan on forms
provided by the Loan Administrator. The application must specify the amount and
duration requested. No loan will be approved unless the Member is creditworthy.
The Member must grant authority to the Loan Administrator to investigate the
Member's creditworthiness so that the loan application may be properly
considered.
Information contained in the application for the loan concerning the income,
liabilities, and assets of the Member will be evaluated to determine whether
there is a reasonable expectation that the Member will be able to satisfy
payments on the loan as due. Additionally, the Loan
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Administrator will pursue any appropriate further investigations concerning the
creditworthiness and/or credit history of the Member to determine whether a loan
should be approved.
Each loan shall be fully documented in the form of a promissory note signed by
the Member for the face amount of the loan, together with interest determined as
specified above.
There will be an assignment of collateral to the Plan executed at the time the
loan is made.
In those cases where repayment through payroll deduction by us is available,
installments are so payable, and a payroll deduction agreement will be executed
by the Member at the time of making the loan.
Where payroll deduction is not available, payments are to be timely made.
Any payment that is not by payroll deduction shall be made payable to us or the
Trustee, as specified in the promissory note, and delivered to the Loan
Administrator, including prepayments, service fees and penalties, if any, and
other amounts due under the note.
The promissory note may provide for reasonable late payment penalties and/or
service fees. Any penalties or service fees shall be applied to all Members in a
nondiscriminatory manner. If the promissory note so provides, such amounts may
be assessed and collected from the Account of the Member as part of the loan
balance.
Each loan may be paid prior to maturity, in part or in full, without penalty or
service fee, except a may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a default is
deemed to occur.
Upon default, the Plan has the right to pursue any remedy available by law to
satisfy the amount due, along with accrued interest, including the right to
enforce its claim against the security pledged and execute upon the collateral
as allowed by law.
If any payment of principal or interest or any other amount due under the
promissory note, or any portion thereof, is not made for a period of 90 days
after due, the entire principal balance whether or not otherwise then due, shall
become immediately due and payable without demand or notice, and subject to
collection or satisfaction by any lawful means, including specifically but not
limited to the right to enforce the claim against the security pledged and to
execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of security or
use of amounts pledged to satisfy the amount then due, will not occur until a
distributable event occurs in accordance with the Plan, and will not occur to an
extent greater than the amount then available upon any distributable event which
has occurred under the Plan.
All reasonable costs and expenses, including but not limited to attorney's fees,
incurred by the Plan in connection with any default or in any proceeding to
enforce any provision of a
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<PAGE> 56
promissory note or instrument by which a promissory note for a Member loan is
secured, shall be assessed and collected from the Account of the Member as part
of the loan balance.
If payroll deduction is being utilized, in the event that a Member's available
payroll deduction amounts in any given month are insufficient to satisfy the
total amount due, there will be an increase in the amount taken subsequently,
sufficient to make up the amount that is then due. If the subsequent deduction
is also insufficient to satisfy the amount due within 31 days, a default is
deemed to occur as above. If any amount remains past due more than 90 days, the
entire principal amount, whether or not otherwise then due, along with interest
then accrued and any other amount then due under the promissory note, shall
become due and payable, as above.
If the Member ceases to be an Employee, the balance of the outstanding loan
becomes due and payable, and the Member's Vested Account will be used as
available for distribution(s) to pay the outstanding loan. The Member's Vested
Account will not be used to pay any amount due under the outstanding loan before
the date which is 31 days after the date he ceased to be an Employee, and the
Member may elect to repay the outstanding loan with interest on the day of
repayment. If no distributable event has occurred under the Plan at the time
that the Member's Vested Account would otherwise be used under this provision to
pay any amount due under the outstanding loan, this will not occur until the
time, or in excess of the extent to which, a distributable event occurs under
the Plan.
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ARTICLE VI
DISTRIBUTION OF BENEFITS
The provisions of this article shall apply on or after August 23, 1984, to any
Member who is credited with at least one Hour of Service or one hour of paid
leave on or after that date and to such other Members as provided in Section
6.05. If the Effective Date of our Plan is before January 1, 1984, the
provisions of the Prior Plan as in effect on the day before the TEFRA Compliance
Date shall apply before August 23, 1984. If the Effective Date of our Plan is on
or after January 1, 1984, and before August 23, 1984, the provisions of the Plan
as originally adopted shall apply before August 23, 1984.
SECTION 6.01 - AUTOMATIC FORMS OF DISTRIBUTION.
Unless a qualified election of an optional form of benefit has been made within
the election period (see Section 6.03), the automatic form of benefit payable to
or on behalf of a Member is determined as follows:
(a) The automatic form of retirement benefit for a Member who does not die
before his Annuity Starting Date shall be the Qualified Joint and
Survivor Form.
(b) The automatic form of death benefit for a Member who dies before his
Annuity Starting Date shall be:
(1) A Qualified Preretirement Survivor Annuity for a Member who
has a spouse to whom he has been continuously married
throughout the one-year period ending on the date of his
death. The spouse may elect to start receiving the death
benefit on any first day of the month on or after the Member
dies and by the date the Member would have been age 70 1/2. If
the spouse dies before benefits start, the Member's Vested
Account, determined as of the date of the spouse's death,
shall be paid to the spouse's Beneficiary.
(2) A single sum payment to the Member's Beneficiary for a Member
who does not have a spouse who is entitled to a Qualified
Preretirement Survivor Annuity.
Before a death benefit will be paid on account of the death of a Member
who does not have a spouse who is entitled to a Qualified Preretirement
Survivor Annuity, it must be established to the satisfaction of a plan
representative that the Member does not have such a spouse.
SECTION 6.02 - OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS.
(a) For purposes of this section, the following terms are defined:
APPLICABLE LIFE EXPECTANCY means Life Expectancy (or Joint and
Last Survivor Expectancy) calculated using the attained age of
the Member (or Designated
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<PAGE> 58
Beneficiary) as of the Member's (or Designated Beneficiary's)
birthday in the applicable calendar year reduced by one for
each calendar year which has elapsed since the date Life
Expectancy was first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy shall be the Life
Expectancy so recalculated. The applicable calendar year shall
be the first Distribution Calendar Year, and if Life
Expectancy is being recalculated such succeeding calendar
year.
DESIGNATED BENEFICIARY means the individual who is designated
as the beneficiary under the Plan in accordance with Code
Section 401(a)(9) and the regulations thereunder.
DISTRIBUTION CALENDAR YEAR means a calendar year for which a
minimum distribution is required. For distributions beginning
before the Member's death, the first Distribution Calendar
Year is the calendar year immediately preceding the calendar
year which contains the Member's Required Beginning Date. For
distributions beginning after the Member's death, the first
Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to (e) below.
JOINT AND LAST SURVIVOR EXPECTANCY means joint and last
survivor expectancy computed by use of the expected return
multiples in Tables V and VI of section 1.72-9 of the Income
Tax Regulations.
Unless otherwise elected by the Member (or spouse, in the case
of distributions described in (e)(2)(ii) below) by the time
distributions are required to begin, life expectancies shall
be recalculated annually. Such election shall be irrevocable
as to the Member (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
LIFE EXPECTANCY means life expectancy computed by use of the
expected return multiples in Tables V and VI of section 1.72-9
of the Income Tax Regulations.
Unless otherwise elected by the Member (or spouse, in the case
of distributions described in (e)(2)(ii) below) by the time
distributions are required to begin, life expectancies shall
be recalculated annually. Such election shall be irrevocable
as to the Member (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
MEMBER'S BENEFIT means
(1) The Account balance as of the last valuation date in
the calendar year immediately preceding the
Distribution Calendar Year (valuation calendar year)
increased by the amount of any contributions or
forfeitures allocated to the Account balance as of
the dates in the valuation calendar year after the
valuation date and decreased by distributions made in
the valuation calendar year after the valuation date.
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(2) For purposes of (1) above, if any portion of the
minimum distribution for the first Distribution
Calendar Year is made in the second Distribution
Calendar Year on or before the Required Beginning
Date, the amount of the minimum distribution made in
the second Distribution Calendar Year shall be
treated as if it had been made in the immediately
preceding Distribution Calendar Year.
REQUIRED BEGINNING DATE means, for a Member, the first day of
April of the calendar year following the calendar year in
which the Member attains age 70 1/2, unless otherwise provided
in (1), (2) or (3) below:
(1) The Required Beginning Date for a Member who attains
age 70 1/2 before January 1, 1988, and who is not a
5-percent owner is the first day of April of the
calendar year following the calendar year in which
the later of retirement or attainment of age 70 1/2
occurs.
(2) The Required Beginning Date for a Member who attains
age 70 1/2 before January 1, 1988, and who is a
5-percent owner is the first day of April of the
calendar year following the later of
(i) the calendar year in which the Member
attains age 70 1/2, or
(ii) the earlier of the calendar year with or
within which ends the Plan Year in which the
Member becomes a 5-percent owner, or the
calendar year in which the Member retires.
(3) The Required Beginning Date of a Member who is not a
5-percent owner and who attains age 70 1/2 during
1988 and who has not retired as of January 1, 1989,
is April 1, 1990.
A Member is treated as a 5-percent owner for purposes of this
section if such Member is a 5-percent owner as defined in Code
Section 416(i) (determined in accordance with Code Section 416
but without regard to whether the Plan is top-heavy) at any
time during the Plan Year ending with or within the calendar
year in which such owner attains age 66 1/2 or any subsequent
Plan Year.
Once distributions have begun to a 5-percent owner under this
section, they must continue to be distributed, even if the
Member ceases to be a 5-percent owner in a subsequent year.
(b) The optional forms of retirement benefit shall be the
following: a straight life annuity; single life annuities with
certain periods of five, ten, or fifteen years; a single life
annuity with installment refund; survivorship life annuities
with installment refund and survivor percentages of 50, 66
2/3, or 100; fixed period annuities for any period of whole
months which is not less than sixty and does not
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<PAGE> 60
exceed the Life Expectancy of the Member and the named
Beneficiary as provided in (d) below where the Life Expectancy
is not recalculated; and a series of installments chosen by
the Member with a minimum payment each year beginning with the
year the Member turns age 70 1/2. The payment for the first
year in which a minimum payment is required will be made by
April 1 of the following calendar year. The payment for the
second year and each successive year will be made by December
31 of that year. The minimum payment will be based on a period
equal to the Joint and Last Survivor Expectancy of the Member
and the Member's spouse, if any, as provided in (d) below
where the Joint and Last Survivor Expectancy is recalculated.
The balance of the Member's Vested Account, if any, will be
payable on the Member's death to his Beneficiary in a single
sum. If not prohibited in Item Y of the Adoption Agreement
--Plus, a single sum payment is also available.
Election of an optional form is subject to the qualified
election provisions of Article VI.
Any annuity contract distributed shall be nontransferable. The
terms of any annuity contract purchased and distributed by the
Plan to a Member or spouse shall comply with the requirements
of this Plan.
(c) The optional forms of death benefit are a single sum payment
and any annuity that is an optional form of retirement
benefit. However, a series of installments shall not be
available if the Beneficiary is not the spouse of the deceased
Member.
(d) Subject to Section 6.01, joint and survivor annuity
requirements, the requirements of this section shall Apply to
any distribution of a Member's interest and will take
precedence over any inconsistent provisions of this Plan.
Unless otherwise specified, the provisions of this section
apply to calendar years beginning after December 31, 1984.
All distributions required under this section shall be
determined and made in accordance with the proposed
regulations under Code Section 401(a)(9), including the
minimum distribution incidental benefit requirement of section
1.401(a)(9)-2 of the proposed regulations.
The entire interest of a Member must be distributed or begin
to be distributed no later than the Member's Required
Beginning Date.
As of the first Distribution Calendar Year, distributions, if
not made in a single sum, may only be made over one of the
following periods (or combination thereof):
(1) the life of the Member,
(2) the life of the Member and a Designated Beneficiary,
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<PAGE> 61
(3) a period certain not extending beyond the Life
Expectancy of the Member, or
(4) a period certain not extending beyond the Joint and
Last Survivor Expectancy of the Member and a
Designated Beneficiary.
If the Member's interest is to be distributed in other than a
single sum, the following minimum distribution rules shall
apply on or after the Required Beginning Date:
(5) Individual account:
(i) If a Member's Benefit is to be distributed
over
(A) a period not extending beyond the
Life Expectancy of the Member or the
Joint Life and Last Survivor
Expectancy of the Member and the
Member's Designated Beneficiary or
(B) a period not extending beyond the
Life Expectancy of the Designated
Beneficiary,
the amount required to be distributed for
each calendar year beginning with the
distributions for the first Distribution
Calendar Year, must be at least equal to the
quotient obtained by dividing the Member's
Benefit by the Applicable Life Expectancy.
(ii) For calendar years beginning before January
1, 1989, if the Member's spouse is not the
Designated Beneficiary, the method of
distribution selected must assure that at
least 50% of the present value of the amount
available for distribution is paid within
the Life Expectancy of the Member.
(iii) For calendar year beginning after December
31, 1988, the amount to be distributed each
year, beginning with distributions for the
first Distribution Calendar Year shall not
be less than the quotient obtained by
dividing the Member Benefit by the lesser of
(A) the Applicable Life Expectancy or
(B) if the Member's spouse is not the
Designated Beneficiary, the
applicable divisor determined from
the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the proposed
regulations.
Distributions after the death of the Member
shall be distributed using the Applicable
Life Expectancy in (5)(i) above as the
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<PAGE> 62
relevant divisor without regard to Proposed
Regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the
Member's first Distribution Calendar Year
must be made on or before the Member's
Required Beginning Date. The minimum
distribution for the Distribution Calendar
Year for other calendar years, including the
minimum distribution for the Distribution
Calendar Year in which the Member's Required
Beginning Date occurs, must be made on or
before December 31 of that Distribution
Calendar Year.
(6) Other forms:
(i) If the Member's Benefit is distributed in
the form of an annuity purchased from an
insurance company, distributions thereunder
shall be made in accordance with the
requirements of Code Section 401(a)(9) and
the proposed regulations thereunder.
(e) Death distribution provisions:
(1) Distribution beginning before death. If the Member
dies after distribution of his interest has begun,
the remaining portion of such interest will continue
to be distributed at least as rapidly as under the
method of distribution being used prior to the
Member's death.
(2) Distribution beginning after death. If the Member
dies before distribution of his interest begins,
distribution of the Member's entire interest shall be
completed by December 31 of the calendar year
containing the fifth anniversary of the Member's
death except to the extent that an election is made
to receive distributions in accordance with (i) or
(ii) below:
(i) if any portion of the Member's interest is
payable to a Designated Beneficiary,
distributions may be made over the life or
over a period certain not greater than the
Life Expectancy of the Designated
Beneficiary commencing on or before December
31 of the calendar year immediately
following the calendar year in which the
Member died;
(ii) if the Designated Beneficiary is the
Member's surviving spouse, the date
distributions are required to begin in
accordance with (i) above shall not be
earlier than the later of
(A) December 31 of the calendar year
immediately following the calendar
year in which the Member died and
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ARTICLE VI
<PAGE> 63
(B) December 31 of the calendar year in
which the Member would have
attained age 70 1/2.
If the Member has not made an election pursuant to
this (e)(2) by the time of his death, the Member's
Designated Beneficiary must elect the method of
distribution no later than the earlier of
(iii) December 31 of the calendar year in which
distributions would be required to begin
under this subparagraph, or
(iv) December 31 of the calendar year which
contains the fifth anniversary of the date
of death of the Member.
If the Member has no Designated Beneficiary, or if
the Designated Beneficiary does not elect a method of
distribution, distribution of the Member's entire
interest must be completed by December 31 of the
calendar year containing the fifth anniversary of the
Member's death.
(3) For purposes of (e)(2) above, if the surviving spouse
dies after the Member, but before payments to such
spouse begin, the provisions of (e)(2) above, with
the exception of (e)(2)(ii) therein, shall be applied
as if the surviving spouse were the Member.
(4) For purposes of this (e), any amount paid to a child
of the Member will be treated as if it had been paid
to the surviving spouse if the amount becomes payable
to the surviving spouse when the child reaches the
age of majority.
(5) For purposes of this (e), distribution of a Member's
interest is considered to begin on the Member's
Required Beginning Date (or if (e)(3) above is
applicable, the date distribution is required to begin
to the surviving spouse pursuant to (e)(2) above). If
distribution in the form of an annuity irrevocably
commences to the Member before the Required Beginning
Date, the date distribution is considered to begin is
the date distribution actually commences.
SECTION 6.03 - ELECTION PROCEDURES.
The Member, Beneficiary, or spouse shall make any election under this section in
writing. The Plan Administrator may require such individual to complete and sign
any necessary documents as to the provisions to be made. Any election permitted
under (a) and (b) below shall be subject to the qualified election provisions of
(c) below.
(a) Retirement Benefits. A Member may elect his Beneficiary or Contingent
Annuitant and may elect to have retirement benefits distributed under
any of the optional forms of retirement benefit described in Section
6.02.
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ARTICLE VI
<PAGE> 64
(b) Death Benefits. A Member may elect his Beneficiary and may elect to
have death benefits distributed under any of the optional forms of
death benefit described in Section 6.02.
If the Member has not elected an optional form of distribution for the
death benefit payable to his Beneficiary, the Beneficiary may, for his
own benefit, elect the form of distribution, in like manner as a
Member.
The Member may waive the Qualified Preretirement Survivor Annuity by
naming someone other than his spouse as Beneficiary.
In lieu of the Qualified Preretirement Survivor Annuity described in
Section 6.01, the spouse may, for his own benefit, waive the Qualified
Preretirement Survivor Annuity by electing to have the benefit
distributed under any of the optional forms of death benefit described
in Section 6.02.
(c) Qualified Election. The Member, Beneficiary or spouse may make an
election at any time during the election period. The Member,
Beneficiary, or spouse may revoke the election made (or make a new
election) at any time and any number of times during the election
period. An election is effective only if it meets the consent
requirements below.
The election period as to retirement benefits is the 90-day period
ending on the Annuity Starting Date. An election to waive the Qualified
Joint and Survivor Form may not be made before the date he is provided
with the notice of the ability to waive the Qualified Joint and
Survivor Form. If the Member elects the series of installments, he may
elect on any later date to have the balance of his Vested Account paid
under any of the optional forms of retirement benefit available under
the Plan. His election period for this election is the 90-day period
ending on the Annuity Starting Date for the optional form of retirement
benefit elected.
A Member may make an election as to death benefits at any time before
he dies. The spouse's election period begins on the date the Member
dies and ends on the date benefits begin. The Beneficiary's election
period begins on the date the Member dies and ends on the date benefits
begin. An election to waive the Qualified Preretirement Survivor
Annuity may not be made by the Member before the date he is provided
with the notice of the ability to waive the Qualified Preretirement
Survivor Annuity. A Member's election to waive the Qualified
Preretirement Survivor Annuity which is made before the first day of
the Plan Year in which he reaches age 35 shall become invalid on such
date. An election made by a Member after he ceases to be an Employee
will not become invalid on the first day of the Plan Year in which he
reaches age 35 with respect to death benefits from that part of his
Account resulting from Contributions made before he ceased to be an
Employee.
If the Member's Vested Account has at any time exceeded $3,500, any
benefit which is (1) immediately distributable or (2) payable in a form
other than a Qualified Joint and
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ARTICLE VI
<PAGE> 65
Survivor Form or a Qualified Preretirement Survivor Annuity requires
the consent of the Member and the Member's spouse (or where either the
Member or the spouse has died, the survivor). The consent of the Member
or spouse to a benefit which is immediately distributable must not be
made before the date the Member or spouse is provided with the notice
of the ability to defer the distribution. Such consent shall be made in
writing. The consent shall not be made more than 90 days before the
Annuity Starting Date. Spousal consent is not required for a benefit
which is immediately distributable in a Qualified Joint and Survivor
Form. Furthermore, if spousal consent is not required because the
Member is electing an optional form of retirement benefit that is not a
life annuity pursuant to (d) below, only the Member need consent to the
distribution of a benefit payable in a form that is not a life annuity
and which is immediately distributable. Neither the consent of the
Member nor the Member's spouse shall be required to the extent that a
distribution is required to satisfy Code Section 401(a)(9) or Code
Section 415. A benefit is immediately distributable if any part of the
benefit could be distributed to the Member (or surviving spouse) before
the Member attains (or would have attained if not deceased) the older
of Normal Retirement Age or age 62. If the Qualified Joint and Survivor
Form is waived, the spouse has the right to limit consent only to a
specific Beneficiary or a specific form of benefit. The spouse can
relinquish one or both such rights. Such consent shall be made in
writing. The consent shall not be made more than 90 days before the
Annuity Starting Date. If the Qualified Preretirement Survivor Annuity
is waived, the spouse has the right to limit consent only to a specific
Beneficiary. Such consent shall be in writing. The spouse's consent
shall be witnessed by a plan representative or notary public. The
spouse's consent must acknowledge the effect of the election, including
that the spouse had the right to limit consent only to a specific
Beneficiary or a specific form of benefit, if applicable, and that the
relinquishment of one or both such rights was voluntary. Unless the
consent of the spouse expressly permits designations by the Member
without a requirement of further consent by the spouse, the spouse's
consent must be limited to the form of benefit, if applicable, and the
Beneficiary (including any Contingent Annuitant), class of
Beneficiaries, or contingent Beneficiary named in the election. Spousal
consent is not required, however, if the Member establishes to the
satisfaction of the plan representative that the consent of the spouse
cannot be obtained because there is no spouse or the spouse cannot be
located. A spouse's consent under this paragraph shall not be valid
with respect to any other spouse. A Member may revoke a prior election
without the consent of the spouse. Any new election will require a new
spousal consent, unless the consent of the spouse expressly permits
such election by the Member without further consent by the spouse. A
spouse's consent may be revoked at any time within the Member's
election period.
Before the first Yearly Date in 1989, the Member's Account which
results from deductible Voluntary Contributions shall not be taken into
account in determining whether the Member's Vested Account has exceeded
$3,500 and an election as to the distribution of a Member's Vested
Account which results from deductible Voluntary Contributions is not
subject to the consent requirements above and may be made any time
before such distribution is to begin.
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ARTICLE VI
<PAGE> 66
(d) Special Rule for Profit Sharing Plans. As provided in the preceding
provisions of the Plan, if a Member has a spouse to whom he has been
continuously married throughout the one-year period ending on the date
of the Member's death, the Member's Vested Account, including the
proceeds payable under any Insurance Policy on the Member's life, shall
be paid to such spouse. However, if there is no such spouse or if the
surviving spouse has already consented in a manner conforming to the
qualified election requirements in (c) above, the Vested Account shall
be payable to the Member's Beneficiary in the event of the Member's
death.
The Member may waive the spousal death benefit described above at any
time provided that no such waiver shall be effective unless it
satisfies the conditions of (c) above (other than the notification
requirement referred to therein) that would apply to the Member's
waiver of the Qualified Preretirement Survivor Annuity.
This subsection (d) applies if with respect to the Member, the Plan is
not a direct or indirect transferee after December 31, 1984, of a
defined benefit plan, money purchase plan (including a target plan),
stock bonus or profit sharing plan which is subject to the survivor
annuity requirements of Code Section 401(a)(11) and Code Section 417.
If the above condition is met, spousal consent is not required for
electing an optional form of retirement benefit that is not a life
annuity. If the above condition is not met, the consent requirements of
this Article shall be operative.
SECTION 6.04 - NOTICE REQUIREMENTS.
(a) Optional forms of retirement benefit. The Plan Administrator shall
furnish to the Member and the Member's spouse a written explanation of
the optional forms of retirement benefit in Section 6.02, including the
material features and relative values of these options, in a manner that
would satisfy the notice requirements of Code Section 417(a)(3) and the
right of the Member and the Member's spouse to defer distribution until
the benefit is no longer immediately distributable. The Plan
Administrator shall furnish the written explanation by a method
reasonably calculated to reach the attention of the Member and the
Member's spouse no less than 30 days and no more than 90 days before the
Annuity Starting Date.
(b) Qualified Joint and Survivor Form. The Plan Administrator shall furnish
to the Member a written explanation of the following: the terms and
conditions of the Qualified Joint and Survivor Form; the Member's right
to make, and the effect of, an election to waive the Qualified Joint and
Survivor Form; the rights of the Member's spouse; and the right to
revoke an election and the effect of such a revocation. The Plan
Administrator shall furnish the written explanation by a method
reasonably calculated to reach the attention of the Member no less than
30 days and no more than 90 days before the Annuity Starting Date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation must
be personally delivered or mailed (first class mail, postage prepaid) to
the Member or spouse within thirty days from the date
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<PAGE> 67
of the written request. The Plan Administrator does not need to comply
with more than one such request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Joint and Survivor Form and the financial effect upon the Member's
benefit (in terms of dollars per benefit payment) of electing not to
have benefits distributed in accordance with the Qualified Joint and
Survivor Form.
(c) Qualified Preretirement Survivor Annuity. The Plan Administrator shall
furnish to the Member a written explanation of the following: the terms
and conditions of the Qualified Preretirement Survivor Annuity; the
Member's right to make, and the effect of, an election to waive the
Qualified Preretirement Survivor Annuity; the rights of the Member's
spouse; and the right to revoke an election and the effect of such a
revocation. The Plan Administrator shall furnish the written explanation
by a method reasonably calculated to reach the attention of the Member
within the applicable period. The applicable period for a Member is
whichever of the following periods ends last:
(1) the period beginning one year before the date the individual
becomes a Member and ending one year after such date; or
(2) the period beginning one year before the date the Member's
spouse is first entitled to a Qualified Preretirement Survivor
Annuity and ending one year after such date.
If such notice is given before the period beginning with the first day
of the Plan Year in which the Member attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the Member
attains age 35, an additional notice shall be given within such period.
If a Member ceases to be an Employee before attaining age 35, an
additional notice shall be given within the period beginning one year
before the date he ceases to be an Employee and ending one year after
such date.
After the written explanation is given, a Member or spouse may make
written request for additional information. The written explanation must
be personally delivered or mailed (first class mail, postage prepaid) to
the Member or spouse within thirty days from the date of the written
request. The Plan Administrator does not need to comply with more than
one such request by a Member or spouse.
The Plan Administrator's explanation shall be written in nontechnical
language and will explain the terms and conditions of the Qualified
Preretirement Survivor Annuity and the financial effect upon the
spouse's benefit (in terms of dollars per benefit payment) of electing
not to have benefits distributed in accordance with the Qualified
Preretirement Survivor Annuity.
SECTION 6.05 - TRANSITIONAL RULES.
In modification of the preceding provisions of this Plan, distributions
(including distributions to a five-percent owner of us) may be made in a form
which would not have caused this Plan to be
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ARTICLE VI
<PAGE> 68
disqualified under Code Section 401(a)(9) as in effect before the TEFRA
Compliance Date. The form must be elected by the Member or, if the Member has
died, by the Beneficiary. The election must be made in writing and signed before
January 1, 1984. The election will only be applicable if the Member has an
Account as of December 31, 1983. The Member's or Beneficiary's election must
specify when the distribution is to begin, the form of distribution and the
Contingent Annuitant and/or Beneficiaries listed in the order of priority, if
applicable.
A distribution upon death will not be covered by this transitional rule unless
the election contains the required information described above with respect to
the distributions to be made when the Member dies. Distributions in the process
of payment on January 1, 1984, are deemed to meet the above requirements if the
form of distribution was elected in writing and the form met the requirements of
Code Section 401(a)(9) as in effect before the TEFRA Compliance Date. If the
election under this paragraph is revoked, any subsequent distribution must meet
the requirements of Code Section 401(a)(9) and the proposed regulations
thereunder. If an election is revoked subsequent to the date distributions are
required to begin, the Plan must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Code Section 401(a)(9) and the proposed regulations thereunder, but for
the Code Section 242(b)(2) election. For calendar years beginning after December
31, 1988, such distribution must meet the minimum distribution incidental
benefit requirements in section 1.401(a)(9)-2 of the proposed regulations. Any
changes in the election will be considered a revocation of the election.
However, the mere substitution or addition of another Beneficiary (one not named
in the election) under the election will not be considered to be a revocation of
the election, so long as such substitution or addition does not alter the period
over which distributions are to be made under the election, directly or
indirectly (for example, by altering the relevant measuring life). In the case
in which an amount is transferred or rolled over from one plan to another plan,
the rules in Q&A J-2 and Q&A J-3 of section 1.401(a)(9)-l of the proposed
regulations shall apply. A Member's election of an optional form of retirement
benefit shall be subject to his spouse's consent as provided in Section 6.03.
A Member, who would not otherwise receive the benefits prescribed by the
previous sections of this article, will be entitled to the following benefits:
(a) If he is living and not receiving benefits on August 23, 1984, he
will be given the opportunity to elect to have the prior sections
of this article apply, if he is credited with at least one Hour
of Service under this Plan or a predecessor plan in a plan year
beginning on or after January 1, 1976, and he had at least ten
Years of Service when he separated from service.
(b) If he is living and not receiving benefits on August 23, 1984, he
will be given the opportunity to elect to have his benefits paid
according to the following provisions of this section, if he is
credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and he is not
credited with any service in a plan year beginning on or after
January 1, 1976.
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ARTICLE VI
<PAGE> 69
The respective opportunities to elect (as described in (a) and (b) above) must
be afforded to the appropriate Members during the period beginning on August 23,
1984, and ending on the date benefits would otherwise begin to such Member.
Any Member who has elected according to (b) above and any member who does not
elect under (a) above or who meets the requirements of (a) above except that
such Member does not have at least ten Years of Service when he separated from
service, shall have his benefits distributed in accordance with the following if
benefits would have been payable in the form of a life annuity:
(c) Automatic joint and survivor annuity. If benefits in the form of a life
annuity become payable to a married Member who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for
us; or
(3) begins to receive payments on or after the qualified early
retirement age; or
(4) separates from service on or after attaining Normal Retirement
Age (or the qualified early retirement age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be paid under the Qualified Joint and Survivor
Form, unless the Member has elected otherwise during the election
period. The election period must begin at least six months before the
Member attains qualified early retirement age and end not more than 90
days before benefits begin. Any election hereunder will be in writing
and may be changed by the Member at any time.
(d) Election of early survivor annuity. A Member who is employed after
attaining the qualified early retirement age will be given the
opportunity to elect, during the election period, to have a Qualified
Preretirement Survivor Annuity payable on death. Any election under this
provision will be in writing and may be changed by the Member at any
time. The election period begins on the later of (1) the 90th day before
the Member attains the qualified early retirement age, or (2) the
Member's Entry Date, and ends on the date the Member terminates
employment.
(e) For purposes of this paragraph, qualified early retirement age is the latest
of:
(1) the earliest date, under the Plan, on which the Member may
elect to receive retirement benefits,
(2) the first day of the 120th month beginning before the Member
reaches Normal Retirement Age, or
(3) the Member's Entry Date.
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ARTICLE VI
<PAGE> 70
ARTICLE VII
TERMINATION OF PLAN
We expect to continue the Plan indefinitely, but reserve the right to terminate
the Plan in whole or in part at any time upon giving written notice to all
parties concerned. Complete discontinuance of Contributions constitutes complete
termination of Plan.
The Account of each Member shall be fully (100%) vested and nonforfeitable as of
the effective date of complete termination of the Plan. The Account of each
Member who becomes an Inactive Member because he is no longer an Eligible
Employee due to partial termination of the Plan shall be fully (100%) vested and
nonforfeitable as of the effective date of the partial Plan termination. If a
Member ceased to be an Employee before partial termination of the Plan but
otherwise would have become an Inactive Member upon partial termination due to
no longer being an Eligible Employee, his Account shall be fully (100%) vested
and nonforfeitable as of the effective date of the partial termination of the
Plan. An Inactive Member's Vested Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article shall be a retirement benefit and shall be distributed to the
Member according to the provisions of Article VI.
A Member's Account which does not result from Contributions which are used to
compute the Actual Deferral Percentage, as defined in Section 3.07, may be
distributed to the Member after the effective date of the complete or partial
Plan termination. A Member's Account resulting from Contributions which are used
to compute such percentage (Elective Deferral Contributions, Qualified
Nonelective Contributions, and Qualified Matching Contributions) may be
distributed upon termination of the Plan without the establishment of another
defined contribution plan.
Upon complete termination of the Plan, no more Employees shall become Members
and no more Contributions shall be made.
The assets of this Plan shall not be paid to us at any time, except that, after
the satisfaction of all liabilities under the Plan, any assets remaining may be
paid to us. The payment may not be made if it would contravene any provision of
law.
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ARTICLE VII
<PAGE> 71
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01 - ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has complete
control of the administration of the Plan. The Plan Administrator has all the
powers necessary for it to properly carry out its administrative duties. Not in
limitation, but in amplification of the foregoing, the Plan Administrator has
the power to construe the Plan and to determine all questions that may arise
under the Plan, including all questions relating to the eligibility of Employees
to participate in the Plan and the amount of benefit to which any Member,
Beneficiary, spouse, or Contingent Annuitant may become entitled. The Plan
Administrator's decisions upon all matters within the scope of its authority are
final.
Unless otherwise set out in the Plan or Annuity Contract, the Plan Administrator
may delegate recordkeeping and other duties which are necessary to assist it
with the administration of the Plan to any person or firm which agrees to accept
such duties. The Plan Administrator shall be entitled to rely upon all tables,
valuations, certificates, and reports furnished by the consultant or actuary
appointed by the Plan Administrator and upon all opinions given by any counsel
selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by Members, former
Members, Beneficiaries, spouses, and Contingent Annuitants. The Plan
Administrator shall determine all facts necessary to establish the right of any
Claimant to benefits and the amount of those benefits under the provisions of
the Plan. The Plan Administrator may establish rules and procedures to be
followed by Claimants in filing claims for benefits, in furnishing and verifying
proofs necessary to determine age, and in any other matters required to
administer the Plan.
SECTION 8.02 - RECORDS.
All acts and determinations of the Plan Administrator shall be duly recorded.
All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording, or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03 - INFORMATION AVAILABLE.
Any Member in the Plan or any Beneficiary may examine copies of the Plan
description, latest annual report, any bargaining agreement, this Plan, the
contract, or any other instrument under which the Plan was established or is
operated. The Plan Administrator shall maintain all of the items listed in this
section in its office, or in such other place or places as it may designate in
order to comply with governmental regulations. These items may be examined
during
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ARTICLE VIII
<PAGE> 72
reasonable business hours. Upon the written request of a Member or Beneficiary
receiving benefits under the Plan, the Plan Administrator shall furnish him with
a copy of any of these items. The Plan Administrator may make a reasonable
charge to the requesting person for the copy.
SECTION 8.04 - CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when making
claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator shall
provide adequate written notice to any Claimant whose claim for benefits under
the Plan has been denied. The notice must be furnished within ninety days of the
date that the claim is received by the Plan Administrator. The Claimant shall be
notified in writing within this initial ninety-day period if special
circumstances require an extension of time needed to process the claim and the
date by which the Plan Administrator's decision is expected to be rendered. The
written notice shall be furnished no later than 180 days after the date the
claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the reason for the
denial; specify references to pertinent Plan provisions on which denial is
based; describe any additional material and information needed for the Claimant
to perfect his claim for benefits; explain why the material and information is
needed; inform the Claimant that any appeal he wishes to make must be made in
writing to the Plan Administrator within sixty days after receipt of the Plan
Administrator's notice of denial of benefits and that failure to make the
written appeal within such sixty-day period renders the Plan Administrator's
determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or his
authorized representative, may submit in writing whatever issues and comments
the Claimant, or the representative, feels are pertinent. The Claimant, or the
authorized representative, may review pertinent Plan documents. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise the Claimant of its decision
within sixty days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
sixty-day limit unfeasible. The Claimant shall be notified within the sixty-day
limit if an extension is necessary. The Plan Administrator shall render a
decision on a claim for benefits no later than 120 days after the request for
review is received.
SECTION 8.05 - UNCLAIMED VESTED ACCOUNT PROCEDURES.
If a Member or the Member's spouse or Beneficiary does not claim the Member's
Vested Account, the Vested Account may be forfeited and applied according to the
provisions of Section 3.04. An unclaimed Vested Account shall not be forfeited
until the latest of the date the Member attains age 62, attains Normal
Retirement Age, or six months after the date the Member, spouse, or Beneficiary
is notified, by certified or registered mail addressed to his last known
address, that he is entitled to a benefit. If by the latest date above, the
Member, spouse, or Beneficiary has not
-72-
ARTICLE VIII
<PAGE> 73
claimed the Vested Account or made his whereabouts known in writing, the Plan
Administrator may treat the Vested Account as a Forfeiture.
If a Member's Vested Account is forfeited according to the provisions of the
above paragraph and the Member or the Member's spouse or Beneficiary at any time
makes a claim for benefits, the forfeited Vested Account shall be reinstated,
unadjusted for any gains or losses occurring after the date it was forfeited.
The reinstated Vested Account shall then be distributed to the Member, spouse,
or Beneficiary according to the preceding provisions of the Plan.
SECTION 8.06 - DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under this
article may be delegated by the Plan Administrator to a retirement committee.
The duties and responsibilities of the retirement committee shall be set out in
a separate written agreement.
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ARTICLE VIII
<PAGE> 74
ARTICLE VIIIA
TRUST PROVISIONS
SECTION 8A.01 - THE TRUST AND TRUST FUND.
If Item T(1) is selected, we have established this Trust by executing the
attached Adoption Agreement. The Trust is established for the purpose of holding
and distributing the Trust Fund under the provisions of the Plan. The Trust is
construed, regulated, and administered under the law of the state in which we
have our principal office.
The Trust Fund consists of the total funds held under the Trust for the purpose
of providing benefits for Members. These funds result from Contributions made
under the Plan, which are forwarded to the Trustee to be deposited in the Trust
Fund. The Trust Fund shall be valued at current fair market value as of the last
day of the last calendar month ending in the Plan Year and, at the discretion of
the Trustee, may be valued more frequently. The valuation shall take into
consideration investment earnings credited, expenses charged, payments made, and
changes in the values of the assets held in the Trust Fund. The Account of a
Member shall be credited with its share of the gains and losses of the Trust
Fund. That part of a Member's Account invested in a funding arrangement which
establishes an account or accounts for such Member thereunder shall be credited
with the gain or loss from such account or accounts. That part of a Member's
Account which is invested in other funding arrangements shall be credited with a
proportionate share of the gain or loss of such investments. The share shall be
determined by multiplying the gain or loss of the investment by the ratio of the
part of the Member's Account invested in such funding arrangement to the total
of the Trust Fund invested in such funding arrangement.
SECTION 8A.02 - THE TRUSTEE.
We have appointed the Trustee named in Item T. We have the power to appoint an
additional or successor Trustee or remove a Trustee at any time by amending the
Adoption Agreement.
The Trustee accepts this appointment by executing the Adoption Agreement or an
amendment to it. A Trustee may resign at any time upon thirty days written
notice to us. If a Trustee is removed, resigns or dies, the successor Trustee
whom we appoint has the same powers and duties as the Trustee replaced. Pending
the appointment of and acceptance of the successor Trustee, a remaining Trustee
has full power to act. When appointment has been accepted by a successor
Trustee, the removed or resigning Trustee must assign, transfer, pay over, and
deliver to the successor Trustee all of the assets which then constitute the
Trust Fund.
If there are two or more persons appointed as Trustees, the Trustees may, in
writing, name one of their number to act in the execution of all documents
relating to the Plan and Trust. When more than two persons have been appointed
as Trustee, all acts and decisions shall be made by majority vote.
SECTION 8A.03 - DUTIES OF TRUSTEE.
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ARTICLE VIIIA
<PAGE> 75
It is the duty of the Trustee to accept and hold the Trust Fund and administer
it according to the provisions of the Trust. The Trustee has no duty to demand
or require that Contributions be made to the Trust, nor shall a Trustee be
liable to determine the amount of any Contributions to the Trust.
The Plan is administered by the Plan Administrator. The Trustee is not
responsible for any aspect of its administration. The Trustee is not required to
look into any action taken by the Named Fiduciary, Plan Administrator, or us and
will be fully protected in taking, permitting or omitting any action on the
basis of our actions. Any action by the Named Fiduciary, Plan Administrator, or
us according to the Plan provisions shall be evidenced in writing. We will
indemnify the Trustee by satisfying any liabilities the Trustee may incur in
acting in accordance with the Trust provisions upon written instruction from the
Named Fiduciary, Plan Administrator, or us.
SECTION 8A.04 - POWERS OF TRUSTEE.
Except where the Plan expressly provides that the Trustee is subject to the
direction of the Named Fiduciary, Plan Administrator, or us, the Trustee is
authorized and empowered
(a) to apply for and invest all or any part of the assets of the Trust Fund
in the Annuity Contract, an Insurance Policy, or both, issued by the
Insurer and to hold the Annuity Contract and any Insurance Policy as
owner;
(b) to invest and reinvest all or any part of the assets of the Trust Fund
in any bonds, debentures, notes, mortgages or mortgage participations,
preferred stocks, common stocks or other securities, or other real or
personal properties;
(c) to sell, exchange, convey, transfer, or otherwise dispose of any
property held by it, by private contract or at public auction;
(d) to exercise the voting rights of any stocks, bonds or other securities
and to exercise any of the powers of an owner with respect to stocks,
bonds, securities, or other property held in the Trust Fund;
(e) to retain in cash an amount which the Trustee considers advisable, and
to deposit cash in any depository selected by it, without liability for
interest;
(f) to make, execute, acknowledge, and deliver any instruments necessary to
carry out the powers granted it;
(g) to employ such agents, actuaries, clerical help, custodians, and others
as are needed to carry out the Trustee's duties;
(h) to consult with legal counsel, including our counsel, with respect to
the meaning or construction of, or the Trustee's obligations or duties
under, the Plan and Trust, or with
-75-
ARTICLE VIIIA
<PAGE> 76
respect to any action or proceeding or any question of law. The Trustee
shall be fully protected with respect to any action it takes in good
faith pursuant to the advice of such counsel.
(i) to enforce any right, obligation, or claim and, in its absolute
discretion, to protect in any way the interest of the Trust Fund and if
the Trustee considers such an action to be in the best interest of the
Trust Fund, to abstain from the enforcement of any right, obligation,
or claim and to abandon any property it has held.
SECTION 8A.05 - EXPENSES.
We pay the expenses incurred by the Trustee in the performance of its duties,
any fees for legal services rendered to the Trustee, and compensation to the
Trustee which we have mutually agreed upon in writing. The Trustee may charge
against the Trust Fund taxes imposed with respect to the Trust Fund or its
income.
SECTION 8A.06 - ACCOUNTING.
The Trustee shall maintain accurate and detailed records on all receipts,
investments, disbursements, and other transactions performed in its capacity as
Trustee. These records must be open to inspection and audit by the Plan
Administrator, Named Fiduciary, and us at all reasonable times.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording, or other
forms of data compilation shall be acceptable means of keeping records.
The Trustee shall file all reports, returns, and information required under the
Code and regulations and rulings issued under the Code.
The Trustee shall file with us an accounting of its transactions as soon as
practical after each Yearly Date or any other date we may specify. Any report or
accounting which the Trustee files with us is open to inspection by a Member for
a period of sixty days following the date it is filed. At the end of the
sixty-day period, the Trustee is released and discharged as to any matters set
forth in the report or account, except with respect to any act or omission as to
which a Member, the Plan Administrator, the Named Fiduciary or we have filed a
written objection within the sixty-day period.
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ARTICLE VIIIA
<PAGE> 77
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 - AMENDMENTS.
We may amend a selection or specification in the Adoption Agreement at any time,
including any remedial retroactive changes (within the time specified by
Internal Revenue Service regulation) to comply with any law or regulation issued
by any governmental agency to which the Plan is subject. An amendment may not
diminish or adversely affect any accrued interest or benefit of Members or their
Beneficiaries or eliminate an optional form of distribution with respect to
benefits attributable to service before the amendment nor allow reversion or
diversion of Plan assets to us at any time, except as may be required to comply
with any law or regulation issued by any governmental agency to which the Plan
is subject. No amendment to this Plan shall be effective to the extent that it
has the effect of decreasing a Member's accrued benefit. However, a Member's
Account may be reduced to the extent permitted under Code Section 412(c)(8). For
purposes of this paragraph, a Plan amendment which has the effect of decreasing
a Member's Account or eliminating an optional form of benefit, with respect to
benefits attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of the Plan is
amended, in the case of an Employee who is a Member as of the later of the date
such amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's right to his
employer-derived accrued benefit will not be less than his percentage computed
under the Plan without regard to such amendment. We may amend the Plan by adding
overriding plan language to the Adoption Agreement in order to satisfy Code
Sections 415 and 416 because of the required aggregation of multiple plans under
those sections. We may amend the Plan by adding certain model amendments
published by the Internal Revenue Service which specifically provide that their
adoption will not cause the Plan to be treated as individually designed. An
amendment to this Plan will be forwarded to Principal Mutual Life Insurance
Company, the prototype plan sponsor.
If we amend the Plan for any reason other than those set out above or if the
Plan loses its qualified status, the Plan shall not be a prototype plan within
the meaning of governmental regulations. In that event, Principal Mutual Life
Insurance Company will not be the prototype plan sponsor and the Plan will not
be a prototype plan. As the Employer, we reserve the right to continue our
retirement program under a document separate and distinct from this Plan. In
such event, all rights and obligations of any Member, Beneficiary, or of ours
under this document shall cease. Assets held in support of this Plan will be
transferred to the designated funding medium under the new or restated plan and,
if applicable, trust, in the manner permitted under, and subject to the
provisions of, the Annuity Contract.
We delegate authority to amend this Plan to Principal Mutual Life Insurance
Company as sponsor. We hereby consent to any such amendment. However, no such
amendment shall increase the duties of the Named Fiduciary without his consent.
Such an amendment shall not deprive any Member or Beneficiary of any accrued
benefit except to the extent necessary to comply with any law or regulation
issued by any governmental agency to which this Plan is
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ARTICLE IX
<PAGE> 78
subject. Such an amendment shall not provide that the Investment Fund be used
for any purpose other than the exclusive benefit of Members or their
Beneficiaries or that the Investment Fund ever revert to or be used by us.
Any amendment to this Plan by Principal Mutual Life Insurance Company, as
sponsor, shall be deemed to be an amendment to this Plan by us. The effective
date of any amendment shall be specified in the written instrument of amendment.
An amendment shall not decrease a Member's vested interest in the Plan. If an
amendment to the Plan, or a deemed amendment in the case of a change in
top-heavy status of the Plan as provided in Section 10.03, changes the
computation of Vesting Percentage (whether directly or indirectly), each Member
or former Member
(a) who has completed at least three Years of Service with us on the date
the election period described below ends (five Years of Service if the
Member does not have at least one Hour of Service in a Plan Year
beginning after December 31, 1988) and
(b) whose Vesting Percentage will be determined on any date after the date
of the change
may elect, during the election period, to have the nonforfeitable percentage of
his Account which results from our Contributions determined without regard to
the amendment. This election may not be revoked. If after the Plan is changed
the Member's Vesting Percentage will at all times be as great as it would have
been if the change had not been made, no election needs to be provided. The
election period shall begin no later than the date the Plan amendment is
adopted, or deemed adopted in the case of a change in the top-heavy status of
the Plan, and end no earlier than the sixtieth day after the latest of the date
the amendment is adopted (deemed adopted) or becomes effective, or the date the
Member is issued written notice of the amendment (deemed amendment) by us or the
Plan Administrator.
SECTION 9.02 - MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or
liabilities transferred to, any other retirement plan, unless each Member in the
plan would (if the plan then terminated) receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the benefit
the Member would have been entitled to receive immediately before the merger,
consolidation or transfer (if this Plan had then terminated). We may enter into
merger agreements or direct transfer of assets agreements with the employers
under other retirement plans which are qualifiable under Code Section 401(a),
including an elective transfer, and may accept the direct transfer of plan
assets, or may transfer plan assets, as a party to any such agreement. We shall
not consent to, or be a party to a merger, consolidation or transfer of assets
with a defined benefit plan if such action would result in a defined benefit
feature being maintained under this Plan.
The Plan may accept a direct transfer of plan assets on behalf of an Eligible
Employee. If the Eligible Employee is not an Active Member when the transfer is
made, the Eligible Employee shall be deemed to be an Active Member only for the
purpose of investment and distribution of
ARTICLE IX -78-
<PAGE> 79
the transferred assets. Our Contributions shall not be made for or allocated to
the Eligible Employee and he may not make Member Contributions, until the time
he meets all of the requirements to become an Active Member.
The Plan shall hold, administer and distribute the transferred assets as a part
of the Plan. The Plan shall maintain a separate account for the benefit of the
Employee on whose behalf the Plan accepted the transfer in order to reflect the
value of the transferred assets. Unless a transfer of assets to the Plan is an
elective transfer, the Plan shall apply the optional forms of benefit
protections described in Section 9.01 to all transferred assets. A transfer is
elective if: (1) the transfer is voluntary, under a fully informed election by
the Member; (2) the Member has an alternative that retains his Code Section
411(d)(6) protected benefits (including an option to leave his benefit in the
transferor plan, if that plan is not terminating); (3) if the transferor plan is
subject to Code Sections 401(a)(11) and 417, the transfer satisfies the
applicable spousal consent requirements of the Code; (4) the notice requirements
under Code Section 417, requiring a written explanation with respect to an
election not to receive benefits in the form of a qualified joint and survivor
annuity, are met with respect to the Member and spousal transfer election; (5)
the Member has a right to immediate distribution from the transferor plan under
provisions in the plan not inconsistent with Code Section 401(a); (6) the
transferred benefit is equal to the Member's entire nonforfeitable accrued
benefit under the transferor plan, calculated to be at least the greater of the
single sum distribution provided by the transferor plan (if any) or the present
value of the Member's accrued benefit under the transferor plan payable at the
plan's normal retirement age and calculated using an interest rate subject to
the restrictions of Code Section 417(e) and subject to the overall limitations
of Code Section 415; (7) the Member has a 100% nonforfeitable interest in the
transferred benefit; and (8) the transfer otherwise satisfies applicable
Treasury regulations.
SECTION 9.03 - PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions of the
Annuity Contract or Insurance Policy. The Insurer shall not be required to
perform any act not provided in or contrary to the provisions of the Annuity
Contract or Insurance Policy.
See Section 9.09.
Any issuer or distributor of investment contracts or securities is governed
solely by the terms of its policies, written investment contract, prospectuses,
security instruments, and any other written agreements entered into with the
Trustee.
Such Insurer, issuer, or distributor is not a party to the Plan, nor bound in
any way by the Plan provisions. Such parties shall not be required to look to
the terms of this Plan, nor to determine whether we, the Plan Administrator, the
Trustee, or the Named Fiduciary have the authority to act in any particular
manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or of a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected in
assuming that the Plan has not been amended or terminated and in dealing with
any party acting as Trustee according to the latest information which they have
received at their home office or principal address.
ARTICLE IX -79-
<PAGE> 80
SECTION 9.04 - EMPLOYMENT STATUS.
Nothing contained in this Plan gives any Employee the right to be retained in
our employ or to interfere with our right to discharge any Employee.
SECTION 9.05 - RIGHTS TO PLAN ASSETS.
An Employee shall not have any right to or interest in any assets of the Plan
upon termination of employment or otherwise except as specifically provided
under this Plan, and then only to the extent of the benefits payable to such
Employee according to the Plan provisions.
Any final payment or distribution to a Member or his legal representative or to
any Beneficiaries, spouse, or Contingent Annuitant of such Member under the Plan
provisions shall be in full satisfaction of all claims against the Plan, the
Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and us
arising under or by virtue of the Plan.
SECTION 9.06 - BENEFICIARY.
Each Member may name a Beneficiary to receive any death benefit (other than any
income payable to a Contingent Annuitant) which may arise out of his membership
in the Plan. The Member may change his Beneficiary from time to time. Unless a
qualified election has been made, for purposes of distributing any death
benefits before Retirement Date, the Beneficiary of a Member who has a spouse
who is entitled to a Qualified Preretirement Survivor Annuity shall be the
Member's spouse. The Member's Beneficiary designation and any change of
Beneficiary shall be subject to the provisions of Section 6.03. It is the
responsibility of the Member to give written notice to the Insurer of the name
of the Beneficiary on a form furnished for that purpose.
With our consent, the Plan Administrator may maintain records of Beneficiary
designations for Members before their Retirement Dates. In that event, the
written designations made by Members shall be filed with the Plan Administrator.
If a Member dies before his Retirement Date, the Plan Administrator shall
certify to the Insurer the Beneficiary designation on its records for the
Member.
If there is no Beneficiary named or surviving when a Member dies, any death
benefit under the Annuity Contract or Insurance Policy will be paid according to
the provisions of the respective documents.
SECTION 9.07 - NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any creditor of
any Member, Beneficiary, spouse, or Contingent Annuitant. A Member, Beneficiary,
spouse, or Contingent Annuitant does not have any rights to alienate,
anticipate, commute, pledge, encumber or assign such benefits except in the case
of a Trustee approved loan as provided in Section 5.06. The preceding sentences
shall also apply to the creation, assignment, or recognition of a right to any
benefit payable with respect to a Member according to a domestic relations
order, unless such
ARTICLE IX -80-
<PAGE> 81
order is determined by the Plan Administrator to be a qualified domestic
relations order, as defined in Code Section 414(p), or any domestic relations
order entered before January 1, 1985.
SECTION 9.08 - FACILITY OF PAYMENT.
If any Member, Beneficiary, spouse, or Contingent Annuitant is physically or
mentally incapable of giving a valid receipt for any payment due him and a legal
representative has not been appointed for such person, the Plan Administrator
may direct the Insurer to make such payment to any person or institution
maintaining such Member, Beneficiary, spouse, or Contingent Annuitant. The
payment to such person or institution shall be a valid and complete discharge of
any liability for the making of such payment under the provisions of the Plan.
SECTION 9.09 - CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and
construed according to Federal law and, to the extent permissible, according to
the laws of the state in which we have our principal office. In case any
provision of this Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of this Plan, and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included.
In the event of any conflict between the provisions of the Plan and the terms of
any contract or policy issued hereunder, the provisions of the Plan control.
SECTION 9.10 - LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary are the
necessary parties to any action or proceeding involving the assets held with
respect to the Plan or administration of the Plan or Trust. No person employed
by us, no Member, former Member, or their Beneficiaries or any other person
having or claiming to have an interest in the Plan is entitled to any notice of
process. A final judgment entered in any such action or proceeding shall be
binding and conclusive on all persons having or claiming to have an interest in
the Plan.
SECTION 9.11 - SMALL AMOUNTS.
If the Vested Account of a Member has never exceeded $3,500, the entire Vested
Account shall be payable in a single sum as of the earliest of his Retirement
Date, the date he dies, or the date he ceases to be an Employee for any other
reason. If Item X(3)(b) of the Adoption Agreement - Plus is selected, the Member
shall not be treated as having ceased to be an Employee for any reason other
than retirement or death before the period of time elected in Item X(3)(b) has
elapsed and no small amount payment shall be made if he again becomes an
Employee before such period of time has elapsed. This is a small amounts
payment. If a small amount is payable as of the date the Member dies, the small
amounts payment shall be made to the Member's Beneficiary (spouse if the death
benefit is payable to the spouse). If a small amount is payable while the Member
is living, the small amounts payment shall be made to the Member. The small
amounts payment is in full settlement of all benefits otherwise payable.
ARTICLE IX -81-
<PAGE> 82
Before the first Yearly Date in 1989, the Member's Vested Account which results
from deductible Voluntary Contributions shall not be taken into account in
determining whether his Vested Account has exceeded $3,500.
No other small amounts payment shall be made.
SECTION 9.12 - WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine gender
and singular words as used in this Plan may include the plural, unless the
context indicates otherwise.
SECTION 9.13 - TRANSFERS BETWEEN PLANS.
If an Employee has been a member of another plan of ours which credited service
under the elapsed time method for any purpose which under this Plan is
determined using the hours method, then the Employee's service shall be equal to
the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to the Employee under the
other plan as of the date he became an Eligible Employee under this
Plan.
(b) One year of service for the applicable service period in which he
became an Eligible Employee if he is credited with the required number
of Hours of Service. If we do not have sufficient records to determine
the Employee's actual Hours of Service in that part of the service
period before the date he became an Eligible Employee, the Hours of
Service shall be determined using an equivalency. For any month in
which he would be required to be credited with one Hour of Service, the
Employee shall be deemed for purposes of this section to be credited
with 190 Hours of Service.
(c) The Employee's service determined under this Plan using the hours
method after the end of the service period in which he became an
Eligible Employee.
If an Employee has been a member of another plan of ours which credited service
under the hours method for any purpose which under this Plan is determined using
the elapsed time method, then the Employee's service shall be equal to the sum
of (d), (e) and (f) below:
(d) The number of whole years of service credited to the Employee under the
other plan as of the beginning of the service period under that plan in
which he became an Eligible Employee under this Plan.
(e) The greater of (1) the service that would be credited to the Employee
for that entire service period using the elapsed time method or (2) the
service credited to him under the other plan as of the date he became
an Eligible Employee under this Plan.
(f) The Employee's service determined under this Plan using the elapsed
time method after the end of the applicable service period under the
other plan in which he became an Eligible Employee.
ARTICLE IX -82-
<PAGE> 83
Any modification of service contained in this Plan shall be applicable to the
service determined pursuant to this section.
If an Employee used to be a member of a Controlled Group member's plan which
credited service under a different method than is used in this Plan, in order to
determine entry and vesting, the provisions above shall apply as though the
Controlled Group member's plan were our plan. If the method of crediting service
under this Plan is changed, the service credited to an Employee shall be equal
to the service that would be credited to him under the above provisions as
though the Plan as in effect before the change were another plan of ours.
SECTION 9.14 - PARTNERSHIP OR SOLE PROPRIETORSHIP.
(a) For the purpose of applying the provisions of this Plan as to any Plan
Year in which we are a partnership or sole proprietorship, the
following terms are defined:
Control(s) means, with regard to a trade or business, one
owner-employee owns or a group of owner-employees together own (1) the
entire interest in such trade or business or (2) in the case of a
partnership, more than fifty percent of either the capital interest or
the profits interest in the partnership. An owner-employee, or a group
of owner-employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such owner-employee, or group of owner-employees, are considered
to control within the meaning of the preceding sentence.
Earned Income means, for a Self-Employed Individual, net earnings from
self-employment in the trade or business for which this Plan is
established if such Self-Employed Individual's personal services are a
material income producing factor for that trade or business. Earned
Income shall be determined without regard to items not included in
gross income and the deductions properly allocable to or chargeable
against such items. After the TEFRA Compliance Date, Earned Income
shall be reduced for our employer contributions to our qualified
retirement plan(s) to the extent deductible under Code Section 404.
Net earnings shall be determined with regard to the deduction allowed
to us by Code Section 164(f) for taxable years beginning after December
31, 1989.
In applying the provisions of this Plan, the Self-Employed Individual's
Earned Income shall be deemed to be his Pay. For purposes of Section
3.06, Earned Income shall include earned income within the meaning of
Code Section 911 from sources outside the United States and shall be
deemed to be his Compensation.
Owner-Employee means a Self-Employed Individual who, in the case of a
sole proprietorship, owns the entire interest in the unincorporated
trade or business for which this Plan is established. If this Plan is
established for a partnership, an Owner-Employee means a Self-Employed
Individual who owns more than ten percent of either the capital
interest or profits interest in such partnership.
ARTICLE IX -83-
<PAGE> 84
In applying the provisions of this Plan, an Owner-Employee shall be
deemed to be an Employee.
Self-Employed Individual means, with respect to any Fiscal Year, an
individual who has Earned Income for the Fiscal Year (or who would have
Earned Income but for the fact the trade or business for which this
Plan is established did not have net profits for such Fiscal Year).
In applying the provisions of this Plan, a Self-Employed Individual
shall be deemed to be an Employee.
(b) If contributions are made for or allocated to or benefits accrue to an
Owner-Employee who Controls, or a group of Owner-Employees who together
Control, both the trade or business for which this Plan is established
and one or more other trades or businesses, then this Plan and the
plans established for such other trade(s) or business(es) must, if they
were combined as a single plan, satisfy the requirements of Code
Sections 401(a) and 401(d) and regulations thereunder.
If this Plan provides Contributions for an Owner-Employee who Controls,
or a group of Owner-Employees who Control, one or more other trades or
businesses, the employees of each such other trade or business must be
included in a plan which satisfies Code Sections 401(a) and 401(d) and
regulations thereunder. Each such plan must provide contributions and
benefits which are not less favorable than the Contributions and
benefits provided for the Owner-Employee(s) under this Plan.
If an Owner-Employee is covered under another qualifiable retirement
plan as an owner-employee of a trade or business he does not Control,
then the plan(s) of the trade(s) or business(es) the Owner-Employee
does Control (including this Plan, if applicable) must provide
contributions or benefits as favorable as those provided under the most
favorable plan of the trade or business the Owner-Employee does not
Control.
SECTION 9.15 - QUALIFICATION OF PLAN.
If the Plan is denied initial qualification, it will terminate. We shall give
written notice to the Insurer and Trustee of the denial in sufficient time so
the assets resulting from Contributions which were conditioned on initial
qualification of the Plan may be returned within one year after the date of
denial. The Insurer will be notified that the Annuity Contract is to be
terminated and any Insurance Policy surrendered. The Plan assets which result
from Employer Contributions and Member Contributions shall be returned to us and
the Members, respectively. The Trustee, the Plan Administrator, and the Named
Fiduciary shall then be discharged from all obligations under the Plan and Trust
and the Insurer shall be discharged from all obligations under the Annuity
Contract and any Insurance Policy. A Member or Beneficiary shall not have any
right or claim to the assets or to any benefit under this Plan before the
Internal Revenue Service determines that the Plan and Trust qualify under the
provisions of Section 401(a) of the Code.
ARTICLE IX -84-
<PAGE> 85
If the Plan loses its qualified status, it shall no longer be a prototype plan
within the meaning of governmental regulations. In that event, Principal Mutual
Life Insurance Company will no longer be the Plan sponsor. We agree to give
written notification to Principal Mutual Life Insurance Company of the loss of
qualification.
ARTICLE IX -85-
<PAGE> 86
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01 - APPLICATION.
The provisions of this Article X shall supersede all other provisions in the
Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this article, all
members of the Controlled Group shall be treated as one Employer. The terms we,
us, and our as they are used in this article shall be deemed to include all
members of the Controlled Group unless the terms as used clearly indicate only
the Employer is meant.
The accrued benefit or account of a member which results from deductible
voluntary contributions shall not be included for any purpose under this
article.
The minimum vesting and contribution provisions of Sections 10.03 and 10.04
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or more
employers, including us, if there is evidence that retirement benefits were the
subject of good faith bargaining between such representatives. For this purpose,
the term "employee representatives" does not include any organization more than
half of whose members are employees who are owners, officers or executives.
SECTION 10.02 - DEFINITIONS.
The following terms are defined for purposes of this article.
AGGREGATION GROUP means
(a) each of our retirement plans in which a Key Employee is a member during
the Year containing the Determination Date or one of the four preceding
Years.
(b) each of our other retirement plans which allows the plan(s) described
in (a) above to meet the nondiscrimination requirement of Code Section
401(a)(4) or the minimum coverage requirement of Code Section 410, and
(c) any of our other retirement plans not included in (a) or (b) above
which we desire to include as part of the Aggregation Group. Such a
retirement plan shall be included only if the Aggregation Group would
continue to satisfy the requirements of Code Section 401(a)(4) and Code
Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation Group. The
plans in (a), (b) and (c) above constitute the "permissive" Aggregation Group.
COMPENSATION means, as to an Employee for any period, compensation as defined in
Code Section 415(c)(3), but including amounts contributed by us pursuant to a
salary reduction
ARTICLE X -86-
<PAGE> 87
agreement which are excludible from the Employee's gross income under Code
Sections 125, 402(a)(8), 402(h) or 403(b).
DETERMINATION DATE means as to this Plan, for any Year, the last day of the
preceding Year. However, if there is no preceding Year, the Determination Date
is the last day of such Year.
KEY EMPLOYEE means any Employee or former Employee (including Beneficiaries of
deceased Employees) who at any time during the determination period was
(a) one of our officers (subject to the maximum below) whose Compensation
(as defined in this section) for the Year exceeds 50 percent of the
dollar limitation under Code Section 415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under Code
Section 318) more than a half percent ownership interest and one of the
largest interests in us during any Year of the determination period if
such person's Compensation (as defined in this section) for the Year
exceeds the dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of us, or
(d) a one-percent owner of us whose Compensation (as defined in this
section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate employer for
purposes of determining ownership in us.
The determination period is the Year containing the Determination Date and the
four preceding Years. If we have fewer than 30 Employees, no more than three
Employees shall be treated as Key Employees because they are officers. If we
have between 30 and 500 Employees, no more than ten percent of our Employees (if
not an integer, increased to the next integer) shall be treated as Key Employees
because they are officers. In no event will more than 50 Employees be treated as
Key Employees because they are officers if we have 500 or more Employees. The
number of Employees for any Plan Year is the greatest number of Employees during
the determination period. Officers who are employees described in Code Section
414(q)(8) shall be excluded. If we have more than the maximum number of officers
to be treated as Key Employees, the officers shall be ranked by the amount of
annual Compensation (as defined in this section), and those with the greater
amount of annual Compensation during the determination period shall be treated
as Key Employees. To determine the ten Employees owning the largest interests in
us, if more than one Employee has the same ownership interest, the Employee(s)
having the greater annual Compensation shall be treated as owning the larger
interests). The determination of who is a Key Employee shall be made according
to Code Section 416(i)(1) and the regulations thereunder.
NON-KEY EMPLOYEE means a person who is a non-key employee within the meaning of
Code Section 416 and regulations thereunder.
ARTICLE X -87-
<PAGE> 88
PRESENT VALUE means the present value of a member's accrued benefit under a
defined benefit plan as of his normal retirement age (attained age if later) or,
if the plan provides non-proportional subsidies, the age at which the benefit is
most valuable. The accrued benefit of any Employee (other than a Key Employee)
shall be determined under the method which is used for accrual purposes for all
our plans or if there is no one method which is used for accrual purposes for
all our plans, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under Code Section 411(b)(1)(C). The Present Value shall
be based only on the interest and mortality rates specified in the Adoption
Agreement. If the Present Value of accrued benefits is determined for a member
under more than one defined benefit plan included in the Aggregation Group, all
such plans shall use the same actuarial assumptions to determine the Present
Value.
TOP-HEAVY PLAN means a plan which is a top-heavy plan for any plan year
beginning after December 31, 1983. This Plan shall be a Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds sixty percent and this
Plan is not part of any required Aggregation Group or permissive
Aggregation Group.
(b) this Plan is a part of a required Aggregation Group, but not part of a
permissive Aggregation Group, and the Top-heavy Ratio for the required
Aggregation Group exceeds sixty percent.
(c) this Plan is a part of a required Aggregation Group and part of a
permissive Aggregation Group and the Top-heavy Ratio for the permissive
Aggregation Group exceeds sixty percent.
TOP-HEAVY RATIO means the ratio calculated below for this Plan or for the
Aggregation Group.
(a) The Top-heavy Ratio for this Plan or for the Aggregation Group
(including any simplified employee pension plan) if the Aggregation
Group does not contain a defined benefit plan during the five-year
period ending on the determination date which has or has had accrued
benefits, is a fraction, the numerator of which is the sum of the
account balances of all Key Employees as of the determination date and
the denominator of which is the sum of all account balances of all
employees as of the determination date. Both the numerator and
denominator of the Top-heavy Ratio are adjusted for any distribution of
an account balance made in the five-year period ending on the
determination date in accordance with Code Section 416 and the
regulations thereunder.
(b) The Top-heavy Ratio for the Aggregation Group (including any simplified
employee pension plan) if the Aggregation Group contains a defined
benefit plan during the five-year period ending on the determination
date which has or has had accrued benefits, is a fraction, the
numerator of which is the sum of the account balances under the defined
contribution plan(s) of all Key Employees and the Present Value of
accrued benefits under the defined benefit plan(s) for all Key
Employees, and the denominator of which is the sum of the account
balances under the defined contribution plan(s) for all employees and
the Present Value of accrued benefits under the defined benefit plans
for all employees.
ARTICLE X -88-
<PAGE> 89
Both the numerator and denominator of the Top-heavy Ratio are adjusted
for any distribution of an account balance or an accrued benefit
(including those made from terminated plan(s) of ours which would have
been part of the required Aggregation Group had such plan(s) not been
terminated) made in the five-year period ending on the determination
date in accordance with Code Section 416 and the regulations
thereunder.
(c) For purposes of (a) and (b) above, the value of account balances and
the Present Value of accrued benefits will be determined as of the most
recent valuation date that falls within or ends with the 12-month
period ending on the determination date, except as provided in Code
Section 416 and the regulations thereunder for the first and second
plan years of a defined benefit plan. The account balances and accrued
benefits of an employee who is not a Key Employee but who was a Key
Employee in a prior year will be disregarded. The calculation of the
Top-heavy Ratio and the extent to which distributions, rollovers and
transfers during the five-year period ending on the determination date
are to be taken into account, shall be determined according to the
provisions of Code Section 416 and regulations thereunder. The account
balances and accrued benefits of an individual who has performed no
service for us during the five-year period ending on the determination
date shall be excluded from the Top-heavy Ratio until the time the
individual again performs service for us. Deductible employee
contributions will not be taken into account for purposes of computing
the Top-heavy Ratio. When aggregating plans, the value of account
balances and accrued benefits will be calculated with reference to the
determination dates that fall within the same calendar year.
Account, as used in this definition, means the value of an employee's account
under one of our retirement plans on the latest valuation date. In the case of a
money purchase plan or target benefit plan, such value shall be adjusted to
include any contributions made for or by the employee after the valuation date
and on or before such determination date or due to be made as of such
determination date but not yet forwarded to the insurer or trustee. In the case
of a profit sharing plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and on or
before such determination date. During the first Year of any profit sharing plan
such adjustment in value shall include contributions made after such
determination date that are allocated as of a date in such Year. The
nondeductible voluntary contributions which an employee makes under a defined
benefit plan of ours shall be treated as if they were contributions under a
separate defined contribution plan.
VALUATION DATE means, as to this Plan, the last day of the last calendar month
ending in a Year.
YEAR means the Plan Year unless another year is specified by us in a separate
written resolution in accordance with regulations issued by the Secretary of the
Treasury or his delegate.
ARTICLE X -89-
<PAGE> 90
SECTION 10.03 - MODIFICATION OF VESTING REQUIREMENTS.
If a Member's Vesting Percentage determined under the vesting schedule selected
in Item V is not as great as the Vesting Percentage would be if it were
determined under a schedule permitted in Code Section 416, the following shall
apply. During any Year in which the Plan is a Top-heavy Plan, the Member's
Vesting Percentage shall be the greater of the Vesting Percentage determined
under the schedule selected in Item U or,
(a) if the vesting schedule provides for partial vesting between 0% and 100%,
the schedule below.
<TABLE>
<CAPTION>
VESTING SERVICE VESTING
(whole years) PERCENTAGE
<S> <C> <C>
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
</TABLE>
(b) if the vesting schedule provides for only 0% or 100% vesting, the
schedule below.
<TABLE>
<CAPTION>
VESTING SERVICE VESTING
(whole years) PERCENTAGE
<S> <C> <C>
Less than 3 0
3 or more 100
</TABLE>
The applicable schedule above shall not apply to Members who are not credited
with an Hour of Service after the Plan first becomes a Top-heavy Plan. The
Vesting Percentage determined above applies to all of the Member's Account
resulting from our Contributions, including Contributions we make before the
TEFRA Compliance Date or when this Plan is not a Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a Member's Vesting
Percentage shall be determined according to the provisions of Item U. A Member's
Vesting Percentage determined under either Item U or the schedule above shall
never be reduced and the election procedures of Section 9.01 shall apply when
changing to or from the above schedule as though the automatic change were the
result of an amendment.
The part of the Member's Vested Account resulting from the minimum contributions
required pursuant to Section 10.04 shall not be forfeited because of a period of
reemployment after benefit payments have begun or because of a withdrawal of
required contributions, if any.
ARTICLE X -90-
<PAGE> 91
SECTION 10.04 - MODIFICATION OF CONTRIBUTIONS.
For any Plan Year in which the Plan is top-heavy, only the first $200,000
(multiplied by the Adjustment Factor) of a Member's annual compensation shall be
taken into account for purposes of determining Employer Contributions under the
Plan.
During any Year in which this Plan is a Top-heavy Plan, we shall make a minimum
contribution or allocation on the last day of the Year for each person who is a
Non-key Employee on that day and who either was or could have been an Active
Member during the Year. A Non-key Employee is not required to have a minimum
number of Hours of Service or minimum amount of Pay, or to have made any
Elective Deferral Contributions in order to be entitled to this minimum. The
selections we make in Item R shall determine if Key Employees who are Employees
on the last day of the Year are also entitled to this minimum and if the minimum
contribution or allocation shall apply in Years when this Plan is not a
Top-heavy Plan. The minimum contribution and allocation for such person shall be
equal to the amount specified in Item R. If overriding provisions are not
specified in Item R, the minimum is the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this
article).
(b) The "highest percentage" of Compensation (as defined in this article)
for such Year at which our contributions are made for or allocated to
any Key Employee. The highest percentage shall be determined by dividing
our contributions made for or allocated to each Key Employee during the
Year by the amount of his Compensation (as defined in this article)
which is not more than the maximum set out above, and selecting the
greatest quotient (expressed as a percentage). To determine the highest
percentage, all our defined contribution plans within the Aggregation
Group shall be treated as one plan. The provisions of this paragraph
shall not apply if this Plan and a defined benefit plan of ours are
required to be included in the Aggregation Group and this Plan enables
the defined benefit plan to meet the requirements of Code Section
401(a)(4) or Code Section 410.
If our contributions and allocations otherwise required under the defined
contribution plan(s) are at least equal to the minimum above, no additional
contribution or allocation shall be required. If our contributions and
allocations are less than the minimum above and our Contributions under this
Plan are allocated to Members, our Contributions (other than Elective Deferral
Contributions) shall be reallocated to provide the minimum. The remaining
Contributions shall be allocated as provided in the preceding articles of this
Plan. If our total contributions and allocations are less than the minimum above
and our Contributions under this Plan are not allocated, we shall contribute the
difference for the Year.
The minimum contribution or allocation applies to all of our defined
contribution plans in the aggregate which are Top-heavy Plans. A minimum
allocation under a profit sharing plan shall be made without regard to whether
or not we have profits. If a person who is otherwise entitled to an additional
contribution or allocation above is also covered under a defined benefit plan of
ours which is a Top-heavy Plan during that same Year, the minimum benefits for
him shall not be duplicated. The defined benefit plan shall provide an annual
benefit for him on, or adjusted
ARTICLE X -91-
<PAGE> 92
to, a straight life basis of the lesser of (c) two percent of his average pay
multiplied by his years of service or (d) twenty percent of his average pay.
Average pay and years of service shall have the meaning set forth in such
defined benefit plan for this purpose.
We may provide overriding provisions in Item R to satisfy the requirements of
Code Section 416 because of the aggregation of multiple plans.
For purposes of this section, any employer contribution made according to a
salary reduction or similar arrangement shall not apply before the first Yearly
Date in 1985. On and after the first Yearly Date in 1989, any such employer
contributions and employer contributions which are matching contributions, as
defined in Code Section 401(m), shall not apply in determining if the minimum
contribution requirement has been met, but shall apply in determining the
minimum contribution required. Forfeitures credited to a Member's account are
treated as employer contributions.
The requirements of this section shall be met without regard to contributions
under Chapter 2 of the Code (relating to tax on self-employment), Chapter 21 of
the Code (relating to Federal Insurance Contributions Act), Title II of the
Social Security Act or any other Federal or state law.
SECTION 10.05 - MODIFICATION OF CONTRIBUTION LIMITATION.
If the provisions of subsection (1) of Section 3.06 are applicable for any
Limitation Year during which this Plan is a Top-heavy Plan, the Contribution
limitations shall be modified. The definitions of Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction in Section 3.06 shall be modified by
substituting "100 percent" in lieu of "125 percent." In addition, an adjustment
shall be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in Section 3.06 and shall be made
with respect to the last Plan Year beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect to a
Member so long as employer contributions, forfeitures or nondeductible employee
contributions are not credited to his account under this or any of our other
defined contribution plans and benefits do not accrue for such Member under our
defined benefit plan(s), until the sum of his Defined Contribution and Defined
Benefit Plan Fractions is less than 1.0.
The modification of the Contribution limitation shall not apply if both of the
following requirements are met:
(a) This Plan would not be a Top-heavy Plan if "ninety percent" were
substituted for "sixty percent" in the definition of Top-heavy Plan.
(b) A Non-key Employee who is not covered under a defined contribution plan
of ours, accrues a minimum benefit on, or adjusted to, a straight life
basis equal to the lesser of (a) twenty percent of his average pay or
(b) two percent of his average pay multiplied by his
ARTICLE X -92-
<PAGE> 93
years of service, increased by one percentage point for each year (not
to exceed ten in the case of (a)) earned while the benefit limitation
is to be modified as described above.
The account of a Non-key Employee who is covered under only one or more defined
contribution plans of ours, is credited with a minimum employer contribution or
allocation under such plan(s) equal to four percent of the person's Compensation
for each year in which the plan is a Top-heavy Plan.
If a Non-key Employee is covered under both defined contribution and defined
benefit plans of ours, (i) a minimum accrued benefit for such person equal to
the amount determined above for a person who is not covered under a defined
contribution plan is accrued in the defined benefit plan(s) or (ii) a minimum
contribution or allocation equal to 7.5 percent of the person's Compensation for
a Year in which the plans are Top-heavy Plans will be credited to his account
under the defined contribution plans.
ARTICLE X -93-
<PAGE> 94
GROUP CONTRACT NO. GA 89765
Unilateral Amendment Purchase Rate Guarantees
Pursuant to our right under Article VII, Section 9, of this Contract, Principal
Mutual Life Insurance Company hereby unilaterally amends this contract as
follows:
Effective December 31, 1993,
by striking Section 16 of Article VII in its entirety and replacing it with the
following:
SECTION 16--BASIS OF ANNUITY PURCHASES. The rates shown in Table 1 have
been computed based on (i) interest at the rate of 2.5% per annum, (ii)
a load for expenses of 5%, and (iii) mortality according to the 1983
Female Table a for Individual Annuity Valuation, full generation
mortality projected by Scale G to 1999 as year of entry.
and by striking Table 1 in its entirety and replacing it with the following:
GP 37384 Table 1
The provisions and conditions set forth on any page of this amendment are a part
of this Group Contract as fully as if recited over the signatures on this page.
Signed for us on December 28, 1993, by
/s/ /s/
Vice President and President
Corporate Secretary
/s/
Registrar
[THE PRINCIPAL FINANCIAL
GROUP LOGO]
<PAGE> 95
TABLE I
An example of the minimum amount of annuity income that could be provided by
$10,000.00 of Annuity Premium for an immediate, ten years certain and life
annuity is shown in the following table:
<TABLE>
<CAPTION>
ATTAINED AGE AMOUNT OF
(YEARS AND MONTHS) MONTHLY INCOME
<S> <C>
45 $28.85
50 30.93
55 33.61
60 37.11
65 41.75
70 47.93
</TABLE>
Minimum incomes for purchases made within the five-year period beginning January
1, 2000, will be 97% of the minimum incomes purchased under the above basis.
Minimum incomes for purchases made within any subsequent five-year period will
be 97% of the minimum incomes for the preceding five-year period. The minimum
amounts of annuity available at other ages and for other forms of income will be
determined by us on the same basis as the above. We will make these available to
you on request.
The guaranteed purchase rates described in this Table 1 and their equivalents
will be available to Members with respect to their account values on the date
this Table 1 became effective and the value of any Contributions made on or
before December 31, 1998. Changes in guaranteed purchase rates offered
thereafter will not affect the minimum amounts of annuity income available for
the account values accumulated during the period ending on December 31, 1998.
<PAGE> 96
GROUP ANNUITY CONTRACT
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0001
in consideration of the application for this contract made by
TRUSTEES OF ROCKFORD CORPORATION 401K RETIREMENT SAVINGS PLAN
(the Contractholder)
and payment of all Contributions and Annuity Premiums provided for in this
contract, agrees to make payments to the person or persons entitled to them
subject to the provisions of this contract.
This contract is delivered in Arizona.
CONTRIBUTIONS DIRECTED INTO A SEPARATE ACCOUNT ARE NOT GUARANTEED AS TO FIXED
DOLLAR AMOUNT BUT WILL INCREASE OR DECREASE IN DOLLAR AMOUNT, DEPENDING ON THE
INVESTMENT PERFORMANCE OF SUCH SEPARATE ACCOUNT, AS SET OUT IN THIS CONTRACT.
This contract is issued and accepted subject to all the terms set forth in it.
This contract is executed by Principal Mutual Life Insurance Company at its Home
Office to take effect as of the 1st day of February, 1990, which is the Contract
Date.
/s/ /s/
Corporate Secretary President and
Chief Executive Officer
/s/
-------------------
Registrar
Date Mar 06 1990
-------------------------------
GROUP CONTRACT NO. GA 89765
FLEXIBLE INVESTMENT ANNUITY GROUP CONTRACT
With Full Crediting Rates
and Pooled Separate Accounts
[THE PRINCIPAL FINANCIAL GROUP LOGO]
<PAGE> 97
MODIFICATION OF BASIS FOR DETERMINING
MONTHLY ANNUITY BENEFITS RIDER
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract have the same meaning where used
in this rider.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding this rider to the contract.
This rider modifies the contract as follows:
1. If you report to us that all or a part of the monthly annuity
income to be provided to Members or Participants under this
contract should be determined without regard to the sex of the
individual or individuals for whom the income is to be
provided, then:
a) Sex will not be a factor used in the determination of
such amount of monthly annuity income, and
b) the annuity purchase rates applicable for such amount
will be the rates available under contracts of this
class for purchases on a sex neutral basis on the
date such purchase is made. Such rates will not be
less favorable to the Member or Participant than the
rates shown in Table 1 A.
2. To the extent Item 1 of this rider is applicable to a Member
or Participant under this contract, Table 1 A replaces Table 1
as to such Member or Participant.
3. The attached Table 1 A is added.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 98
SEPARATE INVESTMENT RIDER
SEPARATE ACCOUNT A
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract and any of its attached riders
have the same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our common
stock account called Separate Account A.
The effective date of this rider is the Contract Date, unless otherwise stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to this contract:
1. SEPARATE ACCOUNT A. Separate Account A is a pooled Separate
Account for use by our retirement plan customers. It is
invested by us primarily in common stocks, other equity
securities, or other convertible securities that may be
converted to common stocks. We may also, at our option,
occasionally invest in short term money market instruments,
cash or cash equivalents. We will invest and reinvest the
assets held in Separate Account A in accordance with
applicable law, without regard to any investment requirements
of our general account assets or any of our other Separate
Accounts.
The investment management charge under Separate Account A is
based on the value of its assets. The pro-rata charge for
investment management will be deducted from Separate Account A
on each Valuation Date for the number of calendar days within
the Valuation Period ending on such Valuation Date.
The annual investment management charge for Separate Account A
shall not at any time exceed 1.00% of the value of its assets.
Currently, the annual charge is 0.36%. We reserve the right to
change the amount of charge for investment management up to
the 1.00% limit at any time by giving you written notice at
least 30 days before the date the change is to take effect.
2. DETERMINING SEPARATE ACCOUNT A VALUE; UNIT VALUES. The value
of Separate Account A is its market value. If there is no
readily available market, its value is the fair value of the
assets held in such Separate Account as determined by us using
generally accepted accounting practices and applicable law. We
will determine the value of Separate Account A on each
Valuation Date.
The value of Separate Account A may be expressed in units. A
Unit Value is the dollar value of one unit held in Separate
Account A. We will determine the Unit Value of Separate
Account A on each Valuation Date. This Unit Value is equal to
<PAGE> 99
the market value of Separate Account A divided by the total
number of Separate Account A Units on such date.
The initial Unit Value of one unit of Separate Account A at
its inception was $10.00. The Unit Value for Contributions or
transfers added to Separate Account A after its date of
inception shall be the Unit Value of Separate Account A on the
Valuation Date the Contribution or transfer is received at our
home office. If a Contribution or transfer is received on any
date other than a Valuation Date, the Unit Value for such
Contribution or transfer shall be determined on the next
following Valuation Date. On any Valuation Date occurring
after its date of inception, the Unit Value of Separate
Account A shall be equal to the market value of Separate
Account A on such date divided by the number of Separate
Account A Units before any adjustments for Contributions or
transfers to and applications from Separate Account A on such
date.
3. SEPARATE INVESTMENT A ACCOUNT. A Separate Investment A Account
is established for each Member for each type of Contribution
he directs to Separate Account A. The value of a Separate
Investment A Account is its proportionate share of the value
of Separate Account A. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Separate Account A Units in the
Separate Investment A Account as of the Valuation
Date.
b) The Separate Account A Unit Value as of the Valuation
Date, as determined in Item 2 of this rider.
Contributions or transfers to a Separate Investment A Account
increase the number of Separate Account A Units credited to
it; applications from the account reduce the number of units.
This increase or decrease is determined by dividing the amount
to be credited to or applied from the account by the Separate
Account A Unit Value on the Valuation Date on which a
Contribution or transfer was credited or an application was
made.
4. TRANSFERS AND PAYMENTS FROM A SEPARATE INVESTMENT A ACCOUNT.
We will, upon receipt of written request from you and/or a
Member, as the Plan permits,
a) transfer to his General Investment Account or another
Separate Investment Account all or any portion of his
Separate Investment A Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Separate Investment A Account, or
c) pay the Member an amount equal to all or any portion
of his Separate Investment A Account.
<PAGE> 100
The amount to be paid or transfered will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the written request or (ii)
a later Valuation Date specified in the request, subject to
our right to defer a transfer or payment as described in Item
5 of this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent. The amount
transferred or paid will be deducted from a Separate
Investment A Account and will be an application from such
account as of the date transferred or paid. Each transfer to
another Separate Investment Account may occur only on a
Valuation Date of such Separate Investment Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A SEPARATE
INVESTMENT A ACCOUNT. In general, transfers and payments from
a Separate Investment A Account normally will be made within
seven business days after the Valuation Date specified in Item
4. However, we reserve the right to defer such transfers or
payments for a period not to exceed 270 days.
However, if in the 36 month period which ends on the requested
date of transfer all transfers and payments from the total of
all Separate Investment A Accounts total $20,000,000 or more,
then we reserve the right to make the portion of the requested
transfer or payment in excess of $20,000,000 in substantially
equal installments over a period not to exceed 36 months. For
purposes of this limitation, transfers and payments from any
other separate investment accounts or funds included in
Separate Account A from any other contracts or policies issued
in connection with the Plan or with any other retirement plan
of the Employer will be included as a transfer or payment from
a Separate Investment A Account. If this limitation is imposed
by us, the first installment will be made one month after the
date of request, or on such later date that you specify.
These limitations will not apply to the payments to the
beneficiary of a Member.
If we defer any transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. We will notify you in the event of
any deferment of more than 30 days under the provisions of
this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 101
SEPARATE INVESTMENT RIDER
SEPARATE ACCOUNT LI
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract and any of its attached riders
have the same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our short
term investment account called Separate Account LI.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to this contract:
1. SEPARATE ACCOUNT LI. Separate Account LI is a pooled Separate
Account for use by our retirement plan customers. It is
invested by us primarily in money market instruments such as
the obligations of the United States government and its
agencies, commercial paper, bank certificates of deposit and
similar such instruments. We will invest and reinvest the
assets held in Separate Account LI in accordance with
applicable law without regard to any investment requirements
of our general account assets or any other of our Separate
Accounts.
The investment management charge under Separate Account LI is
based on the value of its assets. The pro-rata charge for
investment management will be deducted from Separate Account
LI on each Valuation Date for the number of calendar days
within the Valuation Period ending on such Valuation Date.
The annual investment management charge for Separate Account
LI shall not at any time exceed 1.00% of the value of its
assets. Currently, this charge is 0.36%. We reserve the right
to change the amount of charge for investment management up to
the 1.00% limit at any time by giving you written notice at
least 30 days before the date the change is to take effect.
2. DETERMINING SEPARATE ACCOUNT LI VALUE; UNIT VALUES. The value
of Separate Account LI is its market value. If there is no
readily available market, its value is the fair value of the
assets held in such Separate Account as determined by us using
generally accepted accounting practices and applicable law. We
will determine the value of Separate Account LI on each
Valuation Date.
The value of Separate Account LI may be expressed in units. A
Unit Value is the dollar value of one unit held in Separate
Account LI. We will determine the Unit Value of Separate
Account LI on each Valuation Date. This Unit Value is equal
<PAGE> 102
to the market value of Separate Account LI divided by the
total number of Separate Account LI Units on such date.
The initial Unit Value of one unit of Separate Account LI at
its inception was $10.00. The Unit Value for Contributions or
transfers added to Separate Account LI after its date of
inception shall be the Unit Value of Separate Account LI on
the Valuation Date the Contribution or transfer is received at
our home office. If a Contribution or transfer is received on
any date other than a Valuation Date, the Unit Value for such
Contribution or transfer shall be determined on the next
following Valuation Date. On any Valuation Date occurring
after its date of inception, the Unit Value of Separate
Account LI shall be equal to the market value of Separate
Account LI on such date divided by the number of Separate
Account LI Units before any adjustments for Contributions or
transfers to and applications from Separate Account LI on such
date.
3. SEPARATE INVESTMENT LI ACCOUNT. A Separate Investment LI
Account is established for each Member for each type of
Contribution he directs to Separate Account LI. The value of a
Separate Investment LI Account is its proportionate share of
the value of Separate Account LI. This value will be
determined on each Valuation Date by multiplying (a) by (b):
a) The number of Separate Account LI Units in the
Separate Investment LI Account as of the Valuation
Date.
b) The Separate Account LI Unit Value as of the
Valuation Date, as determined in Item 2 of this
rider.
Contributions or transfers to the Separate Investment LI
Account increase the number of Separate Account LI Units
credited to it; applications from the account reduce the
number of Separate Account LI Units it holds. Such increase or
decrease is determined by dividing the amount to be credited
to or applied from the account by the Separate Account LI Unit
Value on the Valuation Date on which such Contribution or
transfer was credited or an application was made.
4. TRANSFERS AND PAYMENTS FROM A SEPARATE INVESTMENT LI ACCOUNT.
We will, upon receipt of written request from you and/or a
Member, as the Plan permits,
a) transfer to his General Investment Account or another
Separate Investment Account all or any portion of his
Separate Investment LI Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Separate Investment LI Account, or
c) pay to the Member an amount equal to all or any
portion of his Separate Investment LI Account.
<PAGE> 103
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive your written request or
(ii) a later Valuation Date specified in your request, subject
to our right to defer a transfer or payment as described in
Item 5 of this rider. We are not responsible for the
application of amounts transferred to an Alternate Funding
Agent.
The amount transferred or paid will be deducted from a
Separate Investment LI Account and will be an application from
that account as of the date transferred or paid. Each transfer
to another Separate Investment Account may occur only on a
Valuation Date of that Separate Investment Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A SEPARATE
INVESTMENT LI ACCOUNT. In general, transfers and payments from
a Separate Investment LI Account normally will be made within
seven business days after the Valuation Date specified in Item
4. However, we reserve the right to delay transfer or payment
for a period not to exceed 90 days.
This limitation will not apply to payments to the beneficiary
of a Member.
If we defer any transfer or payment under this Item 5, we will
determine the amount to be transferred or paid as of the date
transfer or payment occurs. We will notify you in the event of
any deferment of more than 30 days under the provisions of
this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 104
SEPARATE INVESTMENT RIDER
REAL ESTATE SEPARATE ACCOUNT
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract and any of its attached riders
have the same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our Real
Estate Separate Account.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding it to the contract.
Pursuant to Article II. Section 6, the following is added to this contract:
1. REAL ESTATE SEPARATE ACCOUNT. The Real Estate Separate Account
is a pooled Separate Account for use by our retirement plan
customers. It is invested by us primarily in real estate such
as office buildings, industrial buildings, shopping centers,
retail stores, and similar property which meets the investment
objectives of this Account. Funds not currently committed to
acquire new property or needed to maintain existing property
will be invested in short term money market instruments, cash
or cash equivalents. We will invest or reinvest the assets
held in Real Estate Separate Account in accordance with
applicable law without regard to any investment requirements
of our general account assets or any of our other Separate
Accounts.
2. DETERMINING REAL ESTATE SEPARATE ACCOUNT VALUE; UNIT VALUES.
We will determine the value of Real Estate Separate Account on
each Valuation Date. The value of the properties held in the
Account is their appraised market value. Its value takes into
account the market value of any other assets held in the
Account and is reduced by any liabilities of the Account,
including operating expenses of the Account and a pro-rata
portion of our Investment Management Charge. If there is no
readily available market, the value of the Account is the fair
value of its assets, as determined by us using generally
accepted accounting practices and applicable law.
The value of Real Estate Separate Account shall be expressed
in units. The Unit Value for Real Estate Separate Account at
its inception was $100.00. Contributions or transfers
deposited in Real Estate Separate Account shall be converted
to units using the Unit Value on the Valuation Date the
Contribution or transfer is deposited in the Account. On any
Valuation Date occurring after its date of inception, the Unit
Value of Real Estate Separate Account shall be equal to its
then-current dollar value of the Account on such date divided
by the number of units in Real Estate Separate Account, before
any adjustments for Contributions or transfers to and
applications from the Account on such date.
<PAGE> 105
Operating expenses are the external expenses we incur in the
operation of Real Estate Separate Account and include any
local property management fees.
Investment Management Charge is an annual charge to cover
internal investment management expenses based on the value of
the assets of Real Estate Separate Account. This annual charge
is currently 0.96%. We reserve the right to change the amount
of charge by giving you written notice at least 30 days before
the change is to take effect.
3. SEPARATE INVESTMENT REAL ESTATE ACCOUNT. A Separate Investment
Real Estate Account is established for each Member for each
type of contribution he directs to Real Estate Separate
Account. The value of a Separate Investment Real Estate
Account is its proportionate share of the value of Real Estate
Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Real Estate Separate Account Units in
the Separate Investment Real Estate Account as of the
Valuation Date.
b) The Real Estate Separate Account Unit Value as of the
Valuation Date, determined as described in Item 2 of
this rider.
Contributions or transfers to a Separate Investment Real
Estate Account increase the number of Real Estate Separate
Account Units credited to it; applications from the account
reduce the number of units. This increase or decrease is
determined by dividing the amount to be credited to or applied
from the Separate Investment Real Estate Account by the Real
Estate Separate Account Unit Value on the Valuation Date on
which a Contribution or transfer is deposited or an
application is made.
4. DEPOSITS. We reserve the right to defer placing Contributions
and transfers in Real Estate Separate Account. Placement in
the Account will be based on the current real estate
investment opportunities available to it and the amount of
funds needed to acquire additional property or to maintain
existing property.
Any Contributions or transfers directed to Real Estate
Separate Account which are deferred will instead be held in
our short term account, Separate Account LI, until a Valuation
Date when transfer to Real Estate Separate Account may be
made.
5. ORDER OF ENTRY. Since Real Estate Separate Account may not be
open on any given Valuation Date to accept all funds directed
by our customers to it, we have established the following
order of entry:
<PAGE> 106
a) All amounts held in Separate Account LI waiting for
transfer to Real Estate Separate Account.
b) Any amounts held in any other Separate Account or in
our general account which are to be transferred to
Real Estate Separate Account,
Within each of the above two categories, funds will be
transferred one customer at a time, in order from the oldest
waiting request to the newest request. All amounts held in
Separate Account LI which are directed to Real Estate Separate
Account will be transferred before any funds are transferred
under Item (b).
Normally, either all or no part of an intended transfer under
this rider to Real Estate Separate Account will be made. If
the amount of the intended transfer is greater than the amount
open for acceptance by Real Estate Separate Account, the
entire amount of the transfer will continue to be held in
Separate Account LI until the Valuation Date complete transfer
may be made. However, we and the Member may mutually agree to
transfer only a portion of the intended amount to Real Estate
Separate Account.
We will notify you in writing when amounts have been
transferred to Real Estate Separate Account.
A Member may revoke his request for transfer of funds to Real
Estate Separate Account by giving us written notice prior to
the date transfer is made. The notice must also include new
investment directions for the intended transfer.
6. TRANSFERS AND PAYMENTS FROM THE SEPARATE INVESTMENT REAL
ESTATE FUND. We will, upon receipt of written request from you
and/or the Member, as permitted by the Plan,
a) transfer to his General Investment Account or another
Separate Investment Account all or any portion of his
Separate Investment Real Estate Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Separate Investment Real Estate
Account, or
c) pay to the Member an amount equal to all or any
portion of his Separate Investment Real Estate
Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive your written request or
(ii) a later Valuation Date specified in your request, subject
to our right to defer a transfer or payment as described in
Item 7 of this rider. We are not responsible for the
application of amounts transferred to an Alternate Funding
Agent.
<PAGE> 107
The amount transferred or paid will be deducted from the
Separate Investment Real Estate Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
7. LIMITATIONS ON TRANSFERS FROM A SEPARATE INVESTMENT REAL
ESTATE ACCOUNT. In general, transfers and payments from a
Separate Investment Real Estate Account normally will be made
within seven business days after the Valuation Date specified
in Item 6. However, because of the illiquid nature of the
assets in which Real Estate Separate Account is invested, we
reserve the right to defer transfers or payments from a
Separate Investment Real Estate Account if a transfer or
payment would exceed the amount of cash and other liquid
assets held in Real Estate Separate Account, reduced by
amounts committed to purchase properties or needed for
operating expenses. Real Estate Separate Account may be
illiquid for indefinite periods of time because we do not
intend to sell properties to meet requests for transfer or
payment. Real Estate Separate Account will not be managed to
provide a liquidity pool for expected, but not yet received,
requests for transfer or payment.
If requests for transfer or payment from Real Estate Separate
Account are deferred, then the deferred transfers or payments,
when made, will be made in the following order:
a) Any death benefits payable under a defined
contribution plan.
b) All other requests for transfer or payment.
All death benefit payments from defined contribution plans
will be made before any other requests for transfer or
payment. Once these death benefits have been paid, other
requests will be paid in order of the dates we received the
requests.
Deferred transfers or payments, when paid, will be made as of
a Valuation Date and will be based on the Real Estate Separate
Account Unit Value as of the date paid.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 108
SEPARATE INVESTMENT RIDER
PRIMART SEPARATE ACCOUNT
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract and any of its attached riders
have the same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our
primary bond and mortgage investment account called Primart Separate Account.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to this contract:
1. PRIMART SEPARATE ACCOUNT. Primart Separate Account is a pooled
Separate Account for use by our retirement plan customers. It
is invested by us primarily in bond and mortgage type
investments similar to our general account. We will invest or
reinvest Primart Separate Account in accordance with
applicable law without regard to any investment requirements
of our general account assets or any of our other Separate
Accounts.
The investment management charge under Primart Separate
Account is based on the value of its assets. The pro-rata
charge for investment management will be deducted from Primart
Separate Account on each Valuation Date for the number of
calendar days within the Valuation Period ending on such
Valuation Date.
The annual investment management charge under Primart Separate
Account shall not at any time exceed 1.00% of the value of its
assets. Currently, the annual charge is 0.36%. We reserve the
right to change the amount of the current charge for
investment management up to the 1.00% limit at any time by
giving you written notice at least 30 days before the date the
change is to take effect.
2. DETERMINING PRIMART SEPARATE ACCOUNT VALUE; UNIT VALUES. The
value of Primart Separate Account is its market value, or
where there is no readily available market, the fair value of
the assets included in it, determined by our rules and in
accordance with generally accepted accounting practices and
applicable law and regulations. We will furnish you with a
copy of our rules upon request. The value of Primart Separate
Account shall be expressed in units. The Unit Value for
Primart Separate Account is the dollar value of one unit of
that Separate Account and is determined on each Valuation
Date.
The initial Unit Value of one unit of Primart Separate Account
at its inception was $100.00. The Unit Value for Contributions
or transfers added to the Primart Separate Account after its
date of inception shall be the Unit Value of Primart
<PAGE> 109
Separate Account on the Valuation Date the Contribution or
transfer is received at our home office. If a Contribution or
transfer is received on any date other than a Valuation Date,
the Unit Value for such Contribution or transfer shall be
determined on the next following Valuation Date. On any
Valuation Date occurring after its date of inception, the Unit
Value of Primart Separate Account shall be equal to the market
value of Primart Separate Account on such date divided by the
number of units in Primart Separate Account before any
adjustments for Contributions or transfers to and applications
from Primart Separate Account on such date.
3. SEPARATE INVESTMENT PRIMART ACCOUNT. A Separate Investment
Primart Account is established for each Member for each type
of Contribution he directs to Primart Separate Account.
The value of a Separate Investment Primart Account is its
proportionate share of the value of Primart Separate Account.
This value will be determined by multiplying (a) by (b):
a) The number of Primart Separate Account Units in the
Separate Investment Primart Account as of the
Valuation Date.
b) The Primart Separate Account Unit Value as of the
Valuation Date, determined in Item 2 of this rider.
Contributions or transfers to a Separate Investment Primart
Account increase the number of Primart Separate Account Units
credited to it; applications from the account reduce the
number of units. The increase or decrease is determined by
dividing the amount to be credited to or applied from the
account by the Primart Separate Account Unit Value on the
Valuation Date on which a Contribution or transfer is credited
or an application is made.
4. TRANSFERS AND PAYMENTS FROM A SEPARATE INVESTMENT PRIMART
ACCOUNT. We will, upon receipt of written request from you
and/or a Member, as the plan permits,
a) transfer to his General Investment Account or another
Separate Investment Account all or any portion of the
Member's Separate Investment Primart Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Separate investment Primart Account,
or
c) pay to the Member an amount equal to all or any
portion of his Separate investment Primart Account.
<PAGE> 110
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the written request or (ii)
a later Valuation Date specified in the request, subject to
our right to defer a transfer or payment as described in Item
5 of this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent.
The amount transferred or paid will be deducted from a
Separate Investment Primart Account and will be an application
from such account as of the date transferred or paid. Each
transfer to another Separate Investment Account may occur only
on a Valuation Date of such Separate Investment Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A SEPARATE
INVESTMENT PRIMART ACCOUNT. In general, transfers and payments
from a Separate Investment Primart Account normally will be
made within seven business days after the Valuation Date
specified in Item 4. However, we reserve the right to defer
such transfers or payments for a period not to exceed 270
days.
This limitation will not apply to payments to the beneficiary
of a Member.
If we defer any transfer or payment under this Item 5, we will
determine the amount to be transferred or paid as of the date
transfer or payment occurs. We will notify you in the event of
any deferment of more than 30 days under the provisions of
this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 111
SEPARATE INVESTMENT RIDER
INTERNATIONAL STOCK SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our
international stock investment account called International Stock Separate
Account.
The effective date of this rider is the Contract Date, unless otherwise stated
in the amendment adding it to the contract.
This rider modifies Article l, Section 2, by adding the following paragraph to
the definition of Valuation Date:
For purposes of the International Stock Separate Account, only those
days on which both the net asset value of the investments is determined
and we are open for business will be Valuation Dates. The valuation
will occur as of 3:00 p.m. Central Standard (or Daylight Savings, if
applicable) Time for that calendar day.
Pursuant to Article 1, Section 6, the following is added to the contract:
1. INTERNATIONAL STOCK SEPARATE ACCOUNT. International Stock
Separate Account is a pooled Separate Account for use by our
retirement plan customers. It is invested by us primarily in
stocks or other securities of corporations located outside the
United States. We may also, at our option, occasionally invest
in short term money market instruments, cash or cash
equivalents. Such investments may be in either United States
or foreign currency or equivalencies. We will invest or
reinvest the assets held in International Stock Separate
Account in accordance with applicable law, without regard to
any investment requirements of our general account assets or
any other of our Separate Accounts.
2. DETERMINING INTERNATIONAL STOCK SEPARATE ACCOUNT VALUE; UNIT
VALUES. We will determine the value of International Stock
Separate Account on each Valuation Date. The value of
International Stock Separate Account is its market value,
reduced by any liabilities of the account. The value of the
account will always be expressed in United States dollars. If
there is no readily ascertainable market value for some or all
of the account's assets, the value of such assets will be the
fair value of any such assets held in the Separate Account, as
determined by us using generally accepted accounting practices
and applicable law. A description of our method of
ascertaining fair value is available upon request.
<PAGE> 112
Liabilities of the account are its operating expenses and our
Investment Management Charge. Operating expenses are those
charges we must pay to operate the account, including, but not
limited to, custodial fees, transfer taxes, other fees or
taxes imposed by the country of origin, and other such
charges.
Investment Management Charge is an annual charge to pay us to
manage the account and is based on the value of the assets of
International Stock Separate Account. The pro rata charge for
investment management will be deducted from International
Stock Separate Account on each Valuation Date for the number
of calendar days within the Valuation Period ending on such
Valuation Date.
The annual investment management charge for International
Stock Separate Account shall not at any time exceed 2.00% of
the value of its assets. Currently, the annual charge is
0.60%. We reserve the right to change the amount of charge for
investment management up to the 2.00% limit at any time by
giving you written notice at least 30 days before the date the
change is to take effect.
The value of International Stock Separate Account shall be
expressed in units. The Unit Value is equal to the market
value of International Stock Separate Account divided by the
total number of International Stock Separate Account Units on
the date of determination.
The initial Unit Value of one unit of International Stock
Separate Account was $10.00. The Unit Value for Contributions
or transfers added to International Stock Separate Account
after its date of inception shall be the Unit Value of
International Stock Separate Account on the Valuation Date the
Contribution or transfer is accepted at our home office. If a
Contribution or transfer is received on any date other than a
Valuation Date, the Unit Value for such Contribution or
transfer shall be determined on the next following Valuation
Date. On any Valuation Date occurring after its date of
inception, the Unit Value of International Stock Separate
Account shall be equal to the market value of International
Stock Separate Account on such date divided by the number of
International Stock Separate Account Units before any
adjustments for Contributions or transfers to and applications
from International Stock Separate Account on such date.
3. SEPARATE INVESTMENT INTERNATIONAL STOCK ACCOUNT. The Separate
Investment International Stock Account is established for each
Member for each type of Contribution such Member directs to
International Stock Separate Account. The value of a Separate
Investment International Stock Account is its proportionate
share of the value of International Stock Separate Account.
This value will be determined on each Valuation Date by
multiplying (a) by (b):
a) The number of International Stock Separate Account
Units in the Separate Investment International Stock
Account as of the Valuation Date.
<PAGE> 113
b) The Unit Value of International Stock Separate
Account as of the Valuation Date, as determined in
Item 2 of this rider.
Contributions or transfers to a Separate Investment
International Stock Account increase the number of
International Stock Separate Account Units credited to it;
applications from the account reduce the number of units. This
increase or decrease is determined by dividing the amount to
be credited to or applied from the account by the Unit Value
of International Stock Separate Account on the Valuation Date
on which a Contribution or transfer was credited or an
application was made.
4. TRANSFERS AND PAYMENTS FROM A MEMBER'S SEPARATE INVESTMENT
INTERNATIONAL STOCK ACCOUNT. We will, upon receipt of written
request from you and/or a Member, as the Plan permits,
a) transfer to the Member's General Investment Account
or another Separate Investment Account all or any
portion of such Separate Investment International
Stock Account, or
b) transfer to an Alternate Funding Agent all or any
portion of the Member's Separate Investment
International Stock Account, or
c) pay to the Member an amount equal to all or any
portion of the Member's Separate Investment
International Stock Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the written request or (ii)
a later Valuation Date specified in the request, subject to
our right to defer a transfer or payment as described in Item
5 of this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent. The amount
transferred or paid will be deducted from the Member's
Separate Investment International Stock Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A MEMBER'S SEPARATE
INVESTMENT INTERNATIONAL STOCK ACCOUNT. In general, transfers
and payments from a Member's Separate Investment International
Stock Account will be made within seven business days after
the Valuation Date specified in Item 4. We reserve the right,
however, to defer such payments or transfers for a period not
to exceed 270 days.
We may defer a transfer or payment under this Item 5 because
of delays generated by the sale of stock in a foreign market.
We will notify you if we defer a transfer or payment due to
such a delay. The value determined at the time we invoke the
<PAGE> 114
delay will be paid out when payment becomes possible; but in
no event will we defer payment more than 270 days.
If we defer transfer or payment under this Item 5 for other
than the sale of stock in a foreign market, we will determine
the amount to be transferred or paid on the actual date of
transfer or payment. In such a case, the Member's Separate
Investment International Stock Account of this contract will
continue to participate in the International Stock Separate
Account until the date transfer or payment occurs. We will
notify you in the event of any deferment of more than 30 days.
In addition, if in the 12-month period which ends on the
requested date of transfer all transfers and payments from the
total of all Separate Investment International Stock Accounts
total $1,000,000 or more, then we reserve the right to make
the portion of the requested transfer in excess of $1,000,000
in substantially equal monthly installments over a period not
to exceed 12 months. For purposes of this limitation,
transfers and payments from any other separate investment
accounts or funds included in International Stock Separate
Account from any other contracts or policies issued in
connection with the Plan or with any other retirement plan of
the Employer will be included as a transfer or payment from a
Separate Investment International Stock Account. If this
limitation is imposed by us, the first installment will be
made one month after the date of request, or on such later
date that you specify.
These limitations will not apply to the payments to the
beneficiary of a Member.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 115
MULTIPLE GUARANTEE PERIODS
RIDER
This rider is made a part of the Group Annuity Contract issued by Principal
Mutual Life Insurance Company to which it is attached. All terms defined in the
contract and any of its attached riders have the same meaning where used in this
rider.
The purpose of this rider is to expand the number of Guarantee Periods available
under the contract and to permit Guarantee Periods of other than five year
durations to be established.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding it to the contract. However, this rider will have no effect
for any Deposit Years (as to Contributions received during such Deposit Years)
for which we do not have valid written directions selecting Guarantee Period(s).
In such Deposit Year(s), the provisions of the contract with regard to Guarantee
Period and Investment Direction will be the provisions stated in the contract as
if this rider were not in effect. In any event, directions received for a
Deposit Year after its start will not become effective until the next Deposit
Year.
This rider modifies the contract as follows:
1. By striking the definitions of GUARANTEE PERIOD, GUARANTEED
INTEREST RATE and ORDER OF APPLICATION in Article I, Section
2, and substituting the following definitions in lieu thereof:
"GUARANTEE PERIOD means the period for which a Guaranteed
Interest Account exists. The period or periods available may
be any we make available to contracts of this class under the
same or similar circumstances. We reserve the right, in our
sole discretion, to change at any time the Guarantee Periods
available for new Contributions and transfers, including
transfers from existing Guaranteed Interest Accounts. We
reserve the right to limit both the number of Guarantee
Periods available under this contract and the number available
to each Member.
You must give us written directions selecting the Guarantee
Periods available under the contract. Your selection will
remain in effect until modified by (b) or (c) below.
Our rights to change and to limit the Guarantee Periods
available are subject to the following:
a) Once established by us, the Guarantee Period for a
particular Guaranteed Interest Account may not be
changed by us. A different Guarantee Period may apply
to amounts maturing from that Guaranteed Interest
Account, however.
<PAGE> 116
b) If a particular Guarantee Period is no longer
offered, we will notify you at least sixty days
before the date the use of such Guarantee Period will
no longer be permitted.
c) For each Deposit Year, you have the right to select
Guarantee Periods or to change the selection of
Guarantee Periods available to Members by filing
written directions with us before the beginning of
the Deposit Year for which the selection applies. The
selections for a Deposit Year cannot be changed after
its start.
GUARANTEED INTEREST RATE means the annual rates of interest we
declare from time to time for contracts of this class for
Guaranteed Interest Accounts. Each Contribution or transfer to
a Guaranteed Interest Account will be credited with the
Guaranteed Interest Rate in effect for the Guarantee Period
chosen on the date the Contribution was received or the
transfer was made.
ORDER OF APPLICATION means the order in which we will apply
the Guaranteed Interest Accounts of a Member when transfer or
withdrawal or a portion of his General Investment Accounts has
been requested and no other order of application has been
reported to us. Such Order of Application shall be from the
current Guaranteed Interest Account first and then from each
preceding Guaranteed Interest Account with the oldest
Guaranteed Interest Account being last applied. However, if
two or more Guaranteed Interest Accounts are established at
the same time, the account nearest the end of its Guarantee
Period shall be applied first, with the account furthest from
the end of its Guarantee Period being last applied."
2. By adding the following sentence to Article II, Section 3:
"If more than one Guarantee Period is available, however,
Contributions for a Member for whom no investment direction is
on file will be directed to the General Investment Account
with the shortest Guarantee Period then available under the
contract."
3. By adding the following sentence to Article II, Section 4:
"A separate General Investment Account will be established for
each Guarantee Period selected for each type of Contribution."
4. By adding the following sentence to Article II, Section 5:
"A separate Guaranteed Interest Account will be established
for each Deposit Year for each Guarantee Period used to hold
each type of Contribution directed to such accounts."
<PAGE> 117
5. By adding the following sentences to the last paragraph of
Article II, Section 9:
"Unless you or the Member (as permitted by the Plan) tell us
otherwise, each matured Guaranteed Interest Account will be
transferred to the current Guaranteed Interest Account of the
Member with the same Guarantee Period, if available. If the
same Guarantee Period is no longer available, the account will
be transferred to the Guaranteed Interest Account with the
shortest Guarantee Period available under the contract."
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
Section 1 ----- Parties to This Contract
Section 2 ----- Other Defined Terms
ARTICLE II CONTRIBUTIONS AND ACCOUNTS
Section 1 ----- Contributions
Section 2 ----- Types of Contributions
Section 3 ----- Investment Direction
Section 4 ----- General Investment Account
Section 5 ----- Guaranteed Interest Accounts
Section 6 ----- Separate Investment Account
Section 7 ----- Holding Accounts
Section 8 ----- Transfer Between Accounts
Section 9 ----- Disposition of a Guaranteed Interest Account at the End of its Guarantee Period
Section 10 ----- Funds
ARTICLE III EXPENSES
Section 1 ----- Expenses
Section 2 ----- Deduction of Expenses
ARTICLE IV BENEFITS
Section 1 ----- Distribution of Benefits
ARTICLE IVA ANNUITY BENEFITS
Section 1 ----- Purchase of Annuity
Section 2 ----- Options
Section 3 ----- Amount of Monthly Annuity
Section 4 ----- Cancellation of Annuity
ARTICLE IVB SINGLE SUM PAYMENTS
Section 1 ----- Cash Termination, Retirement, or Disability Benefits
Section 2 ----- Benefits Payable at Death
Section 3 ----- Options for Benefits Payable at Death
Section 4 ----- Withdrawal Benefit
</TABLE>
<PAGE> 119
<TABLE>
<S> <C>
ARTICLE V TRANSFER TO ALTERNATE FUNDING AGENT; CESSATION
Section 1 ----- Transfer to Alternate Funding Agent
Section 2 ----- Cessation of Contributions
ARTICLE VI CHARGES AND LIMITATIONS
Section 1 ----- Charges for Surrender of a Guaranteed Interest Account
Section 2 ----- Limitations on Transfers and Payments from General Investment Accounts
Section 3 ----- Limitations on Transfers and Payments from Separate Investment Accounts
ARTICLE VII GENERAL PROVISIONS
Section 1 ----- Certificates
Section 2 ----- Beneficiary
Section 3 ----- Dividends
Section 4 ----- Contract
Section 5 ----- Plan and Plan Amendments
Section 6 ----- Waiver and Modification
Section 7 ----- Misstatements
Section 8 ----- Information, Proofs and Determination of Facts
Section 9 ----- Amendment
Section 10 ----- Contributions
Section 11 ----- Modification in Mode of Payment of Annuity
Section 12 ----- Commutation of Payments
Section 13 ----- Facility of Payment
Section 14 ----- Pronouns
Section 15 ----- Assignment
Section 16 ----- Basis of Annuity Purchases
Section 17 ----- Investment Manager
Section 18 ----- Ownership
</TABLE>
<PAGE> 120
ARTICLE I
DEFINITIONS
SECTION 1--PARTIES TO THIS CONTRACT. This contract is between the
Contractholder and Principal Mutual Life Insurance Company.
Contractholder means the holder of this contract named on the face page
and will be referred to in this contract as you or your.
Principal Mutual Life Insurance Company will be referred to in this
contract as we, us, or our.
SECTION 2--OTHER DEFINED TERMS.
Annuity Commencement Date means the beginning date for annuity payments
to a Member.
Annuity Premium means the amount applied under this contract to
purchase an annuity for a Member.
Annuity Purchase Date means the date an Annuity Premium is applied to
purchase an annuity for a Member.
Contract Date means the date this contract is effective, as shown on
the face page.
Contract Year means a period beginning on a Yearly Date and ending on
the day before the next Yearly Date.
Contributions means amounts you pay to us which we have accepted under
Article II, Section 1.
Deposit Year means the twelve-month period beginning on each January 1
and ending on each December 31.
Employer means the corporation or firm named as employer in the Plan
and any successor by change of name, merger, purchase of stock, or purchase of
assets.
Fixed Dollar Annuity means an annuity payable in guaranteed amounts.
General Investment Account means the account established for a Member
as described in Article II, Section 4.
Guarantee Period means, for each Guaranteed Interest Account, the
five-year period beginning on the first day of its initial Deposit Year and
ending on the last day of the 4th Deposit Year thereafter. Once established for
a Guaranteed Interest Account, a Guarantee Period will not be changed.
<PAGE> 121
Guaranteed Interest Account means the account established for a Member
for each Deposit Year as described in Article II, Section 5.
Guaranteed Interest Rate means the annual rate of interest we declare
from time to time for contracts of this class for Guaranteed Interest Accounts.
Each Contribution to a Guaranteed Interest Account will be credited with the
Guaranteed Interest Rate in effect for the date the Contribution was received.
Member means a person who is a participant under the Plan.
Normal Income Form means the form of benefit to be provided under the
Plan if the Member does not elect some other form.
Normal Retirement Date means the Member's normal retirement date under
the Plan. If the Plan does not specify, it will be the first day of the month on
or after his 65th birthday.
Order of Application means the order in which we will apply the
Guaranteed Interest Accounts of a Member when transfer or withdrawal of a
portion of his General Investment Account has been requested and no other order
of application has been reported to us. Such Order of Application shall be from
the current Guaranteed Interest Account first and then from each preceding
Guaranteed Interest Account with the oldest Guaranteed Interest Account being
last applied.
Plan means the Employer's retirement plan in effect on the date this
contract is executed and as amended from time to time. The name of the Plan is
ROCKFORD CORPORATION 401 (K) RETIREMENT SAVINGS PLAN.
Separate Account means a Separate Account established and maintained by
us in accordance with the laws of IOWA. Each Separate Account in which this
contract may participate is described in the Separate Investment Rider or Riders
added to this contract.
A Separate Account consists of amounts we receive under group contracts
or policies which permit deposit in such Separate Account and which amounts are
directed to a Separate Account or Separate Accounts. All income gains and losses
(whether or not realized), and expenses from the assets allocated to a Separate
Account will be credited to or charged against that Separate Account without
regard to any other income, gains or losses, or expenses we might have for our
general account or any other Separate Account. The assets of a Separate Account
will not be charged with any liabilities arising out of the investment
experience of our general account or any other Separate Accounts outside that
Separate Account.
Separate Investment Account means the account or accounts established
for a Member as described in Article II, Section 6.
Termination of Employment means a Member's termination of employment
with the Employer.
<PAGE> 122
Valuation Date means the date as of which we determine the value of a
Separate Account. Valuation Dates will occur at intervals we determine, but not
less frequently than the last day of a calendar month. A Valuation Date will
occur on those days when the net asset value of the investments of the Separate
Account is determined. The valuation will occur as of the end of each such day.
Valuation Period means the period from the end of one Valuation Date to
the end of the next following Valuation Date.
Yearly Date means the Contract Date, January 1, 1991 and January 1 of
each year thereafter.
<PAGE> 123
ARTICLE II
CONTRIBUTIONS AND ACCOUNTS
SECTION 1--CONTRIBUTIONS. Contributions may be accepted by us under
this contract on any date on or after the Contract Date, subject to the
limitations of Article VII, Section 10. A Contribution on behalf of a Member is
any amount determined or allowed by the Plan to be paid to us for that Member.
Such Contributions may be paid to us at any time on or after the Contract Date
and before the Member's Annuity Commencement Date. Contributions in excess of
those determined or allowed by the Plan for the current Plan year may be paid to
us only with our consent.
All Contributions are payable directly to us at our home office in Des
Moines, Iowa. Contributions will be received by us during our normal business
hours Monday through Friday. If received during other hours, Saturdays, and
legal holidays, they will be deemed to have been received the next following
business day.
SECTION 2--TYPES OF CONTRIBUTIONS. A Contribution on behalf of a Member
may be any of the following types, if permitted by the Plan:
a) Required employee contributions. This includes all
contributions from the Member which the Plan requires in order
for the Member to participate or which are matched by employer
contributions.
b) Voluntary deductible employee contributions. This includes all
contributions from the Member which are deductible for federal
income tax purposes under Internal Revenue Code Section
219(a).
c) Other voluntary employee contributions. This includes all
contributions from the Member which are allowed by the Plan
but not included in (a) or (b) above.
d) Employer contributions. This includes all Employer
contributions permitted or required by the Plan.
e) Transfer, rollover, or other contributions. This includes
those Contributions not included in (a), (b), (c), or (d)
above which are permitted by the Plan and which are permitted
or required to be held separately for a Member.
SECTION 3--INVESTMENT DIRECTION. Each type of Contribution on behalf of
a Member may be directed to the General Investment Account for the Member (see
Section 4 below) or to any number of the Separate Investment Accounts (see
Section 6 below) or to any combination of such accounts. We must have written
direction from you or, if the Plan permits, from the Member, for the portion of
each type of Contribution to be held in each account. Contributions will be
added to each account in the amount or percentage specified in the written
directions on file with us. Future Contributions may be directed to different
accounts or the amount directed to an account may be changed by filing a new
direction with us. If a Contribution is received for
<PAGE> 124
a Member for whom no written direction is on file with us, we will direct that
Contribution to his General Investment Account.
SECTION 4--GENERAL INVESTMENT ACCOUNT. The General Investment Account
of a Member for a type of Contribution is the aggregate of all of his Guaranteed
Interest Accounts which have not been paid or applied in full.
The value of a General Investment Account of a Member on any date will
be the sum of the values of the Guaranteed Interest Accounts held under it on
such date.
SECTION 5--GUARANTEED INTEREST ACCOUNTS. A Guaranteed Interest Account
will be established for a Member for each type of Contribution directed to his
General Investment Account for each Deposit Year. All such General Investment
Account Contributions and transfers to General Investment Account for a Member
will be credited to his Guaranteed Interest Account established for the Deposit
Year in which such Contributions or transfers occur. No further Contributions or
transfers will be credited to a Guaranteed Interest Account after the close of
the Deposit Year in which it was established.
The value of each Guaranteed Interest Account of a Member at any time
during its Guarantee Period will be determined as follows:
a) Initial Deposit Year.
1) On any date, the value of such account will be equal
to the sum of all Contributions and transfers to it
plus interest on such Contributions and transfers
less any payments or applications from such account
on or before such date.
2) Interest will be credited to such account daily and
compounded annually on the last day of the Deposit
Year.
3) Interest will be credited on the Contributions and
transfers to such account from the date received or
transferred to the last day of such Deposit Year, or
to date of payment or transfer, if earlier.
4) The rate of interest credited will be the Composite
Guaranteed Rate determined for such account.
Composite Guaranteed Rate means, as of any date, the
rate we determine for the Member's account which is
based on the Guaranteed Interest Rate in effect for
each Contribution or transfer to the account, the
amount and timing of each such Contribution or
transfer, and the amount of any payment or
application on or before such date. For second and
subsequent Deposit Years, the Composite Guaranteed
Rate will be the rate in effect on the last day of
the initial Deposit Year.
<PAGE> 125
b) Second and subsequent Deposit Years.
1) On any date of determination, the value of such
account will be equal to the value of the last day of
its preceding Deposit Year, plus interest for the
number of days since such last day, less any payments
or transfers from such account since such last day.
2) Interest will be credited daily and compounded
annually on the last day of the Deposit Year.
3) Interest will be credited at the Composite Guaranteed
Rate from the first day of the Deposit Year to the
last day of the Deposit Year, or to the date of
payment or transfers if earlier.
A Guaranteed Interest Account will be paid or applied in full at the
end of its Guarantee Period as described in Section 9 of this Article.
SECTION 6--SEPARATE INVESTMENT ACCOUNT. A Separate Investment Account
is established for a Member for each type of Contribution directed to each
Separate Account in which this contract participates. The applicable Separate
Investment Rider attached to this contract describes each such Separate
Investment Account and its investment, accounting, valuation, and transfer
provisions.
SECTION 7--HOLDING ACCOUNTS. When we are notified that an event has
occurred which requires a Member's Separate Investment Account (or Accounts) and
his General Investment Account be reduced by the provisions of the Plan, we will
reduce the account or accounts affected to the amounts specified. The amounts
deducted from the Member's accounts will be held in Holding Accounts which
correspond to the Member accounts from which they were deducted until they
become forfeitures under the Plan or again become part of Member Accounts for
such Member.
If the Member's Holding Accounts become forfeitures, the following will
occur:
a) Each Holding Account for the Member for a Separate Investment
Account will be added to the Holding Account for forfeitures
for such Separate Investment Account.
b) Each Holding Account for the Member for a Guaranteed Interest
Account will be added to the Holding Account for forfeitures
for all Guaranteed Interest Accounts whose Guarantee Periods
end on the same date as such account.
c) Holding Accounts for forfeitures will operate in the same
manner as Member Holding Accounts except as follows. If the
Guarantee Period for a Guaranteed Interest Account ends while
such account is held as a forfeiture, the value of such
account shall be transferred to the Holding Account
forfeitures for the Separate Investment Account invested in
Separate Account LI.
<PAGE> 126
If such Separate Investment Account is not available under
this contract, the rate of interest credited to forfeitures
consisting of Guaranteed Interest Account values after the end
of the Guarantee Period for them will be the rate determined
by us for amounts so held under contracts of this class.
d) As forfeitures, Holding Account values will be allocated to
those Members entitled to them under the Plan and will be
applied on the earliest date which is consistent with Plan
provisions. Any amounts allocated to a Member because of this
Section will be considered a Contribution for him under
Section 1 of this Article, and the provisions of Sections 1
and 3 will apply.
SECTION 8--TRANSFERS BETWEEN ACCOUNTS. In general, all or a portion of
a Member's accounts can be transferred to another account or accounts as of any
date requested subject to the following:
a) We must receive written direction to transfer from you or the
Member, as permitted by the Plan. The written direction will
specify, in addition to the amount to be transferred and the
accounts involved, the type of Contribution (see Article II,
Section 2) being transferred. If a requested transfer from a
Member's General Investment Account does not specify the
Guaranteed Interest Account or Accounts to be transferred, the
Order of Application (as defined in Article I, Section 2) will
determine the accounts to be transferred.
b) No transfer will be effective if it is within one month before
the Member's Annuity Commencement Date.
c) A transfer from a Member's General Investment Account to a
Separate Investment Account can occur only on a Valuation Date
of such Separate Investment Account.
d) Except as provided in Section 9 of this Article, all transfers
from a General Investment Account are subject to charges
contained in Article VI, Section 1. All transfers are subject
to the limitations contained in Article VI, Sections 2 and 3.
e) All Separate Investment Account transfers will be made subject
to the provisions of the Separate Investment Rider describing
such Separate Account.
Any transfer under this Section will be an application from the account
from which the funds are transferred as of the date of transfer.
SECTION 9--DISPOSITION OF A GUARANTEED INTEREST ACCOUNT AT THE END OF
ITS GUARANTEE PERIOD. Each Guaranteed Interest Account which has not been paid
or applied in full before the end of its Guarantee Period will be applied in
full on the date after its Guarantee Period ends by one or more of the following
methods:
<PAGE> 127
a) Transfer to Current Guaranteed Interest Account. On or before
the end of its Guarantee Period, you or the Member (as
permitted by the Plan) may make written request to us to
transfer all or a part of such account to the current
Guaranteed Interest Account of the Member for that type of
contribution.
b) Transfer to a Separate Investment Account. On or before the
end of its Guarantee Period, you or the Member (as permitted
by the Plan) may make written request to us to transfer all or
a part of such account to one or more of the Separate
Investment Accounts of the Member for that type of
contribution.
c) Purchase of Annuity. On or before the end of its Guarantee
Period, you or the Member (as permitted by the Plan) may make
written request to apply all or a portion of each account as
an Annuity Premium for the Member under Article IVA.
d) Transfer to an Alternate Funding Agent. On or before the end
of its Guarantee Period, you may make written request to us to
transfer all or a part of such account to an Alternate Funding
Agent. We will transfer the amount requested from such account
within 10 days after its Guarantee Period ends.
If no written election has been received by us on the last day of the
Guarantee Period, item (a) will be applied by us.
SECTION 10--FUNDS. We are sole owner of all funds received under this
contract. All General Investment Accounts we receive under this contract are and
remain a part of our general account without any duty or requirement of
segregation or separate investment on our part. Separate Investment Accounts
will be held as stated in the rider or riders describing such Separate
Investment Accounts.
<PAGE> 128
ARTICLE III
EXPENSES
SECTION 1--EXPENSES. Expense charges will be determined by us
periodically, but at least annually, in accordance with the written service
agreement we have with you. The amount of such charges will be made up of the
following:
a) Compensation paid or payable by us to the soliciting agent
named by you on Contributions received by us since the last
date expenses were paid.
b) A general administration expense charge, as shown in the
service agreement, which is calculated for each period based
on the average account balances under the contract during the
period. (We will apply this charge in a uniform manner to all
contracts of this class that we issue.)
c) A recordkeeping expense charge for keeping individual records
of the various types of contribution accounts for Members
under this contract, and for preparing materials to inform
Members about their accounts under this contract.
d) Other charges may be made for services you ask us to do that
are not covered by (a) through (c) above, for example,
preparing the summary plan description if we do not hold all
Plan assets or if the Employer requests unusual material. We
will inform you of the charges for such services before we
perform them.
We may agree to take into account any Associated Contracts for the
purpose of determining the expenses charged under such contracts. The charges
under an Associated Contract will not be greater than if it were not an
Associated Contract.
Associated Contract(s) means this contract and any other group annuity
contract(s) issued by us which we have agreed in writing to treat as Associated
Contracts.
These expenses may be paid to us directly at our home office in Des
Moines, Iowa. We will send you a statement of these charges periodically in
accordance with our written service agreement with you. Such charges must be
paid within 31 days from the date of the statement. If the expense charges are
not paid within 31 days after the statement date, we will deduct them from the
Holding Accounts and the Member's General Investment Accounts and Separate
Investment Accounts as set out in Section 2 of this Article. If this automatic
deduction of expenses occurs twice in any twenty-four (24) month period, we will
deduct expenses from the accounts as described in Section 2 of this Article
thereafter until a new written service agreement is completed with us.
SECTION 2--DEDUCTION OF EXPENSES. In your written service agreement
with us (or as provided in Section 1 of this Article), an election may be made
to have some or all of the expense charges (described in Section 1 above)
deducted from Member accounts instead of having these charges paid separately.
<PAGE> 129
These expense charges will be deducted as due from the appropriate
General Investment Accounts, Separate Investment Accounts, and Holding Accounts
and will be an application from each such account when deducted. For General
Investment Accounts, such charges will be (i) deducted from the Guaranteed
Interest Accounts for the current Deposit Year, if any, or (ii) if no current
Deposit Year Guaranteed Interest Account has been established under such General
Investment Account (or if it is insufficient), such deductions will be made from
the Guaranteed Interest Account most recently established under it.
If you agree to pay these charges separately and a portion remains
unpaid 31 days after the statement date, we will deduct this unpaid portion in
an equitable manner from the account or accounts of the participants in the plan
to which the expenses are attributable.
<PAGE> 130
ARTICLE IV
BENEFITS
SECTION 1-DISTRIBUTION OF BENEFITS. Benefits will be payable to a
Member or a beneficiary under this contract as an annuity as described in
Article IVA or in a single sum payment as described in Article 1VB.
Benefits may be payable because of a Member's
a) Termination of Employment,
b) retirement (whether early, normal or late),
c) disability,
d) death, or
e) withdrawal
depending upon the Plan provisions.
<PAGE> 131
ARTICLE IVA
ANNUITY BENEFITS
SECTION 1 --PURCHASE OF ANNUITY. An annuity will be purchased for a
Member, payable under any option of Section 2 of this Article, as long as the
purchase conforms to Plan provisions and complies with the following:
a) The amounts available to purchase an annuity may be all or a
portion of the amount available under the Plan, as reported to
us by you.
b) You or the Member, as permitted by the Plan, must make the
request to us to purchase, using a form we either furnish or
approve.
c) If no optional form of income is elected, the Normal Income
Form will be purchased.
d) The Annuity Premium applied for the Member must be at least
$1,750. (If the Member has had other purchases under this
contract, this provision does not apply.)
e) You or the Member, as permitted by the Plan, must specify what
portion of the Annuity Premium is to purchase Fixed Dollar
Annuity. A transfer between accounts under Article II, Section
8, may be made to purchase the portion of Fixed Dollar Annuity
requested. We will apply a Member's General Investment
Accounts to purchase Fixed Dollar Annuity.
f) Any other amounts applied, not included in (e) above, will
purchase Fixed Dollar Annuity as specified in the request to
purchase.
g) The form of annuity and the contingent annuitant named (if
any) cannot be changed after Annuity Purchase Date.
h) Annuity Commencement Date will be the Member's Annuity
Purchase Date.
SECTION 2--OPTIONS. Any of the options described below may be chosen as
the form of income to be paid for an annuity purchased under Section 1.
Option 1--Life Annuity. This provides monthly annuity payments to the
Member, starting on his Annuity Commencement Date and continuing for his
life, with no further payments due after the Member's death.
Option 2--Life Annuity with Certain Period. This provides monthly
annuity payments to the Member, starting on his Annuity Commencement Date and
continuing for his life. If the Member dies after his Annuity Commencement
Date but before payments as to him have
<PAGE> 132
been made for a certain period, the payments left for that certain period
will be continued to the Member's beneficiary.
In choosing this option, the following items must be reported to us:
a) The length of the certain period (5, 10, or 15 years).
b) Whether the remaining payments are to be paid as due to the
beneficiary or commuted and paid in a single sum.
c) The beneficiary named by the Member to whom remaining payments
are to be made.
Option 3--Survivorship Annuity with Installment Refund. This provides
monthly annuity payments to the Member, starting on his Annuity Commencement
Date and continuing for his life. If the Member dies after his Annuity
Commencement Date, a fraction of the monthly annuity will be continued to the
contingent annuitant named by the Member for the lifetime of the contingent
annuitant. If both the Member and the contingent annuitant die after
commencement but before his Annuity Premium has been paid out, the rest of
his Annuity Premium will be paid to his beneficiary in monthly payments. The
monthly payments to the beneficiary will be the same amount as the last
monthly payment made by us before the payment to the beneficiary is due.
In choosing this option, the following items must be reported to us:
a) The fraction to be continued (1/2, 2/3, or 1).
b) The name, date of birth, and sex of the contingent annuitant.
c) The beneficiary named by the Member to whom any remaining
payments would be made.
Option 4--Single Life Installment Refund Annuity. This provides monthly
annuity payments to the Member, starting on his Annuity Commencement Date and
continuing for his life. If the Member dies after his Annuity Commencement
Date and before monthly payments to him total his Annuity Premium, then
monthly payments will continue to his beneficiary until the total of monthly
payments made equal the Annuity Premium.
In choosing this option, the name of the beneficiary to whom the
remaining payments are to be made must be reported to us.
Option 5--Fixed Period Annuity. This provides monthly annuity payments
to the Member, starting on his Annuity Commencement Date and continuing for a
stated (fixed) period. If the Member dies after his Annuity Commencement Date
but before payments as to him have been made for the stated period, any
payments remaining for this period will be paid to his beneficiary.
<PAGE> 133
In choosing this option, the following items must be reported to us:
a) The number of years the period is to run (not less than 5).
b) Whether remaining payments are to be paid as due to the
beneficiary or commuted and paid in a single sum.
c) The beneficiary named by the Member to whom remaining payments
would be made. By written agreement with you, we may provide
other options permitted by the Plan.
SECTION 3--AMOUNT OF MONTHLY ANNUITY. The amount of monthly Fixed
Dollar Annuity purchased under Section 1 of this Article and payable to a
Member will be determined by us based on
a) the Annuity Premium for such portion,
b) the option chosen,
c) the age and sex of the Member,
d) the Annuity Purchase Date,
e) the age and sex of the contingent annuitant (if any), and
f) the annuity purchase rates applicable (for purchases under all
contracts of this class issued by us) on the date of purchase.
However, the annuity purchase rates used will not be less
favorable to the Member than the rates shown in Table 1.
SECTION 4-CANCELLATION OF ANNUITY. If, under the provisions of the Plan
in effect on a Member's Annuity Purchase Date, you determine and report to us
that the monthly annuity purchased for a Member is to be reduced, then the
fraction you report of Fixed Dollar Annuity purchased for that Member will be
cancelled, and the amount of monthly annuity payments paid to the Member, his
beneficiary or contingent annuitant will be reduced accordingly.
The reserve for any annuity cancelled under this Section will be
treated as a forfeiture under Article II, Section 7.
<PAGE> 134
ARTICLE IVB
SINGLE SUM PAYMENTS
SECTION 1--CASH TERMINATION, RETIREMENT OR DISABILITY BENEFITS. All or
a portion of the amounts available to a Member under this contract may be paid
to him by us in a single sum on or after his Termination of Employment or his
retirement under the Plan or his disability under the Plan if
a) the Plan allows such payment, and
b) we receive a written request from you and the Member, using a
form we either furnish or approve.
The amount available will be determined as of the date we receive the
request at our home office, or some later date specified in the request. It will
consist of that part of the Member's accounts in which he is vested under the
vesting provisions of the Plan.
Any amount payable to a Member under this Section is subject to the
delay of payment and limitation provisions of Article VI, Sections 2 and 3, but
such amount is not subject to the charges contained in Article VI, Section 1.
Any payment made because of this Section will be an application equal
to the amount of payment from the account or accounts involved on the date paid
and it will be in lieu of any other benefits available under this contract for
the amounts applied.
SECTION 2--BENEFITS PAYABLE AT DEATH.
Subsection (1)--Before Annuity Purchase Date. If a Member dies before
his Annuity Purchase Date, a benefit equal to his vested accounts will be
payable to his beneficiary. Upon receipt of due proof of death, we will pay this
benefit in accordance with Plan provisions. If the Plan does not provide for
another method, or if no other method has been chosen, we will pay this benefit
to the beneficiary in a single sum. We will determine the value of these
accounts as of the date proof of death is received at our home office.
There is no charge under Article VI, Section 1 for a payment made under
this Section, nor is such payment subject to the delay of payment and limitation
provisions of Article VI, Section 2.
Subsection (2)--After Annuity Purchase Date. If a Member dies after his
Annuity Purchase Date, benefits will be paid under the form of annuity in effect
for him.
Subsection (3)--Proof of Death. We will accept as due proof of death a
copy of a certified death certificate, a copy of a certified decree of a court
of competent jurisdiction as to the finding of death, a written statement by a
medical doctor who attended the deceased during his last illness, or any other
proof that is satisfactory to us.
<PAGE> 135
SECTION 3--OPTIONS FOR BENEFITS PAYABLE AT DEATH. By written direction
to us, a Member may have an annuity purchased for his beneficiary under a
supplementary contract. Any such purchase must conform to the requirements of
our supplementary contract.
If no such written direction is on file with us, a beneficiary may
choose to make such a purchase, subject to any requirements under the
supplementary contract we make available to the beneficiary.
Any election under this Section shall be in lieu of any benefits
payable under Section 2 of this Article.
SECTION 4--WITHDRAWAL BENEFIT. Upon written request from you and a
Member, we will pay to that Member any portion of the amounts available to him
under this contract, subject to the following:
a) The request must be before the Member's Termination of
Employment, disability or retirement.
b) The Plan must allow for such withdrawal.
c) Any amount withdrawn under this Section will be subject to
both the delay of payment and limitation provisions of Article
VI, Sections 2 and 3, and the charges of Article VI, Section
1.
d) The request must be on a form we either furnish or approve and
will be accompanied (at our request) by the Member's
certificate, if any, issued as described in Article VII,
Section 1.
We will determine the amount available as of the date we receive the
request at our home office, or at some later date specified in the request. The
amount available will be that portion of his Separate Investment Account and his
General Investment Account in which he is vested under the Plan.
If a portion of a Member's General Investment Account is to be
withdrawn, the written request must specify which Guaranteed Interest Account or
Accounts are to be applied. If none is specified, the Order of Application
(defined in Article I, Section 2) will apply.
Any payment under this Section will be an application of the portion
requested from the account or accounts involved on the date paid. This payment
will be in lieu of any other benefits under this contract for the portions
applied.
<PAGE> 136
ARTICLE V
TRANSFER TO ALTERNATE FUNDING AGENT; CESSATION
SECTION 1 --TRANSFER TO ALTERNATE FUNDING AGENT. You may file a written
request with us at our home office for payment of the aggregate of all or a
portion of the General Investment Accounts and Separate Investment Accounts to
an Alternate Funding Agent. Subject to charges provided for in Article VI,
Section 1, and the limitations provided in Article VI, Sections 2 and 3, the
amount of any General Investment Accounts and Separate Investment Accounts to be
transferred will be determined and transferred within seven business days after
the date we receive your request. If you request payment as of some later date,
the amounts to be paid out will be determined and paid as of that later date.
If only a portion of the General Investment Accounts or Separate
Investment Accounts is to be transferred, we will reduce the account or accounts
specified in your written request by the portion requested. If the Guaranteed
Interest Account or Accounts to be transferred is not specified, the Order of
Application (defined in Article I, Section 2) will apply.
Alternate Funding Agent means an insurance company or trustee
designated by you and authorized to receive any amount or amounts transferred
under this Section as to a Member or Members and to apply such amount or amounts
for the exclusive benefit of such a Member or Members under a plan which
continues to meet the requirements of the Internal Revenue Code, without any
obligation on our part as to such application.
SECTION 2--CESSATION OF CONTRIBUTIONS. Cessation of Contributions shall
be effective as of any of the following dates:
a) On the date you notify us in writing that cessation of
Contributions is to occur.
b) On the date the Plan terminates.
c) On the date the Plan fails to meet the requirements of the
Internal Revenue Code if we have given you written notice that
cessation is to be effective as of such date.
d) On the date no General Investment Accounts or Separate
Investment Accounts remain under this contract.
Upon cessation of Contributions, no further employees will become
Members and no further Contributions will become payable.
All provisions of this contract will remain effective as to any General
Investment Accounts and Separate Investment Accounts which have not been paid or
applied in full.
Once all General Investment Accounts and Separate Investment Accounts
have been paid or applied in full, we will have no further obligation in regard
to such accounts.
<PAGE> 137
ARTICLE VI
CHARGES AND LIMITATIONS
SECTION 1-CHARGES FOR SURRENDER OF A GUARANTEED INTEREST ACCOUNT.
Transfer or withdrawal of a Guaranteed Interest Account during its Guarantee
Period as provided in Article II, Section 8; Article IVB, Section 4; and Article
V, Section 1 is a surrender of the portion of the account so transferred or
withdrawn. If, however, the transfer under Article V, Section 1 is on account of
the death, Termination of Employment, disability, or retirement of a Member and
could have been a payment under Article IVB, Section 1 or Section 2, charges
under this Section will not be made.
If all or a portion of a Guaranteed Interest Account is surrendered,
the amount available will be reduced by a surrender charge equal to the
following:
a) If the Guaranteed Interest Rate in effect for contracts of
this class for the date of surrender is equal to or less than
the Composite Guaranteed Rate for such account, there is no
charge.
b) If the Guaranteed Interest Rate in effect for contracts of
this class for the date of surrender is greater than the
Composite Guaranteed Rate for such account, such charge is
equal to
i) the difference between such Guaranteed Interest Rate
for such date of surrender and such Composite
Guaranteed Rate multiplied by
ii) the number of years (including fractional parts of a
year) remaining in the Guarantee Period for such
Guaranteed Interest Account multiplied by
iii) the amount being surrendered.
If the entire account is surrendered, such Guaranteed Interest Account
will be applied on the date of surrender and the difference between the amount
applied and the surrender charge (if any) determined above will be paid or
transferred.
If a portion of the account is surrendered, the amount applied will be
equal to the amount being surrendered plus the surrender charge, if any.
SECTION 2--LIMITATIONS ON TRANSFERS AND PAYMENTS FROM GENERAL
INVESTMENT ACCOUNTS. In general, payments and transfers from the General
Investment Accounts will be made in full within 90 days after the requested date
of payment. We may, at our option, delay such payment or transfer for up to an
additional 180 days.
However, if in the 36-month period which ends on the requested date of
payment or transfer all payments or transfers from the General Investment
Accounts total $12,000,000 or more, then the portion of the requested payment or
transfer in excess of $12,000,000 may be made in substantially equal monthly
installments over a period not greater than the following 36 months.
<PAGE> 138
For purposes of this limitation, payments and transfers from our general account
from any other contracts or policies we issued in connection with the Plan or
with any other retirement plan of the Employer will be included as payment or
transfer from the General Investment Accounts. If this limitation is effective,
the first installment will be made one month after the date of request, or on
such later date that you specify.
Nothing in any of the limitations described above will apply to
payments to the beneficiary of a Member. or to applications of Annuity Premium.
If a deferment is applied by us under this Section, amounts to be paid
or transferred will continue to earn interest at the rate determined pursuant to
Article II, Section 5, until the date payment or transfer occurs. Any surrender
charges applicable under Section 1 of this Article will be determined as of the
date payment or transfer occurs under this Section. We will notify you in the
event of any deferment of more than 30 days under the provisions of this
Section.
SECTION 3--LIMITATIONS ON TRANSFERS AND PAYMENTS FROM SEPARATE
INVESTMENT ACCOUNTS. Any limitation on the payment or transfer from a Separate
Investment Account is contained in the rider describing such Separate Investment
Account.
<PAGE> 139
ARTICLE VII
GENERAL PROVISIONS
SECTION 1-CERTIFICATES. If a Member contributes under the Plan and the
state of issue so requires, we will prepare and send to the Employer, for
delivery to each such Member, an individual certificate setting out a statement
of the benefits to which that Member is entitled and to whom death benefits are
payable. If benefits become payable to a Member under one of the options of
Article IVA, we will issue an individual certificate setting forth the amount,
form and period of payment of the monthly annuity benefits.
SECTION 2--BENEFICIARY. The beneficiary is the person or persons named
by the Member to whom benefits (other than any monthly income payable to a
contingent annuitant under the provisions of Article IVA, Section 2) are payable
under this contract upon the death of the Member, subject to the provisions of
Section 13 of this Article. A Member shall name or change a beneficiary by
filing a written beneficiary designation to that effect with us, but the
designation will not be effective until we receive it. When we receive the
designation, it will be effective as of the date it is executed, but any
payments we made before receipt of the designation shall discharge us to the
extent of such payments. We reserve the right to require the Member's
certificate for endorsement of any change of beneficiary.
Unless otherwise specified by the Member with our consent,
a) if any beneficiary dies before the Member, any monthly payment
which would have become payable to such beneficiary, if
living, will be payable when due to the beneficiary or
beneficiaries surviving the Member in the order provided.
b) if any beneficiary survives the Member but dies before
receiving all of the monthly payments which would have been
payable to such beneficiary, if living, payment will be paid
when due to the surviving beneficiary or beneficiaries in the
order provided.
c) if the last survivor of all named beneficiaries dies after the
death of the Member (and the contingent annuitant, if any) and
before all payments due the beneficiary have been made, the
remaining payments will be commuted and the commuted value
paid to the executor or administrator of the estate of such
last survivor.
If no named beneficiary survives the Member (and the contingent
annuitant, if any), or no beneficiary has been named, any amount which would
have become payable to a beneficiary will be commuted and the commuted value
paid to the executor or administrator of the estate of the Member (the executor
or administrator of the estate of any contingent annuitant, if he survives the
Member).
If the beneficiary is not a natural person taking in his own right
(that is, a trust or an estate), any monthly or other periodic payments will be
commuted and the commuted value paid to the beneficiary in a single sum.
However, if the beneficiary is a trust established for the benefit of a
<PAGE> 140
natural person and if the payment period is at least 24 months and not more than
60 months, monthly or other periodic payments may be continued to such
beneficiary.
SECTION 3--DIVIDENDS. Any portion of the divisible surplus that we
determine to accrue on this contract shall be determined annually by us and
shall be credited to this contract on each Yearly Date after the Contract Date.
Any dividend shall be applied as directed by you in accordance with Plan
provisions. (NOTE: Because of the direct crediting of investment return to both
General Investment Accounts and Separate Investment Accounts, it is not
anticipated that there will be any surplus accruing on this contract from which
dividends may be apportioned to this contract.)
SECTION 4--CONTRACT. This contract and your application, a copy of
which is attached to and made a part of this contract, are the entire contract
between the parties. We are obligated only as provided in this contract and are
not a party to nor bound by any trust or plan.
SECTION 5--PLAN AND PLAN AMENDMENTS. You agree to furnish us with a
copy of the Plan in effect on the Contract Date and any subsequent amendments to
it. No amendment to the Plan which affects our duties and obligations will be
effective under this contract if we notify you in writing that such change is
unacceptable to us. We agree to notify you within 60 days after we receive an
amendment if it is unacceptable.
SECTION 6--WAIVER AND MODIFICATION. Only our officers have authority to
change this contract or waive any of its provisions or requirements.
SECTION 7--MISSTATEMENTS. If the age or sex (to the extent sex is a
determining factor) of any Member or contingent annuitant or if any other
relevant fact is found to have been misstated, the amount of annuity payable by
us will be that provided by the amount applied to purchase such annuity,
determined as of the date of purchase established by the misstated information
and on the basis of the correct age and sex. Any overpayment by us resulting
from any misstatements will be deducted from amounts thereafter payable to the
Member, his contingent annuitant or his beneficiary. Any underpayment by us
resulting from any misstatements will be paid in full with the next payment due
the Member, his contingent annuitant or his beneficiary.
SECTION 8--INFORMATION, PROOFS AND DETERMINATION OF FACTS. You agree to
furnish to us evidence of the age of each Member and his contingent annuitant,
if any, on or before his earliest Annuity Purchase Date and other records, data,
proofs or additional information which, in our opinion, is necessary for the
administration of this contract.
For the purposes of this contract, the determination by you as to any
facts (except age and sex) relating to any employee is, except for fraud or
willful misstatement of fact, conclusive.
SECTION 9--AMENDMENT. We reserve the right to amend or change this
contract as follows, subject to the limitations of item (f):
<PAGE> 141
a) Any or all of the contract provisions may be changed at any
time, including retroactive changes, to the extent necessary
to meet the requirements of any law or regulation issued by
any governmental agency to which we are subject.
b) As of any date after the Contract Date and subject to the
notice provisions of (e) of this Section, we may amend or
change the length of the Guarantee Period; the Order of
Application; the provisions for transferring values between
accounts; and the charge contained in Article VI, Section 1.
c) We may amend or change Table 1 as of any date which is at
least 5 years after the later of (i) the Contract Date or (ii)
the date of the latest amendment or change under this item
(c).
d) By written agreement between you and us, this contract may be
amended or changed at any time as to any of its provisions,
including those in regard to coverage, benefits and the
participation privileges, without the consent of any Member,
beneficiary or contingent annuitant.
e) We will give you written notice of any change made because of
item (a) above. Any amendment or change under items (b) or (c)
will not become effective unless we give you written notice at
least 60 days before the date the amendment or change is to
take effect.
f) Any amendment or change under this Section 9 is binding and
conclusive on each Member, beneficiary, or contingent
annuitant, but is limited by the following:
i) No amendment or change will apply to annuities
purchased under Article IVA before the effective date
of the amendment or change except to the extent
necessary in making changes in accordance with item
(a) above.
ii) No amendment or change under (b) above will affect
Guaranteed Interest Accounts established prior to the
date of the amendment or change.
iii) Any change in the general administration expense
charge referred to in (b) of Section 1, Article III,
will not take effect as to any General Investment
Accounts and Separate Investment Accounts to be
transferred to an Alternate Funding Agent, if, prior
to the date the amendment or change is to take
effect, we receive written request from you for
payment of all such General Investment Accounts and
Separate Investment Accounts to the Alternate Funding
Agent in accordance with Article V, Section 1, and
such request is not revoked.
SECTION 10--CONTRIBUTIONS. We reserve the right to limit or refuse
further Contributions or Annuity Premiums under this contract. We will give you
written notice at least 60 days before the date after which further
Contributions or Annuity Premiums will be limited or refused by us.
<PAGE> 142
SECTION 11--MODIFICATION IN MODE OF PAYMENT OF ANNUITY. If, at any time
on or subsequent to a Member's Annuity Commencement Date, the monthly amount of
the annuity payable under this contract to such Member or to his beneficiary or
contingent annuitant would be less than $20, we may, at our option, pay in cash
the reserve for the annuity payments in full settlement of all benefits
otherwise payable. The reserve will be determined by us on the same mortality
and interest basis as the annuity purchase rate which was used to determine the
amount of annuity payments.
If, after a Member's Termination of Employment has occurred, the total
of his Separate Investment Accounts and General Investment Accounts is less than
$1,750, we, at our option, may pay to such Member the amount of such accounts in
a single sum in lieu of any and all other benefits as to such accounts.
SECTION 12--COMMUTATION OF PAYMENTS. If any monthly payments are to be
commuted, commuted value of the payments will be determined by us, using the
interest rate which was used as a basis for calculating the amount of the
monthly payments at the time the annuity was purchased.
Neither the Member, the contingent annuitant nor any beneficiary who is
a natural person taking in his own right has the right to commute any monthly
annuity payments under this contract.
SECTION 13--FACILITY OF PAYMENT. If any Member, contingent annuitant or
beneficiary is physically or mentally incapable of giving a valid receipt for
any payment due him and no legal representative has been appointed for him, we
may, in the absence of written direction to the contrary from you, at our
option, make such payment to the person or persons as have, in our opinion,
assumed the care and principal support of the Member, contingent annuitant or
beneficiary, except that any payment due a minor will be paid at a rate not
exceeding $100.00 per month. However, in no event will any such payment exceed
the maximum amount allowed under applicable law of the state in which this
contract is delivered. Any such payment made by us shall fully discharge us to
the extent of the payment.
SECTION 14--PRONOUNS. Masculine pronouns used in this contract include
both masculine and feminine gender unless the context indicates otherwise.
SECTION 15--ASSIGNMENT. No benefits payable under this contract to any
Member, beneficiary or contingent annuitant are assignable, and all such
benefits are exempt from the claims of creditors to the maximum extent permitted
by law.
SECTION 16--BASIS OF ANNUITY PURCHASES. The rates shown in the Table 1
included in this contract on the Contract Date have been computed on the basis
of (i) interest at the rate of 3% per annum and (ii) mortality according to the
a-1949 Male Annuity Table (Modified Projection C) with 1960 modifications in the
rates of mortality, projected 30 years, males set forward one year in age,
females set back four years in age.
SECTION 17--INVESTMENT MANAGER. As set out in Article II, Sections 3,8
and 9, the right to direct the split of Contributions between General Investment
Accounts and Separate
<PAGE> 143
Investment Accounts and to direct any transfer between these accounts is
reserved to you and/or the Member, all in accordance with provisions of this
contract.
Application for and issuance of this contract constitutes appointment
of and acceptance and affirmation by us that (i) we are an Investment Manager as
described under the Employee Retirement Income Security Act of 1974 with respect
to Plan assets held under this contract, except the right reserved in the
preceding paragraph and (ii) we are qualified to accept such appointment and
acknowledge that by virtue of such appointment we are a fiduciary of the Plan,
within the meaning of the Employee Retirement Income Security Act of 1974 with
respect to our responsibilities as Investment Manager.
SECTION 18--OWNERSHIP. You are the owner of this contract; provided
however that if the Plan is trusteed, the trustee(s) of the Plan is sole owner
of all the payments, rights, options, and privileges herein granted or made
payable to any Member, beneficiary, or contingent annuitant under this contact.
This includes, without limitation, the right to distribute all or a portion of
the Member's accounts, or ownership of these rights in respect of such accounts,
on or after the Member's Termination of Employment; but this does not include
the right to designate a Member's beneficiary unless such right has been granted
to the trustee by the Plan or trust. The trustee(s) of the Plan is entitled to
exercise all such rights, options, and privileges and to receive all such
payments at the time or times specified in this contract that such payments,
rights, options, and privileges are available to a Member. Such exercise by the
trustee(s) may be made without the consent or participation of any Member,
beneficiary or contingent annuitant.
<PAGE> 144
TABLE 1
OPTION 1 -- Life Annuity
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age *
------------------ Monthly
Male Female Annuity
---- ------ -------
<S> <C> <C>
45 50 $ 4.12
46 51 4.19
47 52 4.27
48 53 4.35
49 54 4.43
50 55 4.52
51 56 4.61
52 57 4.71
53 58 4.81
54 59 4.92
55 60 5.03
56 61 5.15
57 62 5.28
58 63 5.42
59 64 5.56
60 65 5.72
61 66 5.89
62 67 6.06
63 68 6.25
64 69 6.46
65 70 6.68
66 71 6.91
67 72 7.17
68 73 7.44
69 74 7.74
70 75 8.07
71 76 8.42
72 77 8.80
73 78 9.21
74 79 9.65
75 80 10.13
</TABLE>
* A Member's age for the purpose of this table is age last birthday on his
Annuity Commencement Date.
Table 1
Option 1
Life
<PAGE> 145
TABLE 1
OPTION 2--CERTAIN AND LIFE ANNUITY
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Monthly Annuity
Age* ---------------------------------
------------------ 5 years 10 years 15 years
Male Female certain certain certain
---- ------ ------- -------- --------
<S> <C> <C> <C> <C>
45 50 $4.11 $4.08 $4.04
46 51 4.18 4.15 4.10
47 52 4.26 4.22 4.17
48 53 4.33 4.30 4.23
49 54 4.42 4.37 4.30
50 55 4.50 4.46 4.37
51 56 4.59 4.54 4.45
52 57 4.69 4.63 4.52
53 58 4.79 4.72 4.60
54 59 4.89 4.82 4.69
55 60 5.01 4.92 4.77
56 61 5.12 5.02 4.86
57 62 5.25 5.13 4.95
58 63 5.38 5.25 5.05
59 64 5.52 5.37 5.14
60 65 5.67 5.50 5.24
61 66 5.82 5.64 5.35
62 67 5.99 5.78 5.45
63 68 6.17 5.93 5.55
64 69 6.36 6.09 5.66
65 70 6.57 6.25 5.76
66 71 6.79 6.42 5.86
67 72 7.02 6.59 5.96
68 73 7.27 6.77 6.06
69 74 7.54 6.96 6.15
70 75 7.82 7.14 6.24
71 76 8.13 7.33 6.32
72 77 8.45 7.52 6.40
73 78 8.78 7.70 6.47
74 79 9.14 7.88 6.53
75 80 9.51 8.06 6.59
</TABLE>
*A Member's age for the purpose of this table is age last birthday on his
Annuity Commencement Date.
Table 1
Option 2
Certain and Life
<PAGE> 146
TABLE 1
OPTION 3 - SURVIVORSHIP ANNUITY WITH INSTALLMENT REFUND
with 50% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of Male Member
---------------------------------------------------------------------------
Age* of 55 60 65 70 75
Contingent ----- ----- ----- ----- -----
Annuitant Age* of Female Member
- ------------ ---------------------------------------------------------------------------
Male Female 60 65 70 75 80
- ---- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
55 $4.41 $4.73 $5.10 $5.52 $5.96
56 4.43 4.76 5.14 5.57 6.03
57 4.45 4.79 5.18 5.62 6.09
58 4.47 4.82 5.22 5.67 6.16
59 4.49 4.85 5.26 5.73 6.23
55 60 4.51 4.88 5.30 5.78 6.30
56 61 4.52 4.90 5.34 5.84 6.37
57 62 4.54 4.93 5.38 5.89 6.45
58 63 4.56 4.96 5.42 5.95 6.52
59 64 4.57 4.98 5.46 6.01 6.60
60 65 4.59 5.01 5.50 6.06 6.67
61 66 4.60 5.03 5.53 6.11 6.75
62 67 4.62 5.05 5.57 6.17 6.83
63 68 4.63 5.07 5.61 6.23 6.91
64 69 4.64 5.09 5.64 6.28 6.99
65 70 4.65 5.11 5.67 6.33 7.07
66 71 4.66 5.13 5.70 6.38 7.15
67 72 4.67 5.14 5.73 6.43 7.23
68 73 4.67 5.16 5.76 6.48 7.30
69 74 4.68 5.17 5.78 6.52 7.37
70 75 4.68 5.18 5.80 6.57 7.45
71 4.69 5.19 5.82 6.60 7.52
72 4.69 5.20 5.84 6.64 7.58
73 4.69 5.21 5.86 6.67 7.64
74 4.70 5.21 5.87 6.70 7.69
75 4.70 5.22 5.88 6.72 7.74
</TABLE>
*A Member's age and a Contingent Annuitant's age for the purpose of this table
is age last birthday on the Member's Annuity Commencement Date.
Table 1
Option 3
50% Survivorship
Installment Refund
<PAGE> 147
TABLE 1
OPTION 3 - SURVIVORSHIP ANNUITY WITH INSTALLMENT REFUND
with 66 2/3% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of Male Member
---------------------------------------------------------------------------
Age* of 55 60 65 70 75
Contingent ----- ----- ----- ----- -----
Annuitant Age* of Female Member
- ------------ ---------------------------------------------------------------------------
Male Female 60 65 70 75 80
- ---- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
55 $4.26 $4.50 $4.76 $5.02 $5.27
56 4.29 4.54 4.81 5.08 5.34
57 4.31 4.58 4.86 5.14 5.41
58 4.34 4.62 4.91 5.20 5.48
59 4.37 4.65 4.96 5.27 5.56
55 60 4.39 4.69 5.01 5.33 5.64
56 61 4.42 4.73 5.06 5.40 5.72
57 62 4.44 4.76 5.11 5.46 5.80
58 63 4.47 4.80 5.16 5.53 5.89
59 64 4.49 4.83 5.21 5.60 5.98
60 65 4.51 4.87 5.26 5.67 6.07
61 66 4.53 4.90 5.31 5.74 6.16
62 67 4.55 4.93 5.36 5.81 6.26
63 68 4.57 4.96 5.41 5.88 6.35
64 69 4.58 4.99 5.45 5.96 6.45
65 70 4.60 5.02 5.50 6.03 6.55
66 71 4.61 5.04 5.54 6.09 6.65
67 72 4.62 5.07 5.58 6.16 6.75
68 73 4.64 5.09 5.62 6.22 6.85
69 74 4.64 5.10 5.66 6.28 6.95
70 75 4.65 5.12 5.69 6.35 7.04
71 4.66 5.14 5.72 6.40 7.13
72 4.67 5.15 5.74 6.45 7.22
73 4.67 5.16 5.77 6.50 7.30
74 4.67 5.17 5.79 6.54 7.38
75 4.68 5.18 5.81 6.58 7.46
</TABLE>
*A Member's age and a Contingent Annuitant's age for the purpose of this table
is age last birthday on the Member's Annuity Commencement Date.
Table 1
Option 3
66 2/3% Survivorship
Installment Refund
<PAGE> 148
TABLE 1
OPTION 3 - SURVIVORSHIP ANNUITY WITH INSTALLMENT REFUND
with 100% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of Male Member
---------------------------------------------------------------------------
Age* of 55 60 65 70 75
Contingent ----- ----- ----- ----- -----
Annuitant Age* of Female Member
- ------------ ---------------------------------------------------------------------------
Male Female 60 65 70 75 80
- ---- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
55 $3.98 $4.10 $4.19 $4.24 $4.26
56 4.02 4.15 4.24 4.30 4.33
57 4.06 4.20 4.30 4.37 4.40
58 4.10 4.25 4.37 4.44 4.48
59 4.14 4.30 4.43 4.52 4.56
55 60 4.17 4.35 4.49 4.59 5.64
56 61 4.21 4.40 4.56 4.67 4.73
57 62 4.25 4.45 4.63 4.75 4.82
58 63 4.28 4.50 4.69 4.83 4.91
59 64 4.32 4.55 4.76 4.92 5.01
60 65 4.35 4.60 4.83 5.00 5.11
61 66 4.38 4.65 4.90 5.09 5.22
62 67 4.41 4.70 4.97 5.18 5.32
63 68 4.44 4.74 5.03 5.28 5.44
64 69 4.47 4.79 5.10 5.37 5.55
65 70 4.49 4.83 5.17 5.46 5.67
66 71 4.52 4.87 5.23 5.56 5.79
67 72 4.54 4.91 5.29 5.65 5.92
68 73 4.56 4.94 5.35 5.74 6.04
69 74 4.58 4.97 5.41 5.83 6.17
70 75 4.59 5.00 5.46 5.92 6.30
71 4.61 5.03 5.51 6.00 6.43
72 4.62 5.05 5.56 6.08 6.55
73 4.63 5.07 5.60 6.16 6.67
74 4.64 5.09 5.64 6.23 6.79
75 4.64 5.11 5.67 6.30 6.91
</TABLE>
*A Member's age and a Contingent Annuitant's age for the purpose of this table
is age last birthday on the Member's Annuity Commencement Date.
Table 1
Option 3
100% Survivorship
Installment Refund
<PAGE> 149
TABLE 1
OPTION 4 -- SINGLE LIFE INSTALLMENT REFUND ANNUITY
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age *
------------------ Monthly
Male Female Annuity
---- ------ -------
<S> <C> <C>
45 50 $ 3.95
46 51 4.01
47 52 4.07
48 53 4.13
49 54 4.20
50 55 4.27
51 56 4.34
52 57 4.42
53 58 4.50
54 59 4.58
55 60 4.67
56 61 4.76
57 62 4.85
58 63 4.96
59 64 5.06
60 65 5.18
61 66 5.29
62 67 5.42
63 68 5.54
64 69 5.69
65 70 5.84
66 71 6.00
67 72 6.16
68 73 6.34
69 74 6.52
70 75 6.72
71 76 6.93
72 77 7.14
73 78 7.37
74 79 7.62
75 80 7.87
</TABLE>
*A Member's age for the purpose of this table is age last birthday on his
Annuity Commencement Date.
Table 1
Option 4
Single Life Installment Refund
<PAGE> 150
TABLE 1
OPTION 5 -- FIXED PERIOD OPTION
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Number Monthly
of Years Annuity
-------- -------
<S> <C>
5 $ 17.91
6 15.14
7 13.16
8 11.68
9 10.53
10 9.61
11 8.86
12 8.24
13 7.71
14 7.26
15 6.87
16 6.53
17 6.23
18 5.96
19 5.73
20 5.51
</TABLE>
Table 1
Option 5
Fixed Period
<PAGE> 151
TABLE 1A
OPTION I -- LIFE ANNUITY
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Monthly
Age* Annuity
---- -------
<S> <C>
50 $ 4.12
51 4.19
52 4.27
53 4.35
54 4.43
55 4.52
56 4.61
57 4.71
58 4.81
59 4.92
60 5.03
61 5.15
62 5.28
63 5.42
64 5.56
65 5.72
66 5.89
67 6.06
68 6.25
69 6.46
70 6.68
71 6.91
72 7.17
73 7.44
74 7.74
75 8.07
76 8.42
77 8.80
78 9.21
79 9.65
80 10.13
</TABLE>
* Age for the purpose of this table is age last birthday on Annuity Commencement
Date.
Table 1
Option 1
Life
<PAGE> 152
TABLE 1A
OPTION 2 -- CERTAIN AND LIFE ANNUITY
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Monthly Annuity
-----------------------------------
5 years 10 years 15 years
Age* certain certain certain
---- ------- -------- --------
<S> <C> <C> <C>
50 $ 4.11 $ 4.08 $ 4.04
51 4.18 4.15 4.10
52 4.26 4.22 4.17
53 4.33 4.30 4.23
54 4.42 4.37 4.30
55 4.50 4.46 4.37
56 4.59 4.54 4.45
57 4.69 4.63 4.52
58 4.79 4.72 4.60
59 4.89 4.82 4.69
60 5.01 4.92 4.77
61 5.12 5.02 4.86
62 5.25 5.13 4.95
63 5.38 5.25 5.05
64 5.52 5.37 5.14
65 5.67 5.50 5.24
66 5.82 5.64 5.35
67 5.99 5.78 5.45
68 6.17 5.93 5.55
69 6.36 6.09 5.66
70 6.57 6.25 5.76
71 6.79 6.42 5.86
72 7.02 6.59 5.96
73 7.27 6.77 6.06
74 7.54 6.96 6.15
75 7.82 7.14 6.24
76 8.13 7.33 6.32
77 8.45 7.52 6.40
78 8.78 7.70 6.47
79 9.14 7.88 6.53
80 9.51 8.06 6.59
</TABLE>
* Age for the purpose of this table is age last birthday on Annuity Commencement
Date.
Table 1
Option 2
Certain and Life
<PAGE> 153
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 50% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 60 61 62 63 64 65 66
----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.41 $4.47 $4.53 $4.60 $4.66 $4.73 $4.80
56 4.43 4.49 4.56 4.62 4.69 4.76 4.83
57 4.45 4.51 4.58 4.65 4.72 4.79 4.86
58 4.47 4.53 4.60 4.67 4.74 4.82 4.89
59 4.49 4.56 4.63 4.70 4.77 4.85 4.93
60 4.51 4.58 4.65 4.72 4.80 4.88 4.95
61 4.52 4.60 4.67 4.74 4.82 4.90 4.99
62 4.54 4.61 4.69 4.77 4.85 4.93 5.01
63 4.56 4.63 4.71 4.79 4.87 4.96 5.04
64 4.57 4.65 4.73 4.81 4.89 4.98 5.07
65 4.59 4.67 4.75 4.83 4.92 5.01 5.10
66 4.60 4.68 4.76 4.85 4.94 5.03 5.12
67 4.62 4.70 4.78 4.87 4.96 5.05 5.15
68 4.63 4.71 4.80 4.89 4.98 5.07 5.17
69 4.64 4.72 4.81 4.90 5.00 5.09 5.20
70 4.65 4.73 4.82 4.92 5.01 5.11 5.22
71 4.66 4.75 4.84 4.93 5.03 5.13 5.24
72 4.67 4.75 4.85 4.94 5.04 5.14 5.25
73 4.67 4.76 4.86 4.95 5.05 5.16 5.27
74 4.68 4.77 4.86 4.96 5.06 5.17 5.28
75 4.68 4.78 4.87 4.97 5.07 5.18 5.30
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date
Table 1
Option 3
Joint Life 50%
Installment Refund
<PAGE> 154
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 50% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 67 68 69 70 71 72 73
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.87 $4.95 $5.02 $5.10 $5.18 $5.26 $5.34
56 4.91 4.98 5.06 5.14 5.22 5.31 5.39
57 4.94 5.02 5.10 5.18 5.26 5.35 5.44
58 4.97 5.05 5.14 5.22 5.31 5.40 5.49
59 5.01 5.09 5.17 5.26 5.35 5.44 5.53
60 5.04 5.12 5.21 5.30 5.39 5.49 5.58
61 5.07 5.16 5.25 5.34 5.43 5.53 5.63
62 5.10 5.19 5.28 5.38 5.48 5.58 5.68
63 5.13 5.23 5.32 5.42 5.52 5.62 5.73
64 5.16 5.26 5.36 5.46 5.56 5.67 5.78
65 5.19 5.29 5.39 5.50 5.60 5.71 5.83
66 5.22 5.32 5.43 5.53 5.64 5.76 5.87
67 5.25 5.35 5.46 5.57 5.68 5.80 5.92
68 5.27 5.38 5.49 5.61 5.72 5.84 5.97
69 5.30 5.41 5.52 5.64 5.76 5.88 6.01
70 5.32 5.44 5.55 5.67 5.80 5.93 6.06
71 5.34 5.46 5.58 5.70 5.83 5.96 6.10
72 5.37 5.48 5.60 5.73 5.86 6.00 6.14
73 5.38 5.50 5.63 5.76 5.89 6.03 6.18
74 5.40 5.52 5.65 5.78 5.92 6.06 6.21
75 5.41 5.54 5.67 5.80 5.95 6.09 6.24
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 50%
Installment Refund
<PAGE> 155
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 50% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 74 75 76 77 78 79 80
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $5.43 $5.52 $5.60 $5.69 $5.78 $5.87 $5.96
56 5.48 5.57 5.66 5.75 5.85 5.93 6.03
57 5.53 5.62 5.71 5.81 5.90 6.00 6.09
58 5.58 5.67 5.77 5.87 5.96 6.06 6.16
59 5.63 5.73 5.83 5.92 6.03 6.13 6.23
60 5.68 5.78 5.88 5.99 6.09 6.19 6.30
61 5.73 5.84 5.94 6.05 6.15 6.26 6.37
62 5.78 5.89 6.00 6.11 6.22 6.33 6.45
63 5.84 5.95 6.06 6.17 6.29 6.41 6.52
64 5.89 6.01 6.12 6.24 6.36 6.48 6.60
65 5.94 6.06 6.18 6.30 6.43 6.55 6.67
66 5.99 6.11 6.24 6.37 6.49 6.62 6.75
67 6.05 6.17 6.30 6.43 6.56 6.70 6.83
68 6.09 6.23 6.36 6.49 6.63 6.77 6.91
69 6.14 6.28 6.42 6.56 6.70 6.85 6.99
70 6.19 6.33 6.48 6.62 6.77 6.92 7.07
71 6.24 6.38 6.53 6.68 6.84 6.99 7.15
72 6.28 6.43 6.58 6.74 6.90 7.06 7.23
73 6.33 6.48 6.64 6.80 6.97 7.13 7.30
74 6.37 6.52 6.69 6.86 7.03 7.20 7.37
75 6.40 6.57 6.73 6.91 7.08 7.26 7.45
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 50%
Installment Refund
<PAGE> 156
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 66 2/3% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 60 61 62 63 64 65 66
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.26 $4.31 $4.36 $4.40 $4.45 $4.50 $4.55
56 4.29 4.34 4.39 4.44 4.49 4.54 4.59
57 4.31 4.37 4.42 4.47 4.52 4.58 4.63
58 4.34 4.39 4.45 4.50 4.56 4.62 4.67
59 4.37 4.42 4.48 4.54 4.59 4.65 4.71
60 4.39 4.45 4.51 4.57 4.6.3 4.69 4.75
61 4.42 4.48 4.54 4.60 4.66 4.73 4.79
62 4.44 4.50 4.57 4.63 4.70 4.76 4.83
63 4.47 4.53 4.60 4.66 4.73 4.80 4.87
64 4.49 4.55 4.62 4.69 4.76 4.83 4.91
65 4.51 4.58 4.65 4.72 4.79 4.87 4.94
66 4.53 4.60 4.67 4.75 4.82 4.90 4.98
67 4.55 4.62 4.70 4.77 4.85 4.93 5.01
68 4.57 4.64 4.72 4.80 4.88 4.96 5.05
69 4.58 4.66 4.74 4.82 4.91 4.99 5.08
70 4.60 4.68 4.76 4.84 4.93 5.02 5.11
71 4.61 4.69 4.78 4.86 4.95 5.04 5.14
72 4.62 4.71 4.79 4.88 4.97 5.07 5.16
73 4.64 4.72 4.81 4.90 4.99 5.09 5.19
74 4.64 4.73 4.82 4.91 5.01 5.10 5.21
75 4.65 4.74 4.83 4.92 5.02 5.12 5.23
</TABLE>
*Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity commencement Date.
Table 1
Option 3
Joint Life 66 2/3%
Installment Refund
<PAGE> 157
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 66 2/3% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 67 68 69 70 71 72 73
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.61 $4.66 $4.71 $4.76 $4.81 $4.86 $4.91
56 4.65 4.70 4.75 4.81 4.86 4.92 4.97
57 4.69 4.74 4.80 4.86 4.91 4.97 5.03
58 4.73 4.79 4.85 4.91 4.96 5.02 5.08
59 4.77 4.83 4.90 4.96 5.02 5.08 5.14
60 4.82 4.88 4.94 5.01 5.07 5.14 5.20
61 4.86 4.92 4.99 5.06 5.13 5.19 5.26
62 4.90 4.97 5.04 5.11 5.18 5.25 5.32
63 4.94 5.01 5.09 5.16 5.23 5.31 5.38
64 4.98 5.06 5.13 5.21 5.29 5.37 5.44
65 5.02 5.10 5.18 5.26 5.34 5.42 5.51
66 5.06 5.14 5.23 5.31 5.40 5.48 5.57
67 5.10 5.18 5.27 5.36 5.45 5.54 5.63
68 5.14 5.23 5.32 5.41 5.50 5.60 5.69
69 5.17 5.26 5.36 5.45 5.55 5.65 5.75
70 5.20 5.30 5.40 5.50 5.60 5.71 5.81
71 5.23 5.33 5.44 5.54 5.65 5.76 5.87
72 5.26 5.37 5.47 5.58 5.69 5.81 5.92
73 5.29 5.40 5.51 5.62 5.74 5.86 5.98
74 5.31 5.42 5.54 5.66 5.78 5.90 6.03
75 5.34 5.45 5.57 5.69 5.81 5.94 6.07
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 66 2/3%
Installment Refund
<PAGE> 158
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 66 2/3% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 74 75 76 77 78 79 80
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.97 $5.02 $5.07 $5.12 $5.17 $5.22 $5.27
56 5.02 5.08 5.13 5.18 5.24 5.29 5.34
57 5.08 5.14 5.19 5.25 5.30 5.36 5.41
58 5.14 5.20 5.26 5.32 5.37 5.43 5.48
59 5.20 5.27 5.33 5.38 5.44 5.50 5.56
60 5.27 5.33 5.39 5.46 5.52 5.58 5.64
61 5.33 5.40 5.46 5.53 5.59 5.66 5.72
62 5.39 5.46 5.53 5.60 5.67 5.74 5.80
63 5.46 5.53 5.61 5.68 5.75 5.82 5.89
64 5.52 5.60 5.68 5.75 5.83 5.91 5.98
65 5.59 5.67 5.75 5.83 5.91 5.99 6.07
66 5.66 5.74 5.83 5.92 6.00 6.08 6.16
67 5.72 5.81 5.90 6.00 6.08 6.17 6.26
68 5.79 5.88 5.98 6.07 6.17 6.26 6.35
69 5.85 5.96 6.06 6.16 6.26 6.36 6.45
70 5.92 6.03 6.13 6.24 6.34 6.45 6.55
71 5.98 6.09 6.21 6.32 6.43 6.54 6.65
72 6.04 6.16 6.28 6.40 6.51 6.63 6.75
73 6.10 6.22 6.35 6.47 6.60 6.72 6.85
74 6.15 6.28 6.42 6.55 6.68 6.81 6.95
75 6.21 6.35 6.48 6.62 6.76 6.90 7.04
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 66 2/3%
Installment Refund
<PAGE> 159
TABLE 1A
OPTION 3 -- JOINT LIFE INSTALLMENT REFUND ANNUITY
with 100% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 60 61 62 63 64 65 66
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $3.98 $4.01 $4.03 $4.06 $4.08 $4.10 $4.12
56 4.02 4.05 4.07 4.10 4.13 4.15 4.17
57 4.06 4.09 4.12 4.15 4.17 4.20 4.22
58 4.10 4.13 4.16 4.19 4.22 4.25 4.28
59 4.14 4.17 4.20 4.24 4.27 4.30 4.33
60 4.17 4.21 4.25 4.28 4.32 4.35 4.38
61 4.21 4.25 4.29 4.33 4.36 4.40 4.44
62 4.25 4.29 4.33 4.37 4.41 4.45 4.49
63 4.28 4.33 4.37 4.42 4.46 4.50 4.54
64 4.32 4.36 4.41 4.46 4.50 4.55 4.60
65 4.35 4.40 4.45 4.50 4.55 4.60 4.65
66 4.38 4.44 4.49 4.54 4.60 4.65 4.70
67 4.41 4.47 4.53 4.58 4.64 4.70 4.75
68 4.44 4.50 4.56 4.62 4.68 4.74 4.80
69 4.47 4.53 4.59 4.66 4.72 4.79 4.85
70 4.49 4.56 4.63 4.69 4.76 4.83 4.90
71 5.52 4.59 4.65 4.73 4.80 4.87 4.94
72 4.54 4.61 4.68 4.76 4.83 4.91 4.98
73 4.56 4.63 4.71 4.78 4.86 4.94 5.02
74 4.58 4.65 4.73 4.81 4.89 4.97 5.06
75 4.59 4.67 4.75 4.83 4.92 5.00 5.09
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 100%
Installment Refund
<PAGE> 160
Table 1A
OPTION 3--JOINT LIFE INSTALLMENT REFUND ANNUITY
with 100% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 67 68 69 70 71 72 73
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.14 $4.16 $4.17 $4.19 $4.20 $4.21 $4.22
56 4.19 4.21 4.23 4.24 4.26 4.27 4.28
57 4.25 4.27 4.29 4.30 4.32 4.34 4.35
58 4.30 4.32 4.35 4.37 4.39 4.40 4.42
59 4.36 4.38 4.41 4.43 4.45 4.47 4.49
60 4.41 4.44 4.47 4.49 4.52 4.54 4.56
61 4.47 4.50 4.53 4.56 4.59 4.61 4.63
62 4.53 4.56 4.59 4.63 4.65 4.68 4.71
63 4.58 4.62 4.66 4.69 4.73 4.76 4.78
64 4.64 4.68 4.72 4.76 4.80 4.83 4.86
65 4.70 4.74 4.79 4.83 4.87 4.91 4.94
66 4.75 4.80 4.85 4.90 4.94 4.98 5.02
67 4.81 4.86 4.92 4.97 5.01 5.06 5.10
68 4.86 4.92 4.98 5.03 5.09 5.14 5.19
69 4.92 4.98 5.04 5.10 5.16 5.22 5.27
70 4.97 5.03 5.10 5.17 5.23 5.29 5.35
71 5.01 5.09 5.16 5.23 5.30 5.37 5.43
72 5.06 5.14 5.22 5.29 5.37 5.44 5.51
73 5.10 5.19 5.27 5.35 5.43 5.51 5.59
74 5.15 5.23 5.32 5.41 5.50 5.58 5.67
75 5.18 5.28 5.37 5.46 5.56 5.65 5.74
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 100%
Installment Refund
<PAGE> 161
Table 1A
OPTION 3--JOINT LIFE INSTALLMENT REFUND ANNUITY
with 100% Continued to the Contingent Annuitant
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Age* of
Contingent Age* of Participant or Member
Annuitant 74 75 76 77 78 79 80
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.23 $4.24 $4.24 $4.25 $4.25 $4.26 $4.26
56 4.29 4.30 4.31 4.32 4.32 4.33 4.33
57 4.36 4.37 4.38 4.39 4.39 4.40 4.40
58 4.43 4.44 4.45 4.46 4.47 4.47 4.48
59 4.50 4.52 4.53 4.54 4.55 4.55 4.56
60 4.58 4.59 4.61 4.62 4.63 4.64 4.64
61 4.65 4.67 4.69 4.70 4.71 4.72 4.73
62 4.73 4.75 4.77 4.78 4.80 4.81 4.82
63 4.81 4.83 4.85 4.87 4.89 4.90 4.91
64 4.89 4.92 4.94 4.96 4.98 5.00 5.01
65 4.97 5.00 5.03 5.05 5.07 5.09 5.11
66 5.06 5.09 5.12 5.15 5.18 5.20 5.22
67 5.15 5.18 5.22 5.25 5.28 5.30 5.32
68 5.23 5.28 5.31 5.35 5.38 5.41 5.44
69 5.32 5.37 5.41 5.45 5.49 5.52 5.55
70 5.41 5.46 5.51 5.56 5.60 5.64 5.67
71 5.50 5.56 5.61 5.66 5.71 5.75 5.79
72 5.58 5.65 5.71 5.77 5.82 5.87 5.92
73 5.67 5.74 5.81 5.87 5.94 5.99 6.04
74 5.75 5.83 5.91 5.98 6.05 6.11 6.17
75 5.83 5.92 6.00 6.08 6.16 6.23 6.30
</TABLE>
* Age for the purpose of this table is age last birthday on the Participant's or
Member's Annuity Commencement Date.
Table 1
Option 3
Joint Life 100%
Installment Refund
<PAGE> 162
<TABLE>
<CAPTION>
TABLE 1A
OPTION 4 -- SINGLE LIFE INSTALLMENT REFUND ANNUITY
Amount of Monthly Annuity Purchased by $1,000
Monthly
Age* Annuity
---- -------
<S> <C>
50 $ 3.95
51 4.01
52 4.07
53 4.13
54 4.20
55 4.27
56 4.34
57 4.42
58 4.50
59 4.58
60 4.67
61 4.76
62 4.85
63 4.96
64 5.06
65 5.18
66 5.29
67 5.42
68 5.54
69 5.69
70 5.84
71 6.00
72 6.16
73 6.34
74 6.52
75 6.72
76 6.93
77 7.14
78 7.37
79 7.62
80 7.78
</TABLE>
* Age for the purpose of this table is age last birthday on Annuity Commencement
Date.
Table 1
Option 4
Single Life Installment Refund
<PAGE> 163
TABLE 1A
OPTION 5 -- FIXED PERIOD ANNUITY
Amount of Monthly Annuity Purchased by $1,000
<TABLE>
<CAPTION>
Number Monthly
of Years Annuity
-------- -------
<S> <C>
5 $ 17.91
6 15.14
7 13.16
8 11.68
9 10.53
10 9.61
11 8.86
12 8.24
13 7.71
14 7.26
15 6.87
</TABLE>
Table 1
Option 5
Fixed Period
<PAGE> 164
APPLICATION FOR GROUP ANNUITY CONTRACT
APPLICATION IS MADE TO PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 High Street
Des Moines, Iowa 50309 Fill out one shaded
section below, and
the remainder of
this application
If Plan is TRUSTEED, include exact name of Employer and Plan & Trustee's City &
State:
By: Trustees of Rockford Corporation 401K Retirement Savings Plan
-----------------------------------------------------------------------------
(e.g., Trustees of ABC Co, Inc. Retirement Plan)
Tempe, Arizona
- --------------------------------------------------------------------------------
Trustee's City & State
If Plan is NOT TRUSTEED, include exact name of Employer and Employer's City &
State:
By:
-----------------------------------------------------------------------------
(e.g., XYZ Co., Inc.)
(Employer's City & State)
- --------------------------------------------------------------------------------
The Applicant applies for the following Group Annuity Contract:
<TABLE>
<S> <C>
[_] Deposit Administration (DA) [_]Immediate Participation Guarantee (IPG)
[X] Flexible Investment Annuity (FIA)(full) [_]Plan Investment Choices (PIC)
[_] Guaranteed Interest Funds (GIF) [_]Retirement Investment Annuity (RIA)
[_] Flexible Investment Annuity-1 (FIA-1) [_]Single Premium (SP)
</TABLE>
[_]
----------------------------------------------------------------------------
(Fill in exact contract type)
State of delivery of this contract shall be Arizona
- --------------------------------------------------------------------------------
Trustees' state or Employer's state
Advance payment of $500. 00 is submitted with this application to be applied
under the contract.
The effective date of the contract shall be February 1, 1990 .
- --------------------------------------------------------------------------------
(This date may not be before the Plan's effective
date or before approval of the selected contract by
the State Insurance Department.)
It is agreed that acceptance of any contract issued shall constitute approval by
the applicant of the provisions in such contract as being in accord with this
application.
A determination letter stating that the applicant's plan (including any pending
changes) qualifies under Section 401(a) of the Internal Revenue Code
[X] has been or will be requested. [_]has been received. [_] is not intended to
be requested.
The designated agent(s) for this Group Contract is:
The Fringe Benefit Company
- --------------------------------------------------------------------------------
Name of Agent(s) or Firm
- --------------------------------------------------------------------------------
Signature of Soliciting Agent(s) (if more than one, all must sign)
Signed at Tempe, AZ this 31 day of Jan , 19 90
/s/ Trustee
- ----------------------------------- ---------------------------------------
Name Title (Trustee. if applicable
(Must be signed by an individual that has authority legally to bind the
applicant.)
<PAGE> 165
[THE PRINCIPAL FINANCIAL GROUP LOGO]
<PAGE> 166
GROUP CONTRACT GA 89765 AMENDMENT NO. I
WE , US, OUR means Principal Mutual Life Insurance Company
CONTRACTHOLDER means TRUSTEES OF ROCKFORD CORPORATION 401K RETIREMENT SAVINGS
PLAN
IT IS MUTUALLY AGREED BY THE UNDERSIGNED THAT THIS GROUP CONTRACT, ISSUED BY US
TO THE CONTRACTHOLDER, IS AMENDED AS PROVIDED BELOW:
EFFECTIVE JUNE 19, 1995,
BY ADDING THE FOLLOWING:
RIDER: GP R 20391-1
RIDER: GP R 35909
RIDER: GP R 35910
RIDER: GP R 35911
RIDER: GP R 35912
RIDER: GP R 35913
RIDER: GP R 35914
THE PROVISIONS AND CONDITIONS SET FORTH ON ANY PAGE OF THIS AMENDMENT ARE A PART
OF THIS GROUP CONTRACT AS FULLY AS IF RECITED OVER THE SIGNATURES ON THIS PAGE.
THIS AMENDMENT WILL NOT BECOME EFFECTIVE UNLESS WE RECEIVE A COPY SIGNED BY THE
CONTRACTHOLDER AT OUR HOME OFFICE IN DES MOINES, IOWA, WITHIN 30 DAYS FOLLOWING
THE DATE WE SIGN IT OR WITHIN SUCH LONGER PERIOD AS WE MAY ALLOW.
Signed for us on JUN 26 1995 BY
/s/ /s/
Vice President and President
Corporate Secretary
/s/
------------------------
Registrar
Signed for CONTRACTHOLDER by
/s/ Corporate Controller 6/29/95
------------------------ -------------------- ----------------------
Name Title Date
[THE PRINCIPAL FINANCIAL GROUP LOGO]
<PAGE> 167
SEPARATE INVESTMENT RIDER
REAL ESTATE SEPARATE ACCOUNT
This rider is made a part of the Group Annuity Contract issued by us to which it
is attached. All terms defined in the contract and any of its attached riders
have the same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our Real
Estate Separate Account.
The effective date of this rider is the Contract Date unless otherwise stated in
the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to this contract:
1. REAL ESTATE SEPARATE ACCOUNT. The Real Estate Separate Account
is a pooled Separate Account for use by our retirement plan
customers. It is invested by us primarily in real estate such
as office buildings, industrial buildings, shopping centers,
retail stores, and similar property which meets the investment
objectives of this Account. Funds not currently committed to
acquire new property or needed to maintain existing property
will be invested in short term money market instruments, cash
or cash equivalents. We will invest or reinvest the assets
held in Real Estate Separate Account in accordance with
applicable law without regard to any investment requirements
of our general account assets or any of our other Separate
Accounts.
2. DETERMINING REAL ESTATE SEPARATE ACCOUNT VALUE; UNIT VALUES.
We will determine the value of Real Estate Separate Account on
each Valuation Date. The value of the properties held in the
Account is their appraised market value. Its value takes into
account the market value of any other assets held in the
Account and is reduced by any liabilities of the Account,
including operating expenses of the Account and a pro-rata
portion of our Investment Management Charge. If there is no
readily available market, the value of the Account is the fair
value of its assets, as determined by us using generally
accepted accounting practices and applicable law.
The value of Real Estate Separate Account shall be expressed
in units. The Unit Value for Real Estate Separate Account at
its inception was $100.00. Contributions or transfers
deposited in Real Estate Separate Account shall be converted
to units using the Unit Value on the Valuation Date the
Contribution or transfer is deposited in the Account. On any
Valuation Date occurring after its date of inception, the Unit
Value of Real Estate Separate Account shall be equal to its
then-current dollar value of the Account on such date divided
by the number of units in Real Estate Separate Account, before
any adjustments for Contributions or transfers to and
applications from the Account on such date.
Operating expenses are the external expenses we incur in the
operation of Real Estate Separate Account and include any
local property management fees.
INVESTMENT MANAGEMENT CHARGE is an annual charge to cover
internal investment management expenses based on the value of
the assets of Real Estate Separate Account.
-2-
<PAGE> 168
This annual charge is currently 1.05%. We reserve the right to
change the amount of charge by giving you written notice at
least 30 days before the change is to take effect.
3. SEPARATE INVESTMENT REAL ESTATE ACCOUNT. A Separate Investment
Real Estate Account is established for each Member for each
type of contribution he directs to Real Estate Separate
Account. The value of a Separate Investment Real Estate
Account is its proportionate share of the value of Real Estate
Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Real Estate Separate Account Units in
the Separate Investment Real Estate Account as of the
Valuation Date.
b) The Real Estate Separate Account Unit Value as of the
Valuation Date, determined as described in Item 2 of
this rider.
Contributions or transfers to a Separate Investment Real
Estate Account increase the number of Real Estate Separate
Account Units credited to it; applications from the account
reduce the number of units. This increase or decrease is
determined by dividing the amount to be credited to or applied
from the Separate Investment Real Estate Account by the Real
Estate Separate Account Unit Value on the Valuation Date on
which a Contribution or transfer is deposited or an
application is made.
4. DEPOSITS. We reserve the right to defer placing Contributions
and transfers in Real Estate Separate Account. Placement in
the Account will be based on the current real estate
investment opportunities available to it and the amount of
funds needed to acquire additional property or to maintain
existing property.
Any Contributions or transfers directed to Real Estate
Separate Account which are deferred will instead be held in
our short term account, Separate Account LI, until a Valuation
Date when transfer to Real Estate Separate Account may be
made.
5. ORDER OF ENTRY. Since Real Estate Separate Account may not be
open on any given Valuation Date to accept all funds directed
by our customers to it, we have established the following
order of entry:
a) All amounts held in Separate Account LI waiting for
transfer to Real Estate Separate Account.
b) Any amounts held in any other Separate Account or in
our general account which are to be transferred to
Real Estate Separate Account.
Within each of the above two categories, funds will be
transferred one customer at a time, in order from the oldest
waiting request to the newest request. All amounts held in
Separate Account LI which are directed to Real Estate Separate
Account will be transferred before any funds are transferred
under Item (b).
Normally, either all or no part of an intended transfer under
this rider to Real Estate Separate Account will be made. If
the amount of the intended transfer is greater than the amount
open for acceptance by Real Estate Separate Account, the
entire amount of the transfer will continue to be held in
Separate Account LI until the Valuation Date
-3-
<PAGE> 169
complete transfer may be made. However, we and the Member may
mutually agree to transfer only a portion of the intended
amount to Real Estate Separate Account.
We will notify you in writing when amounts have been
transferred to Real Estate Separate Account.
A Member may revoke his request for transfer of funds to Real
Estate Separate Account by giving us written notice prior to
the date transfer is made. The notice must also include new
investment directions for the intended transfer.
6. TRANSFERS AND PAYMENTS FROM THE SEPARATE INVESTMENT REAL
ESTATE FUND. We will. upon receipt of written request from you
and/or the Member, as permitted by the Plan,
a) transfer to his General Investment Account or another
Separate Investment Account all or any portion of his
Separate Investment Real Estate Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Separate Investment Real Estate
Account, or
c) pay to the Member an amount equal to all or any
portion of his Separate Investment Real Estate
Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive your written request or
(ii) a later Valuation Date specified in your request, subject
to our right to defer a transfer or payment as described in
Item 7 of this rider. We are not responsible for the
application of amounts transferred to an Alternate Funding
Agent.
The amount transferred or paid will be deducted from the
Separate Investment Real Estate Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
7. LIMITATIONS ON TRANSFERS FROM A SEPARATE INVESTMENT REAL
ESTATE ACCOUNT. In general, transfers and payments from a
Separate Investment Real Estate Account normally will be made
within seven business days after the Valuation Date specified
in Item 6. However, because of the illiquid nature of the
assets in which Real Estate Separate Account is invested, we
reserve the right to defer transfers or payments from a
Separate Investment Real Estate Account if a transfer or
payment would exceed the amount of cash and other liquid
assets held in Real Estate Separate Account, reduced by
amounts committed to purchase properties or needed for
operating expenses. Real Estate Separate Account may be
illiquid for indefinite periods of time because we do not
intend to sell properties to meet requests for transfer or
payment. Real Estate Separate Account will not be managed to
provide a liquidity pool for expected, but not yet received,
requests for transfer or payment.
If requests for transfer or payment from Real Estate Separate
Account are deferred, then the deferred transfers or payments,
when made, will be made in the following order:
a) Any death benefits payable under a defined
contribution plan.
-4-
<PAGE> 170
b) All other requests for transfer or payment.
All death benefit payments from defined contribution plans
will be made before any other requests for transfer or
payment. Once these death benefits have been paid, other
requests will be paid in order of the dates we received the
requests.
Deferred transfers or payments, When paid, will be made as of
a Valuation Date and will be based on the Real Estate Separate
Account Unit Value as of the date paid.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
-5-
<PAGE> 171
SEPARATE INVESTMENT RIDER
BOND EMPHASIS BALANCED SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our
balanced account called Bond Emphasis Balanced Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract:
1. BOND EMPHASIS BALANCED SEPARATE ACCOUNT. Bond Emphasis
Balanced Separate Account is a pooled Separate Account for use
by our retirement plan customers. It is invested by us in
other Separate Accounts established and maintained by us. The
majority of the assets will be invested in one or more of our
Separate Accounts invested primarily in bonds, mortgages,
commercial paper and other fixed income type investments. The
remainder of the assets of this Separate Account will be
invested in one or more of our Separate Accounts invested
primarily in common stocks and other equity investments. We
may also, at our option, occasionally invest in short term
money market instruments, cash or cash equivalents. We will
invest or reinvest the assets held in Bond Emphasis Balanced
Separate Account in accordance with applicable law, without
regard to any investment requirements of our general account
assets or of any investment requirements of our other Separate
Accounts.
The assets of Bond Emphasis Balanced Separate Account will pay
investment management charges under our other Separate
Accounts in which they are invested. An additional investment
management charge will be charged under this Separate Account
only for investment management services actually performed
exclusively for assets held in this Separate Account.
Currently no additional investment management charges are
assessed under this Separate Account. We reserve the right to
change the amount of the investment management charge at any
time by giving you written notice at least 30 days before the
date change is to take effect. In no event will the sum of the
investment management charges exceed 2.00% of the value of the
assets of Bond Emphasis Balanced Separate Account.
2. DETERMINING BOND EMPHASIS BALANCED SEPARATE ACCOUNT VALUE;
UNIT VALUES. The value of Bond Emphasis Balanced Separate
Account is the sum of the values of the assets of the Separate
Account. The assets of Bond Emphasis Balanced Separate Account
consist of amounts invested in other Separate Accounts
maintained by us. The value of the portion of the Bond
Emphasis Balanced Separate Account invested in any given
Separate Account will be the market value of the amount so
invested under the terms of the Separate Account in which it
is held. We will determine the value of Bond Emphasis Balanced
Separate Account on each Valuation Date.
The value of Bond Emphasis Balanced Separate Account may be
expressed in units. A Unit Value is the dollar value of one
unit held in Bond Emphasis Balanced Separate
<PAGE> 172
Account. We will determine the Unit Value of Bond Emphasis
Balanced Separate Account on each Valuation Date. The Unit
Value is equal to the market value of Bond Emphasis Balanced
Separate Account divided by the total number of Bond Emphasis
Balanced Separate Account Units on such date.
The initial Unit Value of one unit of Bond Emphasis Balanced
Separate Account was $10.00. The Unit Value for Contributions
or transfers added to Bond Emphasis Balanced Separate Account
after its date of inception will be the Unit Value of Bond
Emphasis Balanced Separate Account on the Valuation Date the
Contribution or transfer is accepted at our home office. If a
Contribution or transfer is received on any date other than a
Valuation Date, the Unit Value for such Contribution or
transfer will be determined on the next following Valuation
Date. On any Valuation Date occurring after its date of
inception, the Unit Value of Bond Emphasis Balanced Separate
Account will be equal to the market value of Bond Emphasis
Balanced Separate Account on such date divided by the number
of Bond Emphasis Balanced Separate Account Units before any
adjustments for Contributions or transfers to and applications
from Bond Emphasis Balanced Separate Account on such date.
3. BOND EMPHASIS BALANCED SEPARATE INVESTMENT ACCOUNT. A Bond
Emphasis Balanced Separate Investment Account is established
for each Member for each type of Contribution he directs to
Bond Emphasis Balanced Separate Account. The value of a Bond
Emphasis Balanced Separate Investment Account is its
proportionate share of the value of Bond Emphasis Balanced
Separate Account. This value will be determined in each
Valuation Date by multiplying (a) by (b):
a) The number of Bond Emphasis Balanced Separate Account
Units in the Bond Emphasis Balanced Separate
Investment Account as of the Valuation Date.
b) The Bond Emphasis Balanced Separate Account Unit
Value as of the Valuation Date, as determined in Item
2 of this rider.
Contributions or transfers to a Bond Emphasis Balanced
Separate Investment Account increase the number of Bond
Emphasis Balanced Separate Account Units credited to it;
applications from the account reduce the number of units. This
increase or decrease is determined by dividing the amount to
be credited to or applied from the account by the Bond
Emphasis Balanced Separate Account Unit Value on the Valuation
Date on which a Contribution or transfer was credited or an
application was made.
4. TRANSFERS FROM A BOND EMPHASIS BALANCED SEPARATE INVESTMENT
ACCOUNT. We will, upon receipt of Notification from you and/or
a Member, as the Plan permits,
a) transfer to his General Investment Account all or any
portion of his Bond Emphasis Balanced Separate
investment Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Bond Emphasis Balanced Separate
Investment Account, or
c) pay the Member an amount equal to all or any portion
of his Bond Emphasis Balanced Separate Investment
Account.
-2-
<PAGE> 173
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or (ii) a
later Valuation Date specified in the request, subject to our
right to defer a transfer or payment as described in Item 5 of
this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A BOND EMPHASIS
BALANCED SEPARATE INVESTMENT ACCOUNT. In general, transfers
and payments from the Bond Emphasis Balanced Separate
Investment Account will be made within seven business days
after the Valuation Date specified in Item 4. We reserve the
right, however, to defer such transfers for a period not to
exceed 270 days.
However, if in the 36-month period which ends on the requested
date of transfer, all transfers and payments from the total of
all Bond Emphasis Balanced Separate Investment Accounts '
total $20,000,000 or more, then we reserve the right to make
the portion of the requested transfer or payment in excess of
$20,000,000 in substantially equal installments over a period
not to exceed 36 months. For purposes of this limitation,
transfers and payments from any separate investment accounts
or funds under other contracts included in Bond Emphasis
Balanced Separate Account in connection with the Plan or with
any other retirement plan of the Employer will be included as
a transfer or payment from a Bond Emphasis Balanced Separate
Investment Account. If this limitation is imposed by us, the
first installment will be made one month after the date of
request, or on such later date specified by you.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Member's Bond
Emphasis Balanced Separate Investment Account will continue to
participate in the Bond Emphasis Balanced Separate Account
until the date transfer or payment occurs. We will notify you
in the event of any deferment of more than 30 days under the
provisions of this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
-3-
<PAGE> 174
SEPARATE INVESTMENT RIDER
STOCK EMPHASIS BALANCED SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow this contract to participate in our
balanced account called Stock Emphasis Balanced Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract:
1. STOCK EMPHASIS BALANCED SEPARATE ACCOUNT. Stock Emphasis
Balanced Separate Account is a pooled Separate Account for use
by our retirement plan customers. It is invested by us in
other Separate Accounts established and maintained by us. The
majority of it is invested in one or more of our Separate
Accounts invested primarily in common stocks and other equity
investments. The remainder of the assets of this Separate
Account will be invested in one or more of our Separate
Accounts invested primarily in bonds, mortgages, commercial
paper and other fixed income type investments. We may also, at
our option, occasionally invest in short term money market
instruments, cash or cash equivalents. We will invest or
reinvest the assets held in the Stock Emphasis Balanced
Separate Account in accordance with applicable law, without
regard to any investment requirements of our general account
assets or of any investment requirements of our other Separate
Accounts.
The assets of Stock Emphasis Balanced Separate Account will
pay investment management charges under our other Separate
Accounts in which they are invested. An additional investment
management charge will be charged under this Separate Account
only for investment management services actually performed
exclusively for assets held in this Separate Account.
Currently, no additional investment management charges are
assessed under this Separate Account. We reserve the right to
change the amount of the investment management charge at any
time by giving you written notice at least 30 days before the
date change is to take effect. In no event will the sum of the
investment management charges exceed 2.00% of the value of the
assets of Stock Emphasis Balanced Separate Account.
2. DETERMINING STOCK EMPHASIS BALANCED SEPARATE ACCOUNT VALUE;
UNIT VALUES. The value of Stock Emphasis Balanced Separate
Account is the sum of the values of the assets of the Separate
Account. The assets of Stock Emphasis Balanced Separate
Account consist of amounts invested in other Separate Accounts
maintained by us. The value of the portion of the Stock
Emphasis Balanced Separate Account invested in any given
Separate Account will be the market value of the amount so
invested under the terms of the Separate Account in which it
is held. We will determine the value of Stock Emphasis
Balanced Separate Account on each Valuation Date.
The value of Stock Emphasis Balanced Separate Account may be
expressed in units. A Unit Value is the dollar value of one
unit held in Stock Emphasis Balanced Separate
<PAGE> 175
Account. We will determine the Unit Value of Stock Emphasis
Balanced Separate Account on each Valuation Date. The Unit
Value is equal to the market value of Stock Emphasis Balanced
Separate Account divided by the total number of Stock Emphasis
Balanced Separate Account Units on such date.
The initial Unit Value of one unit of Stock Emphasis Balanced
Separate Account was $10.00. The Unit Value for Contributions
or transfers added to Stock Emphasis Balanced Separate Account
after its date of inception will be the Unit Value of Stock
Emphasis Balanced Separate Account on the Valuation Date the
Contribution or transfer is accepted at our home office. If a
Contribution or transfer is received on any date other than a
Valuation Date, the Unit Value for such Contribution or
transfer will be determined on the next following Valuation
Date. On any Valuation Date occurring after its date of
inception, the Unit Value of Stock Emphasis Balanced Separate
Account will be equal to the market value of Stock Emphasis
Balanced Separate Account on such date divided by the number
of Stock Emphasis Balanced Separate Account Units before any
adjustments for Contributions or transfers to and applications
from Stock Emphasis Balanced Separate Account on such date.
3. STOCK EMPHASIS BALANCED SEPARATE INVESTMENT ACCOUNT. A Stock
Emphasis Balanced Separate Investment Account is established
for each Member for each type of Contribution he directs to
Stock Emphasis Balanced Separate Account. The value of a Stock
Emphasis Balanced Separate Investment Account is its
proportionate share of the value of Stock Emphasis Balanced
Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Stock Emphasis Balanced Separate
Account Units in the Stock Emphasis Balanced Separate
Investment Account as of the Valuation Date.
b) The Stock Emphasis Balanced Separate Account Unit
Value as of the Valuation Date, as determined in Item
2 of this rider.
Contributions or transfers to a Stock Emphasis Balanced
Separate Investment Account increase the number of Stock
Emphasis Balanced Separate Account Units credited to it;
applications from the account reduce the number of units. This
increase or decrease is determined by dividing the amount to
be credited to or applied from the account by the Stock
Emphasis Balanced Separate Account Unit Value on the Valuation
Date on which a Contribution or transfer was credited or an
application was made.
4. TRANSFERS FROM A STOCK EMPHASIS BALANCED SEPARATE INVESTMENT
ACCOUNT. We will, upon receipt of Notification from you and/or
a Member, as the Plan permits,
a) transfer to his General Investment Account all or any
portion of his Stock Emphasis Balanced Separate
Investment Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Stock Emphasis Balanced Separate
Investment Account, or
c) pay the Member an amount equal to all or any portion
of his Stock Emphasis Balanced Separate Investment
Account.
-2-
<PAGE> 176
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or (ii) a
later Valuation Date specified in the request, subject to our
right to defer a transfer or payment as described in Item 5 of
this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent.
The amount transferred or paid will be deducted from the Stock
Emphasis Balanced Separate Investment Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
5. LIMITATIONS ON TRANSFERS FROM A STOCK EMPHASIS BALANCED
SEPARATE INVESTMENT ACCOUNT. In general, transfers and
payments from the Stock Emphasis Balanced Separate Investment
Account will be made within seven business days after the
Valuation Date specified in Item 4. We reserve the right,
however, to defer such transfers for a period not to exceed
270 days.
However, if in the 36-month period which ends on the requested
date of transfer, all transfers and payments from the total of
all Stock Emphasis Balanced Separate Investment Accounts total
$20,000,000 or more, then we reserve the right to make the
portion of the requested transfer or payment in excess of
$20,000,000 in substantially equal installments over a period
not to exceed 36 months. For purposes of this limitation,
transfers and payments from any separate investment accounts
or funds under other contracts included in Stock Emphasis
Balanced Separate Account in connection with the Plan or with
any other retirement plan of the Employer will be included as
a transfer or payment from a Stock Emphasis Balanced Separate
Investment Account. If this limitation is imposed by us, the
first installment will be made one month after the date of
request, or on such later date specified by you.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Member's all
Stock Emphasis Balanced Separate Investment Account will
continue to participate in the Stock Emphasis Balanced
Separate Account until the date transfer or payment occurs. We
will notify you in the event of any deferment of more than 30
days under the provisions of this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
-3-
<PAGE> 177
SEPARATE INVESTMENT RIDER
GOVERNMENT SECURITIES SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our fixed
income account called Government Securities Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract.
1. GOVERNMENT SECURITIES SEPARATE ACCOUNT. Government Securities
Separate Account is a pooled Separate Account for use by our
retirement plan customers. It is invested by us primarily in
obligations issued or guaranteed by agencies and
instrumentalities of the United States Government including,
but not limited to, Government National Mortgage Association,
Federal National Mortgage Association, Federal Home Loan
Mortgage Association and Student Loan Marketing Association.
In addition, we may invest in direct obligations of the U.S.
Treasury such as notes, bonds, and bills. We may also invest
in short term money market instruments, cash or cash
equivalents. We will invest and reinvest the assets held in
Government Securities Separate Account in accordance with
applicable law, without regard to any investment requirements
of our general account assets or any of our other Separate
Accounts.
The investment management charge under Government Securities
Separate Account is based on the value of its assets. The
pro-rata charge for investment management will be deducted
from Government Securities Separate Account on each Valuation
Date for the number of calendar days within the Valuation
Period ending on such Valuation Date.
The annual investment management charge for Government
Securities Separate Account will not at any time exceed 2.00%
of the value of its assets. Currently, the annual investment
management charge for Government Securities Separate Account
is 0.45% of the value of its assets. We reserve the right to
change the amount of charge for investment management up to
the 2.00% limit at any time by giving you written notice at
least 30 days before the date the change is to take effect.
2. DETERMINING GOVERNMENT SECURITIES SEPARATE ACCOUNT VALUE; UNIT
VALUES. The value of Government Securities Separate Account is
its market value. If there is no readily ascertainable market
value, its value is the fair value of the assets held in such
Separate Account, as determined by us using generally accepted
accounting practices and applicable law. We will determine the
value of Government Securities Separate Account on each
Valuation Date.
The value of Government Securities Separate Account will be
expressed in units. A Unit Value is the dollar value of one
unit held in Government Securities Separate Account. We will
determine the Unit Value of Government Securities Separate
Account on each Valuation Date. This Unit Value is equal to
the market value of Government Securities
<PAGE> 178
Separate Account divided by the total number of Government
Securities Separate Account Units on such date.
The initial Unit Value of one unit of Government Securities
Separate Account was $10.00. The Unit Value for Contributions
or transfers added to Government Securities Separate Account
after its date of inception will be the Unit Value of
Government Securities Separate Account on the Valuation Date
the Contribution or transfer is accepted by us at our home
office. If a Contribution or transfer is received on any date
other than a Valuation Date, the Unit Value for such
Contribution or transfer will be determined on the next
following Valuation Date. On any Valuation Date occurring
after its date of inception, the Unit Value of Government
Securities Separate Account will be equal to the market value
of Government Securities Separate Account on such date divided
by the number of Government Securities Separate Account Units
before any adjustments for Contributions or transfers to and
applications from Government Securities Separate Account on
such date.
3. GOVERNMENT SECURITIES SEPARATE INVESTMENT ACCOUNT. A
Government Securities Separate Investment Account is
established for each Member for each type of Contribution he
directs to Government Securities Separate Account. The value
of a Government Securities Separate Investment Account is its
proportionate share of the value of Government Securities
Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Government Securities Separate Account
Units in the Government Securities Separate
Investment Account as of the Valuation Date.
b) The Government Securities Separate Account Unit Value
as of the Valuation Date, as determined in Item 2 of
this rider.
Contributions or transfers to a Government Securities Separate
Investment Account increase the number of Government
Securities Separate Account Units credited to it; applications
from the account reduce the number of units. This increase or
decrease is determined by dividing the amount to be credited
to or applied from the account by the Government Securities
Separate Account Unit Value on the Valuation Date on which a
Contribution or transfer was credited or an application was
made.
4. TRANSFERS FROM A GOVERNMENT SECURITIES SEPARATE INVESTMENT
ACCOUNT. We will, upon receipt of Notification from you and/or
a Member, as the Plan permits,
a) transfer to his General Investment Account all or any
portion of his Government Securities Separate
investment Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Government Securities Separate
Investment Account, or
c) pay the Member an amount equal to all or any portion
of his Government Securities Separate Investment
Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or
-2-
<PAGE> 179
(ii) a later Valuation Date specified in the request, subject
to our right to defer a transfer or payment as described in
Item 5 of this rider. We are not responsible for the
application of amounts transferred to an Alternate Funding
Agent.
The amount transferred or paid will be deducted from the
Government Securities Separate Investment Account and will be
an application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A GOVERNMENT
SECURITIES SEPARATE INVESTMENT ACCOUNT. In general, transfers
and payments from the Government Securities Separate
Investment Account will be made within seven business days
after the Valuation Date specified in Item 4. We reserve the
right, however, to defer such transfers for a period not to
exceed 90 days.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Members
Government Securities Separate Investment Account will
continue to participate in the Government Securities Separate
Account until the date transfer or payment occurs. We will
notify you in the event of any deferment of more than 30 days
under the provisions of this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
-3-
<PAGE> 180
SEPARATE INVESTMENT RIDER
GROWTH STOCK SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our stock
account called Growth Stock Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract.
1. GROWTH STOCK SEPARATE ACCOUNT. Growth Stock Separate Account
is a pooled Separate Account for use by our retirement plan
customers. It is invested by us primarily in common stocks,
derivative instruments such as options and futures, other
equity securities, or other convertible securities that may be
converted to common stocks. The investments to be considered
generally will be from large, established companies whose
earnings are expected to grow at above average rates. We may
also, at our option, occasionally invest in short term money
market instruments, cash or cash equivalents. We will invest
and reinvest the assets held in Growth Stock Separate Account
in accordance with applicable law, without regard to any
investment requirements of our general account assets or any
of our other Separate Accounts.
The investment management charge under Growth Stock Separate
Account is based on the value of its assets. The pro-rata
charge for investment management will be deducted from Growth
Stock Separate Account on each Valuation Date for the number
of calendar days within the Valuation Period ending on such
Valuation Date.
The annual investment management charge for Growth Stock
Separate Account will not at any time exceed 2.00% of the
value of its assets. Currently, the annual investment
management charge for Growth Stock Separate Account is 0.45%
of the value of its assets. We reserve the right to change the
amount of charge for investment management up to the 2.00%
limit at any time by giving you written notice at least 30
days before the date the change is to take effect.
2. DETERMINING GROWTH STOCK SEPARATE ACCOUNT VALUE; UNIT VALUES.
The value of Growth Stock Separate Account is its market
value. If there is no readily ascertainable market value, its
value is the fair value of the assets held in such Separate
Account, as determined by us using generally accepted
accounting practices and applicable law. We will determine the
value of Growth Stock Separate Account on each Valuation Date.
The value of Growth Stock Separate Account will be expressed
in units. A Unit Value is the dollar value of one unit held in
Growth Stock Separate Account. We will determine the Unit
Value of Growth Stock Separate Account on each Valuation Date.
This Unit Value is equal to the market value of Growth Stock
Separate Account divided by the total number of Growth Stock
Separate Account Units on such date.
<PAGE> 181
The initial Unit Value of one unit of Growth Stock Separate
Account was $10.00. The Unit Value for Contributions or
transfers added to Growth Stock Separate Account after its
date of inception will be the Unit Value of Growth Stock
Separate Account on the Valuation Date the Contribution or
transfer is accepted by us at our home office. If a
Contribution or transfer is received on any date other than a
Valuation Date, the Unit Value for such Contribution or
transfer will be determined on the next following Valuation
Date. On any Valuation Date occurring after its date of
inception, the Unit Value of Growth Stock Separate Account
will be equal to the market value of Growth Stock Separate
Account on such date divided by the number of Growth Stock
Separate Account Units before any adjustments for
Contributions or transfers to and applications from Growth
Stock Separate Account on such date.
3. GROWTH STOCK SEPARATE INVESTMENT ACCOUNT. A Growth Stock
Separate Investment Account is established for each Member for
each type of Contribution he directs to Growth Stock Separate
Account. The value of a Growth Stock Separate Investment
Account is its proportionate share of the value of Growth
Stock Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Growth Stock Separate Account Units in
the Growth Stock Separate Investment Account as of
the Valuation Date.
b) The Growth Stock Separate Account Unit Value as of
the Valuation Date, as determined in Item 2 of this
rider.
Contributions or transfers to a Growth Stock Separate
Investment Account increase the number of Growth Stock
Separate Account Units credited to it; applications from the
account reduce the number of units. This increase or decrease
is determined by dividing the amount to be credited to or
applied from the account by the Growth Stock Separate Account
Unit Value on the Valuation Date on which a Contribution or
transfer was credited or an application was made.
4. TRANSFERS FROM A GROWTH STOCK SEPARATE INVESTMENT ACCOUNT. We
will, upon receipt of Notification from you and/or a Member,
as the Plan permits,
a) transfer to his General Investment Account all or any
portion of his Growth Stock Separate Investment
Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Growth Stock Separate Investment
Account, or
c) pay the Member an amount equal to all or any portion
of his Growth Stock Separate Investment Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or (ii) a
later Valuation Date specified in the request, subject to our
right to defer a transfer or payment as described in Item 5 of
this rider. We are not responsible for the application of
amounts transferred to an Alternate Funding Agent.
-2-
<PAGE> 182
The amount transferred or paid will be deducted from the
Growth Stock Separate Investment Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A GROWTH STOCK
SEPARATE INVESTMENT ACCOUNT. In general, transfers and
payments from the Growth Stock Separate Investment Account
will be made within seven business days after the Valuation
Date specified in Item 4. We reserve the right, however, to
defer such transfers for a period not to exceed 270 days.
However, if in the 36-month period which ends on the requested
date of transfer, all transfers and payments from the total of
all Growth Stock Separate Investment Accounts total
$20,000,000 or more, then we reserve the right to make the
portion of the requested transfer or payment in excess of
$20,000,000 in substantially equal installments over a period
not to exceed 36 months. For purposes of this limitation,
transfers and payments from any separate investment accounts
or funds under other contracts included in Growth Stock
Separate Account in connection with the Plan or with any other
retirement plan of the Employer will be included as a transfer
or payment from a Growth Stock Separate Investment Account. If
this limitation is imposed by us, the first installment will
be made one month after the date of request, or on such later
date specified by you.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Member's Growth
Stock Separate Investment Account will continue to participate
in the Growth Stock Separate Account until the date transfer
or payment occurs. We will notify you in the event of any
deferment of more than 30 days under the provisions of this
Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
-3-
<PAGE> 183
SEPARATE INVESTMENT RIDER
SMALL COMPANY STOCK SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our stock
account called Small Company Stock Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract.
1. SMALL COMPANY STOCK SEPARATE ACCOUNT. Small Company Stock
Separate Account is a pooled Separate Account for use by our
retirement plan customers. It is invested by us primarily in
common stocks, derivative instruments such as options and
futures, other equity securities, or other convertible
securities that may be converted to common stocks. The
investments to be considered generally will be from U.S.
companies that are smaller than the 500 largest U.S. companies
and whose earnings are expected to grow at above average
rates. We may also, at our option, occasionally invest in
short term money market instruments, cash or cash equivalents.
We will invest and reinvest the assets held in Small Company
Stock Separate Account in accordance with applicable law,
without regard to any investment requirements of our general
account assets or any of our other Separate Accounts.
The investment management charge under Small Company Stock
Separate Account is based on the value of its assets. The
pro-rata charge for investment management will be deducted
from Small Company Stock Separate Account on each Valuation
Date for the number of calendar days within the Valuation
Period ending on such Valuation Date.
The annual investment management charge for Small Company
Stock Separate Account will not at any time exceed 2.00% of
the value of its assets. Currently, the annual investment
management charge for Small Company Stock Separate Account is
0.45% of the value of its assets. We reserve the right to
change the amount of charge for investment management up to
the 2.00% limit at any time by giving you written notice at
least 30 days before the date the change is to take effect.
2. DETERMINING SMALL COMPANY STOCK SEPARATE ACCOUNT VALUE; UNIT
VALUES. The value of Small Company Stock Separate Account is
its market value. If there is no readily ascertainable market
value, its value is the fair value of the assets held in such
Separate Account, as determined by us using generally accepted
accounting practices and applicable law. We will determine the
value of Small Company Stock Separate Account on each
Valuation Date.
The value of Small Company Stock Separate Account will be
expressed in units. A Unit Value is the dollar value of one
unit held in Small Company Stock Separate Account. We will
determine the Unit Value of Small Company Stock Separate
Account on each Valuation Date. This Unit Value is equal to
the market value of Small Company Stock
<PAGE> 184
Separate Account divided by the total number of Small Company
Stock Separate Account Units on such date.
The initial Unit Value of one unit of Small Company Stock
Separate Account was $10.00. The Unit Value for Contributions
or transfers added to Small Company Stock Separate Account
after its date of inception will be the Unit Value of Small
Company Stock Separate Account on the Valuation Date the
Contribution or transfer is accepted by us at our home office.
If a Contribution or transfer is received on any date other
than a Valuation Date, the Unit Value for such Contribution or
transfer will be determined on the next following Valuation
Date. On any Valuation Date occurring after its date of
inception, the Unit Value of Small Company Stock Separate
Account will be equal to the market value of Small Company
Stock Separate Account on such date divided by the number of
Small Company Stock Separate Account Units before any
adjustments for Contributions or transfers to and applications
from Small Company Stock Separate Account on such date.
3. SMALL COMPANY STOCK SEPARATE INVESTMENT ACCOUNT. A Small
Company Stock Separate Investment Account is established for
each Member for each type of Contribution he directs to Small
Company Stock Separate Account. The value of a Small Company
Stock Separate Investment Account is its proportionate share
of the value of Small Company Stock Separate Account. This
value will be determined on each Valuation Date by multiplying
(a) by (b):
a) The number of Small Company Stock Separate Account
Units in the Small Company Stock Separate Investment
Account as of the Valuation Date.
b) The Small Company Stock Separate Account Unit Value
as of the Valuation Date, as determined in Item 2 of
this rider.
Contributions or transfers to a Small Company Stock Separate
Investment Account increase the number of Small Company Stock
Separate Account Units credited to it; applications from the
account reduce the number of units. This increase or decrease
is determined by dividing the amount to be credited to or
applied from the account by the Small Company Stock Separate
Account Unit Value on the Valuation Date on which a
Contribution or transfer was credited or an application was
made.
4. TRANSFERS FROM A SMALL COMPANY STOCK SEPARATE INVESTMENT
ACCOUNT. We will, upon receipt of Notification from you and/or
a Member, as the Plan permits,
a) transfer to his General Investment Account all or any
portion of the Small Company Stock Separate
Investment Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Small Company Stock Separate
Investment Account, or
c) pay the Member an amount equal to all or any portion
of his Small Company Stock Separate Investment
Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or
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(ii) a later Valuation Date specified in the request, subject
to our right to defer a transfer or payment as described in
Item 5 of this rider. We are not responsible for the
application of amounts transferred to an Alternate Funding
Agent.
The amount transferred or paid will be deducted from the Small
Company Stock Separate Investment Account and will be an
application from such account as of the date transferred or
paid. Each transfer to another Separate Investment Account may
occur only on a Valuation Date of such Separate Investment
Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A SMALL COMPANY
STOCK SEPARATE INVESTMENT ACCOUNT. In general, transfers and
payments from the Small Company Stock Separate Investment
Account will be made within seven business days after the
Valuation Date specified in Item 4. We reserve the right,
however, to defer such transfers or payments for a period not
to exceed 270 days.
However, if in the 36-month period which ends on the requested
date of transfer, all transfers and payments from the total of
all Small Company Stock Separate Investment Accounts total
$20,000,000 or more, then we reserve the right to make the
portion of the requested transfer or payment in excess of
$20,000,000 in substantially equal installments over a period
not to exceed 36 months. For purposes of this limitation,
transfers and payments from any separate investment accounts
or funds under other contracts included in Small Company Stock
Separate Account in connection with the Plan or with any other
retirement plan of the Employer will be included as a transfer
or payment from a Small Company Stock Separate Investment
Account. If this limitation is imposed by us, the first
installment will be made one month after the date of request,
or on such later date specified by you.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Member's all
Small Company Stock Separate Investment Account will continue
to participate in the Small Company Stock Separate Account
until the date transfer or payment occurs. We will notify you
in the event of any deferment of more than 30 days under the
provisions of this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
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<PAGE> 186
SEPARATE INVESTMENT RIDER
VALUE STOCK SEPARATE ACCOUNT
This rider is added to the Group Annuity Contract issued by us of which it is a
part. All terms defined in the contract and any of its attached riders have the
same meaning where used in this rider.
The purpose of this rider is to allow the contract to participate in our stock
account called Value Stock Separate Account.
The effective date of this rider is the latest of the Contract Date, the date
this rider has been approved for use in the state of issue, or the date stated
in the amendment adding it to the contract.
Pursuant to Article II, Section 6, the following is added to the contract:
1. VALUE STOCK SEPARATE ACCOUNT. Value Stock Separate Account is
a pooled Separate Account for use by our retirement plan
customers. It is invested by us primarily in common stocks.
derivative instruments such as options and futures, other
equity securities, or other convertible securities that may be
converted to common stocks, which we view as undervalued by
the market. The investments to be considered generally will be
from financially stable companies and will have below-average
price/earnings ratios with above-average dividend yields. We
may also, at our option, occasionally invest in short term
money market instruments, cash or cash equivalents. If, in our
opinion, the market as a whole is overvalued, we may hold
assets of this account in fixed income securities instead of
stocks. We will invest and reinvest the assets held in Value
Stock Separate Account in accordance with applicable law,
without regard to any investment requirements of our general
account assets or any of our other Separate Accounts.
The investment management charge under Value Stock Separate
Account is based on the value of its assets. The pro-rata
charge for investment management will be deducted from Value
Stock Separate Account on each Valuation Date for the number
of calendar days within the Valuation Period ending on such
Valuation Date.
The annual investment management charge for Value Stock
Separate Account will hot at any time exceed 2.00% of the
value of its assets. Currently, the annual investment
management charge for Value Stock Separate Account is 0.45% of
the value of its assets. We reserve the right to change the
amount of charge for investment management up to the 2.00%
limit at any time by giving you written notice at least 30
days before the date the change is to take effect.
2. DETERMINING VALUE STOCK SEPARATE ACCOUNT VALUE; UNIT VALUES.
The value of Value Stock Separate Account is its market value.
If there is no readily ascertainable market value, its value
is the fair value of the assets held in such Separate Account,
as determined by us using generally accepted accounting
practices and applicable law. We will determine the value of
Value Stock Separate Account on each Valuation Date.
The value of Value Stock Separate Account will be expressed in
units. A Unit Value is the dollar value of one unit held in
Value Stock Separate Account. We will determine the Unit Value
of Value Stock Separate Account on each Valuation Date. This
Unit Value is
<PAGE> 187
equal to the market value of Value Stock Separate Account
divided by the total number of Value Stock Separate Account
Units on such date.
The initial Unit Value of one unit of Value Stock Separate
Account was $10.00. The Unit Value for Contributions or
transfers added to Value Stock Separate Account after its date
of inception will be the Unit Value of Value Stock Separate
Account on the Valuation Date the Contribution or transfer is
accepted by us at our home office. If a Contribution or
transfer is received on any date other than a Valuation Date,
the Unit Value for such Contribution or transfer will be
determined on the next following Valuation Date. On any
Valuation Date occurring after its date of inception, the Unit
Value of Value Stock Separate Account will be equal to the
market value of Value Stock Separate Account on such date
divided by the number of Value Stock Separate Account Units
before any adjustments for Contributions or transfers to and
applications from Value Stock Separate Account on such date.
3. VALUE STOCK SEPARATE INVESTMENT ACCOUNT. A Value Stock
Separate Investment Account is established for each Member for
each type of Contribution he directs to Value Stock Separate
Account. The value of a Value Stock Separate Investment
Account is its proportionate share of the value of Value Stock
Separate Account. This value will be determined on each
Valuation Date by multiplying (a) by (b):
a) The number of Value Stock Separate Account Units in
the Value Stock Separate Investment Account as of the
Valuation Date.
b) The Value Stock Separate Account Unit Value as of the
Valuation Date, as determined in Item 2 of this
rider.
Contributions or transfers to a Value Stock Separate
Investment Account increase the number of Value Stock Separate
Account Units credited to it; applications from the account
reduce the number of units. This increase or decrease is
determined by dividing the amount to be credited to or applied
from the account by the Value Stock Separate Account Unit
Value on the Valuation Date on which a Contribution or
transfer was credited or an application was made.
4. TRANSFERS FROM A VALUE STOCK SEPARATE INVESTMENT ACCOUNT. We
will, upon receipt of Notification from you and/or a Member,
as the Plan permits,
a) transfer to his General Investment Account all or any
portion of his Value Stock Separate Investment
Account, or
b) transfer to an Alternate Funding Agent all or any
portion of his Value Stock Separate Investment
Account, or
c) pay the Member an amount equal to all or any portion
of his Value Stock Separate Investment Account.
The amount to be paid or transferred will be determined and
paid or transferred within seven business days after (i) the
Valuation Date on which we receive the Notification or (ii) a
later Valuation Date specified in the request, subject to our
right to defer a transfer
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<PAGE> 188
or payment as described in Item 5 of this rider. We are not
responsible for the application of amounts transferred to an
Alternate Funding Agent.
The amount transferred or paid will be deducted from the Value
Stock Separate Investment Account and will be an application
from such account as of the date transferred or paid. Each
transfer to another Separate Investment Account may occur only
on a Valuation Date of such Separate Investment Account.
5. LIMITATIONS ON TRANSFERS AND PAYMENTS FROM A VALUE STOCK
SEPARATE INVESTMENT ACCOUNT. In general, transfers and
payments from the Value Stock Separate Investment Account will
be made within seven business days after the Valuation Date
specified in Item 4. We reserve the right, however, to defer
such transfers or payments for a period not to exceed 270
days.
However, if in the 36-month period which ends on the requested
date of transfer, all transfers and payments from the total of
all Value Stock Separate Investment Accounts total $20,000,000
or more, then we reserve the right to make the portion of the
requested transfer or payment in excess of $20,000,000 in
substantially equal installments over a period not to exceed
36 months. For purposes of this limitation, transfers and
payments from any separate investment accounts or funds under
other contracts included in Value Stock Separate Account in
connection with the Plan or with any other retirement plan of
the Employer will be included as a transfer or payment from a
Value Stock Separate Investment Account. If this limitation is
imposed by us, the first installment will be made one month
after the date of request, or on such later date specified by
you.
These limitations will not apply to payments to the
beneficiary of a Member.
If we defer transfer or payment under this Item 5, we will
determine the amount to be transferred or paid on the date
transfer or payment occurs. In such a case, a Member's all
Value Stock Separate Investment Account will continue to
participate in the Value Stock Separate Account until the date
transfer or payment occurs. We will notify you in the event of
any deferment of more than 30 days under the provisions of
this Item 5.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/
PRESIDENT
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<PAGE> 1
Exhibit 10.15
MANUFACTURING AND
DISTRIBUTION AGREEMENT
This Agreement is between Rockford Corporation, an Arizona
corporation ("Rockford"), and American Connection Incorporated, an Arizona
corporation ("ACI"). Rockford and ACI agree as follows:
1. BACKGROUND.
1.1 Rockford Business. Rockford is a manufacturer of high
quality consumer electronic products used in automotive, professional, and home
sound reproduction systems.
1.2 ACI Business and Experience. ACI is an affiliate of Path
Group, Ltd., a British corporation ("Path"), and is a manufacturer and supplier
of accessory products that may be used by Rockford's customers in installation
of Rockford's own products.
1.3 Sales Relationship. Rockford and ACI desire to enter into
a relationship whereby ACI will manufacture or purchase, warehouse, and drop
ship accessory products (the "Products") to Rockford's dealers in the United
States. The Products covered by this Agreement are identified on Exhibit A,
attached hereto; the parties may at any time add other products to those
identified by executing an amendment to Exhibit A and, upon such action, such
products shall be treated for all purposes as "Products."
1.4 License. Rockford desires to license ACI to place certain
of its trademarks and tradenames (the "Names") on the Products, solely for sales
of the Products to Rockford's dealers in the United States. The Names are
identified on Exhibit B, which may be amended by the parties from time to time.
1.5 Purpose. The purpose of this Agreement is to state the
terms and conditions of the agreement between ACI and Rockford relating to sales
of the Products to Rockford's dealers in the United States.
2. DISTRIBUTION OF THE PRODUCTS. ACI agrees to manufacture or purchase,
warehouse, and drop ship the Products to Rockford's dealers in the United
States, and Rockford agrees to solicit sales of the Products, on the following
basis:
2.1 Inventory. ACI shall manufacture or purchase the Products
and shall maintain an inventory of the Products at a location or locations in
the United States which shall be selected in consultation with Rockford. ACI
shall maintain inventory at a level that is sufficient to satisfy reasonably
expected demand for the Products. Representatives of Rockford and ACI shall meet
regularly to discuss anticipated demand for the Products and the level of
inventory appropriate to allow Rockford and ACI to meet that demand.
2.2 Solicitation of Sales. Rockford shall use its distribution
network and sales representatives to solicit sales of the Products to Rockford's
authorized dealers. Rockford may (but is not required to) use such sales methods
as it deems appropriate in connection with such
<PAGE> 2
solicitations, including dealer visits, telemarketing, direct mail, and
advertising. ACI shall not make any independent sales of the Products, but shall
(1) assist Rockford's sales staff and sales representatives in their efforts to
sell the Products, (2) make available (subject to reasonable budgetary
constraints established by ACI) to Rockford's dealers in the United States
approved point-of-purchase materials including product displays as agreed to by
Rockford from time to time, and (3) provide support as necessary in the form of
technical information or advisory personnel. Sales of the Products shall be
managed for all purposes so that dealers are encouraged to treat the Products as
Rockford products and to deal directly with Rockford on all matters related to
the Products.
2.3 Sales of Goods. ACI shall deliver the Products, to
Rockford's dealers in the United States, upon its receipt from Rockford of
dealer orders for the Products. Each order shall be shipped (subject to
availability), freight prepaid, to a Rockford dealer as directed by Rockford and
within one working day after Rockford delivers the order to ACI.
2.4 Price and Payment.
2.4.1 Price. ACI shall establish a dealer price and a
suggested retail price for each Product. Rockford shall sell the Products to its
dealers at the dealer price suggested by ACI, subject to payment, volume, and
other sales incentives established by Rockford that are either (a) no more than
(Confidential material redacted and filed separately with the Commission) of the
dealer price suggested by ACI or (b) approved by ACI (the dealer price
established by ACI less such discounts is the "Net Dealer Price"). Rockford
shall recommend that its dealers sell the products at the suggested retail price
established by ACI.
2.4.2 Payments by Dealers and Credit Risk. Rockford
shall be solely responsible for collecting from its dealers all amounts due for
all sales of Products to such dealers. ACI shall deliver to Rockford bills of
lading or other shipment records promptly after it ships each order so that
Rockford may properly invoice its dealers. Rockford is responsible for managing
its credit relationship with its dealers and may establish, in connection with
its acceptance of orders from dealers and delivery of orders to ACI, reasonable
credit policies including, as it deems necessary, requirements for COD sales
only.
2.4.3 Payments by Rockford to ACI. ACI shall submit
no later than Tuesday of each week an invoice to Rockford for all products
shipped to Rockford's dealers during the previous calendar week. The amount of
the invoice shall be for the Net Dealer Price less (1) a discount of
(Confidential material redacted and filed separately with the Commission) of the
Net Dealer Price constituting Rockford's marketing and administrative fee for
soliciting sales of the Products and collecting payments from its dealers and
(2) a discount of (Confidential material redacted and filed separately with the
Commission) of the Net Dealer Price for sales through December 31, 1996, and
(Confidential material redacted and filed separately with the Commission) of the
Net Dealer Price for sales thereafter constituting Rockford's royalty for
permitting ACI to use the Names in connection with sales of the Products.
Rockford shall pay ACI the amount of the invoice no later than Friday of the
week the invoice is submitted (except that, if the invoice is submitted later
than Tuesday, then Rockford shall pay no later than Friday
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<PAGE> 3
of the following week). Rockford shall have the right to net against such
invoice the amount due Rockford on account of returns.
2.4.4 Returns. Rockford may accept from its dealers
returns of Products on a basis consistent with Rockford's policies for returns
of its own products. Upon receipt of a returned Product, Rockford shall deliver
the Product to ACI and shall be entitled to a credit from ACI equal to the net
amount paid by Rockford to ACI for such returned Product.
3. IDENTIFICATION OF PRODUCTS AND USE OF NAMES.
3.1 Development of Products. Rockford and ACI shall cooperate
to improve existing Products and develop new Products that will satisfy the
needs of Rockford's dealers and their customers. ACI shall be principally
responsible for development of such Products, with such assistance from Rockford
as it requests or as Rockford offers. Prior to the development of any new
Products the parties shall meet and agree upon (1) the anticipated role of each
party in development of the Product, (2) any change in the marketing and
administrative fees or royalty necessary for the Product, and (3) ownership of
patents, trade secrets, copyrights and other intellectual property associated
with the Product (other than the Names, which shall remain Rockford's exclusive
property).
3.2 Addition of Products. ACI shall not produce or sell any
Products, and shall not use the Names in connection with any Products, until
Rockford has approved such Products and added them to Exhibit A as approved
Products. When a Product is approved and added to Exhibit A, Rockford and ACI
shall also agree whether the Product is to be "exclusive" pursuant to the terms
of section 4.1 of this Agreement. Except as otherwise specifically agreed by
Rockford and ACI, Installation Accessories shall be exclusive and all other
Products, including Installation Tools, Promotional Materials, and Installation
Software, shall be non-exclusive.
3.3 Limited License of Names. Rockford grants ACI a right to
use the Names solely during the term of this Agreement and solely in connection
with sales of the Products to Rockford's dealers in the United States. ACI shall
use the Names only in a manner and form approved before use in writing by
Rockford. If ACI wishes to propose a new use or form of the Names, it shall
submit its proposal in writing to Rockford. Rockford shall promptly review such
proposed use and indicate its approval or disapproval in writing; any proposed
use shall be deemed approved if Rockford does not object within 15 business days
after ACI submits it to Rockford in writing together with a written request for
its approval.
3.4 Quality of Products. ACI shall provide Rockford with
samples of each Product for its approval prior to any sale of the Product. ACI
shall provide production samples to Rockford from time to time, as requested by
Rockford, so that Rockford may confirm that the Products conform to the approved
samples and to Rockford's requirements as to quality. All Products supplied by
ACI to Rockford's dealers shall be of a quality at least equal to the samples
supplied to Rockford.
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<PAGE> 4
3.5 Goodwill and Ownership of Names. All goodwill generated by
the use of the Names or promotion of the Products shall accrue to Rockford's
benefit. ACI disclaims any ownership rights in the Names and goodwill of
Rockford, acknowledges that the Names are the sole and exclusive property of
Rockford, and agrees that it shall not take any action challenging Rockford's
ownership and rights in the Names. ACI agrees that it shall not (1) take any
action that would interfere with Rockford's use of the Names or (2) file
applications for registration of the Names anywhere in the world.
3.6 Infringements. If ACI learns of any other party which it
believes is infringing on Rockford's rights in the Names it shall promptly
notify Rockford and shall cooperate with Rockford in any action Rockford chooses
to take to protect its rights in the Names. Rockford shall have sole and
exclusive control of any actions relating to such infringements.
3.7 No Use After Termination. Upon expiration or termination
of this Agreement, ACI shall immediately cease using the Names other than for
sales permitted after termination under the termination provisions of this
Agreement.
4. EXCLUSIVITY, NON-COMPETE, AND EXPANSION OF TERRITORY.
4.1 Mutual Exclusivity. In connection with those Products
identified as "exclusive" on Exhibit A and solely during the term of this
Agreement, (1) Rockford shall not sell in the United States (or license others
to sell in the United States) products that compete with such exclusive Products
and (2) neither ACI nor any affiliate of ACI shall sell in the United States (or
license others to sell in the United States) products that compete with any of
such exclusive Products.
4.2 Non-Compete. ACI agrees that it shall not (1) during the
term of this Agreement and for one year after its termination, either directly
or through any affiliate, offer for sale in the United States any products that
are competitive with the exclusive Products and (2) during or at any time after
the term of this Agreement, offer for sale any products using the Names, or
using names, marks, or other trade dress that is confusingly similar to the
Names, other than Products sold under this Agreement.
4.3 Additional Territories. The parties intend that this
Agreement be expanded to govern sales of Products to Rockford's dealers in the
remainder of the world (except Europe, where the parties existing agreement
remains in force), including in particular Canada and Mexico. Rockford's
relationships with dealers in the rest of the world generally involve economic
and business relationships that are substantially different from Rockford's
relationships with its United States dealers. Rockford and ACI acknowledge that,
because of such differing relationships, sales to non-United States dealers may
require economic terms substantially different from those established in this
Agreement for United States dealers (including changes to the suggested dealer
and retail prices, marketing and administrative fee, royalty, and terms of
payment). For each country added to this Agreement, Rockford and ACI shall
execute and attach to this Agreement an Addendum in the form of Exhibit C, which
shall set forth the changes applicable to such country. Neither party shall be
obligated to expand this Agreement to
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<PAGE> 5
other countries unless the parties can agree upon appropriate terms for such an
expansion and execute an Addendum for such country.
-5-
<PAGE> 6
5. WARRANTY, TITLE, AND INDEMNITY.
5.1 Warranty to Dealers. Rockford and ACI shall offer
Rockford's dealers and their customers warranties for the Products consistent
with the warranties offered by Rockford for its own products. Such dealers and
their customers shall be required to return Products requiring warranty service
to Rockford.
5.2 ACI Warranty and Service Procedures. ACI warrants that the
Products shall be free from defects in material and workmanship for the period
of the warranty offered by Rockford to its dealers and their customers. Upon
receipt of Products requiring warranty service Rockford shall deliver such
Products to ACI. ACI shall repair or exchange returned Products, and return the
Products to Rockford's dealers or their customers, at its sole expense.
5.3 Encumbrances, Title, and Risk of Loss. ACI warrants that
the Products, upon shipment to Rockford's dealers, shall be free from any
security interest, lien, or other encumbrance and that it shall transfer title
to the Products to Rockford's dealers free and clear of all security interests,
liens, and other encumbrances. Risk of loss from any casualty to the Products
shall be on ACI until their receipt and acceptance by Rockford's dealers.
5.4 Indemnification and Insurance.
5.4.1 Indemnity by Rockford. Rockford shall defend,
indemnify and hold harmless ACI, and its officers, directors, employees, and
agents, (a) from all fines, suits, proceedings, claims, demands, debts,
obligations, liabilities or actions of any kind by anyone (including reasonable
attorneys' fees and costs) (a "Loss") arising from or connected with the
activities or operations of Rockford or its officers, directors, employees, or
agents, (b) from all Loss rising out of claims by third parties that ACI's
authorized use of the Names infringed on the marks or other rights of such third
parties and (c) from all Loss in product liability actions brought against ACI
involving the defective manufacture or design of Rockford products. Rockford
shall maintain product liability insurance with insurers and in amounts
reasonably satisfactory to ACI. Such insurance shall name ACI as an additional
insured and shall be cancelable by the insurer only after 30 days notice to ACI.
5.4.2 Indemnity by ACI; Product Liability Insurance.
ACI shall defend, indemnify and hold harmless Rockford, and its officers,
directors, employees, and agents, (a) from all Loss arising from or connected
with the activities or operations of ACI or its officers, directors, affiliates,
employees, or agents and (b) from all Loss in product liability actions brought
against Rockford involving the defective manufacture or design of Products. ACI
shall maintain product liability insurance with insurers and in amounts
reasonably satisfactory to Rockford. Such insurance shall name Rockford as an
additional insured and shall be cancelable by the insurer only after 30 days
notice to Rockford.
5.4.3 Procedure. A party shall give notice to the
other party of any claim, as to which it intends to seek indemnity under this
Agreement, promptly after the indemnified party learns of the claim. The
indemnifying party shall be entitled to assume the defense of any claim and, if
it does so, shall thereafter not be responsible for the expenses of
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<PAGE> 7
independent counsel retained by the indemnified party. The indemnified party
shall cooperate in the defense of the claim and shall not settle or compromise
any claim without the indemnifying party's consent.
6. TERM AND TERMINATION.
6.1 Initial and First Renewal Term. This Agreement is for an
initial term from the date of its execution by Rockford and ACI until December
31, 1997. If ACI (1) is not in breach of this Agreement as of June 1, 1997, and
(2) has achieved minimum sales levels of Products agreed by ACI and Rockford,
ACI shall have the right to renew this Agreement for an additional 2 year term
by giving written notice to Rockford. Such notice must be given no later than
June 30, 1997.
6.2 Renewal. Commencing December 31, 1999, this Agreement
shall renew each year for additional one year terms unless either party gives
written notice of non-renewal at least 180 days before a scheduled renewal.
6.3 Termination. This Agreement may be terminated by either
party, at any time and upon written notice to the other, in any of the following
events:
6.3.1 If a party breaches any material term of this
Agreement, and fails to correct such breach within 30 days after notice from the
other party.
6.3.2 If either party suspends payment of its debts,
enters into or becomes subject to corporate reorganization or rehabilitation
procedures, liquidation, dissolution, or bankruptcy proceedings, or makes a
composition with creditors, or makes an assignment for the benefit of creditors,
or seeks relief under bankruptcy or other similar laws for debtor's relief.
6.3.3 If the performance of the Agreement by either
party is prevented by force majeure, and such condition continues to prevent
such performance for 90 days.
6.4 Specific Performance. In addition to its right to
terminate, Rockford shall have the right to obtain temporary and permanent
injunctive relief to prevent any breach or threatened breach by ACI or its
affiliates of sections 3, 4, or 7 of this Agreement. ACI shall have the right to
obtain temporary and permanent injunctive relief to prevent any breach or
threatened breach by Rockford or its affiliates of sections 4.1 or 7 of this
Agreement.
6.5 Termination Events. Upon expiration or termination of this
Agreement (a) the parties shall settle any amounts due between them within 30
days, (b) ACI shall cease to make, use, or sell the Rockford branded Products,
except for sales submitted to it by Rockford on behalf of its dealers (such
sales may be made only out of inventory held by ACI at the time of termination;
Rockford agrees that it will cooperate with ACI to sell such inventory on an
orderly basis), (c) ACI shall continue to honor warranty claims and returns of
Products sold by Rockford and delivered by ACI to Rockford's dealers and their
customers, and (d) ACI shall maintain inventories of service parts for the
periods required by law. Termination shall not limit or exclude any and all
other rights of the parties (including rights to recover damages, to offset
-7-
<PAGE> 8
damages against any amounts due, and to equitable relief) and shall not act as
an election of remedies.
7. CONFIDENTIAL INFORMATION. During and after the term of this
Agreement, ACI and Rockford will keep confidential, and will not reproduce, copy
or disclose to any other person or firm, all trade secrets, dealer and customer
lists, and other financial, engineering, marketing, proprietary, or confidential
information ("Confidential Information") supplied to or otherwise acquired by
ACI and Rockford concerning the other, the other's business or the Products. ACI
and Rockford will not, during or after the term of this Agreement, use (either
alone or with others), disclose to any person, or encourage anyone else to
disclose any Confidential Information except for the purposes and in the manner
authorized by the other party. ACI and Rockford shall take appropriate action to
assure that all persons with access to Confidential Information comply with the
obligations established in this section.
8. RETURN OF DOCUMENTS. Upon termination of this Agreement, ACI shall
return to Rockford all records and documents of or pertaining to Rockford or the
Products and shall not make, retain or give to any other person any copy or
extract of any such record or document. Upon termination of this Agreement,
Rockford shall return to ACI all records and documents of or pertaining to ACI
or the Products and shall not make, retain or give to any other person any copy
or extract of any such record or document.
9. INDEPENDENT CONTRACTOR RELATIONSHIP. ACI and Rockford are
independent contractors responsible for hiring their own employees, exercising
sole and absolute discretion, judgment and control over the management and
day-to-day operations of their respective businesses, and achieving the
objectives of their businesses. This Agreement does not create a relationship of
principal and agent, franchisor and franchisee, joint venture, partnership or
employment. Neither party shall be liable for any obligations incurred by the
other except as expressly provided herein. Neither party shall act or represent
itself, directly or by implication, as an agent of the other with any authority
other than as set forth expressly in this Agreement.
10. NOTICES. Notices under this Agreement shall be in writing and
effective upon delivery, in person or by facsimile, or three days after mailing,
first class mail, postage prepaid and return receipt requested, to the addresses
stated on the signature page of this Agreement (which may be changed by notice).
Notices sent by facsimile shall be confirmed by mailing (in the same manner as
mailed notices), but shall be effective upon receipt of the facsimile
transmission.
11. AMENDMENT AND WAIVER. This Agreement is the entire agreement of the
parties, and supersedes all prior agreements and undertakings, with respect to
its subject matter. This Agreement may be amended only by a written document
signed by both parties. The delay or failure of a party to exercise any rights
under this Agreement, or a partial exercise of such rights, shall not constitute
a waiver of such rights. Any waiver of a right, obligation or default must be in
writing and signed by all parties. A waiver of one right, obligation or default
shall not be construed as a waiver of any other or subsequent right, obligation
or default.
-8-
<PAGE> 9
12. GOVERNING LAW. Arizona substantive law shall govern this Agreement
and any dispute arising out of or in any way relating to this Agreement or the
parties' relationship under this Agreement.
13. JURISDICTION AND VENUE. The exclusive jurisdiction and venue for
any dispute arising out of or in any way relating to this Agreement or the
parties' relationship under this Agreement shall be in the Superior Court for
Maricopa County, Arizona, or in the Federal District Court for the District of
Arizona. Each party consents to the jurisdiction of such courts for this
purpose.
14. WAIVER OF JURY TRIAL. Any dispute arising out of or in any way
relating to this Agreement or the parties' relationship under this Agreement
shall be tried to the court, without a jury, and each party hereby irrevocably
waives any right to request a jury trial in connection with such a dispute.
15. DISCLAIMER OF DAMAGES. ACI and Rockford irrevocably waive and
relinquish any right to recover consequential or punitive damages in any dispute
arising out of or in any way relating to this Agreement or the parties'
relationship under this Agreement.
16. ATTORNEYS' FEES. In any proceeding arising out of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
other expenses incurred in connection with such proceeding.
17. SEVERABILITY. If any provision of this Agreement is deemed contrary
to, prohibited by, or invalid under applicable law, or is inoperative for any
reason, that provision shall be deemed modified to the extent necessary to make
it valid and operative, or if it cannot be so modified, then severed. The
remainder of this Agreement shall continue in full force and effect as if the
Agreement had been signed with the invalid provision so modified or eliminated.
18. NO THIRD PARTY BENEFICIARIES. This Agreement shall not create any
third party beneficiary rights.
19. EXECUTION AND EFFECTIVE DATE. Executed, effective, and accepted in
Tempe, Arizona, on 2 Sept, 1994.
-9-
<PAGE> 10
American Connection Incorporated, an Arizona corporation
By /s/
------------------------------------------------
Its: President
-----------------------------------------
Address: American Connection Incorporated
c/o Path Group, Ltd.
Attn: Adrian Towland
Unit 2, Desborough Industrial Park
Desborough Park Road, High Wycombe
Buckinghamshire, England
HP12 3BG
Fax: 0494 461209
------------------------------------------------
Rockford Corporation, an Arizona corporation
By /s/
------------------------------------------------
Its: President
-----------------------------------------
Address: Rockford Corporation
Attn: Gary Suttle
546 S. Rockford Drive
Tempe, Arizona 85281
United States of America
Fax: 602 966-3639
------------------------------------------------
-10-
<PAGE> 11
EXHIBIT C
FORM OF ADDENDUM
FOR
ADDITIONAL COUNTRIES
Rockford and ACI agree as follows:
1. Country Added. ("Country") is added as a country to which the
Manufacturing and Distribution Agreement between Rockford and ACI applies.
2. Distribution Facility. ACI shall supply Country from its approved
distribution center at __________________________________________.
3. Fee and Royalty. The manufacturing and distribution fee for Country
shall be ______% of the dealer price for Products. The royalty for Country shall
be ______% of the dealer price for Products until _________________, 199___, and
______% thereafter.
4. Terms. Rockford shall pay ACI's invoices for sales to dealers in
Country within _____ business days.
5. Other Changes. The following additional changes to the Agreement
shall apply to sales to dealers in Country:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
6. Application of Agreement. Except as set forth above, the
Agreement shall apply to all sales to dealers in Country. This Addendum shall
not affect sales to dealers in the United States or sales to dealers in
countries other than the country, which shall be governed solely by the
Agreement and (for other countries) addenda executed for such countries.
American Connection Incorporated, an Arizona corporation
By ____________________________________________________
Its: ______________________________________________
-11-
<PAGE> 12
Rockford Corporation, an Arizona corporation
By ____________________________________________________
Its: ______________________________________________
-12-
<PAGE> 1
Exhibit 10.16
PRODUCT SALES AGREEMENT
This Agreement, effective as of the 13th day of January, 1999, by and
between Rockford Corporation, having offices at 546 S. Rockford Drive, Tempe,
Arizona 85281 ("Buyer") and AVNET ELECTRONICS MARKETING, a group of Avnet, Inc.
having offices at 2211 S. 47th St., Phoenix, Arizona 85034 ("Seller").
1. CONDITIONS OF SALE
Any Products Buyer purchases from Seller during the term of this
Agreement shall be governed by Seller's terms and conditions of sale contained
in Exhibit A attached hereto and incorporated herein.
2. TERM
The term of this Agreement shall be for two (2) years and six (6)
months commencing on the effective date hereof, unless sooner terminated in
accordance with the provisions of Paragraph 5 hereof. Pricing will be
renegotiated at least once annually.
3. PRODUCTS
Seller agrees to sell to Buyer and Buyer agrees to buy products listed
on Exhibit B attached hereto and made a part hereof, and such other items as may
be mutually designated in writing by the parties from time to time ("Products").
4. PRICE
(a) Prices for the Products are set forth in Exhibit B, attached
hereto. Prices are exclusive of any and all Federal, State, and local sales,
use, excise, and similar taxes and charges which shall be the responsibility of
Buyer. In the event the manufacturer increases Seller's cost of any Product,
Seller may increase its price(s) of any undelivered Product upon prior notice to
Buyer. If the parties fail to concur on such a price increase within thirty (30)
days of such notice, the effected Product(s) shall be deleted from Exhibit B.
(b) Additional terms regarding pricing, as set forth in Attachment A
attached hereto, shall also apply.
5. TERMINATION
(a) This Agreement may be terminated at any time, without cause, by
either party upon giving the other part at least thirty (30) days prior written
notice. Such termination shall be effective on the date stated in such notice.
(b) This Agreement may be terminated immediately for cause by either
party in the event the other party: (i) shall become insolvent, (ii) ceases to
function as a going concern or (iii) fails to perform any of its obligations
hereunder so as to be in default and fails to cure such default within thirty
(30) days after written notice thereof.
(c) Notwithstanding termination of this Agreement, the Buyer shall pay
for all Non-Standard Products ordered by Seller for Buyer's account prior to,
and work in process (including charges for labor and materials) as of, the
effective date of termination of this Agreement.
6. NOTICES
Any notice provided for or permitted in this Agreement will be deemed
to have been given when mailed postage prepaid by certified mail or registered
mail, return receipt requested, to the party to be notified, at the addresses
set forth above or such other addresses as the parties may from time to time
designate in writing.
7. GENERAL
(a) This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof and supersedes all prior agreements
relating thereto, written or oral, between the parties. This Agreement may be
modified only by writings signed by authorized representatives of both parties.
(b) The parties agree that the terms and conditions of this Agreement
shall control, notwithstanding conflicting or additional terms on any purchase
order, sales acknowledgement, confirmation or other documents issued by either
party. Where the terms and conditions of this Agreement and Exhibit A hereto
conflict, the terms and conditions of this Agreement shall take precedence.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona.
<PAGE> 2
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the date first set forth above.
AVNET ELECTRONICS MARKETING, ROCKFORD CORPORATION
a group of Avent, Inc.
"Seller" "Buyer"
By: /s/ By: /s/ Arthur Janesk
----------------------------- -----------------------------
Authorized Signature Authorized Signature
Name: Name: Arthur Janesk
----------------------------- -----------------------------
Printed or Typed Printed or Typed
Title: Director, Contracts Title: Sr. Buyer/Planner
--------------------- ---------------------
Date: 13/13/99 Date: 1/12/99
-------------------- ---------------------
<PAGE> 3
EXHIBIT A
SALES TERMS AND CONDITIONS
1. ORDERING OF PRODUCTS
(a) All purchases of Products shall be effected by Buyer's issuance of
purchase orders to Seller. Such purchase orders shall state unit quantities
Products, part numbers, descriptions of Products, applicable prices and
requested delivery dates. All orders for Products and initiate shipment thereof
as close as possible to Buyer's requested delivery date(s).
(b) All orders for standard Products may be canceled or rescheduled by
Buyer at no charge, provided Buyer notifies Seller in writing at least sixty
(60) days prior to the originally scheduled delivery date. Requests for
cancellation or rescheduling received less than sixty (60) days prior to the
originally scheduled delivery date may be accepted at a charge to be determined
in writing by Seller.
(c) All orders for special, custom, value-added and other non-standard
Products, including Products to be assembled in Kit form and non-franchised
Products ("Non-Standard Product") shall be non-cancelable and non-returnable.
2. PAYMENT
(a) Payment for Products shall be net fifty-five (55) days from date of
invoice or as otherwise agreed to in writing by Seller. Seller may in its sole
discretion at any time and from time to time change the terms of Buyer's credit,
require payment in cash before shipment of any or all of the Products specified
herein, and/or require anticipated payment of any or all amounts due or to
become due under this contract. If Seller believes in good faith that Buyer's
ability to make payments is or may be impaired, Seller may cancel any order or
any remaining balance thereof, and buyer shall remain liable to pay for any
Products already shipped. Buyer agrees to submit such financial information from
time to time as may be reasonably requested by Seller for the establishment
and/or continuation of credit terms.
(b) Checks are accepted subject to collection and the date of
collection shall be deemed the date of payment. Any check received from Buyer
may be applied to Seller against any obligation owing by Buyer to Seller under
this or any other contract, regardless of any statement appearing on or
referring to such check, without discharging Buyer's liability for any
additional amounts owing by Buyer to Seller, and the acceptance by Seller of
such check shall not constitute a waiver of Seller's right to pursue the
collection of any remaining balance.
(c) On any invoice not paid by maturity date (net fifty-five (55)
days), Buyer shall pay interest from maturity to date of payment at the annual
percentage rate of eighteen percent (18%) (or such lower rate as may be the
maximum allowable by law), together with Seller's costs of collection (including
reasonable attorneys' fees).
(d) Buyer agrees to pay the entire net amount of each invoice rendered
by Seller pursuant to the terms of each such invoice without offset or
deduction.
3. DELIVERIES/TITLE
(a) Subject to Seller's right of stoppage in transit, delivery of the
Products to a carrier shall constitute delivery to Buyer, and risk of loss shall
thereupon pass to Buyer; however, title shall remain in Seller until Buyer makes
payment in full under the contract. Products invoiced and held by Seller for any
reason shall be at Buyer's risk and expense. Delivery route shall be the
election of Seller unless specifically designated by Buyer.
(b) Delivery of any installment of Products within thirty (30) days
after the date specified therefor shall constitute a timely delivery.
Thereafter, delivery shall be deemed timely unless prior to shipment Seller has
received written notice of cancellation. Delay in delivery of one installment
shall entitle Buyer to cancel that installment only.
4. FREIGHT
Unless otherwise agreed to in writing, the F.O.B. point shall be
Buyer's dock and shipment will be by UPS Ground.
5. FORCE MAJEURE
Neither party shall be liable for failure to fulfill its obligations
contained herein or for delays in delivery due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts or omissions of the
other party, acts or omissions of civil or military authority, Government
priorities, material shortages, fire, strikes, floods, epidemics, quarantine
restrictions, riots, war, and delays in transportation. The time for performance
of any such obligation shall be extended for the time period lost by reason of
the delay.
6. SELLER'S LIMITED WARRANTY AND LIMITATION OF LIABILITIES
<PAGE> 4
Seller warrants to Buyer that Products purchased hereunder will conform
to the applicable manufacturer's specifications for such Products and that any
value-added work performed by Seller on such Products will conform to applicable
Buyer's specifications relating to such work. Seller makes no other warranty,
express or implied, with respect to the Products. IN PARTICULAR, SELLER MAKES NO
WARRANTY RESPECTING THE MERCHANTABILITY OF THE PRODUCTS OR THEIR SUITABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OR USE OR RESPECTING INFRINGEMENT. However,
Seller will transfer to Buyer whatever transferable warranties and indemnities
Seller receives from the manufacturer of the Products. With respect to Products
which do not meet applicable manufacturer's specifications and with respect to
value-added work by Seller which does not meet applicable Buyer's
specifications, Seller's liability is limited (at Seller's election) to (1)
refund of Buyer's purchase price for such Products (without interest), (2)
repair of such Products, or (3) replacement of such Products; provided, however,
that such Products must be returned to Seller, along with acceptable evidence of
purchase, within twenty (20) days from date of delivery, transportation charges
prepaid. BUYER SHALL NOT IN ANY EVENT BE ENTITLED TO, AND SELLER SHALL NOT BE
LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE
INCLUDING, WITHOUT BEING LIMITED TO, LOSS OF PROFIT, PROMOTIONAL OR
MANUFACTURING EXPENSES, OVERHEAD, INJURY TO REPUTATION OR LOSS OF CUSTOMERS,
BUYER'S RECOVERY FROM SELLER FOR ANY CLAIM SHALL NOT EXCEED BUYER'S PURCHASE
PRICE FOR THE PRODUCTS IRRESPECTIVE OF THE NATURE OF THE CLAIM, WHETHER IN
CONTRACT, TORT, WARRANTY, OR OTHERWISE.
7. PRODUCT RETURNS
(a) Buyer is deemed to have accepted the Products unless written notice
of rejection is given within a reasonable time, which is agreed to be within
seven (7) days after receipt. Buyer waives any right to revoke acceptance
thereafter.
(b) No return of Products will be accepted by Seller without a return
material authorization number (RMA No.), which will be issued in Seller's sole
discretion. Returned Products must be in original shipping cartons and must be
complete with all packing materials. All Products for return must be freight
prepaid. If returned Products are claimed to be defective, a complete
description regarding the nature of the defect must be included with all
returned Products. All items not eligible for credit will be returned to Buyer,
transportation collect.
8. TAXES
The amount of all Federal, State and local sales, use, excise, and
similar taxes or other charges now or hereafter imposed by any government
authority which may be paid by Seller or for which Seller may be liable shall be
paid to Seller by Buyer in addition to the purchase price of the Products.
9. CONFIDENTIALITY
If either party hereto receives from the other party written
information which is marked "Confidential" and/or "Proprietary" the receiving
party agrees not to use such information except in the performance hereof, and
to treat such information in the same manner as it treats its own confidential
information. Confidential information that is disclosed orally or visually shall
be confirmed as confidential or proprietary in writing within ten (10) days
after such disclosure. The obligation to keep information confidential shall not
apply to any such information that has been disclosed in publicly available
sources; is in the rightful possession of the party receiving the confidential
information without an obligation of confidentiality; or is required to be
disclosed by operation of law. Except as otherwise provided herein, the
obligation not to disclose shall be for a period of one (1) year after the
termination hereof.
10. USE OF PRODUCTS IN LIFE SUPPORT AND NUCLEAR APPLICATIONS
Products sold by Seller are not designed for use in life support or
nuclear applications. Seller's customers using or selling Products for use in
life support or nuclear applications do so at their own risk, agree that Seller
and the Manufacturer of Products are not liable, in whole or in part, for any
claim or damage arising from such use, and agree to fully indemnify Seller and
the Manufacturer from and against any and all damages, loss, cost, expense or
liability arising out of or in connection with the use or performance of
Products in life support or nuclear applications.
11. ADVICE
If technical advice is offered or given in connection with the use of
any Products it will be as an accommodation to Buyer and without charge and
Seller shall have no responsibilities or liabilities whatsoever for the content
or use of such advice.
12. SOFTWARE
Computer software, if any, is transferred by Seller to Buyer pursuant
to a single user license the
<PAGE> 5
royalty, terms and conditions of which are set forth on or in the container in
which such software is packaged.
13. GENERAL
(a) The parties agree that the purchase and sale of Products hereunder
shall be governed by these terms and conditions, notwithstanding contrary or
additional terms and conditions in any purchase order, planning schedule,
acknowledgement, confirmation or any other form or document issued by either
party affecting the purchase and/or sale of Products.
(b) No rights, duties, agreements or obligations hereunder may be
assigned or transferred by either party without the prior written consent of the
other. The obligations, rights, terms and conditions hereof shall be binding
upon and inure to the benefit of the parties hereto and their successors and
assigns.
(c) The waiver of any breach of any term, condition or covenant hereof
or default under any provision hereof shall not be deemed to constitute a waiver
of any other term, condition, or covenant contained herein or of any subsequent
breach or default of any kind or nature.
(d) Any provision hereof which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof in that jurisdiction or affecting the validity or
unenforceability of such provision in any other jurisdiction.
<PAGE> 6
(LOGO) ROCKFORD
CORPORATION
EXHIBIT B
<TABLE>
<CAPTION>
(PRICING EXHIBIT)PART YEARLY USAGE MANUFACTURER LEAD TIME PRICE
(All
information
in this
column
contain
Confidential
material
redacted and
filed
separately
with the
Commission)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CDS-047CAAA 870,000 MCO 12-14 WKS
4.7PF 50 VOLT 5% NPO 0805
CDS-100CAAA 400,000 MCO 12-14 WKS
10PF 50 VOLT 5% NPO 0805
CDS-100CAAB 12,000 MCO 12-14 WKS
10PF 50 VOLT 5% NPO 1206
CDS-101CAAA 1,800,000 MCO 12-14 WKS
100PF 50 VOLT 5% NPO 0805
CDS-101CAAB 28,000 MCO 12-14 WKS
100PF 50 VOLT 5% NPO 1206
CDS-102CBAA 118,000 MCO 12-14 WKS
.001UF 50 VOLT 10% NPO 0805
CDS-103CBBA 160,000 MCO 12-14 WKS
.01UF 50 VOLT 10% X7R 0805
CDS-103CBBB 32,000 MCO 12-14 WKS
.01UF 50 VOLT 10% X7R 1206
CDS-103CCDA 54,000 MCO 12-14 WKS
.01 UF 50 VOLT 20% Z5U 0805
CDS-104CABB 12,000 MCO 12-14 WKS
.1UF 50 VOLT 5% X7R 1206
CDS-104CABB 98,000 MCO 12-14 WKS
.1UF 50 VOLT 5% X7R 1206
CDS-104CCDA 940,000 MCO 12-14 WKS
.1UF 50 VOLT 20% Z5U 0805
CDS-104CCDB 675,000 MCO 12-14 WKS
.1UF 50 VOLT 20% Z5U 1206
CDS-104CCDC 430,000 AVX 12-14 WKS
.01UF 50 VOLT 20% Z5U 1210
CDS-121CAAA 1,300,000 MCO 12-14 WKS
102PF 50 VOLT 5% NPO 0805
CDS-221CAAA 12,000 MCO 12-14 WKS
220PF 50 VOLT 5% NPO 0805
CDS-223CBBA 124,000 MCO 12-14 WKS
.022UF 50 VOLT 10% X7R 0805
CDS-271CAAA 950,000 MCO 12-14 WKS
270PF 50 VOLT 5% NPO 0805
CDS-271CAAB 10,000 MCO 12-14 WKS
270PF 50 VOLT 5% NPO 0805
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
(PRICING EXHIBIT)PART YEARLY USAGE MANUFACTURER LEAD TIME PRICE
(All
information
in this
column
contain
Confidential
material
redacted and
filed
separately
with the
Commission)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CDS-333CCBB 10,000 AVX 12-14 WKS
.033UF 50 VOLT 20% X7R 1206
CDS-470DAAA 12,000 MCO 12-14 WKS
47PF 100V 5% NPO 0805
CDS-682CBBA 28,000 MCO 12-14 WKS
.0068UF 50 VOLT 10% X7R 0805
CDS-822CABB 8,000 MCO 12-14 WKS
.0082UF 50 VOLT 5% X7R 1206
CDS-822CCBA 50,000 MCO 12-14 WKS
.0082UF 50 VOLT 20% X7R 0805
CDS-822CCBB 70,000 MCO 12-14 WKS
.0082UF 50 VOLT 20% X7R 1206
CDS-823CABB 8,000 MCO 12-14 WKS
.082UF 50 VOLT 5% X7R 1206
CDS-272CBBB 230,000 MUR 12-14 WKS
.0027UF 50 VOLT 10% X7R 1206
</TABLE>
<PAGE> 8
(LOGO) ROCKFORD
CORPORATION
<TABLE>
<CAPTION>
PART YEARLY MANUFACTURER LEAD TIME PRICE NCNR
USAGE (All
information
in this
column
contains
(Confidential
material
redacted and
filed
separately
with the
Commission)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CER-105CSM 80,000 NCH 14-16 WKS
1UF 50 VOLTS QR
NICH UWX1H010MCR1GB
CER-106B-024 100,000 NCH 14-16 WKS *
10UF 35 VOLTS
NICH UVX1V100MDA1CC
CER-106B-031 2,391,000 NCH 14-16 WKS *
1OUF 35 VOLTS AI
NICH UVX1V100MDA1TD
CER-106SM 3,900,000 NCH 14-16 WKS
10UF 15 VOLTS
NICH UWX1C100MCR1GB
CER-107A 73,000 NCH 14-16 WKS
101UF 25 VOLTS
NICH UVX1E101MEA
CER-107A-031 174,000 NCH 14-16 WKS
100UF 25 VOLTS AI
NICH UVX1E101MEA
CER-107C-031 240,000 NCH 14-16 WKS *
100UF 50 VOLTS AI
MALLORY SK101M050AT
CER-255CSM 100,000 NCH 14-16 WKS *
2.2UF 50 VOLTS QR NICH
UWX1H2R2MCR1GB
CER-228A-030 72,000 NCH 14-16 WKS *
2200UF 25 VOLTS QR
NICH URZ1E222MHH1CA
CER-228B-030 145,000 NCH 14-16 WKS *
2200UF 35 VOLTS QR
NICH URZ1V222MHH1CA
CER-477C 12,000 NCH 14-16 WKS
47OUF 50 VOLT
NICH UVX1H471MHA
CERHF-228 145,000 NCH 14-16 WKS *
2200UF 16VOLT QR
NICH UPL1C222MHH6
CERHF-337BL-033 33OUF 145,000 NCH 14-16 WKS *
35 VOLT QR NICH
UPLQV331MPH1TD
CERHF-337D-030 340,000 NCH 14-16 WKS *
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
PART YEARLY MANUFACTURER LEAD TIME PRICE NCNR
USAGE (All
information
in this
column
contains
(Confidential
material
redacted and
filed
separately
with the
Commission)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
33OUF 63 VOLT QR NICH
UPLQJ331MHH1CA
CERS-338B 72,000 NCH 14-16 WKS *
3300UF 35 VOLT QR
NICH LLKF1V332MHSZ
CERS-338C 3300UF 176,000 NCH 14-16 WKS *
50 VOLT QR NICH
LLK1H332MHSA
* CERS-338E 6,500 NCH 14-16 WKS *
3300UF 63 VOLT QR NICH
LLK1H332MHSZ
CERS-478C 4700UF 130,000 NCH 14-16 WKS *
50 VOLT QR NICH
LLK1H472MHSB
** CERS-478D 25,000 NCH 14-16 WKS *
4700UF 80 VOLT QR NICH
LLK1K472MHSB
CERS-688D 8,000 NCH 14-16 WKS *
6800UF 80 VOLT QR NICH
LLQIK682MHSC
</TABLE>
* Currently shipping LLK1J332MHSZ
** Currently shipping LLK1K472MHSC
<PAGE> 10
(LOGO) ROCKFORD
CORPORATION
GENERAL
<TABLE>
<CAPTION>
PART YEARLY USAGE MANUFACTURER LEAD TIME PRICE
(All
information in
this column
contains
Confidential
matieral
redacted and
filed
separately with
the Commission)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SS-0722 30,000 TIS 6-8 WKS
TL594CDR TI
SS-101A-45 700,000 MOT 10-12 WKS
MPS-A56RLRM AI MOT
SS-102A-45 800,000 MOT 4-6 WKS
MPSA06RLRM AI MOT
SS-1375 175,000 MOT/SGS 16-18 WKS
LM317T MOT/SGS
SS-1376 175,000 MOT/SGS 16-18 WKS
LM337T MOT/SGS
SS-1378 230,000 MOT 10-12 WKS
MUR1620CTR MOT
SS-1403 230,000 MOT 10-12 WKS
MUR1620CT MOT
SS-143SM 600,000 MOT/TIS 6-8 WKS
TL072CDR2 MOT/TI
SS-161 511,000 MOT 4-6 WKS
1N4003RL MOT
SS-183 170,000 MOT 6-8 WKS
1N5366BRL MOT
SS-187SM 830,000 MOT/NSC 14-16 WKS
LM833MX MOT/NTL
SS-209 640,000 MOT/FSC 8-10 WKS
MPS6521 MOT
SS-730SM 260,000 MOT/NSC 6-8 WKS
LM339DR2 MOT/NTL
SS-802SM 230,000 MOT/TIS 6-8 WKS
TL494CDR MOT/TI
SS-0113 440,000 MOT/FSC/PHA 4-6 WKS
MMBZ5257BLT1
SS-0114 1,096,000 MOT/FSC/PHA 4-6 WKS
MMBT5088LT1
SS-0775 40,000 MOT/FSC/PHA 4-6 WKS
MMBZ5231BLT1
SS-0791 4,700,000 MOT/FSC/PHA 4-6 WKS
MMBT3906LT3
SS-0792 4,000,000 MOT/FSC/PHA 8-10 WKS
MMBT3904BLT3
SS-101SM 423,000 MOT/FSC/PHA 4-6 WKS
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
PART YEARLY USAGE MANUFACTURER LEAD TIME PRICE
(All
information in
this column
contains
Confidential
matieral
redacted and
filed
separately with
the Commission)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MMBTA56LT1
SS-102SM 240,000 MOT/FSC/PHA 12-14 WKS
MMBTA06LT1
SS-260SM 1,000,000 MOT/FSC/PHA 4-6 WKS
BAV99LTI
SS-803SM 4,000,000 MOT/FSC/PHA 4-6 WKS
MMBD914LT3
</TABLE>
<PAGE> 12
(LOGO) ROCKFORD
CORPORATION
ATTACHMENT "A"
Following are conditions where Avnet will procure product from other sources:
1) Rockford had placed a purchase order for contract item(s) with Avnet and
manufacturers original commit date is not met and Rockford cannot adjust to
revised delivery to support production and/or line space down situations.
2) Avnet would assist Rockford in locating late delivery item and price
negotiation by a franchised and non-franchised sources. After unsuccessful
attempts to locate product within our franchised manufacturers and/or Rockford's
approved supplies, then reserved dollars will be credited to Rockford and must
be mutually agreed.
3) (Confidential material redacted and filed separately with the Commission) is
set aside per month with a maximum of (Confidential material redacted and filed
separately with the Commission). If, for example, (Confidential material
redacted and filed separately with the Commission) is spent for June, the unused
balance may be used throughout the remainder of the quarter but cannot exceed
(Confidential material redacted and filed separately with the Commission) for
the quarter.
4) Contract pricing on allocated components to be reviewed quarterly to insure
competitive fair market pricing and Rockford is assured any potential cost
savings. It is our intent to offer competitive pricing and cost reductions and
offer assurance of on-time deliveries via set aside purchase dollars.
<PAGE> 1
EXHIBIT 10.17
ROCKFORD CORPORATION
CONVERTIBLE SUBORDINATED DEBENTURE
AMENDMENT AGREEMENT
AND
AGREEMENT TO RENAME AS SENIOR NOTES
OCTOBER 28, 1994
Provident Mutual Life
Insurance Company of Philadelphia
1600 Market Street
Philadelphia, PA. 19103
Ladies and Gentlemen:
The undersigned, Rockford Corporation, an Arizona corporation
(the "Company"), hereby agrees with you as follows:
1. AMENDMENT OF DEBENTURES AND REPLACEMENT WITH SENIOR NOTE.
1.1 Sale of Debentures by the Company. The Company issued
and sold to you (or your predecessor) as of January 12, 1988, $2,000,000 of its
10% Convertible Subordinated Debentures (the "Debentures"), which had the terms
and granted to you the rights set forth in (1) the Convertible Subordinated
Debenture Purchase Agreement dated January 12, 1988 (the "Debenture Purchase
Agreement") and (2) the form of the Debentures.
1.2 Agreement to Amend. Subject to the terms and
conditions of this Agreement, and on the basis of the representations and
warranties set forth herein, you have agreed with the Company to amend the
Debentures by renaming them as Senior Notes (the "Senior Notes"), in principal
amount equal to the Debentures, bearing interest at the same rate as the
Debentures, maturing at the same time as the Debentures, and with amended terms
as set forth in this Agreement. The amendment is intended to effect the
following substantive changes to the Debentures:
(a) Renaming to Senior Notes. The Debentures
shall be renamed as "Senior Notes" in principal amount equal to the Debentures,
bearing interest at the same rate as the Debentures, maturing at the same time
as the Debentures, in the form of Exhibit A to this Agreement, and with amended
terms as set forth in this Agreement and in Exhibit A. The right of holders of
the Debentures to convert the Debentures into the Company's common stock shall
terminate and the Senior Notes shall not be convertible into other securities of
the Company.
<PAGE> 2
(b) Delivery of Warrants. Upon renaming of the
Debentures as Senior Notes and termination of the conversion rights, the Company
shall deliver to each holder of the Senior Notes warrants (the "Warrants"),
detachable at any time at the election of the holder, which shall entitle the
holder to purchase shares of Company's Common Stock. The Warrants (1) shall be
in the form of Exhibit B to this Agreement; (2) shall require payment of $6.50
per share in cash upon exercise (subject to adjustment as set forth in the
Warrants); (3) shall expire if not exercised before the close of business on
February 3, 2000; and (4) shall be exercisable to purchase 167,400 shares, a
number of shares equal to the number of shares into which the Debentures could
have been converted on the date when they are renamed as Senior Notes and
amended.
The Warrants shall be treated for all purposes as if they had been issued when
the Debentures were issued and shall represent the same right to acquire shares
of common stock as were established in the Debentures. The intended substantive
effect of the renaming of the Debentures as Senior Notes, the amendment of the
Senior Notes, and the delivery of the Warrants is (i) to separate the right to
purchase the Company's common shares, currently attached to the Debentures, into
a security that may be separately held, (ii) to extend the period to exercise
the Warrants from the maturity date of the Debentures to February 3, 2000, and
(iii) to reduce the price of the common shares issuable upon exercise of the
Warrants from $11.9474 per share to $6.50 per share.
(a) Replacement of Covenants. The
representations and warranties, affirmative covenants, and other matters set
forth in the original Debenture Purchase Agreement shall be replaced by the
corresponding representations and warranties, affirmative covenants, and other
matters set forth in this Agreement. The new financial covenants are
substantially the same as the covenants established in the revolving credit
facility entered into between the Company and Norwest Business Credit, Inc.
("NBCI") as of May 1994. This replacement will allow the Company to operate on
financial covenants consistent with the Company's financial projections and will
supersede the existing debt covenants with which the Company is currently unable
to comply.
1.3 Closing of Amendment.
(a) Offer to Holders. In order to accept the
Amendment, you must deliver this Agreement, duly executed by you, to Company
along with the original Debenture held by you.
(b) Closing Date. The closing of this Agreement
(the "Closing") shall take place on the date when Company has received this
Agreement executed by you, the Debentures or such other hour and date as you and
the Company shall agree in writing (the "Closing Date"). On or as soon as
possible after the Closing Date, the Company shall deliver to you (i) a Senior
Note registered in your name in principal amount equal to the principal amount
of the Debenture surrendered and (ii) a Warrant exercisable for the
corresponding number of shares.
-2-
<PAGE> 3
(c) Effect of Closing. As of the Closing Date,
the Debentures held by you shall be renamed for all purposes as the Senior
Notes, the Debentures and Debenture Purchase Agreement shall have no further
force or effect and shall be replaced, superseded, and amended in their entirety
by this Agreement, the Senior Notes, and the Warrants.
2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to you as follows:
2.1 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona. The Company has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted. On the Closing Date the Company will be duly
qualified or authorized to do business and in good standing in each jurisdiction
where the character of the property owned or leased or the nature of the
business transacted makes such qualification or authorization necessary.
2.2 Capitalization. The authorized and outstanding
capital stock of the Company, and the options, warrants, agreements or similar
rights granted by the Company for the issue or sale by it of any securities, is
as set forth on Exhibit C. All of the issued and outstanding shares of the
Common Stock of the Company have been duly authorized and are validly issued,
fully paid and nonassessable. The Company has reserved 167,400 shares of its
Common Stock for issuance upon exercise of the Warrants. All outstanding shares
of the Common Stock of the Company were issued in compliance with all applicable
Federal and state securities or "blue sky" laws. There are in existence or
contemplated no options, warrants, agreements or similar rights granted by the
Company for the issue or sale by it of any securities, other than the
transactions contemplated by this Agreement and the transactions disclosed in
Exhibit C.
2.3 Financial Position. The Company's Balance Sheets as
at September 30, 1993 and Statements of Income and Retained Earnings and of
changes in Financial Position for its fiscal year then ended, as audited by
Ernst & Young and as set forth in Exhibit D, are true and correct in all
material respects as at such dates and for the periods then ended.
2.4 Duly Issued. The shares of the Common Stock issuable
upon exercise of the Warrants, upon such exercise and upon payment of the
Warrant Price provided therein, will be validly issued, fully paid and
nonassessable.
2.5 Authorization. This Agreement has been duly
authorized, executed and delivered by and on behalf of the Company, and
constitutes the valid and binding agreement of the Company, enforceable in
accordance with its terms. The Company has full power and lawful authority (1)
to amend the Debentures and rename them as the Senior Notes, (2) to deliver the
Warrants on the terms and conditions set forth in this Agreement, and (3) to
issue the Common Stock issuable upon exercise of the Warrants.
-3-
<PAGE> 4
2.6 Compliance with Laws. The Company is in compliance
with all laws, regulations and orders applicable to its business and properties,
and has all necessary permits and licenses.
2.7 Governmental Consents. Neither the execution and
delivery of this Agreement, nor the performance of the terms or consummation of
the transactions contemplated by the Company under this Agreement require any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body, or any filings pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any state other than those obtained prior to and effective as of the
Closing Date. Neither the Company nor any agent acting on its behalf has
offered, or will offer, to sell (or has solicited or will solicit any offer to
buy) the Debentures, the Senior Notes, the Warrants, or any shares of the Common
Stock of the Company issuable upon the exercise of the Warrants, so as to
require the registration of any of such securities under the Securities Act
other than as contemplated by Article 4 of this Agreement. Based in part on your
representations which are set forth in Article 3 of this Agreement, the offer,
sale and issuance of the Debentures pursuant to the Debenture Purchase
Agreement, the renaming of the Debentures as Senior Notes and amendment of the
Senior Notes, the delivery of the Warrants, and the offer, sale and issuance of
shares of the Common Stock to be issued upon exercise of the Warrants are exempt
from the registration requirements of the Securities Act.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
3.1 Investment Representation. You represent and warrant,
and in making the original sale to you of the Debentures, the renaming of the
Debentures as Senior Notes and amendment of the Senior Notes, and the delivery
to you of the Warrants it is specifically understood and agreed, that you
acquired the Debentures, that you agreed to the renaming and amendment of the
Senior Notes, that you are accepting the Warrants, and that you will (if you
choose to exercise the Warrants) acquire the shares of the Common Stock issuable
upon the exercise of the Warrants, for your own account and not with a view to
or for sale in connection with any distribution, and that you have no present
intention of distributing any of the same.
3.2 Stock Not Registered. You represent and acknowledge
that neither the Debentures, the Senior Notes, the Warrants, nor the shares of
the Common Stock issuable upon exercise of the Warrants have been registered
under the Securities Act or applicable state securities laws on the ground that
the original sale of the Debentures and the amendment, renaming, and delivery
provided for in this Agreement were and are exempt from registration under the
Securities Act. You acknowledge that the Company's reliance on such exemption is
predicated on your representations. You understand that the Senior Notes,
Warrants, and shares of Common Stock must be held indefinitely unless the offer
and sale are registered under the Securities Act and applicable state securities
laws or an exemption from registration is available. In particular, you are
aware that the Senior Note and Warrants, and any Common Stock issued on exercise
of the Warrants, may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of such rule are met. Among the
conditions for use of Rule 144 is the availability to the public of current
information about the Company. Such information is not now available and the
Company has no present plans to make such
-4-
<PAGE> 5
information available. You represent that, in the absence of an effective
registration statement covering the Senior Notes, Warrants, or any Common Stock
issued on exercise of the Warrants, you will sell, transfer, or otherwise
dispose of the Senior Notes, Warrants, or any Common Stock issued on exercise of
the Warrants, only in a manner consistent with your representations and then
only in accordance with the provisions of Section 4.1 of this Agreement. You
further represent and acknowledge that any certificate representing the Senior
Notes, Warrants, or the shares of the Common Stock issuable upon exercise of the
Warrants, will bear the legend set forth in Section 4.2 and that the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
with respect to such shares or make appropriate notations to such effect in its
own stock transfer records. You further represent and acknowledge that any
certificate representing the Senior Notes, Warrants, or the shares of the Common
Stock issuable upon exercise of the Warrants, may bear any legends required by
applicable state securities laws.
3.3 Investment Experience Etc. You represent that you (1)
have such knowledge and experience in financial and business matters that you
are capable of evaluating the merits and risks of the purchase of the
Debentures, of their renaming as Senior Notes and amendment, and of the
acceptance of the Warrants, (2) have a net worth significantly in excess of the
amount of your investment in the Debentures and are able to bear the economic
risk of the purchase of the Debentures and of the holding of the Senior Notes
and Warrants, (3) have had access to information with respect to the Company
necessary to permit you to make an informed investment decision, and (4) are an
"accredited investor" as that term is defined in paragraph (a) of Rule 501 of
Regulation D promulgated under the Securities Act.
3.4 Organization Etc. You represent and warrant to the
Company that, on the date hereof and on the Closing Date, (1) if you are a
corporation, you are duly organized and validly existing under the laws of your
state of incorporation, you are and will be in good standing under such laws and
you have the requisite corporate power and authority to enter into this
Agreement, (2) if you are a general or limited partnership, you are and will be
a general or limited partnership duly organized and validly existing under the
laws of your state of formation, and you are and will be in good standing under
such laws, and you have and will have all requisite partnership power and
authority to enter into this Agreement, (3) this Agreement has been duly
authorized, executed and delivered by you to the Company, and (4) upon execution
and delivery by the Company, this Agreement constitutes your valid and binding
agreement, enforceable in accordance with its terms.
4. SECURITIES ACT AND RELATED MATTERS.
4.1 Transfer Restrictions. You agree that you will not
offer for sale, sell or transfer all or any part of the Senior Notes or
Warrants, or the shares of the Common Stock or other securities issuable upon
exercise of the Warrants, unless and until (1) the sale of such securities is
registered under the Securities Act and all other qualifications and proceedings
under other state or federal laws or regulations required in connection with
such sale or transfer have been obtained or taken or (2) such securities are
sold or transferred in accordance with an available exemption from registration
or qualification under the Securities Act and any applicable state securities or
"blue sky" laws and the Company has received an opinion of
-5-
<PAGE> 6
counsel, which opinion and counsel shall each be reasonably satisfactory to the
Company, that registration is not required.
4.2 Legend on Certificate. Each certificate representing
the Senior Notes or Warrants, or any shares of the Common Stock or other
securities issued upon exercise of the Warrants, shall (unless in the opinion of
counsel, which opinion and counsel shall each be reasonably satisfactory to the
Company, the same is not necessary) bear a legend in substantially the following
form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT REQUIRED."
Each certificate shall also bear any legends required by applicable state
securities laws. As used herein, "Restricted Security" means the Senior Notes
and Warrants, and shares of the Common Stock or other securities issued upon
exercise of the Warrants, and "Restricted Stock" means shares of Common Stock
issued upon exercise of the Warrants.
4.3 Registration Proposed by Company. If the Company
proposes to register any of its securities under the Securities Act (other than
a registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 under the Securities Act is applicable or a
registration using any form that does not permit secondary sales of securities)
it will give written notice to every holder of Warrants or Restricted Stock of
its intention to do so. Upon written request of any such holders delivered to
the Company within 30 days after receipt of such written notice (which request
shall state the number of shares of Restricted Stock to be registered and the
intended method of disposition) the Company will use its best efforts in
connection with such registrations of securities to be sold for the Company's
account, at its own expense to the extent provided in Section 4.5, to register
under the Securities Act all shares of Restricted Stock requested to be
registered by holders, all to the extent required to permit disposition in
accordance with the intended method. If such registration relates to an
underwritten public offering by the Company, only shares of Restricted Stock
which the requesting holders agree to include in the underwriting may be
included in the registration and, if the sole or managing underwriter of the
offering determines that the aggregate number of shares of Restricted Stock
requested to be included in the registration should be limited to a lesser
number due to market conditions or the necessity of including in such
underwriting and registration shares to be sold for the account of the Company,
then each holder who has requested that shares of Restricted Stock be included
in such underwriting and registration may sell only a pro rata portion of shares
of Restricted Stock.
4.4 Registration Requested by Purchasers. Upon written
request of the holder or holders of 50% of the Warrants then outstanding (or any
combination of the Warrants and of
-6-
<PAGE> 7
Common Stock issued upon exercise of the Warrants which together, prior to such
conversion, would have constituted 50% of the Warrants) made at any time (a)
prior to the giving of written notice by the Company of its intention to
register any of its securities under the provisions of Section 4.3, which
registration becomes effective within six months following the giving of such
notice, and (b) after the later of (x) January 12, 1990 or (y) 12 months from
the effective date of any prior registration statement covering shares of the
Company's Common Stock, which request demands that the Company file a
registration statement under the Securities Act covering the registration of
Restricted Stock, the expected price to the public of which equals or exceeds
$7,500,000, then the Company will upon one occasion (l) promptly give written
notice of such proposed registration to every other holder of Restricted
Securities and (2) as expeditiously as possible and in any event within 90 days,
use its best efforts, at its own expense to the extent provided in Section 4.5,
to effect registration under the Securities Act of
(a) the sale of the Restricted Stock which the
Company has been requested to register pursuant to the written
request referred to above, and
(b) all other Restricted Stock the holders of
which shall make written request for registration to the
Company, such written request to be delivered to the Company
within 30 days after the giving of the above written notice by
the Company,
all to the extent required to permit the disposition by the holders of the
securities so registered. The Company agrees that in-connection with effecting
any registration it will execute any required undertakings to file
post-effective amendments. The Company shall have no further obligations under
this Section 4.4 with respect to any subsequent registrations (1) after one
registration filed pursuant to any holder's request under this Section 4.4 (in
addition to any postponed registration as described below in this Section 4.4)
covering shares of Restricted Stock has become effective or (2) after you and
your permitted transferees hold, in the aggregate, an amount of the Warrants or
securities issued upon exercise of the Warrants, which constitute less than 10%
of the Warrants initially issued and sold pursuant to this Agreement.
Notwithstanding the foregoing if, within ten days following the receipt of the
request referred to in the first sentence of this Section 4.4, the Company shall
furnish to the requesting holder or holders a certificate stating that the
Company has determined to file within 60 days thereafter a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company, then the Company shall not be obligated to effect a
registration pursuant to this Section 4.4 for a period of six months from the
date of such certificate, provided that the Company shall actively employ in
good faith all reasonable efforts to cause the registration statement for the
underwritten public offering to become effective as soon as reasonably
practicable. The Company shall not be entitled to delay the exercise of the
rights of the holders under this Section 4.4 by invoking the provisions of the
preceding sentence on more than one occasion.
4.5 Costs and Expenses. All costs and expenses in
connection with the registration of securities under Sections 4.3 and 4.4,
including Federal and state registration and filing fees, printing expenses
(including the number of preliminary and final prospectuses, post-effective
amendments, and supplements reasonably requested by the holders of Restricted
-7-
<PAGE> 8
Stock), and the fees and disbursements of counsel and of independent accountants
and other experts of the Company, shall be borne by the Company; provided,
however, that the Company shall not be obligated to pay underwriter's discounts
and commissions and fees and disbursements of counsel for the holders of
Restricted Stock. The Company will use its best efforts to keep effective any
registration for the period reasonably necessary to effect disposition in
accordance with the intended methods described in the requests for registration,
but if the Company is requested or required to maintain the registration
effective for more than six months, all out-of-pocket expenses of the Company
incurred in maintaining effectiveness after the initial six-month period shall
be borne by the holders of securities who have requested that effectiveness be
maintained in order to continue with the distribution, in such proportions as
they may agree upon.
4.6 Information. The holders of Restricted Stock covered
by a registration statement as provided in Sections 4.3 or 4.4 shall furnish in
writing to the Company such information regarding them, any Restricted Security
held by them, and the intended method of disposition of the Restricted Stock as
the Company shall reasonably request and as shall be required in connection with
the actions to be taken by the Company pursuant to Sections 4.3 or 4.4.
4.7 Blue Sky Registrations. In the case of any
registration under this Article 4 of any shares of Restricted Stock, the Company
will use its best efforts concurrently to register or qualify the same for sale
under the securities laws of those states in which registration or qualification
is required, except that the Company shall not be required to execute a general
consent to service or to qualify to do business in any state.
4.8 Lockup Agreement. In consideration for the Company
agreeing to its obligations under this Article 4, each holder of Restricted
Securities agrees that, in connection with any registration of the Company's
securities, upon the request of the underwriter(s) managing any underwritten
offering of the Company's securities, such holders shall execute an agreement
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Restricted Stock, other than shares included in the
registration, without the prior written consent of the underwriter(s) for the
period of time (not to exceed 90 days) from the effective date of the
registration as the underwriter(s) may specify.
4.9 Transferability. Provided that the requirements of
Section 4.1 have been satisfied with respect to the sale or transfer of a
Restricted Security, any transferee shall be entitled to the rights and benefits
of, and shall be subject to the requirements of, Sections 4.2 through 4.8.
5. COMPANY'S AFFIRMATIVE COVENANTS. The Company shall comply with
the following requirements unless holders of not less than 50% in principal
amount of the Senior Notes then outstanding agree otherwise in writing. These
requirements shall terminate upon the earlier of (1) the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offering and sale of Common Stock, or any
security convertible into Common Stock, (other than a registration under which
more than 25% of Restricted Stock is not registered) or (2) the date when less
than 25% of the Senior Notes
-8-
<PAGE> 9
initially issued and sold under the Debenture Purchase Agreement and this
Agreement are held by the original holders of the Debentures or their permitted
transferees.
5.1 Reporting Requirements. The Company will deliver, or
cause to be delivered, to you each of the following:
(1) As soon as available, and in any event within 90 days
after the end of each fiscal year of the Company, audited financial statements
of the Company with the unqualified opinion of independent certified public
accountants selected by the Company, which annual financial statements shall
include the balance sheet of the Company as at the end of such fiscal year and
the related statements of income, retained earnings and cash flows of the
Company for the fiscal year then ended, all in reasonable detail and prepared in
accordance with generally accepted accounting principles consistently applied,
together with a certificate of the chief financial officer of the Company
stating (i) that such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied, (ii) whether such
officer has knowledge of the occurrence of any default hereunder and, if so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Company is in compliance with the financial covenants set
forth in this Agreement;
(2) As soon as available and in any event within 60 days
after the end of each quarter, an unaudited balance sheet and statements of
income and retained earnings of the Company as at the end of and for such
quarter and for the year to date period then ended, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end audit
adjustments and together with a certificate of the chief financial officer of
the Company stating (i) that such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied,
(ii) whether such officer has knowledge of the occurrence of any default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Company is in compliance with the
financial covenants set forth in this Agreement;
(3) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the Company shall have
sent to its stockholders;
(4) promptly after the sending or filing thereof, copies
of all regular and periodic financial reports which the Company shall file with
the Securities and Exchange Commission or any national securities exchange;
(5) promptly upon knowledge thereof, notice of the
violation by the Company of any law, rule or regulation, the non-compliance with
which could materially and adversely affect its business or its financial
condition; and
(6) from time to time, with reasonable promptness, any
and all other materials, reports, records or information with respect to
Company's financial condition, operations, and affairs as you may request.
-9-
<PAGE> 10
5.2 Books and Records; Inspection and Examination. The
Company will keep accurate books, records and accounts pertaining to the
Company's business and financial condition and such other matters as you may
from time to time request in which true and complete entries will be made in
accordance with generally accepted accounting principles consistently applied
and, upon your request, will permit you or your officer, employee, attorney or
accountant to audit, review, make extracts from or copy any and all corporate
and financial books and records of the Company at all times during ordinary
business hours and to discuss the affairs of the Company with any of its
directors, officers, employees or agents.
5.3 Compliance with Laws; Environmental Indemnity. The
Company will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition and (b) comply with all applicable
Environmental Laws and obtain any permits, licenses or similar approvals
required by any such Environmental Laws. The Company will indemnify, defend and
hold you harmless from and against any claims, loss or damage to which you may
be subjected as a result of any past, present or future existence, use,
handling, storage, transportation or disposal of any hazardous waste or
substance or toxic substance by the Company or on property owned, leased or
controlled by the Company. This indemnification agreement shall survive the
termination of this Agreement and payment of the indebtedness hereunder.
5.4 Payment of Taxes and Other Claims. The Company will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of the Company; provided, that the Company
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
5.5 Maintenance of Properties. The Company will keep and
maintain its properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided, however,
that nothing in this section shall prevent the Company from discontinuing the
operation and maintenance of any of its properties if such discontinuance is in
its judgment desirable in the conduct of the Company's business.
5.6 Insurance. The Company will obtain and at all times
maintain insurance with insurers believed by the Company to be responsible and
reputable, in such amounts and against such risks as is usually carried by
companies engaged in similar business and owning similar properties in the same
general areas in which the Company operates.
5.7 Preservation of Corporate Existence. The Company will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
-10-
<PAGE> 11
5.8 Book Net Worth. The Company shall maintain on the
last day of each quarter occurring in each of the periods set forth below, the
Book Net Worth (as that term is defined in the Company's credit agreement with
NBCI dated May 3, 1994) which is greater than or equal to the amount set forth
opposite such period:
<TABLE>
<CAPTION>
PERIOD BOOK NET WORTH
------ --------------
<S> <C>
Date hereof to and including June 29, 1994 ($4,232,000)
June 30, 1994 to and including September 29, 1994 ($3,300,000)
September 30, 1994 to and including December 30, 1994 ($2,850,000)
December 31, 1994 to and including March 30, 1995 ($3,100,000)
March 31, 1995 to and including June 29, 1995 ($2,650,000)
June 30, 1995 to and including September 29, 1995 ($1,000,000)
September 30, 1995 to and including December 30, 1995 ($ 800,000)
December 31, 1995 to and including March 30, 1996 ($ 900,000)
March 31, 1996 to and including June 29, 1996 ($ 400,000)
June 30, 1996 to and including September 29, 1996 $1,000,000
September 30, 1996 and thereafter $1,600,000
</TABLE>
5.9 Earnings Before Interest and Taxes. The Company shall
maintain on each date set forth below operating income determined in accordance
with generally accepted accounting principles but before any deduction for
interest expenses and income taxes and calculated for all dates prior to
September 30, 1994 on a fiscal year to date basis, and thereafter, for the
twelve months ending on such date, which is greater than or equal to the amount
set forth opposite such date:
<TABLE>
<CAPTION>
DATE EBIT
---- ----
<S> <C>
June 30, 1994 $ 700,000
September 30, 1994 $2,500,000
December 31, 1994 $3,400,000
March 31, 1995 $3,500,000
June 30, 1995 $3,600,000
September 30, 1995 $3,800,000
December 31, 1995 $3,800,000
March 31, 1996 $4,000,000
June 30, 1996 $4,300,000
September 30, 1996 and each fiscal quarter
end thereafter $4,300,000
</TABLE>
5.10 Interest Coverage. The Company shall maintain on each
date set forth below, the ratio of (i) the sum of its pre-tax net income, to
(ii) interest expense, in each case determined in accordance with generally
accepted accounting principles, and calculated for all dates prior to September
30, 1994 on a fiscal year to date basis, and thereafter, for the twelve
-11-
<PAGE> 12
months ending on such date, which is greater than or equal to the ratio set
forth opposite such date:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
June 30, 1994 1.65 to 1
September 30, 1994 2.00 to 1
December 31, 1994 2.00 to 1
March 31, 1995 2.00 to 1
June 30, 1995 2.00 to 1
September 30, 1995 2.00 to 1
December 31, 1995 2.00 to 1
March 31, 1996 2.00 to 1
June 30, 1996 2.00 to 1
September 30, 1996 and each fiscal quarter
end thereafter 2.00 to 1
</TABLE>
5.11 Minimum Debt Service Coverage. The Company shall
maintain on each date set forth below, the ratio of (i) the sum of its after-tax
net income, depreciation and amortization expense and interest expense, to (ii)
the sum of its interest, capital expenditures and current maturities of long
term debt (excluding as long term debt, the indebtedness of the Company to NBCI
incurred pursuant to the credit agreement between Company and NBCI, or any
replacement of such indebtedness), in each case determined in accordance with
generally accepted accounting principles, and calculated for all dates prior to
September 30, 1994 on a fiscal year to date basis, and thereafter, for the
twelve months ending on such date, which is greater than or equal to the ratio
set forth opposite such date:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
June 30, 1994 1.20 to 1
September 30, 1994 1.25 to 1
December 31, 1994 1.50 to 1
March 31, 1995 1.50 to 1
June 30, 1995 1.50 to 1
September 30, 1995 1.50 to 1
December 31, 1995 1.50 to 1
March 31, 1996 1.50 to 1
June 30, 1996 1.50 to 1
September 30, 1996 and each fiscal quarter
end thereafter 1.50 to 1
</TABLE>
6. COMPANY'S NEGATIVE COVENANTS. The Company shall comply with
the following requirements unless holders of not less than 50% in principal
amount of the Senior Notes then outstanding agree otherwise in writing. These
requirements shall terminate upon the earlier of (1) the closing of an
underwritten public offering pursuant to an effective registration
-12-
<PAGE> 13
statement under the Securities Act covering the offering and sale of Common
Stock, or any security convertible into Common Stock, (other than a registration
under which more than 25% of Restricted Stock is not registered) or (2) the date
when less than 25% of the Senior Notes initially issued and sold under the
Debenture Purchase Agreement and this Agreement are held by the original holders
of the Debentures or their permitted transferees.
6.1 Dividends and Stock Repurchases. The Company will not
declare or pay any dividends (other than dividends payable solely in stock of
the Company) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly; provided,
however, that if the Company is an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended, or shall become such an S Corporation
with your consent, and after first providing such supporting documentation as
you may request, the Company may pay dividends in an amount equal to the amount
of state and federal income tax which would be due by each shareholder with
respect to income deemed to be received by each shareholder from the Company as
a result of the Company's status as an S Corporation at the highest marginal
income tax rate for federal and state (for the state or states in which each
shareholder is liable for income taxes with respect to such income) income tax
purposes, after taking into account any deduction for state income taxes in
calculating the federal income tax liability.
6.2 Sale of Transfer of Assets; Suspension of Business
Operations. The Company will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary or (ii) all or a substantial part of
its assets to any other Person other than the sale of Inventory in the ordinary
course of business and will not liquidate, dissolve or suspend business
operations. The Company will not in any manner transfer any property without
prior or present receipt of full and adequate consideration.
6.3 Accounting. The Company will not adopt any material
change in accounting principles other than as required by generally accepted
accounting principles. The Company will not adopt, permit or consent to any
change in its fiscal year.
6.4 Change in Ownership. Company will not issue or sell
any stock of the Company or permit or suffer to occur the sale, transfer,
assignment, pledge or other disposition of any shares of stock of the Company if
immediately thereafter Caroline S. Bartol or her lineal descendants are not
beneficial owners of at least 51% of the outstanding capital stock of the
Company.
7. CONDITIONS OF COMPANY'S OBLIGATION. The obligation of the
Company to effect this Agreement at the Closing is subject to the satisfaction,
prior to or at the Closing, of the condition that the representations and
warranties contained in Article 3 of this Agreement shall be correct when made
and as of the time of the Closing.
8. CONDITIONS OF YOUR OBLIGATION. Your obligation to effect this
Agreement at the Closing is subject to the satisfaction, prior to or at the
Closing, of the following conditions:
-13-
<PAGE> 14
8.1 Representations and Warranties Correct. The
representations and warranties contained in Article 2 of this Agreement shall be
correct when made and at and as of the time of the Closing.
8.2 Performance. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement and
required to be performed or complied with by it prior to or at the Closing.
9. MISCELLANEOUS.
9.1 Expenses. The parties will each pay all of their own
expenses incurred by them in connection with this Agreement.
9.2 Survival of Representations and Warranties. All
covenants, agreements, representations and warranties made in or otherwise in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the issuance and delivery of the Senior Notes and
Warrants.
9.3 Binding Effect Etc. All covenants, agreements,
representations and warranties contained in this Agreement shall bind and inure
to the benefit of the respective heirs, legal representatives, successors and
assigns of the parties. The rights of any transferee of a Restricted Security,
however, are subject to compliance with Section 4.1.
9.4 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received when delivered or
five days after deposit in the United States mail, first class postage prepaid,
addressed as set forth below:
(1) If to the Company:
648 South River Drive
Tempe, Arizona 85281
Attention: President
with a copy to:
Lewis and Roca
40 North Central Avenue, Suite 1500
Phoenix, Arizona 85004
Attention: Kevin Olson, Esq.
-14-
<PAGE> 15
(2) If to the Holder:
Provident Mutual Life Insurance Company of Philadelphia
1600 Market Street
Philadelphia, Pennsylvania 19103
Attention: _________________________
Any party may alter the person, officer or address to which
communications or copies are to be sent to it by giving notice.
9.5 Amendments and Waivers. Neither this Agreement nor
any of its terms may be changed, waived, discharged or terminated except in a
writing signed by all parties.
9.6 Controlling Law. This Agreement is being executed and
delivered, and the Senior Notes and Warrants are being delivered, in the State
of Arizona and shall be construed in accordance with and governed by the laws of
such state.
9.7 Counterparts. This Agreement may be executed in
several counterparts and each counterpart, when so executed and delivered and
whether or not each counterpart is executed by all the parties, shall constitute
an original instrument, but all such separate counterparts shall together
constitute this Agreement and be parts of the same instrument.
If you are in agreement with the foregoing, please sign the
form of acceptance appearing at the foot of the enclosed counterpart of this
Agreement and return the same to the Company, whereupon it will become a binding
agreement between you and the undersigned.
Yours very truly,
ROCKFORD CORPORATION
By: /s/ W. Gary Suttle
__________________________________
President
Attest /s/ James M. Thomson
__________________________________
Secretary
-15-
<PAGE> 16
The foregoing agreement is accepted as of the date first above written.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By: /s/
-----------------------------------------
Title: /s/
--------------------------------------
Attest /s/
--------------------------------------
Title: /s/
--------------------------------------
-16-
<PAGE> 1
EXHIBIT 10.18
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAW OF ANY
STATE. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF EFFECTIVE
REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT
REQUIRED."
ROCKFORD CORPORATION
SENIOR NOTE
DUE FEBRUARY 3, 1999
(RENAMING, AMENDING, AND REPLACING
A 10.5% CONVERTIBLE SUBORDINATED DEBENTURE
DUE FEBRUARY 3, 1999)
$1,000.00 October 28, 1994
This is a Senior Note due February 3, 1999 (the "Senior Note"), issued
by Rockford Corporation, an Arizona Corporation (the "Company") pursuant to the
terms of the Convertible Subordinated Debenture Amendment Agreement and
Agreement to Rename as Senior Note of even date herewith between the Company and
the original Holder hereof (the "Agreement"). Terms used and not otherwise
defined shall have the meaning given them in the Agreement.
1. Payment of Principal and Interest.
The Company, for value received, promises to pay to Ron Trout or
transferee (the "Holder") the principal amount of $1,000.00 on February 3, 1999
and to pay interest thereon at the rate of ten and one-half percent (10.5%) per
annum. Interest shall accrue from the date hereof and shall be paid quarterly,
on each January 15th, April 15th, July 15th, and October 15th hereafter but
commencing on April 15, 1989, until the principal is fully paid. Interest shall
be paid on the basis of a 360-day year of twelve 30-day months.
2. Payment Prior to Maturity.
At any time the Company may, at its option, redeem this Senior Note in
whole or in part by paying all interest accrued but unpaid to the date fixed for
redemption plus a redemption price fixed as follows:
<PAGE> 2
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE
--------------- ----------------
<S> <C>
Before February 2, 1995 105% of Par
February 3, 1995 to February 2, 1996 104% of Par
February 3, 1996 to February 2, 1997 103% of Par
February 3, 1997 to February 2, 1998 102% of Par
February 3, 1998 to February 2, 1999 101% of par
</TABLE>
Notice of any redemption shall be given not less than thirty (30) days, but not
more than ninety (90) days, before the date fixed for redemption. By the date
fixed for redemption, the Holder shall surrender this Senior Note to the Company
at its principal executive offices in exchange for payment therefor. Upon due
tender of the accrued interest through the redemption date plus the redemption
price by the Company, this Senior Note shall not be deemed to be outstanding for
any purpose subsequent to the close of business on the date fixed for
redemption.
3. Subordination and Priority.
The indebtedness evidenced by this Senior Note, including the principal
and accrued interest, is expressly subordinate and subject in right of payment
and upon liquidation to the prior payment in full of all "Senior Debt," whether
now outstanding or hereafter created, incurred, assumed or guaranteed. The term
"Senior Debt" shall mean the principal of, premium, if any, and interest on (a)
indebtedness (other than this Senior Note or any previously subordinated
indebtedness) of the Company pursuant to the Company's present credit
arrangements with Norwest Business Credit, Inc. ("NBCI") and Bank of America
Arizona ("BofA"), or pursuant to any refinancing or renewal of such credit
arrangements, (b) indebtedness of the Company which holders of not less than 50%
in principal amount of the Senior Notes agree, in writing, shall be treated as
Senior Debt, and (c) indebtedness incurred, assumed or guaranteed by the Company
in connection with the acquisition by it of any property or asset, in an amount
up to the cost of such property or asset, unless, in each case, by the terms of
the instrument creating or evidencing the indebtedness it is expressly provided
that such indebtedness is not superior in right of payment to this Senior Note.
Senior Debt shall exclude, and the indebtedness evidenced by this
Senior Note is expressly senior and entitled to priority in payment and upon
liquidation with respect to, all capital stock of the Company, any indebtedness
issued after the date of this Debenture and convertible into shares of the
Company's Common Stock, and any other indebtedness that is not Senior Debt.
Senior Debt shall exclude, and the indebtedness evidenced by this Senior Note is
expressly of equal priority in payment and upon liquidation with respect to, (1)
indebtedness outstanding on the original issue date of this Senior Note and
convertible into shares of the Company's Common Stock and (2) a $2,000,000
Senior Note of Company issued to Provident Mutual Life Insurance Company of
Philadelphia.
4. Events of Default.
An Event of Default shall occur upon the occurrence of any of the
following events:
-2-
<PAGE> 3
4.1 Default in the payment of interest on this Senior Note when it
becomes due and payable, and continuance of such default for a period of ten
(10) days;
4.2 Default in the payment of the principal of this Senior Note
when it becomes due and payable;
4.3 Default by the Company under an acceleration prior to maturity
of, or the failure to pay at maturity, any third party indebtedness of the
Company aggregating not less than $250,000 for a period of thirty (30) days
after the same may become payable (which shall include any grace period but
shall not exceed 30 days);
4.4 The failure of the Company to comply for a period of not less
than thirty (30) consecutive days with any provision of the affirmative or
negative covenants contained in the Agreement;
4.5 The failure of the Company to pay final judgments not covered
by insurance or then subject to any appeal aggregating in excess of $250,000 for
thirty (30) days;
4.6 The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under the Federal Bankruptcy Act or any other applicable
Federal or State law, or appointing a receiver, liquidator, assignee, trustee,
or other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
thirty (30) consecutive days; or
4.7 The institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under Federal or
State law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or other similar
official of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such action.
5. Rights Upon Default; Acceleration of Indebtedness. Upon the occurrence
of an Event of Default:
5.1 The entire outstanding balance of the Senior Note, including
the entire balance of principal and all accrued interest, shall accelerate and
become immediately due and payable upon written notice to the Company by Holders
of not less than 50% in principal amount of the Senior Notes then outstanding;
and
5.2 The Company may not pay dividends or make distributions to
holders of any class of its stock, or redeem or repurchase all or any part of
any class of its stock.
-3-
<PAGE> 4
6. Renaming and Replacement of Debenture.
This Senior Note is issued, pursuant to the terms of the Agreement, to
rename and amend the terms of a Debenture issued by the Company and held by the
Holder. This Senior Note shall supersede, replace and amend the Debenture which
shall, upon issuance of this Senior Note, have no further force or effect.
7. Loss or Destruction of Senior Note.
The Company shall execute and deliver a new Senior Note of like tenor
and date upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Senior Note and, in the case of loss,
theft or destruction, of an indemnity by the original Holder hereof or in case
of any transfer upon such terms as may be satisfactory to the Company, or, in
the case of mutilation, upon surrender and cancellation of this Senior Note.
8. Status Under Securities Laws.
8.1 No Registration. This Senior Note has not been and will not
be, registered under the Securities Act of 1933 (the "1933 Act"), the Arizona
Securities Act (the "Arizona Act") or the securities laws of any other
jurisdiction and must be held indefinitely without any transfer, sale or other
disposition unless subsequently registered under the 1933 Act, the Arizona Act
and the securities laws of any other applicable jurisdiction or, in the opinion
of counsel acceptable to the Company, registration is not required under such
Acts or laws.
8.2 Legend. There shall be endorsed on this Senior Note a legend
substantially to the following effect:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF
ANY STATE. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT
REQUIRED."
8.3 Refusal to Transfer. The Company may refuse to effect a
transfer, sale or other disposition of this Senior Note by the Holder or its
successors or assigns otherwise than as expressly permitted by this Senior Note
and the Agreement.
9. Miscellaneous.
9.1 Agreement. This Senior Note and the terms of the indebtedness
evidenced hereby are issued and incurred subject to the terms of the Agreement,
the terms and conditions of which shall become binding upon any subsequent
Holder or transferee of this Senior Note.
-4-
<PAGE> 5
9.2 Governing Law. This Senior Note and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed in accordance with the laws of the State of Arizona,
notwithstanding any Arizona or other conflict-of-law provisions to the contrary.
9.3 Binding Nature of Senior Note. This Senior Note shall be
binding upon any successors and assigns of the Company and shall inure to the
benefit of the Holder and its successors and assigns, except that the Holder may
not assign or transfer its rights under this Senior Note otherwise than by gift
or bequest, by operation of law, or as expressly permitted by this Senior Note.
9.4 Notices. All notices, requests, demands and other
communications required or permitted under this Senior Note shall be in writing
and shall be deemed to have been duly given, made and received when delivered or
five days after they are deposited in the United States mails, first class
postage prepaid, addressed as set forth below:
(1) If to the Company:
648 South River Drive
Tempe, Arizona 85281
Attention: President
with a copy to:
Lewis and Roca
40 North Central Avenue, #1500
Phoenix, Arizona 85004
Attention: Kevin Olson, Esq.
(2) If to the Holder:
Ron Trout
4328 East Contessa
Mesa, Arizona 85201
Either party may alter the person, office or address to which
communications or copies are to be sent by giving notice.
10. Execution Date. The Company has caused this Senior Note to be duly
executed on the date written above.
ROCKFORD CORPORATION
By: /s/
---------------------------------
President
[Corporate Seal) Attest:
-5-
<PAGE> 6
/s/
------------------------------------
Assistant Secretary
-6-
<PAGE> 7
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF
ANY STATE. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED (EXCEPT TO A COMMERCIAL BANK OR OTHER CORPORATION
AFFILIATED WITH SECURITY PACIFIC BANK ARIZONA) IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL ACCEPTABLE
TO THIS COMPANY THAT REGISTRATION IS NOT REQUIRED."
WARRANT
TO PURCHASE UP TO 43 SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., PHOENIX TIME, ON FEBRUARY 3, 2000
ROCKFORD CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF ARIZONA
This certifies that, for value received, Ron Trout or the registered
holder hereof or assigns (the "Warrantholder") is entitled to purchase from
Rockford Corporation, an Arizona corporation (the "Company"), at any time before
5:00 p.m., Phoenix time, on February 3, 2000, at the purchase price per share of
$ 6.50 (the "Warrant Price"), up to the number of shares of Common Stock, no par
value, of the Company set forth above (the "Shares"). The number of Shares
purchasable upon exercise of this Warrant and the Warrant Price per share shall
be subject to adjustment from time to time as set forth below.
1. Agreement. This Warrant was originally delivered pursuant to
the terms of the Convertible Subordinated Debenture Amendment Agreement and
Agreement to Rename as Senior Note between the Company and original
Warrantholder (the "Agreement"). In connection with the Agreement the Company
and the original Warrantholder agreed to (1) rename the Company's 10.5%
Convertible Subordinated Debentures due February 3, 1999 as the Company's
"Senior Notes due February 3, 1999" (the "Note") and (2) deliver the original of
this Warrant to purchase the Shares in order to separately evidence the right to
purchase the Shares (previously established in the Debentures) and amend the
terms for purchase of the Shares. This Warrant (i) evidences the right to
purchase the Shares, (ii) is issued under and in accordance with the Agreement,
(iii) is subject to the terms and provisions contained in the Agreement and the
Note, to all of which the Warrantholder by acceptance of this Warrant consents
and (iv) represents and evidences the same right to purchase the Shares
previously embodied in the Debentures (subject only to the changes set forth in
this Warrant or in the Agreement). Capitalized terms used in this Warrant shall
have the meanings ascribed to them in the Note or
<PAGE> 8
Agreement. This Warrant may be exercised at any time after its issuance and
before 5:00 p.m., Phoenix time, on February 3, 2000.
2. Detachment from Note. This Warrant is originally issued
together with the Note; however, it may be transferred independently of the Note
at any time, subject to compliance with the transfer restrictions set forth in
the Agreement.
3. Expiration. Unless earlier exercised or expired, this Warrants
shall expire at 5:00 p.m. Phoenix time on February 3, 2000.
4. Exercise of Warrant.
4.1 Exercise. This Warrant may be exercised in whole or
in part by presentation of this Warrant with the Exercise Form on the reverse
side hereof duly executed and simultaneous payment of the Warrant Price (subject
to adjustment) at the principal office of the Company. Payment of such price
shall be made at the option of the Warrantholder in certified funds or by wire
transfer.
4.2 Exercise Price and Fractional Shares. This Warrant is
exercisable, at the option of the Warrantholder, to purchase shares of the
Company's Common Stock at the Warrant Price, subject to adjustment as provided
in this Warrant. The Company shall not be required to issue fractional shares of
Common Stock or other capital stock upon exercise of this Warrant and, in lieu
thereof, shall pay a cash adjustment based upon the then current fair market
value of the Common Stock as determined by the Board of Directors as at the last
business day prior to the date of exercise.
4.3 Adjustment Based Upon Stock Dividends, Combination of
Shares or Recapitalization. The Warrant Price and the number of Shares shall be
adjusted if the Company shall at any time after the original issuance of this
Warrant (i) pay a stock dividend on its Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares,
(iv) issue by reclassification of its shares of Common Stock any other special
capital stock of the Company, or (v) distribute to all holders of Common Stock
evidences of indebtedness (including indebtedness convertible into Common Stock
or other securities of Company), securities (including common or preferred stock
of Company), or assets (excluding cash dividends) or rights or warrants to
subscribe for Common Stock or other securities of Company (other than those
mentioned above). Upon the occurrence of an event or events requiring adjustment
of the Warrant Price or an adjustment to the number of Shares or other
securities issuable upon exercise of this Warrant, and thereafter, the
Warrantholder upon exercise of this Warrant shall be entitled to receive the
number of shares of Common Stock or other securities of the Company which the
Warrantholder would have owned or have been entitled to receive after the
happening of any of the events described above had this Warrant been exercised
immediately prior to the happening of such event.
4.4 Adjustment Based Upon Stock Issuances. The Warrant
Price shall be adjusted if at any time after the original issuance of this
Warrant the Company issues, or issues rights or warrants to subscribe for or
purchase, Common Stock or securities convertible
-2-
<PAGE> 9
into or exchangeable for Common Stock at less than the Warrant Price. Upon the
occurrence of an event or events requiring adjustment of the Warrant Price under
this section the Warrant Price shall be adjusted to be equal to the price of the
new issue, and thereafter the Warrantholder upon exercise of this Warrant shall
be entitled to purchase the Shares, or other securities of the Company which the
Warrantholder is entitled to receive, based upon the new Warrant Price per
share.
4.5 Adjustment Based Upon Merger or Consolidation. In
case of any consolidation or merger to which the Company is a party (other than
a merger in which the Company is the surviving entity and which does not result
in any reclassification of or change in the outstanding Common Stock of the
Company), or in case of any sale or conveyance to another person, firm, or
corporation of the property of the Company as an entirety or substantially as an
entirety, the Warrantholder shall have the right, upon exercise of this Warrant,
to receive the kind and amount of securities and property (including cash)
receivable upon such consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock or other securities into which such Warrant
might have been converted immediately prior to the consolidation, merger, sale,
or conveyance.
4.6 No Adjustment for Outstanding Exercise and Option
Rights and Certain Other Securities. No adjustment of the Warrant Price or
number of shares issuable upon exercise shall be made upon the issuance by the
Company of (1) Common Stock upon conversion or exchange of securities
convertible or exchangeable into Common Stock and outstanding on or before
February 3, 1989, (2) Common Stock upon exercise of any employee's stock option
outstanding on or before February 3, 1989, or (3) Common Stock or securities
convertible into Common Stock, or options to purchase Common Stock not included
in (1) or (2) above and not amounting to more than 10% of the Company's fully
diluted Common Stock issue, pursuant to an employee benefit plan of the Company.
5. Corporate Status of Shares To Be Issued. All shares of the
Company's Common Stock (or other securities in the event of an adjustment of the
Warrant Price or number of shares issuable upon exercise) which may be issued
upon the exercise of this Warrant shall, upon issuance and payment of the
Warrant Price, be fully paid and nonassessable.
6. Issuance of Stock Certificate. Upon the exercise of this
Warrant, the Company shall forthwith issue to the Warrantholder a certificate or
certificates representing the number of shares of its Common Stock (or other
securities in the event of an adjustment of the Warrant Price or number of
shares issuable upon exercise) to which the Warrant relates.
7. Partial Exercise and Exchange. Upon any partial exercise of
this Warrant, there shall be signed and issued to the Warrantholder a new
Warrant in respect of the Shares as to which this Warrant shall not have been
exercised. This Warrant may be exchanged, at the office of the Company by
surrender of this Warrant properly endorsed for transfer, exercise, or exchange,
for one or more new Warrants for the same aggregate number of Shares as
evidenced by the Warrant or Warrants exchanged.
8. Loss or Destruction of Warrant. The Company shall execute and
deliver a new Warrant of like tenor and date upon receipt by the Company of
evidence satisfactory to it of
-3-
<PAGE> 10
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of an indemnity by the original Warrantholder, or,
in case of any transfer, upon such terms as may be satisfactory to the Company,
or, in the case of mutilation, upon surrender and cancellation of this Warrant.
9. Status of Holder of Warrant. This Warrant shall not entitle
the Warrantholder to any voting rights or other rights as a shareholder of the
Company, and no dividends shall be payable or accrue in respect of this Warrant
or the securities issuable upon exercise, unless and until this Warrant is
exercised. Upon the exercise of this Warrant, the Warrantholder shall, to the
extent permitted by law, be deemed to be the holder of record of the shares of
Common Stock or other securities issuable upon such exercise, notwithstanding
that the stock transfer books of the Company are then closed or that the
certificates representing such shares of Common Stock or other securities are
not then actually delivered.
10. Reservation of Shares. The Company shall reserve out of its
authorized shares of Common Stock (and other securities in the event of an
adjustment of the Warrant Price or number of shares issuable upon exercise) a
number of shares sufficient to enable it to comply with its obligation to issue
the Shares (and other securities in the event of an adjustment of the Warrant
Price or number of shares issuable upon exercise) upon the exercise of this
Warrant.
11. Status Under Securities Laws.
11.1 No Registration. This Warrant has not been, and the
securities issuable upon exercise hereof will not be, registered under the
Securities Act of 1933 (the "1933 Act"), the Arizona Securities Act (the
"Arizona Act") or the securities laws of any other jurisdiction and must be held
indefinitely without any transfer, sale or other disposition unless subsequently
registered under the 1933 Act, the Arizona Act and the securities laws of any
other applicable jurisdiction or, in the opinion of counsel acceptable to the
Company, registration is not required under such Acts or laws.
11.2 Legend. There shall be endorsed on this Warrant and
on the certificates evidencing any securities issued upon the exercise of this
Warrant a legend substantially to the following effect:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED (EXCEPT TO A
COMMERCIAL BANK OR OTHER CORPORATION AFFILIATED WITH SECURITY
PACIFIC BANK ARIZONA) IN THE ABSENCE OF EFFECTIVE REGISTRATION
STATEMENTS OR AN OPINION OF COUNSEL ACCEPTABLE TO THIS COMPANY
THAT REGISTRATION IS NOT REQUIRED."
11.3 Restriction on Other Securities. Except upon certain
limited circumstances, the restrictions on the transfer of this Warrant and any
securities issued upon the
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<PAGE> 11
exercise of this Warrant will also apply to any and all shares of capital stock
or other securities issued or otherwise acquired on account of the exercise of
the Warrant including, without limitation, shares and securities issued or
acquired as a result of any stock dividend, stock split or exchange or any
distribution of shares or securities pursuant to any corporate reorganization,
reclassification or similar event.
11.4 Refusal to Transfer. The Company may refuse to effect
a transfer, sale or other disposition of this Warrant or any part thereof by the
Warrantholder or its successors or assigns except as expressly permitted by this
Warrant and the Agreement, which contains additional provisions governing any
transfer of this Warrant. The Company may also refuse to effect a transfer,
sale, or other disposition of any Shares or other securities issued upon
exercise of this Warrant which would be in violation of any express prohibition
in this Warrant or in the Agreement.
12. Governing Law. This Warrant is delivered and is intended to be
performed in the State of Arizona and shall be construed and enforced in
accordance with the laws of such state.
13. Execution. In witness whereof, the Company has caused this
Warrant to be signed by its duly authorized officers on __________, _____.
ROCKFORD CORPORATION
[SEAL)
By: /s/
----------------------
President
ATTEST:
/s/
- ----------------------
Assistant Secretary
-5-
<PAGE> 12
ROCKFORD CORPORATION
EXERCISE FORM
Rockford Corporation
648 South River Drive
Tempe, Arizona 85281
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant, and to purchase thereunder, 43
shares of Common Stock (the "Shares") provided for therein, and requests that
certificates for the Shares be issued in the name of:
________________________________________________________________________________
(Please Print Name, Address and Social Security Number)
________________________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the Shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated:____________________________
Name of Warrantholder or Assignee:_____________________________________
(Please Print)
Address:________________________________________________________________________
________________________________________________________________________________
Authorized Signature:___________________________________________________________
Signature Guaranteed:_______________________________________________
Note: The name of the Warrantholder must correspond with
the name as written upon the face of this Warrant
certificate in every particular, without alteration
or enlargement or any change whatever, unless this
Warrant has been assigned.
-6-
<PAGE> 13
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please Print Name, Address and Social Security Number)
a Warrant to purchase ________ shares of Common Stock and hereby irrevocably
constituting and appointing ______________________________ Attorney to transfer
said Warrant on the books of the Company, with full power of substitution in the
premises.
________________________________________
Name of Registered Holder
Dated: ________ 19___ ________________________________________
Authorized Signature
Signature Guaranteed: ________________________________________
Note: The signature of this assignment must correspond with the name as written
above upon the fact of this Warrant certificate in every particular, without
alteration or enlargement of any change whatever.
-7-
<PAGE> 1
Exhibit 10.19
Rockford Corporation Warrant Ownership
As of March 31, 1999
<TABLE>
<CAPTION>
Maximum
Number of Exercise
Group Warrant Holder Warrants Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bartol Family GST Exempt Trust 34,738 $0.85
Boulder Investors Limited Partnership 25,545 $0.85
Current Employees Ron Trout 202 $0.85
Former Employees Darrell W. Chapman 818 $0.85
Others Graham Humes 8,173 $0.85
Francis E. & Suzette E. Baird 4,089 $0.85
Gordon A. Jr. & Blair B. MacInnes 10,218 $0.85
Sharon Dedrick 1,020 $0.85
Total
Others The Vrolyk Partnership 97-A 23,500 $3.16
Total 108,303
</TABLE>
<PAGE> 1
EXHIBIT 10.20
ROCKFORD CORPORATION
CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT
May 1, 1995
To the Purchasers of
Rockford Corporation
Convertible Subordinated Debentures
Identified on Exhibit A Below
Ladies and Gentlemen:
The undersigned Rockford Corporation, an Arizona corporation (the
"Company"), agrees with you as follows:
1. PURCHASE AND SALE OF DEBENTURES.
1.1 Authorization by the Company. The Company has authorized the
issue and sale to you of its 8.5% Convertible Subordinated
Debentures (the "Debentures"), with the terms and rights set
forth in the form of the Debenture attached to this Agreement
as Exhibit B. The Debentures will be in the total principal
amount, and will be divided among you, as shown on Exhibit A.
1.2 Agreement of Purchase and Sale. Subject to the terms and
conditions of this Agreement, and on the basis of the
representations and warranties set forth herein, the Company
will sell to you and you will purchase from the Company, on
the Closing Date, the principal amount of the Debentures set
forth on Exhibit A at a price equal to the principal amount.
The Debentures will be divided among you as set forth on
Exhibit A.
1.3 Closing of Purchase and Sale. The purchase and sale of the
Debentures (the "Closing") will take place at the office of
Lewis and Roca, 40 North Central Avenue, Phoenix, Arizona, on
May 1, 1995 (or on another date if you and the Company agree
in writing) (the "Closing Date"). On the Closing Date, the
Company will deliver to you Debentures against payment of the
purchase price by your certified or cashiers checks payable to
the order of the Company or wire transfer of immediately
available federal funds. The Debentures purchased by you will
be evidenced by appropriate certificates issued to each of
you, in definitive form as set forth in Exhibit B, divided
among you as set forth in Exhibit B, and registered in your
names or the names of your nominee or nominees.
2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to you as follows:
<PAGE> 2
2.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of
Arizona. The Company has all requisite corporate power and
authority to own, lease, and operate its properties and to
carry on its business as now conducted and as proposed to be
conducted. On the Closing Date the Company will be duly
qualified or authorized to do business and in good standing in
each jurisdiction where the character of the property owned or
leased or the nature of the business transacted makes such
qualification or authorization necessary. The Company has no
subsidiaries or any direct or indirect interest (by way of
stock ownership or otherwise) in any firm or business except
as disclosed in Schedule 2.1. The Company has furnished you
with certified copies of its Certificate of Incorporation and
By-Laws, as amended to the date hereof.
2.2 Capitalization. The Company's authorized and outstanding
capital stock, and the outstanding securities convertible into
the Company's capital stock, is as set forth in Schedule 2.2.
All of the issued and outstanding shares of the Company's
Common Stock are duly authorized, validly issued, fully paid
and nonassessable. The Company has reserved the number of
shares of its Common Stock shown on Exhibit A for issuance
upon conversion of the Debentures. All outstanding shares of
the Common Stock of the Company were issued in compliance with
all applicable Federal and state securities or "blue sky"
laws. There are in existence or contemplated no options,
warrants, agreements or similar rights granted by the Company
for the issue or sale by it of any securities, other than the
transactions contemplated by this Agreement and the
transactions disclosed in Schedule 2.2.
2.3 Financial Position. The Company's Balance Sheets as at
September 30, 1993 and 1994, and Statements of Income and
Retained Earnings and of changes in Financial Position for its
two fiscal years then ended, as audited by Ernst & Young LLP
and in the form set forth in Schedule 2.3, are true and
correct in all material respects as at such dates and for the
periods then ended.
2.4 Duly Issued. The shares of the Common Stock issuable upon
conversion of the Debentures, upon such conversion, will be
validly issued, fully paid and nonassessable.
2.5 Authorization. The Company has duly authorized, executed and
delivered this Agreement. This Agreement constitutes the valid
and binding agreement of the Company, enforceable in
accordance with its terms except as enforcement may be limited
by bankruptcy, insolvency, moratorium and equitable principles
applicable to creditors generally. The Company has full power
and lawful authority to issue and sell the Debentures on the
terms and conditions set forth in this Agreement and to issue
the Common Stock issuable upon conversion of the Debentures.
2.6 Compliance with Laws. The Company is in compliance with all
laws, regulations and orders applicable to its business and
properties, and has all necessary permits and licenses.
-2-
<PAGE> 3
2.7 Governmental Consents. Neither the execution and delivery of
this Agreement, nor the performance of the terms or
consummation of the transactions contemplated by the Company
under this Agreement, require any consent, approval,
authorization, or other order of any court, regulatory body,
administrative agency, or other governmental body, or any
filings pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), or the securities laws of any state
other than those obtained prior to and effective as of the
Closing Date. Neither the Company nor any agent acting on its
behalf has offered, or will offer, to sell (or has solicited
or will solicit any offer to buy) the Debentures or any shares
of the Common Stock of the Company issuable upon the
conversion of the Debentures so as to require the registration
of any of such securities under the Securities Act other than
as contemplated by Article 4 of this Agreement. Based in part
on your representations which are set forth in Article 3 of
this Agreement, the offer, sale, and issuance of the
Debentures pursuant to this Agreement and the shares of the
Common Stock of the Company to be issued upon conversion of
the Debentures are exempt from the registration requirements
of the Securities Act.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. You represent and warrant
to the Company and to the other purchasers of the Debentures:
3.1 Investment Representation. You are acquiring the Debentures,
together with the shares of the Common Stock issuable upon the
conversion of the Debentures, for your own account and not
with a view to or for sale in connection with any
distribution. You have no present intention of distributing
the Debentures or the shares of the Common Stock issuable upon
the conversion of the Debentures.
3.2 Stock Not Registered. You acknowledge that;
(a) neither the Debentures nor the shares of the Common
Stock issuable upon conversion of the Debentures have
been registered under the Securities Act or
applicable state securities laws on the ground that
the issuance to you is exempt from registration under
the Securities Act;
(b) the Company's reliance on such exemption is
predicated on your representations;
(c) the Debentures and shares of Common Stock must be
held indefinitely unless the offer and sale are
registered under the Securities Act, and applicable
state securities laws, or an exemption from
registration is available. In particular, you
acknowledge that the Debentures, and any Common Stock
issued on conversion, may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless
all of the conditions of such rule are met. Among the
conditions for use of Rule 144 is the availability to
the public of current information about the Company.
Such information is not now available and the Company
has no present plans to make such information
available;
-3-
<PAGE> 4
(d) in the absence of an effective registration statement
covering the Debentures, or any Common Stock issued
on conversion thereof, you will sell, transfer, or
otherwise dispose of the Debentures, or any Common
Stock issued on conversion, only in a manner
consistent with your representations and then only in
accordance with the provisions of Section 4.1 of this
Agreement;
(e) any certificate representing the Debentures, and the
shares of the Common Stock issuable upon conversion
of the Debentures, will bear the legend set forth in
Section 4.2 and that the Company may issue
appropriate "stop transfer" instructions to its
transfer agent, if any, with respect to such shares
or make appropriate notations to such effect in its
own stock transfer records; and
(f) any certificate representing the Debentures, and the
shares of the Common Stock issuable upon conversion
of the Debentures, may bear any legends required by
applicable state securities laws.
3.3 Investment Experience. You (a) have such knowledge and
experience in financial and business matters that you are
capable of evaluating the merits and risks of the purchase of
the Debentures, (b) have a net worth significantly in excess
of the amount of your investment in the Debentures and are
able to bear the economic risk of the purchase of the
Debentures, and (c) have had access to information with
respect to the Company necessary to permit you to make an
informed investment decision.
3.4 Organization. On the date of this Agreement, and on the
Closing Date, (a) if you are a corporation, you are duly
organized and validly existing under the laws of your state of
incorporation, you are and will be in good standing under such
laws and you have the requisite corporate power and authority
to enter into this Agreement, (b) if you are a general or
limited partnership, you are and will be a general or limited
partnership duly organized and validly existing under the laws
of your state of formation, and you are and will be in good
standing under such laws, and you have and will have all
requisite partnership power and authority to enter into this
Agreement, (c) you have duly authorized, executed and
delivered this Agreement to the Company, and (4) upon
execution and delivery by the Company, this Agreement
constitutes your valid and binding agreement, enforceable in
accordance with its terms. Enforceability of any agreement may
be limited by bankruptcy, insolvency, moratorium and equitable
principles applicable to creditors generally.
4. SECURITIES ACT AND RELATED MATTERS.
4.1 Transfer Restrictions. You will not offer for sale, sell or
transfer all or any part of the Debentures, or the shares of
the Common Stock or other securities into which the Debentures
are convertible, unless (1) the sale is registered under the
Securities Act, and all other qualifications and proceedings
required under other
-4-
<PAGE> 5
state or federal laws or regulations have been obtained or
taken, or (2) an exemption from registration or qualification
under the Securities Act and any applicable state securities
or "blue sky" laws is available and the Company has received
an opinion of counsel reasonably satisfactory to the Company
that registration is not required.
4.2 Legend on Certificate. Each certificate representing the
Debentures, or any shares of the Common Stock or other
securities issued upon conversion of the Debentures, will bear
a legend in substantially the following form (unless the
Company has received in the opinion of counsel reasonably
satisfactory to the Company that a legend is not necessary):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION
STATEMENTS OR AN OPINION OF COUNSEL ACCEPTABLE TO
THIS COMPANY THAT REGISTRATION IS NOT REQUIRED."
Each certificate will also bear any legends required by
applicable state securities laws. In this Agreement
"Restricted Security" means the Debentures and shares of the
Common Stock or other securities issued upon conversion of the
Debentures and represented by certificates bearing the legend
set forth in this Section 4.2 and "Restricted Stock" means
shares of Common Stock issued upon conversion of the
Debentures and represented by certificates bearing the legend
set forth in this Section 4.2.
4.3 Registration Proposed by Company.
(a) Notice of Registration. If the Company proposes to
register any of its securities under the Securities
Act it will give written notice to every holder of a
Restricted Security except that the Company need not
give notice of (1) a registration solely to implement
an employee benefit plan, (2) a transaction to which
Rule 145 under the Securities Act is applicable, or
(3) a registration using any form that does not
permit secondary sales of securities.
(b) Participation by Holders. If any holder of a
Restricted Security delivers to the Company, within
30 days of the Company's notice to the holders, a
notice stating the number of shares of Restricted
Stock to be registered and the intended method of
disposition, the Company will use its best efforts to
register under the Securities Act the shares of
Restricted Stock requested to be registered (1) in
connection with the registrations of securities to be
sold for the Company's account, (2) at its own
expense to
-5-
<PAGE> 6
the extent provided in Section 4.5, and (3) to the
extent required to permit disposition in accordance
with the intended method.
(c) Limitations on Company's Obligation. If the Company's
proposed registration relates to an underwritten
public offering by the Company, the Company is not
required to register shares of Restricted Stock
unless the requesting holders agree to include them
in the underwriting. If the sole or managing
underwriter of the offering determines that the
aggregate number of shares of Restricted Stock
included in the registration should be limited due to
market conditions or the necessity of including
shares to be sold for the account of the Company,
then each holder who has requested that shares of
Restricted Stock be included may sell only a prorata
portion of shares of Restricted Stock.
4.4 Registration Requested by Purchasers.
(a) Request for Registration. The holder or holders of
50% of the Restricted Securities may request that
the Company register Restricted Stock at any time
(1) before the Company gives written notice of its
intention to register its securities under Section
4.3 (but only if the registration becomes effective
within six months after the Company gives the
notice) and (2) after the later of (i) May ___, 1997
or (ii) 12 months after the effective date of any
prior registration statement covering shares of the
Company's stock. In determining whether 50% of the
holders of Restricted Securities have made a
request, Restricted Stock and other securities
issued upon conversion of the Debentures will be
counted on the basis of the amount of Debentures
from which they were converted.
(b) Content of Request. The request must state the
number of shares of Restricted Stock to be
registered and the intended method of disposition.
The Company is not obligated to file a registration
statement if the expected price to the public of the
offering of Restricted Stock is less than
$15,000,000.
(c) Required Registration. Upon receipt of a request
that satisfies the requirements stated above, the
Company will upon one occasion (1) promptly give
written notice of the proposed registration to every
other holder of Restricted Securities and (2) as
expeditiously as possible (and in any event within
90 days) use its best efforts, at its own expense to
the extent provided in Section 4.5, to effect
registration under the Securities Act of
(i) the sale of the Restricted Stock which is
the subject of the written request referred
to above, and
-6-
<PAGE> 7
(ii) all other Restricted Stock whose holders
make written request for registration to the
Company within 30 days after the Company
gives them notice of the proposed
registration
all to the extent required to permit the disposition by the
holders of the securities so registered. In connection with
any registration, the Company will execute any required
undertakings to file post-effective amendments.
(d) Limitations on Company's Obligation. The Company is
not obligated under this Section 4.4 after (1) one
registration, filed pursuant to any holder's request
under this Section 4.4 (other than a delayed
registration as described below), has become
effective or (2) you and your permitted transferees
hold less than 10% of the Restricted Securities
initially issued and sold pursuant to this Agreement.
(e) Delay of Registration. If, within ten days after the
Company receives a request for registration under
subsection (a), the Company furnishes a certificate
stating that the Company intends to file within 60
days a registration statement for an underwritten
public offering of securities for the Company's
account, then the Company is not obligated to file a
registration under this Section 4.4 for six months
from the date of the Company's certificate. The
Company must make all reasonable efforts to cause the
registration statement for the underwritten public
offering to become effective as soon as reasonably
practicable. The Company may invoke this subsection,
and delay a registration requested under Section 4.4,
only one time.
4.5 Costs and Expenses. The Company will pay all its costs and
expenses in connection with a registration of securities under
Sections 4.3 or 4.4, including Federal and state registration
and filing fees, printing expenses (including a reasonable
number of preliminary and final prospectuses, post-effective
amendments, and supplements requested by the holders of
Restricted Stock), and the fees and disbursements of counsel,
independent accountants, and other experts of the Company. The
Company will not pay underwriter's discounts and commissions
or the fees and disbursements of counsel, independent
accountants, or other experts of the holders of Restricted
Stock. The Company will use its best efforts to keep effective
any registration for the period reasonably necessary to effect
disposition in accordance with the intended methods described
in the requests for registration. If the Company is requested
or required to maintain the registration effective for more
than six months the holders of securities who have requested
that effectiveness be maintained, in order to continue with
the distribution, will pay (in such proportions as they may
agree upon) all out-of-pocket expenses of the Company incurred
in maintaining effectiveness after the initial six-month
period.
4.6 Information. The holders of Restricted Stock covered by a
registration statement under Sections 4.3 or 4.4 will furnish
to the Company (in writing) any
-7-
<PAGE> 8
information regarding them, Restricted Securities held by
them, and the intended method of disposition of the Restricted
Stock as the Company reasonably requests or as is required in
connection with the registrations under Sections 4.3 or 4.4.
4.7 Blue Sky Registrations. In any registration under this Section
4, the Company will use its best efforts to register or
qualify the Restricted Stock for sale under the securities
laws of those states in which registration or qualification is
required, except that the Company is not required (a) to
execute a general consent to service or (b) to qualify to do
business in any state.
4.8 Lockup Agreement. In connection with any registration of the
Company's securities, upon request of the underwriters
managing the offering, each holder of Restricted Securities
will execute an agreement not to sell, make a short sale of,
loan, grant an option for the purchase of, or otherwise
dispose of any Restricted Stock (other than shares included in
the registration or shares sold with the underwriters' prior
written consent) for up to 90 days after the effective date of
the registration.
4.9 Transferability. If the requirements of Section 4.1 have been
satisfied for the sale or transfer of a Restricted Security,
the transferee will be entitled to the rights and benefits of,
and will be subject to the requirements of, Sections 4.1
through 4.8.
5. COMPANY'S AFFIRMATIVE COVENANTS. The Company will comply with the
following requirements unless holders of more than 50% of the
outstanding Restricted Securities agree otherwise in writing. These
requirements will terminate upon the earlier of (1) the closing date of
an underwritten public offering of the Company's common stock pursuant
to an effective registration statement under the Securities Act or (2)
the date when less than 25% of the Restricted Securities are held by
the original holders of the Debentures or their permitted transferees.
These requirements may be amended by a written agreement between the
Company and holders of more than 50% of the outstanding Restricted
Securities. The financial covenants below are substantially the same as
the covenants established in the revolving credit facility entered into
between the Company and Norwest Business Credit, Inc. ("NBCI") as of
May 1994; you agree that, upon any revision or refinancing of the
Company's principal credit facility it is your intention to consent to
the amendment of the financial covenants in this Agreement so that they
are consistent with the terms of the new or revised credit facility.
5.1 Reporting Requirements. The Company will deliver to you each
of the following:
(a) Annual Financial Statements. No later than 90 days
after the end of each Company fiscal year, audited
financial statements including
(1) the Company's balance sheet as at the end of
the fiscal year, and
(2) the related statements of income, retained
earnings, and cash flows of the Company for
the fiscal year.
-8-
<PAGE> 9
The financial statements will be in reasonable detail
and prepared in accordance with generally accepted
accounting principles consistently applied. The
financial statements will be accompanied by the
unqualified opinion of independent public accountants
selected by the Company and a certificate of the
Company's chief financial officer stating (i) that
the financial statements were prepared in accordance
with generally accepted accounting principles
consistently applied, (ii) whether such officer has
knowledge of the occurrence of any default under this
Agreement and, if so, a statement in reasonable
detail of the nature of the default, and (iii)
computations showing whether the Company is in
compliance with the financial covenants set forth in
this Agreement;
(b) Shareholder Information. Promptly upon their
distribution, copies of all financial statements,
reports and proxy statements the Company sends to its
stockholders;
(c) SEC Filings. Promptly after their filing, copies of
all regular and periodic financial reports the
Company files with the Securities and Exchange
Commission or any national securities exchange;
(d) Notice of Violations. Promptly upon knowledge
thereof, notice of the Company's violation of any
law, rule or regulation which could materially and
adversely affect the Company's business or financial
condition; and
(e) Other Information. From time to time, with reasonable
promptness, all other materials, reports, records, or
information relating to Company's financial
condition, operations, or affairs as you may
reasonably request.
5.2 Books and Records. The Company will keep accurate books,
records, and accounts of the Company's business and financial
condition.
5.3 Compliance with Laws; Environmental Indemnity. The Company
will
(a) comply with the requirements of applicable laws and
regulations whose violation would materially and
adversely affect the Company's business or financial
condition, and
(b) comply with all applicable Environmental Laws and
obtain any permits, licenses, or approvals required
by any such Environmental Laws. The Company will
indemnify, defend, and hold you harmless from and
against any claims, loss, or damage resulting from
any past, present, or future existence, use,
handling, storage, transportation, or disposal of any
hazardous waste, hazardous substance, or toxic
substance by the Company or on property owned,
leased, or controlled by the Company. This
indemnification agreement will survive the
termination of this Agreement and payment of the
indebtedness hereunder.
-9-
<PAGE> 10
5.4 Payment of Taxes and Other Claims. The Company will pay or
discharge, when due,
(a) all taxes, assessments, and governmental charges
levied or imposed upon it, upon its income or
profits, or upon any properties belonging to it. Such
amounts will be paid before the date when penalties
attach thereto,
(b) all federal, state, and local taxes required to be
withheld by it, and
(c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or
charge upon any properties of the Company.
The Company is not required to pay any tax, assessment,
charge, or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
5.5 Maintenance of Properties. The Company will maintain the
properties used in its business in good condition, repair, and
working order (normal wear and tear excepted). The Company
will replace or repair worn, defective, or broken parts, but
nothing in this section prevents the Company from
discontinuing the operation and maintenance of any of its
properties if such discontinuance is in its judgment
desirable.
5.6 Insurance. The Company will obtain and at all times maintain
insurance with insurers believed by the Company to be
responsible and reputable, in such amounts and against such
risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general
areas in which the Company operates.
5.7 Preservation of Corporate Existence. The Company will preserve
and maintain its corporate existence and all rights,
privileges, and franchises necessary or desirable in the
conduct of its business. The Company will conduct its business
in an orderly, efficient, and regular manner.
5.8 Book Net Worth. The Company will maintain on the last day of
each quarter occurring in each of the periods set forth below,
a Book Net Worth (as that term is defined in the Company's
credit agreement with NBCI dated May 3, 1994) greater than or
equal to the amount set forth opposite such period:
<TABLE>
<CAPTION>
PERIOD BOOK NET WORTH
------ --------------
<S> <C>
Through June 29, 1995 ($2,650,000)
June 30, 1995 through September 29, 1995 ($1,000,000)
September 30, 1995 through December 30, 1995 ($ 800,000)
December 31, 1995 through March 30, 1996 ($ 900,000)
March 31, 1996 through June 29, 1996 ($ 400,000)
June 30, 1996 through September 29, 1996 $1,000,000
</TABLE>
-10-
<PAGE> 11
<TABLE>
<S> <C>
September 30, 1996 and thereafter $1,600,000
</TABLE>
5.9 Earnings Before Interest and Taxes. The Company will maintain
on each date set forth below operating income (determined in
accordance with generally accepted accounting principles but
before any deduction for interest expenses and income taxes
and calculated for the twelve months ending on such date)
greater than or equal to the amount set forth opposite such
date:
<TABLE>
<CAPTION>
DATE EBIT
<S> <C>
June 30, 1995 $3,600,000
September 30, 1995 $3,800,000
December 31, 1995 $3,800,000
March 31, 1996 $4,000,000
June 30, 1996 $4,300,000
September 30, 1996 and each fiscal quarter $4,300,000
end thereafter
</TABLE>
5.10 Interest Coverage. The Company will maintain on each date set
forth below, the ratio of (i) the sum of its pre-tax net
income, to (ii) interest expense (in each case determined in
accordance with generally accepted accounting principles, and
calculated for the twelve months ending on such date) greater
than or equal to the ratio set forth opposite such date:
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
June 30, 1995 2.00 to 1
September 30, 1995 2.00 to 1
December 31, 1995 2.00 to 1
March 31, 1996 2.00 to 1
June 30, 1996 2.00 to 1
September 30, 1996 and each fiscal quarter 2.00 to 1
end thereafter
</TABLE>
5.11 Minimum Debt Service Coverage. The Company will maintain on
each date set forth below, the ratio of (i) the sum of its
after-tax net income, depreciation, and amortization expense
and interest expense, to (ii) the sum of its interest, capital
expenditures, and current maturities of long term debt
(excluding as long term debt, the indebtedness of the Company
to NBCI incurred pursuant to the credit agreement between
Company and NBCI, or any replacement of such indebtedness) (in
each case determined in accordance with generally accepted
accounting principles, and calculated for the twelve months
ending on such date) greater than or equal to the ratio set
forth opposite such date:
-11-
<PAGE> 12
<TABLE>
<CAPTION>
DATE RATIO
---- -----
<S> <C>
June 30, 1995 1.50 to 1
September 30, 1995 1.50 to 1
December 31, 1995 1.50 to 1
March 31, 1996 1.50 to 1
June 30, 1996 1.50 to 1
September 30, 1996 and each fiscal quarter 1.50 to 1
end thereafter
</TABLE>
6. COMPANY'S NEGATIVE COVENANTS. The Company will comply with the
following requirements unless holders of more than 50% of the
outstanding Restricted Securities agree otherwise in writing. These
requirements will terminate upon the earlier of (1) the closing date of
an underwritten public offering of the Company's common stock pursuant
to an effective registration statement under the Securities Act or (2)
the date when less than 25% of the Restricted Securities are held by
the original holders of the Debentures or their permitted transferees.
These requirements may be amended by a written agreement between the
Company and holders of more than 50% of the outstanding Restricted
Securities.
6.1 Dividends and Stock Repurchases. The Company will not declare
or pay any dividends (other than dividends payable solely in
stock of the Company) on any class of its stock or make any
payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any
distribution in respect thereof, either directly or
indirectly. If the Company becomes an S Corporation (with your
consent and after first providing such supporting
documentation as you may request) the Company may pay
dividends equal to the amount of state and federal income tax
which would be due for each shareholder with respect to income
allocated to each shareholder as a result of the Company's
status as an S Corporation at the highest marginal income tax
rate for federal and state income tax purposes (after taking
into account any deduction for state income taxes in
calculating the federal income tax liability and for the state
or states in which each shareholder is liable for income
taxes).
6.2 Sale or Transfer of Assets; Suspension of Business Operations.
The Company will not sell, lease, assign, transfer, or
otherwise dispose of (a) the stock of any domestic Subsidiary
or (b) all or a substantial part of its assets to any other
person (other than the sale of Inventory in the ordinary
course of business) and will not liquidate, dissolve or
suspend business operations. The Company will not transfer any
material property without receipt of full and adequate
consideration. This Agreement does not restrict any sale or
other disposition of Company subsidiaries organized in
connection with the Company's operations outside the United
States.
6.3 Accounting. The Company will not adopt any material change in
accounting principles other than as required by generally
accepted accounting principles. The Company will not adopt,
permit or consent to any change in its fiscal year.
7. CONDITIONS OF OBLIGATION TO ISSUE AND SELL. The obligation of the
Company to issue and sell the Debentures to you at the Closing is
subject to the condition that the
-12-
<PAGE> 13
representations and warranties stated in Article 3 of this Agreement
must be correct when made and as of the time of the Closing.
8. CONDITIONS OF OBLIGATION TO PURCHASE. Your obligation to purchase and
pay for the Debentures at the Closing is subject to the following
conditions:
8.1 Representations and Warranties Correct. The representations
and warranties contained in Article 2 of this Agreement must
be correct when made and as of the time of the Closing.
8.2 Performance. The Company must have performed and complied with
all agreements and conditions contained in this Agreement and
required to be performed or complied with by it prior to or at
the Closing.
8.3 Closing Certificate. The Company must have delivered to you a
certificate, dated the Closing Date, certifying that the
conditions specified in Sections 8.1 and 8.2 have been
fulfilled.
8.4 Directors and Officers. The persons named in Schedule 8.4 must
have been duly elected to the respective positions of
directors and officers of the Company as set forth in Schedule
8.4.
8.5 Opinion of Counsel. The Company must have delivered to you the
opinion of Lewis and Roca in substantially the form set forth
in Schedule 8.5.
9. MISCELLANEOUS.
9.1 Expenses. The parties will each pay their own expenses
incurred in connection with the purchase and sale of the
Debentures.
9.2 Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made in writing in
this Agreement will survive the execution and delivery of this
Agreement and the issuance, sale, and delivery of the
Debentures.
9.3 Binding Effect. All covenants, agreements, representations,
and warranties in this Agreement bind, and inure to the
benefit of, the respective heirs, legal representatives,
successors, and assigns of the parties. The rights of any
transferee of a Restricted Security, however, are subject to
compliance with Section 4.1.
9.4 Notices. All notices and other communications under this
Agreement must be in writing. They will be deemed given and
received when delivered or five days after deposit in the
United States mail, first class postage prepaid, addressed to
Company at:
648 South River Drive
Tempe, Arizona 85281
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<PAGE> 14
Attention: President
with a copy to:
Lewis and Roca
40 North Central Avenue, Suite 1500
Phoenix, Arizona 85004
Attention: Kevin Olson, Esq.
and addressed to you at the address stated in Exhibit A. Any
party may change the person, officer, or address to which
notices and communications are to be sent to it by giving
notice.
9.5 Amendments and Waivers. Neither this Agreement nor any of its
terms may be changed, waived, discharged, or terminated except
in a writing signed by the Company and by holders of more than
50% of the outstanding Restricted Securities.
9.6 Controlling Law. This Agreement is being executed and
delivered, and the Debentures are being delivered, in Arizona
and will be governed by the laws of Arizona.
9.7 Counterparts. This Agreement may be executed in several
counterparts and each counterpart, when executed and delivered
and whether or not each counterpart is executed by all the
parties, will constitute an original instrument. All the
separate counterparts will together constitute this Agreement
and are parts of the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance appearing as part of the Subscription Agreement for purchase of the
Debentures and return the same to the Company. This Agreement will become a
binding agreement between you and the undersigned upon the Company's acceptance
of your executed Subscription Agreement for the Debentures.
Yours very truly,
-14-
<PAGE> 15
ROCKFORD CORPORATION
By: /s/
--------------------------------
President
Attest /s/
-----------------------------
Assistant Secretary
<PAGE> 1
Exhibit 10.21
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT
REQUIRED."
ROCKFORD CORPORATION
8.5% CONVERTIBLE SUBORDINATED DEBENTURE DUE MAY 1, 2002
$1,760.00 May 1, 1995
1 PAYMENT OF PRINCIPAL AND INTEREST. Rockford Corporation, an Arizona
corporation (the "Company"), for value received, promises to pay to Mark
Albers or transferee, (the "Holder") the principal amount of $1,760.00 on
May 1, 2002 and to pay interest thereon at the rate of eight and one-half
percent (8.5%) per annum. Interest will accrue from the date hereof and
will be paid quarterly, on each January 15th, April 15th, July 15th, and
October 15th hereafter (commencing on July 15, 1995) until the principal
is fully paid. Interest will be paid on the basis of a 360-day year of
twelve 30-day months.
2 REDEMPTION PRIOR TO MATURITY. Subject to the following conditions, the
Company may, at its option, redeem all or part of this Debenture prior to
maturity at a redemption price of par (plus any interest accrued but
unpaid to the date fixed for redemption).
2.1 Conditions. The Company may redeem this Debenture only after (a) the
Company's Common Stock becomes publicly traded and trades at a bid
or closing price at least equal to one hundred fifty percent (150%)
of the then applicable Conversion Price of this Debenture for a
period of 30 consecutive trading days or (b) the sale of all or
substantially all of the Company's business and assets to, or the
merger or consolidation of the Company with or into, any company
whose stock is publicly traded and whose stock trades at a bid or
closing price at least equal to one hundred fifty percent (150%) of
the then applicable Conversion Price of this Debenture for a period
of 30 consecutive trading days.
2.2 Notice of Redemption. The Company must give notice of a redemption
not less than thirty (30) days, but not more than ninety (90) days,
before the date fixed for redemption. By the date fixed for
redemption, the Holder must surrender this Debenture to the Company
at its principal executive offices in exchange for payment therefor.
Upon due tender of the redemption price by the Company, this
Debenture will not be deemed to be outstanding for any purpose
subsequent to the close of business on the date fixed for
redemption.
<PAGE> 2
3 SUBORDINATION AND PRIORITY. The indebtedness evidenced by this Debenture,
including the principal and accrued interest, is expressly subordinate and
subject in right of payment and upon liquidation to the prior payment in
full of all "Senior Debt," whether now outstanding or hereafter created,
incurred, assumed, or guaranteed.
3.1 Definition of "Senior Debt". The term "Senior Debt" means the
principal, premium (if any), and interest on (a) indebtedness (other
than this Debenture or any previously subordinated debenture) of the
Company evidenced by notes or similar obligations for money borrowed
from or guaranteed to persons, firms, or corporations which engage
in lending money, including, but without limitation, individuals,
banks, trust companies, insurance companies and other financing
institutions, and charitable trusts, pension trusts, and other
investing entities or organizations, (b) indebtedness of the Company
evidenced by notes or debentures issued under the provisions of an
indenture or similar instrument between the Company and a bank or
trust company, (c) the indebtedness of the Company evidenced by the
Company's Senior Notes in an aggregate principal amount of
$2,000,000 (due January 12, 1998) and $1,680,000 (due February 3,
1999), and (d) indebtedness incurred, assumed or guaranteed by the
Company in connection with the acquisition by it of any property or
asset unless, in each case, by the terms of the instrument creating
or evidencing the indebtedness it is expressly provided that such
indebtedness is not superior in right of payment to this Debenture.
3.2 Exclusions from Senior Debt. Senior Debt excludes, and the
indebtedness evidenced by this Debenture is expressly senior and
entitled to priority in payment and upon liquidation with respect
to, all capital stock of the Company. Senior Debt excludes, and the
indebtedness evidenced by this Debenture is expressly of equal
priority in payment and upon liquidation with respect to, (a)
indebtedness outstanding on the original issue date of this
Debenture and convertible into shares of the Company's Common Stock
and (b) any indebtedness issued after the date of this Debenture and
convertible into shares of the Company's Common Stock.
4 EVENTS OF DEFAULT. An Event of Default will be deemed to occur upon the
occurrence of any of the following events:
4.1 Default in the payment of interest on this Debenture when it becomes
due and payable, and continuance of such default for a period of ten
(10) days after notice;
4.2 Default in the payment of the principal of this Debenture when it
becomes due and payable;
4.3 Default by the Company under an acceleration prior to maturity of,
or the failure to pay at maturity, any third party indebtedness of
the Company aggregating $250,000 or more for a period of thirty (30)
days after the same may become payable;
-2-
<PAGE> 3
4.4 The failure of the Company to comply, for a period of 30 days after
notice of default, with any affirmative or negative covenant
contained in the Purchase Agreement of even date herewith between
the Company and the original Holder hereof;
4.5 The failure of the Company to pay final judgments (not covered by
insurance or then subject to any appeal) aggregating $500,000 or
more for 30 days;
4.6 The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of the Company under the
Federal Bankruptcy Act or any other applicable Federal or State law,
or appointing a receiver, liquidator, assignee, trustee, or other
similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in
effect for a period of 60 days; or
4.7 The institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief
under Federal or State law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, or other similar official of the Company or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance
of any such action.
5 RIGHTS UPON DEFAULT; ACCELERATION OF INDEBTEDNESS. Upon the occurrence of
an Event of Default:
5.1 The entire outstanding balance of the Debenture, including the
entire balance of principal and all accrued interest, will
accelerate and become immediately due and payable upon written
notice to the Company by the Holder; and
5.2 The Company may not pay dividends or make distributions to holders
of any class of its stock, or redeem or repurchase all or any part
of any class of its stock.
6 CONVERSION OF DEBENTURE. This Debenture is convertible, at the option of
the Holder, into shares of the Company's Common Stock on the following
basis:
6.1 Conversion Price. A conversion may be made, at any time before the
close of business on the business day before the maturity or
redemption date, at the rate of $10.50 per share, subject to
adjustment as provided in this Debenture (the "Conversion Price").
The Company is not required to issue fractional shares of Common
Stock or other capital stock upon conversion of this Debenture and,
in lieu thereof, will pay a cash adjustment based upon the then
current fair market
-3-
<PAGE> 4
value of the Common Stock as determined by the Board of Directors on
the last business day before the date of conversion.
6.2 Adjustment Based Upon Stock Dividends Combination of Shares or
Recapitalization. The Conversion Price and the number of Shares will
be adjusted if the Company, at any time after the original issuance
of this Debenture,
(a) pays a stock dividend on its Common Stock,
(b) subdivides its outstanding shares of Common Stock into a
greater number of shares,
(c) combines its outstanding shares of Common Stock into a smaller
number of shares,
(d) issues by reclassification of its shares of Common Stock any
other special capital stock of the Company, or
(e) distributes to all holders of its Common Stock evidences of
indebtedness or assets (excluding cash dividends) or rights or
warrants to subscribe for Common Stock (other than those
mentioned above).
On or after the occurrence of an event or events requiring
adjustment of the Conversion Price, the Holder upon surrender of
this Debenture for conversion will be entitled to receive the number
of shares of Common Stock or other securities of the Company which
the Holder would have owned or been entitled to receive had this
Debenture been converted immediately before the happening of the
event requiring adjustment of the Conversion Price.
6.3 Adjustment Based Upon Stock Issuances. The Conversion Price will be
adjusted if, at any time after the original issuance of this
Debenture, the Company issues Common Stock, issues rights or
warrants to subscribe for or purchase Common Stock, or issues
securities convertible into or exchangeable for Common Stock at less
than the Conversion Price. Upon the occurrence of an event or events
requiring adjustment of the Conversion Price under this section the
Conversion Price will be adjusted to be equal to the price of the
new issue. An adjustment under this section will not increase the
number of shares of Common Stock, or other securities, which the
Holder will be entitled to receive upon surrender of this Debenture
for conversion, but will only reduce the Conversion Price which the
Holder must pay to acquire such Common Stock or other securities.
Any amount of this Debenture not required to be used in a
conversion, because of an adjustment of the Conversion Price under
this section, must be paid by the Company to the Holder upon any
redemption or upon maturity of this Debenture.
6.4 Adjustment Based Upon Merger or Consolidation. In case of any
consolidation or merger to which the Company is a party (other than
a merger in which the Company is the surviving entity and which does
not result in any reclassification
-4-
<PAGE> 5
of or change in the outstanding Common Stock of the Company) or in
case of any sale or conveyance to another person, firm, or
corporation of the property of the Company as an entirety or
substantially as an entirety, the Holder will have the continuing
right to convert this Debenture into the kind and amount of
securities and property (including cash) receivable upon such
consolidation, merger, sale, or conveyance by a holder of the number
of shares of Common Stock into which this Debenture might have been
converted immediately before the consolidation, merger, sale, or
conveyance.
6.5 No Adjustment for Outstanding Conversion and Option Rights and
Certain Other Securities. Notwithstanding any other section of this
Agreement, no adjustment of the Conversion Price will be made upon
the issuance by the Company of
(a) Common Stock upon conversion or exchange of securities
convertible or exchangeable into Common Stock and outstanding
on or before the date of this Debenture,
(b) Common Stock upon exercise of any employee's stock option
outstanding on or before the date of this Debenture, or
(c) Common Stock or securities convertible into Common Stock, not
amounting to more than 10% of the Company's issued and
outstanding Common Stock, issued after the date of this
Debenture pursuant to an employee benefit plan of the Company.
6.6 Exercise of Conversion Privilege. The Conversion Privilege is
exercisable by the Holder upon written notice to the Company (or its
successor) and the surrender of this Debenture in exchange for the
number of shares of Common Stock (or other securities and property,
including cash, in the event of an adjustment of the Conversion
Price) into which this Debenture is convertible based upon the
Conversion Price. Conversion rights will expire at the close of
business on the business day before the maturity or redemption date.
7 CORPORATE STATUS OF SHARES TO BE ISSUED. All shares of the Company's
Common Stock (or other securities in the event of an adjustment of the
Conversion Price) issued upon the conversion of this Debenture will, upon
issuance, be fully paid and nonassessable.
8 ISSUANCE OF STOCK CERTIFICATE. Upon conversion of this Debenture, the
Company will forthwith issue to the Holder a certificate or certificates
representing the number of shares of its Common Stock (or other securities
in the event of an adjustment of the Conversion Price) to which the
conversion relates.
9 STATUS OF HOLDER OF DEBENTURE. This Debenture does not entitle the Holder
to any voting rights or other rights as a shareholder of the Company. No
dividends are payable or accrue in respect of this Debenture, or the
securities issuable upon conversion, unless and until this Debenture is
converted. Upon the conversion of this Debenture, the Holder will (to the
extent permitted by law) be deemed to be the holder of record of the
shares of
-5-
<PAGE> 6
Common Stock issuable upon conversion, notwithstanding that the stock
transfer books of the Company are then closed or that the certificates
representing the shares of Common Stock are not then actually delivered.
10 LOSS OR DESTRUCTION OF DEBENTURE. The Company will execute and deliver a
new debenture of like tenor and date upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction, or mutilation
of this Debenture and (a) in the case of loss, theft, or destruction, of
an indemnity by the Holder, (b) in case of any transfer, upon such terms
as are satisfactory to the Company, or (c) in the case of mutilation, upon
surrender and cancellation of this Debenture.
11 RESERVATION OF SHARES. The Company will reserve out of its authorized
shares of Common Stock (and other securities in the event of an adjustment
of the Conversion Price) a number of shares sufficient to enable it to
comply with its obligation to issue shares of Common Stock (and other
securities in the event of an adjustment of the Conversion Price) upon the
conversion of this Debenture.
12 STATUS UNDER SECURITIES LAWS.
12.1 No Registration. This Debenture has not been, and the securities
issuable upon conversion hereof will not be, registered under the
Securities Act of 1933 (the "1933 Act"), the Arizona Securities Act
(the "Arizona Act") or the securities laws of any other
jurisdiction. This Debenture, and such securities, must be held
indefinitely without any transfer, sale, or other disposition unless
(a) subsequently registered under the 1933 Act, the Arizona Act and
the securities laws of any other applicable jurisdiction or (b) in
the opinion of counsel acceptable to the Company, registration is
not required under such Acts or laws.
12.2 Legend. There will be endorsed on this Debenture, and on the
certificates evidencing any securities issued upon the conversion of
this Debenture, a legend substantially to the following effect:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT
REQUIRED."
12.3 Restriction on Other Securities. Except in certain limited
circumstances, the restrictions on the transfer of this Debenture
will also apply to (a) securities issued upon conversion of this
Debenture and (b) shares of capital stock or other securities issued
or otherwise acquired on account of the Debenture (or securities
issued upon conversion of the Debenture) including, without
limitation, shares
-6-
<PAGE> 7
and securities issued or acquired as a result of a stock dividend,
stock split or exchange, or any distribution of shares or securities
pursuant to any corporate reorganization, reclassification, or
similar event.
12.4 Refusal to Transfer. The Company may refuse to effect a transfer,
sale or other disposition of this Debenture, or the shares issuable
upon conversion, by the Holder or its successors or assigns
otherwise than as expressly permitted by this Debenture.
13 MISCELLANEOUS.
13.1 Purchase Agreement. This Debenture, and the indebtedness evidenced
hereby, is issued and incurred subject to the terms of the Purchase
Agreement between the Company and the original Holder, the terms and
conditions of which are binding upon any subsequent Holder or
transferee of this Debenture.
13.2 Governing Law. This Debenture, and all questions relating to its
validity, interpretation, performance, and enforcement is governed
by and will be construed in accordance with the laws of Arizona,
notwithstanding any Arizona or other conflict-of-law provisions to
the contrary.
13.3 Binding Nature of Debenture. This Debenture is binding upon any
successors and assigns of the Company and will inure to the benefit
of the Holder and its successors and assigns, except that the Holder
may not assign or transfer its rights under this Debenture otherwise
than by gift or bequest, by operation of law, or as expressly
permitted by this Debenture.
13.4 Notices. All notices and other communications under this Debenture
must be in writing and will be deemed given and received when
delivered or five days after they are deposited in the United States
mails, first class postage prepaid addressed as set forth in the
Purchase Agreement. Either party may alter the person, office or
address to which communications or copies are to be sent by giving
notice.
13.5 Amendment and Waivers. Neither this Agreement nor any of its terms
may be changed, waived, discharged, or terminated except in a
writing signed by the Company and by holders of more than 50% of the
outstanding Restricted Securities (as that term is defined in the
Purchase Agreement).
14 EXECUTION DATE. The Company has caused this Debenture to be duly executed
on the date written above.
ROCKFORD CORPORATION
By:/s/
----------------------------------------
President
-7-
<PAGE> 8
Attest: /s/
------------------------------------
Secretary
-8-
<PAGE> 1
EXHIBIT 10.22
Schedule of 8.5 % Convertible Subordinated Debenture Ownership
As of March 31, 1999
<TABLE>
<CAPTION>
Number of Shares
Debenture Holder Amount On Conversion
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrio Cabling Corporation $ 500,000 223,809
Nicholas G. Bartol $ 7,507.50 3,361
Timothy C. Bartol $ 7,507.50 3,361
Ann Farr Bartol $ 7,507.50 3,361
Pamela B. Carrio $ 7,507.50 3,361
Mary Brigham Paul $ 7,507.50 3,361
Rebecca Paul Harris $ 7,507.50 3,361
Timothy C. Bartol $ 20,000.00 8,954
Nick G. Bartol $ 39,000.00 17,456
Renee F. Bartol $ 10,000.00 4,474
The J. Goldress Trust, $ 20,000.00 8,954
Jerry E. Goldress, Trustee
Suttle Brothers Investments LLC $ 21,000.00 9,400
Suttle Brothers Investments LLC $ 31,500.00 14,100
</TABLE>
<PAGE> 2
Schedule of 8.5 % Convertible Subordinated Debenture Ownership
As of March 31, 1999
<TABLE>
<CAPTION>
Number of Shares
Debenture Holder Amount On Conversion
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lee Katz $ 1,406.25 630
Richard J. Puricelli $ 1,406.25 630
Carole O'Connor $ 1,406.25 630
Richard D. Saunders $ 1,406.25 630
Craig D. Crisman $ 1,406.25 630
Marvin A. Davis $ 1,406.25 630
Brian R. Stone $ 1,406.25 630
Martin M. Batt $ 1,406.25 630
Ronald N. Trout & $ 4,922.00 2,204
Jonie Schuster Trout, Community Property
The Principal Financial Group $10,000.00 4,474
(401K) Ronald N. Trout, Owner
The Principal Financial Group $15,755.00 7,050
(401K) Alan R. Zimmerman, Owner
Christopher D. Barnes $ 2,817.00 1,260
The Principal Financial Group $ 3,521.00 1,575
(401K) Gary E. Church, Owner
The Principal Financial Group $ 704.00 315
(401K) Thomas D Coulson, Owner
The Principal Financial Group $ 3,521.00 1,575
</TABLE>
<PAGE> 3
Schedule of 8.5 % Convertible Subordinated Debenture Ownership
As of March 31, 1999
<TABLE>
<CAPTION>
Number of Shares
Debenture Holder Amount On Conversion
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(401K) Herb Kane, Owner
The Principal Financial Group $ 3,521.00 1,575
(401K) William E. Turner, Jr., Owner
The Principal Financial Group $11,056.00 4,949
(401K) Angie Gitch, Owner
The Principal Financial Group $ 5,000.00 2,237
(401K) H. Christopher Parvin, Owner
Wayne Harris $60,500.00 27,081
The Principal Financial Group $39,500.00 17,681
(401K) Wayne Harris, Owner
The Principal Financial Group $ 1,789.15 799
(401K) Donald D. Hammerle, Owner
Christine Trapp $ 704.00 315
The Principal Financial Group $ 704.00 315
(401K) Margie Williams, Owner
The Principal Financial Group $ 1,760.00 790
(401K) Richard H. Gentry, Owner
The Principal Financial Group $ 2,112.00 943
(401K) Mark Lowe, Owner
The Principal Financial Group $ 1,300.00 583
(401K) Mark F. Rudolph, Owner
Matthew Clonts $ 1,760.00 790
</TABLE>
<PAGE> 4
Schedule of 8.5 % Convertible Subordinated Debenture Ownership
As of March 31, 1999
<TABLE>
<CAPTION>
Number of Shares
Debenture Holder Amount On Conversion
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Principal Financial Group $ 5,000.00 2,237
(401K) Leslie K. Ferris, Owner
Mark Albers $ 1,760.00 790
The Principal Financial Group $ 3,520.00 5,745
(401K) Mark Albers, Owner
The Principal Financial Group $50,000.00 22,381
IRA - James M. Thomson
The Principal Financial Group $ 7,042.00 3,154
(401K) - David Boshes, Owner
The Principal Financial Group $13,000.00 5,819
IRA - David Boshes, Owner
The Principal Financial Group $ 114.00 52
(401K) Victoria L. Hodson, Owner
The Principal Financial Group $ 4,250.39 1,904
(401K) David Richards, Owner
Var & Co., $23,606.00 10,565
First Trust National Association
Graham Humes $ 1,225.00 550
Gordon A. Jr. & Blair B. MacInnes $ 1,531.00 686
John P. Lloyd & $ 5,000.00 2,237
Beverly A Lloyd, Joint Tenants
John P. Lloyd & $10,000.00 4,474
John M. Lloyd, Joint Tenants
</TABLE>
<PAGE> 1
Exhibit 10.23
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE.
THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, OR PLEDGED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL ACCEPTABLE TO
COMPANY THAT REGISTRATION IS NOT REQUIRED."
WARRANT
TO PURCHASE UP TO 5,000 SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M., PHOENIX TIME, ON JUNE 1, 2007
ROCKFORD CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF ARIZONA
This certifies that, for value received, Warrantholder is entitled to
purchase from Company, at any time before 5:00 p.m., Phoenix time, on June 1,
2007, and upon payment of the Warrant Price, the Shares. The number of
Shares and the Warrant Price per share are subject to adjustment from time to
time as set forth below.
In this Warrant, the following terms have the following meanings:
Warrantholder: The Vrolyk Partnership 97-A, or the registered holder
or assigns
Company: Rockford Corporation, an Arizona corporation
Warrant Price: $ 14.85 per share, subject to adjustment as set forth
in this Warrant
Expiration: Ten years, or June 1, 2007
Shares: 5,000 Shares of Company's common stock, no par value,
subject to adjustment as set forth in this Warrant.
1. Reason for Delivery. This Warrant was originally delivered as part of
the compensation paid by Company to the original Warrantholder for
investment banking services provided by the original Warrantholder and
in compliance with the compensation agreement between Company and the
original Warrantholder (the "Agreement"). This Warrant evidences the
right to purchase the Shares and is issued under and in accordance with
the Agreement.
<PAGE> 2
2. Exercise Deadline and Expiration. Warrantholder may exercise this
Warrant at any time after its issuance and before 5:00 p.m., Phoenix
time, on June 1, 2007. If not exercised, it will expire at 5:00 p.m.
Phoenix time on June 1, 2007, and is then void.
3. Exercise of Warrant.
3.1 Exercise. Warrantholder may exercise this Warrant, in whole or
in part, by presenting (a) this Warrant, (b) a duly executed
Exercise Form, and (c) the Warrant Price (subject to adjustment)
at the principal office of Company. Warrantholder may pay the
Warrant Price in certified funds or by wire transfer.
3.2 Exercise Price and Fractional Shares. This Warrant is
exercisable to purchase the Shares at the Warrant Price (subject
to adjustment as provided in this Warrant). Company is not
required to issue fractional shares of Common Stock or other
capital stock and, in lieu of fractional shares, will pay a cash
adjustment based upon the then current fair market value of the
Common Stock as determined by the Board of Directors as at the
last business day before the date of exercise.
3.3 Adjustment Based Upon Stock Dividends, Combination of Shares or
Recapitalization. Company will adjust the Warrant Price and the
number of Shares if, after this Warrant is issued, Company
(a) pays a stock dividend on its Common Stock,
(b) subdivides its outstanding shares of Common Stock into a
greater number of shares,
(c) combines its outstanding shares of Common Stock into a
smaller number of shares,
(d) reclassifies its Common Stock into any other special
capital stock of Company, or
(e) distributes to all holders of Common Stock evidences of
indebtedness (including indebtedness convertible into
Common Stock or other securities of Company), securities
(including common or preferred stock of Company), or assets
(excluding cash dividends) or rights or warrants to
subscribe for Common Stock or other securities of Company
(other than those mentioned above).
After an event that requires an adjustment of the Warrant Price
or an adjustment to the number of Shares, then Warrantholder will
be entitled to receive upon exercise of the Warrant the number of
Shares and other securities or assets that Warrantholder would
have owned or have been entitled to receive after the event had
this Warrant been exercised immediately before the event.
-2-
<PAGE> 3
3.4 Adjustment Based Upon Merger or Consolidation. Company will
adjust the Warrant Price and the number of Shares if, after this
Warrant is issued, Company enters into
(a) any consolidation or merger (other than a merger in which
Company is the surviving entity and which does not result
in any reclassification of or change in the outstanding
Common Stock of Company), or
(b) any sale or conveyance to an unaffiliated person, firm, or
corporation of all or substantially all of Company's assets.
After an event that requires an adjustment of the Warrant
Price, Warrantholder will have the right upon exercise of
this Warrant to receive the kind and amount of securities
and property (including cash) that Warrantholder would have
received if the Warrant had been converted immediately
before the event.
3.5 No Adjustment for Stock Issuances, Exercise of Option and Warrant
Rights and Other Securities. Company will not adjust the Warrant
Price or number of Shares when Company issues Common Stock,
securities convertible into Common Stock, options or warrants to
purchase Common Stock, or other securities of Company for a
purchase price established by Company, so long as the existing
holders of Common Stock bear the dilution of such issuance in
equal measure with Warrantholder.
4. Corporate Status of Shares. All Shares (or other securities if there
is an adjustment of the Warrant Price or number of shares issuable upon
exercise) issued upon the exercise of this Warrant will, upon issuance
and payment of the Warrant Price, be fully paid and nonassessable.
5. Issuance of Stock Certificate. Upon the exercise of this Warrant,
Company will issue to Warrantholder a certificate or certificates
representing the Shares (or other securities if there is an adjustment
of the Warrant Price or number of shares issuable upon exercise).
6. Partial Exercise and Exchange. If Warrantholder exercises this Warrant
for part of the Shares, Company will deliver to Warrantholder a new
Warrant for the Shares as to which the Warrant is not exercised.
Warrantholder may exchange this Warrant at the office of Company for
one or more new Warrants for the same aggregate number of Shares.
7. Loss or Destruction of Warrant. Company will deliver a new Warrant to
Warrantholder, of like tenor and date, if Warrantholder provides
Company with:
(a) evidence satisfactory to Company of the loss, theft, destruction
or mutilation of this Warrant and
-3-
<PAGE> 4
(b) an indemnity upon terms satisfactory to Company or, if the
Warrant is mutilate, the mutilated Warrant.
8. Status of Holder of Warrant. This Warrant does not entitle
Warrantholder to any voting rights or other rights as a shareholder of
Company. No dividends are payable or accrue in respect of this
Warrant, or the securities issuable upon its exercise, unless and until
this Warrant is exercised.
9. Consequence of Exercise. Upon the exercise of this Warrant,
Warrantholder will, to the extent permitted by law, be deemed
immediately to be the holder of record of the Shares (or other
securities issuable upon exercise). This will be the case even if the
stock transfer books of Company are then closed or the certificates
representing the Shares or other securities are not then actually
delivered.
10. Reservation of Shares. Company will reserve out of its authorized
shares of Common Stock (and other securities if there is an adjustment
of the Warrant Price or number of shares issuable upon exercise) a
number of shares sufficient to enable it to comply with its obligation
to issue the Shares (and other securities if there is an adjustment of
the Warrant Price or number of shares issuable upon exercise) upon the
exercise of this Warrant.
11. Status Under Securities Laws.
11.1 No Registration. This Warrant has not been, and the securities
issuable upon exercise hereof will not be, registered under the
Securities Act of 1933 (the "1933 Act"), the Arizona Securities
Act (the "Arizona Act") or the securities laws of any other
jurisdiction. This Warrant must be held indefinitely unless it
is registered under the 1933 Act, the Arizona Act and the
securities laws of any other applicable jurisdiction or, in the
opinion of counsel acceptable to Company, registration is not
required under such Acts or laws.
11.2 Legend. This Warrant, and any securities issued upon the
exercise of this Warrant, will bear a legend substantially to the
following effect:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED, OR PLEDGED IN THE ABSENCE OF EFFECTIVE REGISTRATION
STATEMENTS OR AN OPINION OF COUNSEL ACCEPTABLE TO COMPANY THAT
REGISTRATION IS NOT REQUIRED"
11.3 Refusal to Transfer. Company may refuse to allow a transfer of
all or part of this Warrant, or of any Shares or other securities
issued upon exercise of this Warrant, except as expressly
permitted by this Warrant.
-4-
<PAGE> 5
12. Governing Law. This Warrant is delivered and is intended to be
performed in the State of Arizona. It is governed by the laws of
Arizona.
13. Execution. In witness whereof, Company has signed and delivered this on
June 1, 1997.
ROCKFORD CORPORATION
[SEAL)
By: /s/
----------------------------------
President
ATTEST:
/s/
- --------------------------------
Assistant Secretary
-5-
<PAGE> 6
ROCKFORD CORPORATION
EXERCISE FORM
Rockford Corporation
648 South River Drive
Tempe, Arizona 85281
The undersigned irrevocably elects to exercise the right of purchase
represented by the attached Warrant, and to purchase thereunder, ____________
shares of Common Stock (the "Shares"), and requests that certificates for the
Shares be issued in the name of:
_______
(Please Print Name, Address and Social Security Number)
_______
If the number of Shares purchased is not all the Shares purchasable under the
Warrant, the undersigned requests that a new Warrant for the balance of the
Shares be registered in the name of the undersigned Warrantholder or his
Assignee as below indicated and delivered to the address stated below.
Dated:______________________________
Name of Warrantholder or Assignee: _____________________________________
(Please Print)
Address:________________________________________________________________
________________________________________________________________
Authorized Signature:___________________________________________________
Signature Guaranteed:___________________________________________________
Note: The signature must correspond with the name as written upon
the face of the Warrant in every particular, without
alteration, enlargement, or any change whatever, unless
this Warrant has been assigned.
-6-
<PAGE> 7
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________________________
(Please Print Name, Address and Social Security Number)
______________________________________________________________________________
a Warrant to purchase ________ shares of Common Stock and hereby irrevocably
constitutes and appoints ______________________________ Attorney to transfer
said Warrant on the books of Company, with full power of substitution in the
premises.
__________________________________________
Name of Registered Holder
Dated: ____________ 19___ __________________________________________
Authorized Signature
Signature Guaranteed: __________________________________________
Note: The signature on this assignment must correspond with the
name as written upon the face of the Warrant in every
particular, without alteration, enlargement, or any change
whatever.
-7-
<PAGE> 1
Exhibit 10.24
SERVICES & OPTION AGREEMENT
This AGREEMENT is between W. Gary Suttle ("Suttle"), Caroline S.
Bartol for herself individually and as representative of the estate of John
G. Bartol ("Bartol"), and Rockford Corporation, an Arizona corporation
("Rockford"). Suttle, Bartol, and Rockford agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford is in the business of manufacturing
and distributing high quality car and home audio products under various brand
names including "Rockford-Fosgate", "Hafler", "Rockford Carbonneau", and
"Perfect Interface".
1.2 Bartol's Ownership. Bartol, individually or as representative of
the estate of John G. Bartol owns 51.7% of the issued and outstanding shares of
Rockford common stock and, together with trusts for the benefit of members of
her family (the "Family"), owns 64.1% of the issued and outstanding shares of
Rockford common stock. Assuming conversion of all of outstanding Rockford
debentures, exercise of all outstanding Rockford stock options and warrants, and
vesting of all "stock grants" outstanding prior to the date of this Agreement,
Bartol will own 40.75%, and together with the Family 51.9%, of Rockford's fully
diluted stock issue.
1.3 Suttle Services to Rockford. Subject to the terms of this
Agreement, Suttle has agreed to make himself available to perform certain
services to be performed by him under the Contract between Grisanti, Galef &
Goldress, Inc. ("3G") and Rockford (the "Contract"), a copy of which is attached
hereto as Exhibit A and made a part hereof.
1.4 Stock Option. Bartol desires to grant to Suttle an option to buy
up to 185,000 shares of Rockford common stock (currently a 14.9% interest in
Rockford on a fully diluted basis) as consideration for (1) Suttle's agreement
to provide services to Rockford under the Contract and (2) Suttle's undertaking
of the obligations provided in this Agreement.
1.5 Rockford Participation. Rockford is a party to this Agreement in
order to consent to the grant of the option, to permit it to enforce Suttle's
obligations under this Agreement, and to permit it to withhold shares purchased
by Suttle for the purpose of paying any required withholding taxes.
2 SUTTLE SERVICES. Suttle agrees to serve as a Director, President and
CEO of Rockford, or in such other capacity as Suttle, Bartol, Rockford and 3G
may mutually determine, on a "full time" basis for a period of not less than
three years from August 1, 1992.
2.1 Definition of "Full Time". The term "full time" shall mean that
Suttle will devote four out of five business days (averaged in each month) to
his services for Rockford, including work at Rockford's headquarters, work for
Rockford in the field, and travel time on Rockford's behalf. Suttle is a
"partner" in, and shall continue his affiliation with, 3G. Suttle will not take
on any Interim Management assignments for 3G as president or CEO of
<PAGE> 2
another company, but may perform advisory and assessment services on behalf of
3G for its clients including Heller Financial, subject to the non-competition
obligation established in this Agreement and the time limitation set forth
above. Suttle may also continue as a director of Image Carpets and advise former
clients who seek his advice, subject to the time limitation set forth above. If
it is necessary for Suttle to spend more than one consecutive day serving 3G or
other clients, Suttle shall arrange to be in communication with his Executive
Secretary at Rockford, and other appropriate Rockford representatives, in order
to carry out his responsibilities for Rockford.
2.2 Executive Secretary. Suttle agrees during the term of this
Agreement to employ at Rockford's expense a Confidential or Executive Secretary
to assist him in the performance of his duties for Rockford and to facilitate
communications between him and other members of Rockford's management. Such
secretary may assist other members of Rockford's management, but shall be
perceived to be Suttle's "eyes & ears" in running the organization.
2.3 Suttle Compensation and Benefits. Suttle shall not receive any
salary or other compensation from Rockford for his services, or become eligible
for any bonus or other benefit made available to Rockford employees or to
Rockford's executive cadre; but instead he shall be compensated exclusively by
3G for his services to Rockford. Suttle will not participate in any Rockford
employee benefit plans, but may take reasonable vacations (consistent with the
needs of Rockford's business) and sick leaves (when he is actually
incapacitated). Such vacation and sick leave shall not be counted in determining
whether Suttle has worked "full time" under section 2.1 above. Suttle
acknowledges that Rockford is paying compensation directly to 3G pursuant to the
Contract.
2.4 Indemnification. Suttle shall be entitled to be exonerated,
indemnified and held harmless by Rockford from any damages, costs and expenses
resulting from his services to Rockford; however, neither Bartol nor the Family
shall have any responsibility for such indemnification and Suttle agrees to look
solely to Rockford under the Contract if he has any claim for such
indemnification.
3 OPTION GRANT. Bartol hereby grants to Suttle the right to purchase
up to 185,000 shares of Rockford common stock at a price of $1.59 per share on
or before August 1, 1995 and $1.95 per share thereafter until August 1, 1999,
provided that either (1) Suttle shall be an "accredited investor" as that term
is defined in the regulations of the Securities and Exchange Commission ("SEC")
on the dates of exercise of such options and shall give investment
representations reasonably satisfactory to Bartol and Rockford with respect to
his purchase(s) or (2) Suttle provides other evidence reasonably satisfactory to
Rockford (such as an opinion of counsel) that a proposed exercise is exempt from
registration under, and otherwise complies with, applicable federal and state
securities laws.
3.1 Vesting and Exercise. The number of shares with respect to
which, and the dates when the foregoing options may be exercised (subject to the
further provisions of this Agreement), shall be as follows:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
On and After Vested and Exercisable
------------ ----------------------
<S> <C>
August 1, 1992 Up to 46,250 shares
August 1, 1993 Up to 92,500 shares
August 1, 1994 Up to 138,750 shares
August 1, 1995 Up to 185,000 shares
</TABLE>
provided that on each vesting date Suttle must be then performing his
obligations to Rockford under this Agreement and the Contract. Vesting shall
cease, and Suttle shall be permitted to exercise the options only with
respect to shares already vested, as of any date when Suttle's obligation to
provide full time services to Rockford is terminated pursuant to Section 4 of
the Contract.
3.2 Special Vesting and Exercise If Shares Become Publicly Traded.
If, at any time prior to April 1, 1999, Rockford common stock becomes publicly
traded (or Rockford is merged into or acquired by any publicly owned corporation
and the Rockford common stock is exchanged for securities that are publicly
traded), Suttle shall have the right to exercise all 185,000 options (to the
extent not previously exercised) on the day of such event but the options shall
expire and may not be exercised after such day.
3.3 Expiration. All options shall expire if not exercised on or
before the earlier of (1) August 1, 1999, (2) on the day Rockford common stock
becomes publicly traded (or Rockford is merged into or acquired by any publicly
owned corporation and the Rockford common stock is exchanged for securities that
are publicly traded), (3) 150 days after Suttle's death, (4) upon any attempted
or purported assignment of Suttle's obligations or rights under this Agreement
or (5) 150 days after Bartol's death.
3.4 Adjustment of Number of Shares. The number of shares subject to
Suttle's options shall be adjusted upwards or downwards to reflect all stock
dividends, stock splits, reverse splits, mergers, consolidations,
recapitalizations and corporate adjustments effected by Rockford between the
date of this Agreement and the date of any option exercise.
3.5 Notice of Exercise and Payment for Shares. Suttle shall give
Bartol and Rockford written notice of his intention to exercise his options, of
the date on which he intends to exercise his options (the "Exercise Date" or
"Closing Date"), and of the number of shares to be purchased, not less than 10
nor more than 90 days before the Closing Date. The written notice shall create a
binding obligation on Suttle to purchase the specified number of shares on the
Closing Date. All shares purchased shall be delivered by Bartol and paid for in
cash by Suttle on the Closing Date.
3.6 Taxes and Cancellation of Shares. Suttle acknowledges that, as
an independent contractor, upon exercise of the options he may become subject to
(and is solely responsible for) payment of tax on the excess of the fair market
value of the shares purchased over the option exercise price. Rockford may
become entitled to a deduction in the same amount pursuant to provisions of the
Internal Revenue Code of 1986 and Internal Revenue Service ("IRS") regulations
thereunder (the "Code") that attribute to Rockford the options granted by
Bartol. Suttle agrees that Rockford may elect to cancel (from the shares
presented by Bartol for
-3-
<PAGE> 4
transfer of record to Suttle pursuant to an option exercise) up to that
percentage of shares that is equal to the maximum marginal rate of taxes Suttle
would be required by the Code to pay to the IRS upon exercise of the options;
Rockford shall then pay the fair market value of any canceled shares to the IRS
for Suttle's account. At Suttle's option Suttle may pay to Rockford the cash
value attributed to the canceled shares, at the time of the transfer of record,
in which event Rockford shall transfer to Suttle all the shares presented for
transfer. Rockford represents that it will make an election to cancel shares
only upon advice of its professional advisors that such action is necessary to
protect its deduction (and then only in the amount required by the Code); such
an election shall not constitute an admission by either Suttle or Rockford that
Suttle is an employee of Rockford and Suttle shall at all times be an
independent contractor to Rockford.
4 ELECTION OF DIRECTORS. Bartol and Suttle agree to vote as Directors
and to cast their ballots as shareholders of Rockford (to the extent they are
now or, during the term of this Agreement, become Directors or shareholders) so
as to set the number of Directors at 5 and to elect John P. Lloyd, Nicholas
Bartol, Caroline S. Bartol Glen J. Carrio, and Suttle to serve as Directors.
This Voting Agreement shall be subject, however, to the approval in advance of
John P. Lloyd, representing Provident Mutual Life Insurance Company.
5 OWNERSHIP OF WORKS. All ideas, artworks, compositions, conceptions,
and materials ("Works") prepared by Suttle during the term of his engagement for
Rockford, pursuant to this Agreement and the Contract, and usable in Rockford's
business shall be the property of Rockford. Suttle hereby assigns to Rockford
all of Suttle's right, copyright, title and interest in such Works. Suttle shall
not use, or transfer to others, any Works other than in connection with
Rockford's business or with Rockford's written consent; provided that Rockford
hereby grants Suttle a non-exclusive right to use the Works personally in any
activity that is not competitive with Rockford.
6 CONFIDENTIAL INFORMATION. During and after the term of Suttle's
engagement pursuant to this Agreement and the Contract, Suttle will keep
confidential, and will not reproduce, copy or disclose to any other person or
firm, any trade secrets and other proprietary or confidential information and
data concerning Rockford or its business ("Confidential Information"). Suttle
will not, during or after the term of this Agreement, use (either alone or with
others), disclose to any person, or encourage anyone else to disclose, any
Confidential Information except within the scope of Suttle's duties and
responsibilities for Rockford or with Rockford's consent.
7 RETURN OF ROCKFORD DOCUMENTS. Upon termination of Suttle's
engagement pursuant to this Agreement and the Contract, Suttle shall return to
Rockford all records and documents of or pertaining to Rockford (including, but
not limited to, customer, distributor, and supplier lists, names, or addresses)
and shall not make, retain or give to any other person any copy or extract of
any such record or document. "Record" includes, but is not limited to,
information stored on computer.
8 NON-COMPETE AND SOLICITATION. During the term of Suttle's engagement
for Rockford pursuant to this Agreement and the Contract, and for 2 years
thereafter, Suttle will not engage in, plan for, organize, work for, acquire an
ownership interest in, or assist, directly or indirectly, any business that
competes with Rockford in the United States or elsewhere. During
-4-
<PAGE> 5
and after the term of Suttle's engagement for Rockford pursuant to this
Agreement and the Contract, Suttle will not solicit, or assist others to
solicit, any customers, distributors, suppliers, or employees of Rockford who
did business or agreed to do business with Rockford at any time before or during
the term of Suttle's engagement for Rockford pursuant to this Agreement and the
Contract. If this section is deemed unreasonable as to time or scope by any
court or arbitrator, then such court or arbitrator shall have authority to
modify this section as to time or scope, or both, so that this section is
reasonable and shall then enforce this section as modified. Suttle acknowledges
and agrees that the market for Rockford's product is limited and international
in scope, so that any competitive activities in violation of this section would
cause material harm to Rockford and Bartol.
9 ACTIONS. Suttle acknowledges that it would be difficult to determine
damages, and Rockford and Bartol will not have an adequate remedy at law, if
Suttle breaches this Agreement. Accordingly, if Suttle breaches this Agreement,
Rockford or Bartol may seek injunctive relief to enforce this Agreement. Nothing
in this section shall limit or exclude any and all other rights, including
rights to money damages, granted to Rockford or Bartol in law or equity.
10 SEVERABILITY. If any section of this Agreement is deemed
unreasonable by a court or arbitrator, such section shall be severable from the
remainder of this Agreement, which shall be enforced according to its terms
irrespective of the enforceability of the unreasonable section provided such
enforcement is consistent with the general intent of the parties as evidenced by
this Agreement taken as a whole.
11 NON-ASSIGNABILITY. The obligations and rights of Suttle under this
Agreement shall not be assignable nor shall Suttle's options be exercisable by
anyone except Suttle or the personal representative of his estate. In the event
of Suttle's death, all options vested in him on such date and not previously
exercised shall be exercised within 150 days of his death or else they will
lapse. Any attempted or purported assignment of Suttle's obligations or rights
under this Agreement shall be a material breach and shall result in the
immediate termination of his options.
12 PERFORMANCE BY BARTOL. Bartol's obligations under this Agreement
shall be performed by Bartol individually, by her estate, or by the estate of
John G. Bartol. In order to guarantee performance of the option obligations to
Suttle under this Agreement, Bartol upon request by Suttle will place in escrow
with a mutually acceptable third party selected by Bartol (and pursuant to
documentation approved by Bartol and Suttle) a certificate for not less than
185,000 shares of Rockford common stock, with four or more signed stock powers
attached, and instructions to deliver to Suttle up to 185,000 of such shares
upon proper exercise of his options and payments of the option price to Bartol
in cash. In the event of the death of Bartol before August 2, 1999, Suttle may
exercise all of his vested options which do not expire on an earlier date
pursuant to this Agreement until 150 days after Bartol's death.
13 CONFLICTS WITH CONTRACT. In the event of any conflict between this
Agreement and the Contract, this Agreement shall rule the relations between
Bartol and Suttle and the Contract shall regulate the dealings between Rockford
and 3G inter sese.
-5-
<PAGE> 6
14 NOTICES. Notices under this Agreement shall be effective upon
delivery or three days after mailing, certified or registered mail, return
receipt requested, to the addresses stated on the signature page of this
Agreement (which may be changed by notice).
15 INTEGRATION AND AMENDMENT. This Agreement is the entire agreement of
the parties with respect to the grant of options to Suttle by Bartol and may be
amended only by a written document signed by all the parties.
16 GOVERNING LAW. Arizona law shall govern this Agreement and any
disputes arising out of or related in any way to this Agreement.
17 ATTORNEYS' FEES. In any proceeding arising out of or related to this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and other expenses incurred in connection with such proceeding.
18 ARBITRATION. Disputes not resolved by agreement of the parties and
arising out of or related in any way to this Agreement shall be submitted to
binding arbitration in metropolitan Phoenix, Arizona, before a single arbitrator
or, if the parties cannot agree upon a single arbitrator, before a panel of
three arbitrators, one selected by each party (within 10 days after notice of a
dispute and failure to agree upon a single arbitrator) and a third appointed by
the arbitrators selected by the parties. The selection of arbitrators and all
arbitration proceedings shall be in accordance with the rules of the American
Arbitration Association, as amended to the date of the proceedings, and judgment
upon the award may be entered in any court having jurisdiction. The arbitrators
shall render a decision within 30 days after their appointment and may award the
costs of arbitration as they see fit.
19 EXECUTION AND EFFECTIVE DATE. This Agreement is executed and
effective as of the 10th day of March , 1993.
/s/ /s/
- ---------------------------------- -------------------------------------
Caroline S. Bartol W. Gary Suttle
Address: 38415 Sombrero Rd. Address: 648 S. River Dr.
Carefree, AZ 85377 Tempe, AZ 85281
Date: March 10, 1993 Date: 8 March, 1993
------------------------------ -------------------------------
Rockford Corporation
By/s/ Robert P. Baker
Its Vice President-Operations
Address: 648 South River Drive
Tempe, AZ 85281
Date: 3/9/93
-------------------------------------
-6-
<PAGE> 1
Exhibit 10.25
AMENDMENT
OF
SERVICES & OPTION AGREEMENT
This Agreement is between W. Gary Suttle ("Suttle"), Monument Investors
Limited Partnership ("Monument") as successor to Caroline S. Bartol and the
estate of John G. Bartol ("Bartols"), and Rockford Corporation, an Arizona
corporation ("Rockford"). Suttle, Monument, and Rockford agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford manufactures and distributes high
quality car and professional audio products under various brand
names including "Rockford-Fosgate", "Hafler Professional", "Rockford
Acoustic Designs", and "Connecting Punch".
1.2 Prior Agreement. Suttle, Bartols, and Rockford were parties to a
Services and Option Agreement, and Suttle, Monument and Rockford are
parties to the Amendment and Renewal of Services and Option
Agreement effective as of August 1, 1995 (the "Prior Agreement")
under which Suttle holds options to purchase up to 185,000 shares of
Rockford common stock from Monument (the "Prior Options"). Bartols
assigned their shares of Rockford to Monument and Monument has
assumed Bartols' obligations under the Prior Agreement and Prior
Options. The Prior Agreement was for the period August 1, 1992,
through August 1, 1995.
1.3 Monument's Ownership. Monument, an Arizona limited partnership
formed for the benefit of members of the Bartols' family (the
"Family"), owns a majority of the issued and outstanding shares of
Rockford common stock. Monument together with the Family will own
35.45% of Rockford's fully diluted stock issue assuming (a)
conversion of all of the outstanding Rockford debentures, (b)
exercise of all outstanding Rockford stock options and warrants
(including the Prior Options), and (c) vesting of all "stock grants"
outstanding prior to the date of this Agreement.
1.4 Suttle Services to Rockford. Suttle has made himself available to
perform certain services under the Contract between Grisanti, Galef
& Goldress, Inc. ("3G") and Rockford (the "Contract"), a copy of
which is attached as Exhibit A.
1.5 Stock Option. Monument desires to amend and extend the Prior Options
as consideration for (1) Suttle's agreement to provide services to
Rockford under the Contract and (2) Suttle's undertaking of the
obligations provided in this Agreement.
1.6 Rockford Participation. Rockford is a party to this Agreement in
order to consent to the grant of the option, to permit it to enforce
Suttle's obligations under this Agreement, and to permit it to
withhold shares purchased by Suttle for the purpose of paying any
required withholding taxes.
<PAGE> 2
2 SUTTLE SERVICES.
2.1 Suttle Services. Suttle will serve as Director, President and CEO of
Rockford (or in another capacity agreed by Suttle, Monument, and
Rockford) on a "full time" basis pursuant to the terms of the
Employment Agreement. In consideration of such services, the parties
agree that (1) all references in the Prior Agreement to the Contract
will, beginning on the date of this Amendment, be deemed to refer in
addition to the Employment Agreement and (2) the requirements in the
Prior Agreement that Suttle provide services to Rockford under the
Contract will be satisfied by Suttle's providing of service to
Rockford under the Employment Agreement.
2.2 Definition of "Full Time". "full time" means that Suttle will devote
four out of five business days (averaged in each month) tohis
services for Rockford including work at Rockford's headquarters,
work for Rockford in the field, and travel time on Rockford's
behalf. Periods of vacation and sick leave permitted under this
Agreement do not count in determining whether Suttle has worked
"full time".
2.3 Service to 3 G and its Clients. Suttle is a "partners" in, and plans
to continue his affiliation with, 3G. Suttle will not take on any
Interim Management assignments for 3G. Subject to the non-
competition obligation established in this Agreement and the time
limitation set forth above, Suttle may (a) perform advisory and
assessment services on behalf of 3G for its clients, (b) continue as
a director of Image Carpets, and (c) advise former clients who seek
his advise.
2.4 Executive Secretary. Suttle will employ (at Rockford's expense) a
Confidential or Executive Secretary to assist him in the performance
of his duties for Rockford.
2.5 Suttle Compensation and Benefits. Suttle will be compensated
exclusively by 3G for his services to Rockford and will not receive
compensation directly from Rockford. Suttle will not participate in
any Rockford employee benefit plans except as otherwise agreed by
Rockford and Suttle, but may take reasonable vacations (consistent
with the needs of Rockford" business) and sick leaves (when he is
actually incapacitated). Suttle acknowledges that Rockford is paying
compensation directly to 3G pursuant to the Contract.
2.6 Indemnification. Suttle will be indemnified and held harmless by
Rockford from any damages, costs, and expenses resulting from his
services to Rockford. Neither Monument nor the Family will have any
responsibility for such indemnification and Suttle will look solely
to Rockford under the Contract if he has any claim for
indemnification.
3 OPTION AMENDMENT. Monument amends and extends the Prior Option so that
Suttle has the right to purchase up to 185,000 shares of Rockford common
stock at the following prices during the following terms:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Price Term
----- ----
<S> <C>
$1.59 per share on or before August 1, 1995
$1.95 per share on or before August 1, 1999
$3.00 per share on or before August 1, 2002
</TABLE>
This amends to Prior Option by adding the right to purchase shares during the
period after August 1, 1999, and before August 1, 2002. The Prior Option as
amended is referred to in this Agreement as the "Option".
3.1 Qualification to Purchase. In order to exercise the Option (a)
Suttle must be an "accredited investor" on the dates of exercise and
must give investment representation reasonably satisfactory to
Monument and Rockford or (b) Suttle must provide other evidence
reasonably satisfactory to Rockford that a proposed exercise is
exempt from registration under, and otherwise complies with,
applicable federal and state securities laws.
3.2 Vesting and Exercise. The prior Option provided a vesting period
before Suttle was permitted to exercise. The vesting period was
completed on August 1, 1995, and Suttle may exercise the Option at
any time before expiration.
3.3 Expiration. The Option expires and may not be exercise after the
earliest of the following dates:
(a) August 1, 2002,
(b) 24 months after the day Rockford common stock becomes publicly
traded,
(c) 24 months after the day Rockford is merged into or acquired by
any publicly owned corporation and Rockford common stock is
exchanged for securities that are publicly traded,
(d) 150 days after Suttle's death, or
(e) upon any attempted or purported assignment of the Options
other than an assignment to a trust for the benefit of Suttle
or members of his family.
3.4 Adjustment of Number of Shares. The number of shares subject to the
Option, will be adjusted upwards or downwards to reflect all stock
dividends, stock splits, reverse splits, mergers, consolidations,
recapitalizations and corporate adjustments effected by Rockford
between the date of this Agreement and the date of any option
exercise.
3.5 Notice of Exercise and Payment for Shares. Suttle must give Monument
and Rockford written notice of his intention to exercise the Option
not less than 10 nor more than 90 days before the date on which he
intends to exercise his options (the
-3-
<PAGE> 4
"Exercise Date" or "Closing Date"). The notice must state the
Closing Date and the number of shares to be purchased. the notice
creates a binding obligation on Suttle to purchase the specified
number of shares on the Closing Date. Monument must deliver the
shares, and Suttle must pay for them in cash, on the Closing Date.
3.6 Taxes and Cancellation of Shares. Suttle acknowledges that, as an
independent contractor, upon exercise of the options he may become
subject to (and is solely responsible for) payment of tax on the
excess of the fair market value of the shares purchased over the
option exercise price. Rockford may become entitled to a deduction
in the same amount pursuant to provision of the Internal Revenue
Code of 1986 and Internal Revenue Service ("IRS") regulations
thereunder (the "Code") that attribute to Rockford the options
granted by Monument. Rockford may elect to cancel (from the shares
presented by Monument for transfer to Suttle pursuant to an option
exercise) up to that percentage of shares that is equal to the
maximum marginal rate of taxes Suttle would be required by the Code
to pay to the IRS upon exercise of the options; Rockford will then
pay the fair market value of any canceled shares to the IRS for
Suttle's account. At the time of any exercise Suttle may pay the
cash value attributed to the canceled shares to Rockford and
Rockford will then transfer to Suttle all the shares presented for
transfer. Rockford will make an election to cancel shares only upon
advise of its professional advisors that such action is necessary to
protect its deduction (and then only in the amount required by the
Code); such an election will not constitute an admission by either
Suttle or Rockford that Suttle is an employee of Rockford and Suttle
will at all times be an independent contractor to Rockford.
4 ELECTION OF DIRECTORS. Monument and Suttle will vote as Directors and
shareholders of Rockford (to the extent they are OR become Directors or
shareholders) so as to set the number of Directors at 5 and to elect John
P. Lloyd, Nicholas Bartol, Caroline S. Bartol, Glen J. Carrio, and Suttle
to serve as Directors (or such other number of directors and candidates as
they agree upon).
5 OWNERSHIP OF WORKS. All ideas, artworks, compositions, conceptions, and
materials ('Works") prepared by Suttle during the term of his engagement
for Rockford, pursuant to this Agreement and the Contract, and usable in
Rockford's business will be the property of Rockford. Suttle assigns to
Rockford all of Suttle's right, copyright, title and interest in such
Works. Suttle will not use, or transfer to others, any Works other than in
connection with Rockford's business or with Rockford's written consent;
provided that Rockford grants Suttle a non-exclusive right to use the
Works personally in any activity that is not competitive with Rockford.
-4-
<PAGE> 5
6 CONFIDENTIAL INFORMATION. During and after the term of Suttle's engagement
pursuant to this Agreement and the Contract, Suttle will keep
confidential, and will not reproduce, copy or disclose to any other person
or firm, any trade secrets or other proprietary or confidential
information of Rockford or about its business ("Confidential
Information'). Suttle will not, during or after the term of this
Agreement, use (either alone or with others), disclose to any person, or
encourage anyone else to disclose, any Confidential Information except
within the scope of Suttle's duties and responsibilities for Rockford or
with, Rockford's consent.
7 RETURN OF ROCKFORD DOCUMENTS. Upon termination of Suttle's engagement
pursuant to this Agreement and the Contract, Suttle will return to
Rockford all records and documents of or pertaining to Rockford
(including, but not limited to, customer, distributor, and supplier lists,
names, or addresses) and will not make, retain, or give to any other
person any copy or extract of any such record or document. "Record"
includes, but is not limited to, information stored on computer.
8 NON-COMPETE AND SOLICITATION. During the term of Suttle's engagement for
Rockford pursuant to this Agreement and the Contract, and for 2 years
thereafter, Suttle will not engage in, plan for, organize, work for,
acquire an ownership interest in, or assist, directly or indirectly, any
business that competes with Rockford in the United States or elsewhere.
During and after the term of Suttle's engagement for Rockford pursuant to
this Agreement and the Contract, Suttle will not solicit, or assist others
to solicit, any customers, distributors, suppliers, or employees of
Rockford who did business or agreed to do business with Rockford at any
time before or during the term of Suttle's engagement for Rockford
pursuant to this Agreement and the Contract.
If this section is deemed unreasonable as to time or scope by any court or
arbitrator, then such court or arbitrator is directed to modify this section
as to time or scope, or both, so that this section is reasonable and to then
enforce this section as modified. Suttle acknowledges and agrees that the
market for Rockford's product is limited and international in scope, so that
any competitive activities in violation of this section would cause -material
harm to Rockford and Monument.
9 ACTIONS. Suttle acknowledges that it would be difficult to determine
damages, and Rockford and Monument will not have an adequate remedy at
law, if Suttle breaches this Agreement. Accordingly, if Suttle breaches
this Agreement, Rockford or Monument may seek injunctive relief to enforce
this Agreement. Nothing in this section limits or excludes any and all
other rights, including rights to money damages, granted to Rockford or
Monument in law or equity,
10 SEVERABILITY. If any section of this Agreement is deemed unreasonable by a
court or arbitrator, that section is severable from the remainder of this
Agreement, which is to be enforced according to its terms irrespective of
the enforceability of the unreasonable section SO long AS enforcement is
consistent with the general intent of the parties as evidenced by this
Agreement taken as a whole.
-5-
<PAGE> 6
11 NON-ASSIGNABILITY. Suttle's obligations and rights under this Agreement
are not assignable. Suttle's options are exercisable only by Suttle or by
the personal representative of his estate. Any attempted or purported
assignment of Suttle's obligations oR rights under this Agreement is a
material breach and will result in the immediate termination of the
Option.
12 ESCROW OF SHARES. Upon request by Suttle, Monument will place in escrow
with a mutually acceptable third party selected by Monument (and pursuant
to documentation approved by Monument and Suttle) a certificate for not
less than 185,000 shares of Rockford common stock, with four or more
signed stock powers attached, and instructions to deliver to Suttle up to
185,000 shares upon proper exercise of Ms options and payment of the
option price to Monument.
13 CONFLICTS WITH CONTRACT. If there is a conflict between this Agreement and
the Contract, this Agreement will regulate the relations between Monument
and Suttle and the Contract will regulate the dealings between Rockford
and 3G.
14 NOTICES. Notices under this Agreement are effective upon delivery or three
days after mailing, certified or registered mail, return receipt
requested, to the addresses stated on the signature page of this Agreement
(which may be changed by notice).
15 INTEGRATION AND AMENDMENT. This Agreement is the entire agreement of the
parties with respect to the grant of the Option and may be amended only by
a written document signed by all the parties.
16 GOVERNING LAW. Arizona law will govern this Agreement and any disputes
arising out of or related in any way to this Agreement.
17 ATTORNEYS' FEES. In any proceeding arising out of or related to this
Agreement, the prevailing party is entitled to reasonable attorneys' fees,
costs and other expenses incurred in connection with such proceeding.
18 ARBITRATION. Disputes not resolved by the parties and arising out of or
related in any way to this Agreement will be submitted to binding
arbitration in metropolitan Phoenix, Arizona, before a single arbitrator
or, if the parties cannot agree upon a single arbitrator, before a panel
of three arbitrators, one selected by each party (within 10 days after
notice of a dispute and failure to agree upon a single arbitrator) and a
third appointed by the arbitrators selected by the parties. The selection
of arbitrators and all arbitration proceedings will be in accordance with
the rules of the American Arbitration Association, as amended to the date
of the proceedings, and judgment upon the award may be entered in any
court having jurisdiction. The arbitrators will render a decision within
30 days after their appointment and may award the costs of arbitration as
they see fit.
19 EXECUTION AND EFFECTIVE DATE This Agreement is executed _______1995, and
is effective as of August 1, 1995.
-6-
<PAGE> 7
/s/
--------------------------------------------
W. Gary Suttle
Address: 648 S. River Dr.
Tempe, AZ 85281
Monument Investors Limited Partnership
By /s/
--------------------------------------------
Nicholas Bartol, General Partner
Address: 239 Cove Drive
Coppell, TX 75019
Rockford Corporation
By /s/
--------------------------------------------
Glen J. Carrio, Chairman
Address: 648 South River Drive
Tempe, AZ 852
-7-
<PAGE> 1
Exhibit 10.26
AMENDMENT
OF
SERVICES & OPTION AGREEMENT
This Agreement is between W. Gary Suttle ("Suttle"), Monument Investors
Limited Partnership ("Monument") as successor to Caroline S. Bartol and the
estate of John G. Bartol ("Bartols"), and Rockford Corporation, an Arizona
corporation ("Rockford"). Suttle, Monument, and Rockford agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford manufactures and distributes high
quality car and professional audio products under various brand
names including "Rockford-Fosgate", "Hafler Professional",
"Rockford Acoustic Designs", and "Connecting Punch".
1.2 Prior Agreement. Suttle, Bartols, and Rockford were parties to a
Services and Option Agreement, and Suttle, Monument and Rockford are
parties to the Amendment and Renewal of Services and Option
Agreement effective as of August 1, 1995 (the "Prior Agreement")
under which Suttle holds options to purchase up to 185, 000 shares
of Rockford common stock from Monument (the "Prior Options").
1.3 Suttle Services to Rockford. Suttle has made himself available to
perform certain services under the contract between Grisanti, Galef
& Goldress, Inc. ("3G") and Rockford (the "Contract"), a copy of
which is attached as Exhibit A. Suttle and Rockford have now agreed
to end Suttles provision of services under the Contract. Instead,
Rockford will employ Suttle directly under a new Employment
Agreement between Suttle and Rockford (the "Employment Agreement").
1.4 Stock Option. Monument desires to amend the Prior Options as
consideration for (1) Suttle's entry into the Employment Agreement
and (2)Suttle's undertaking of the obligation provided in this
Agreement.
2 SUTTLE SERVICES. Suttle will serve as Director, President and CEO of
Rockford (or in another capacity agreed by Suttle, Monument, and Rockford)
on a "full time" basis pursuant to the terms of the Employment Agreement.
In consideration of such services, the parties agree that (1) all
references in the Prior Agreement to the Contract will beginning on the
date of this Amendment be deemed to refer in addition to the Employment
Agreement and (2) the requirements in the Prior Agreement that Suttle
provide service sot Rockford under the Contract will be satisfied by
Suttle's providing of service to Rockford under the Employment Agreement.
3 EXTENSION OF OPTION. Suttle's option is extended to expire on December 31,
2003 (co-terminus with the scheduled expiration of the initial term of the
Employment Agreement) by replacing the words "August 31, 2002" in the text
of Section 3 and in Section 3.3(a)
-8-
<PAGE> 2
with the words "December 31, 2003." The exercise price of the options
during the extended option period is established at $3.50 per share by
amending the table in Section 3 to read as follows:
<TABLE>
<CAPTION>
Price Term
----- ----
<S> <C>
$1.59 per share on or before August 1, 1995
$1.95 per share on or before August 1, 1999
$3.00 per share on or before August 1, 2002
$3.50 per share on or before August 1, 2003
</TABLE>
4 AMENDMENT. Sections 2 and 4 are deleted from the Prior Agreement and have
no further effect. All other sections of the Prior Agreement, including
Section 3 granting to Suttle the Prior Option, continue in effect without
change other than the change set forth above.
5 EXECUTION AND EFFECTIVE DATE. This Amendment is effective as of January 1,
1999.
/s/
-------------------------------------------
W. Gary Suttle
Address: 648 S. River Drive
Tempe, AZ 85281
Monument Investors Limited Partnership
By /s/
----------------------------------------
Timothy c. Bartol, General Partner
Address: 9200 Willow Pond Lane
Potomac, MD 20854
Rockford Corporation
By /s/
-----------------------------------------
W. Gary Suttle, President
Address: 648 South River Drive
Tempe, AZ 85281
-2-
<PAGE> 1
Exhibit 10.27
CONSULTING AND OPTION CONTRACT
This CONTRACT is between Rockford Corporation, an Arizona
corporation ("Rockford") and Grisanti, Galef & Goldress, Inc., a Nevada
corporation ("3G"). Rockford and 3G agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford is in the business of manufacturing
and distributing high quality car and home audio products under various brand
names including "Rockford-Fosgate", "Hafler", "Rockford Carbonneau", and
"Perfect Interface".
1.2 3G Consulting Services. 3G is in the business of providing
executive and other consulting services. 3G has provided certain services to
Rockford pursuant to a letter agreement dated February 8, 1992, and accepted by
3G on February 10, 1992 (the "Letter Agreement"). 3G has now agreed to provide
longer term executive and consulting services to Rockford through the person of
W. Gary Suttle ("Suttle"), one of 3G's associates.
1.3 Related Agreement. This Contract is interrelated to a
substantially contemporaneous Agreement (the "Agreement"), between Suttle and
Caroline S. Bartol for herself individually and for the estate of John G. Bartol
("Bartol") the principal stockholder of Rockford, (1) providing for a side
option on 185,000 shares of Rockford stock to be granted by Bartol to Suttle,
(2) requiring that Suttle devote "full time" (as defined therein) to his
services to Rockford, and (3) establishing certain non-compete and other
obligations. A copy of the Agreement is attached hereto as Exhibit 1 and made a
part hereof.
2 CONSULTING SERVICES AGREEMENT. For a term of not less than 3 years
from August 1, 1992, 3G shall provide executive and advisory services in the
turnaround and corporate redevelopment program of Rockford through the person of
its associate Suttle working on a "full time" basis (as defined in the
Agreement) and such other of its associate(s) as it may assign to the Rockford
engagement with Rockford's advance approval.
2.1 Nature of Required Services. Rockford, 3G and Suttle shall from
time to time agree on the exact nature of the consulting services to be
performed hereunder.
2.2 Suttle's Position. Suttle shall serve on a "full time" basis as
a Director, President and CEO of Rockford, or in such other capacity as
Rockford, Bartol, Suttle and 3G may from time to time mutually determine, and he
shall carry out the duties of such offices on an independent contractor basis
and not as Rockford's employee or servant.
2.3 Advisory Director. 3G shall designate its associate Jerry
Goldress to serve as an "Advisory Director" of Rockford during the term hereof
with the right to receive notice of, to attend, and to speak at meetings of
Rockford's Directors, but not to vote on any actions to be taken.
2.4 Compensation of 3G Associates. 3G shall pay, and bear
exclusively, all compensation of Suttle, Goldress, and any other 3G associate
working on the Rockford engagement.
3 ROCKFORD COOPERATION. In order to facilitate the performance of 3G's
consulting services under this Contract, Rockford agrees to extend full
cooperation to 3G and Suttle, to provide full access to all of its employees,
officers, consultants and Directors and to provide full access to all of its
<PAGE> 2
files, books and corporate and financial records. Rockford also agrees to
consult and cooperate with Suttle in the formulation and adoption of its
financial and operating policies and practices. Suttle and 3G shall review and
approve all of Rockford's policies and practices proposed to be adopted and
shall participate in all major decisions which may have a significant impact on
their engagement; however, notwithstanding the foregoing, control of Rockford
and its business shall at all times be and remain in the control of Rockford's
Board of Directors.
4 TERMINATION. This Contract may be terminated at any time by either
of Rockford or 3G by 90 days notice in writing given to the other party.
Effective upon such termination Suttle shall withdraw and be released from his
obligation to Rockford set forth in Section 2 of the Agreement.
5 COMPENSATION AND EXPENSES.
5.1 Base Retainer. Rockford agrees to pay to 3G as part of its
compensation under this Contract a retainer fee of $30,000 per month payable in
advance on the 8th day of each month. This retainer fee shall be non-refundable
except in the event that this Contract shall be terminated by 3G pursuant to the
provisions of Section 4 hereof effective on some day other than the 8th day of
the month, in which case the final fee payment shall be pro-rated or a refund
given for any unearned portion.
5.2 Bonus Fees. As additional compensation for 3G's services under
this Contract, Rockford shall pay to 3G up to $120,000 per year of bonus fees,
from and after October 1, 1992, until the termination of this Contract. Payments
of bonus fees shall be made on the 8th day of the month during the months of
February, April, July and October and shall be paid for the preceding calendar
quarter (for example, the first payment, if earned, will be due February 8,
1993, and will be for the quarter from October 1, 1992, through December 31,
1992). Bonus fees shall be paid at the rate of up to $30,000 per quarter, but
shall cumulate during the fiscal year up to a maximum of $120,000 per year.
Bonus fees shall be earned at the rate of 3.2% of the quarterly increase in
Earnings Before Interest & Taxes (but after any accrual for employee incentive
bonuses) ("EBIT") over Rockford's quarterly EBIT results for its 1992 fiscal
year. Attached hereto as Exhibit 2 is an example of the calculation of the
target bonus fee payments for Fiscal 1993, which should be repeated in 1994 and
thereafter during the term of this Contract.
5.3 Termination Fees. If this Contract is terminated by Rockford,
Rockford shall continue to pay to 3G its base retainer and bonus fees for a
period of 6 months commencing from the date of termination, provided that such
termination payments period shall not extend beyond the third anniversary of
this Contract.
5.4 Option Compensation. As contingent compensation for 3G's
services hereunder, Rockford hereby grants to 3G options on or before August 1,
1999 to purchase 50,000 of its authorized but unissued common stock at a price
of $23.00 per share, protected against dilution only from stock dividends, stock
splits, reverse stock splits, mergers, consolidations, recapitalizations and
corporate adjustments.
5.4.1 Contingency for Exercise and Expiration. 3G's right to
exercise these options shall be contingent upon Rockford's stock becoming
publicly traded, or Rockford being merged into or acquired by a private or
publicly owned concern (a "Successful Result"). If a Successful Result does not
transpire, or if 3G's options are not exercised, by August 1, 1999, the options
shall expire on that date. If the options become exercisable by reason of a
Successful Result they shall be exercisable only within 90 days after such event
and shall then expire.
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5.4.2 Vesting. 3G's options shall vest 25% on August 1, 1992
and 25% on each of August 1, 1993, 1994 and 1995, provided that 3G and Suttle
shall on each such vesting date still be performing the services required of
them under this Contract and the Agreement and that no notice of termination
shall have been given by 3G to Rockford prior to such vesting date. They shall
also vest 100% upon an earlier Successful Result.
5.4.3 Limited Assignment Right. 3G shall have the right to
assign its options granted hereunder to and among its associates (including
Suttle) or to any corporation, firm or joint venture formed by them to hold the
options, but no other assignment shall be permissible.
5.4.4 Investment Representation. The right of 3G or any
permitted assignee to exercise the options (or his or her share thereof) shall
be conditioned upon (1) qualification as an "accredited investor" as that term
is defined in the regulations of the SEC on the date of exercise of the options
and the making of adequate investment representations with respect to such
purchases or (2) other evidence reasonably satisfactory to Rockford (such as an
opinion of counsel) that the proposed exercise is exempt from registration
under, and otherwise complies with, applicable federal and state securities
laws.
5.4.5 Notice of Exercise and Payment upon Exercise. 3G or its
permitted assignee shall give Rockford written notice of its intention to
exercise the options, of the date on which it intends to exercise the options
(the "Closing Date" or "Exercise Date"), and of the number of shares to be
purchased, not less than 10 nor more than 90 days before the Closing Date. The
written notice shall create a binding obligation on 3G or its permitted assignee
to purchase the specified number of shares on the Closing Date. All shares
purchased shall be delivered by Rockford and paid for in cash by 3G or its
permitted assignee on the Closing Date.
5.4.6 Taxes and Election not to Issue Shares. 3G acknowledges
that, as an independent contractor, upon exercise of the options it (or its
permitted assignee) may become subject to (and is solely responsible for)
payment of tax on the excess of the fair market value of the shares purchased
over the option exercise price. Rockford may become entitled to a deduction in
the same amount pursuant to provisions of the Internal Revenue Code of 1986 and
IRS regulations thereunder (the "Code"). 3G (for itself and its permitted
assignees) agrees that Rockford may elect not to issue up to that percentage of
shares that is equal to the maximum marginal rate of taxes 3G (or its permitted
assignee) would be required by the Code to pay to the IRS upon exercise of the
options; Rockford shall pay the fair market value of any withheld shares to the
IRS for the account of 3G or its permitted assignee, as applicable. At the
option of 3G or its permitted assignee, 3G or its permitted assignee may pay to
Rockford the cash amount of the shares Rockford may elect not to issue, at the
time of the exercise of the options, in which event Rockford shall issue all the
shares for which options are exercised. Rockford represents that it will make an
election not to issue shares only upon advice of its professional advisors that
such action is necessary to protect its deduction (and then it will not issue
only the amount required by the Code); such an election shall not constitute an
admission by either 3G or Rockford that 3G is an employee of Rockford and 3G
shall at all times be an independent contractor to Rockford.
5.5 Expense Reimbursement. In addition to compensation provided
hereunder, Rockford shall reimburse 3G for its reasonable out of pocket expenses
incurred on Rockford's behalf, subject to Rockford's (1) advance approval of
expenses in excess of $2,500 in any month or $1,000 for any single item and (2)
right to require adequate documentation of expenses.
6 CONFIDENTIAL INFORMATION. During and after the term of 3G's
engagement pursuant to this Contract, 3G and its associates will keep
confidential, and will not reproduce, copy or disclose to any other person or
firm, any trade secrets and other proprietary or confidential information and
data concerning Rockford or its business ("Confidential Information"). 3G and
its associates will not, during
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or after the term of this Agreement, use (either alone or with others), disclose
to any person, or encourage anyone else to disclose, any Confidential
Information except within the scope of 3G's duties and responsibilities for
Rockford or with Rockford's consent.
7 RETURN OF ROCKFORD DOCUMENTS. Upon termination of 3G's engagement
pursuant to this Contract, 3G shall return to Rockford all records and documents
of or pertaining to Rockford (including, but not limited to, customer,
distributor, and supplier lists, names, or addresses) and shall not make, retain
or give to any other person any copy or extract of any such record or document.
"Record" includes, but is not limited to, information stored on computer.
8 NON-SOLICITATION. During and after the term of 3G's engagement for
Rockford pursuant to this Agreement and the Contract, 3G will not solicit, or
assist others to solicit, any customers, distributors, suppliers, or employees
of Rockford who did business or agreed to do business with Rockford at any time
before or during the term of 3G's engagement for Rockford pursuant to this
Contract. If this section is deemed unreasonable as to time or scope by any
court or arbitrator, then such court or arbitrator shall have authority to
modify this section as to time or scope, or both, so that this section is
reasonable and shall then enforce this section as modified. 3G acknowledges and
agrees that the market for Rockford's product is limited and international in
scope, so that any solicitation activities in violation of this section would
cause material harm to Rockford.
9 ACTIONS. 3G acknowledges that it would be difficult to determine
damages, and Rockford will not have an adequate remedy at law, if 3G breaches
this Contract. Accordingly, if 3G breaches this Contract, Rockford may seek
injunctive relief to enforce this Contract. Nothing in this section shall limit
or exclude any and all other rights, including rights to money damages, granted
to Rockford in law or equity.
10 SEVERABILITY. If any section of this Contract is deemed unreasonable
by a court or arbitrator, such section shall be severable from the remainder of
this Contract, which shall be enforced according to its terms irrespective of
the enforceability of the unreasonable section provided such enforcement is
consistent with the general intent of the parties as evidenced by this Contract
taken as a whole.
11 RELEASE AND INDEMNIFICATION. Rockford agrees to release, remise and
forever acquit 3G and each and all of its employees, representatives and
associates, including Suttle, working on the Rockford engagement from any and
all legal or equitable liability to it, whether undertaken hereunder or pursuant
to the Letter Agreement, so long as such liability arises out of any action, or
failure to take action, on Rockford's behalf which 3G or any of its employees,
representatives, and associates believed in good faith to be in Rockford's best
interest and not in contravention of this Contract or the Agreement. In
addition, Rockford agrees to exonerate, indemnify and hold harmless 3G, its
employees, representatives and associates, including Suttle (an "Indemnified
Party"), from and against any and all losses, damages, costs and expenses,
including all legal fees, court costs, and out-of-pocket expenses (a "Loss") in
any way arising out of or in connection with an Indemnified Party's activities
on Rockford's behalf and asserted against an Indemnified Party by Rockford, any
of its officers, Directors, debenture owners or stockholders, or any other
person, so long as such Loss arises out of any action, or failure to take
action, on Rockford's behalf which the Indemnified Party in good faith believed
to be in Rockford's best interest. In the event of a claim of Loss the
Indemnified Party shall notify Rockford promptly of the claim and Rockford shall
advance expenses incurred in connection with the claim on behalf of the
Indemnified Party. Rockford may decline to advance expenses if its Board of
Directors determines, in good faith and within 30 days after receiving notice of
the claim from the Indemnified Party, that the Indemnified Party is not entitled
to indemnification under the circumstances; however, such determination shall
not be binding upon the Indemnified Party in any action for indemnification
hereunder. Rockford shall be
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entitled to assume the defense of any claim, using counsel of its choice
reasonably satisfactory to the Indemnified Party, and shall thereafter not be
responsible for the fees of counsel to the Indemnified Party.
12 NON-ASSIGNABILITY. The rights and obligations of Rockford and 3G
under this Contract shall not be assignable except 3G's option rights to the
extent expressly permitted. Any other purported or attempted assignment of 3G's
or Rockford's rights hereunder shall constitute a material breach of this
Contract.
13 EMPLOYMENT OF 3G PERSONNEL BY ROCKFORD . In the event that Rockford
shall employ Suttle or any other person working for 3G at any time during the
pendency of this Contract it shall become obligated to pay to 3G a sum equal to
35% of such person's salary and incentive bonus paid by Rockford during the
first year of such person's employment.
14 CONFLICTS WITH AGREEMENT. In the event of any conflict between the
provisions of this Contract and the terms of the Agreement, this Contract shall
rule the relations between Rockford and 3G and the Agreement shall regulate the
relations between Suttle and Bartol inter sese.
15 NOTICES. Notices under this Contract shall be effective upon
delivery or three days after mailing, certified or registered mail, return
receipt requested, to the addresses stated on the signature page of this
Contract (which may be changed by notice).
16 INTEGRATION AND AMENDMENT. This Contract is the entire agreement of
the parties with respect to the engagement of 3G by Rockford, supersedes all
prior agreements relating thereto (including the Letter Agreement) and may be
amended only by a written document signed by both parties.
17 GOVERNING LAW. Arizona law shall govern this Contract and any
disputes arising out of or related in any way to this Contract.
18 ATTORNEYS' FEES. In any proceeding arising out of or related to this
Contract, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and other expenses incurred in connection with such proceeding.
19 ARBITRATION. Disputes not resolved by agreement of the parties and
arising out of or related in any way to this Contract shall be submitted to
binding arbitration in metropolitan Phoenix, Arizona, before a single arbitrator
or, if the parties cannot agree upon a single arbitrator, before a panel of
three arbitrators, one selected by each party (within 10 days after notice of a
dispute and failure to agree upon a single arbitrator) and a third appointed by
the arbitrators selected by the parties. The selection of arbitrators and all
arbitration proceedings shall be in accordance with the rules of the American
Arbitration Association, as amended to the date of the proceedings, and judgment
upon the award may be entered in any court having jurisdiction. The arbitrators
shall render a decision within 30 days after their appointment and may award the
costs of arbitration as they see fit.
20 EXECUTION AND EFFECTIVE DATE. This Contract is executed and
effective as of the ___ day of _______ , 1993.
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Rockford Corporation Grisanti, Galef & Goldress, Inc.
By /s/ By /s/
------------------------------ ---------------------------------
Glen Carrio, Chairman Jerry Goldress, President
Address: 2698 Junipero Address: 987 Tahoe Blvd. #206
Suite 107 Incline Village, NV 89451
Signal Hill, CA 90806
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<PAGE> 1
EXHIBIT 10.28
AMENDMENT AND RENEWAL
OF
CONSULTING AND OPTION CONTRACT
This Contract is between Rockford Corporation, an Arizona corporation
("Rockford") and Grisanti, Galef & Goldress, Inc., a Nevada corporation ("3G").
Rockford and 3G agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford manufactures and distributes high
quality car and professional audio products under various brand
names including "Rockford-Fosgate", "Hafler Professional", "Rockford
Acoustic Designs", and "Connecting Punch."
1.2 3G Consulting Services. 3G is in the business of providing executive
and other consulting services. 3G has provided services to Rockford
pursuant to (a) a letter agreement dated February 8, 1992, and
accepted by 3G on February 10, 1992, and (b) a Consulting and Option
Contract dated March 10, 1993 (the "Prior Contracts"). Pursuant to
the Prior Contracts, 3G has provided executive and consulting
services to Rockford through W. Gary Suttle ("Suttle"), one of 3G's
associates.
1.3 Related Agreement. This Contract is related to a contemporaneous
Agreement (the "Agreement"), between Suttle, Rockford, and Monument
Investors Limited Partnership ("Monument") the principal stockholder
of Rockford. The Agreement (a) grants to Suttle an Option to
purchase 185,000 shares of Rockford common stock held by Monument,
(b) requires that Suttle devote "full time" to his services for
Rockford, and (c) establishes certain non-compete and other
obligations. A copy of the Agreement is attached as Exhibit 1 and
made a part of this Contract.
2 CONSULTING SERVICES AGREEMENT. For a term of not less than 5 years from
August 1, 1995, 3G will provide executive and advisory services to
Rockford through Suttle and through its other associates (with Rockford's
advance approval). Suttle will work for Rockford on a "full time" basis as
defined in the Agreement.
2.1 Nature of Required Services. Rockford, 3G, and Suttle will from time
to time agree on the exact nature of the consulting services to be
performed under this Contract.
2.2 Suttle's Position. Suttle will serve as Director, President, and CEO
of Rockford (or in another capacity agreed by Rockford, Monument,
Suttle, and 3G). Suttle will carry out the duties of such offices on
an independent contractor basis and not as Rockford's employee.
<PAGE> 2
2.3 Advisory Director. 3G will designate its associate Jerry Goldress to
serve as an "Advisory Director" of Rockford, with the right to
receive notice of, to attend, and to speak at meetings of Rockford's
Directors, but not to vote on any matters.
2.4 Compensation of 3G Associates. 3G will pay, and bear exclusively,
all compensation of Suttle, Goldress, and any other 3G associate
working on the Rockford engagement.
3 ROCKFORD COOPERATION. Rockford will extend full cooperation to 3G and
Suttle, will provide full access to its employees, officers, consultants
and Directors, and will provide full access to all of its files, books and
corporate and financial records. Rockford's Board of Directors will at all
times retain control of Rockford and its business.
4 TERMINATION. This Contract may be terminated at any time by Rockford or
3G. Termination requires 90 days written notice. Upon termination Suttle
will withdraw and be released from his obligations to Rockford set forth
in Section 2 of the Agreement.
5 COMPENSATION AND EXPENSES.
5.1 Base Retainer. Rockford will pay 3G a retainer fee of $30,000 per
month payable in advance on the 8th day of each month. This retainer
fee is non-refundable, except that if this Contract is terminated by
3G effective on some day other than the 8th day of the month the
final fee payment will be pro-rated or a refund will be given for
any unearned portion.
5.2 Bonus Fees. As additional compensation for 3G's services under this
Contract, Rockford will pay 3G an annual bonus, with the amount and
timing of payment determined by Rockford's Board of Directors taking
into account (a) Suttle's compensation in prior positions and
Rockford's original plan to pay bonuses sufficient to increase the
base compensation by $120,000 per year, (b) the need to provide
substantial "upside" compensation to Suttle if Rockford is
successful, and (c) the bonus paid by Rockford to the most senior
members of its management team. The initial bonus under this
Contract will be paid for Rockford's fiscal year ended September
1995 and will be in an amount consistent with the bonus declared for
the most senior members of Rockford's management other than Suttle.
3G waives and relinquishes all right to payments under the bonus
formula established in the Prior Contracts.
5.3 Termination Fees. If this Contract is terminated by Rockford,
Rockford will continue to pay to 3G its base retainer for 9 months
after the date of termination.
5.4 Option Compensation.
5.4.1 Prior Option. As contingent compensation for 3G's services
under the Prior Contracts, Rockford granted to 3G an option
(the "Prior Option") on or before August 1, 1999, to purchase
50,000 of its authorized but unissued common stock at a price
of $23.00 per share (the "Exercise Price"), protected against
dilution only from stock dividends, stock splits,
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reverse stock splits, mergers, consolidations,
recapitalizations and corporate adjustments.
5.4.2 Amendment of Prior Option. As of October 28, 1994, Rockford
restructured its 10.5% Convertible Subordinated Debentures
into Senior Notes with Warrants and reduced the exercise price
of the Warrants from $23.00 to $6.50. In connection with such
restructuring, Rockford and 3G agreed to reduce the Exercise
Price to $6.50 per share; this Contract constitutes written
acknowledgment of Rockford and 3G that the Exercise Price was
reduced to $6.50 per share effective as of October 28, 1994.
Rockford further agrees to extend the Prior Option in
connection with the execution of this Contract, so that 3G may
exercise the Prior Option at any time before August 1, 2002
(unless the Prior Option expires earlier under a provision of
this Contract). As amended and extended, the Prior Option is
referred to in this Contract as the "Option."
5.4.3 [Intentionally Omitted].
5.4.4 Vesting. The Prior Contracts provided for vesting of the Prior
Option over a period ending August 1, 1995. The Option is now
100% vested.
5.4.5 Limited Assignment Right. 3G may assign the Options to and
among its associates (including Suttle) or to any corporation,
firm or joint venture formed by them to hold the Option. No
other assignment is permitted.
5.4.6 Investment Representation. In order to exercise the Option 3G
or any permitted assignee (1) must qualify as an "accredited
investor" and must give reasonably satisfactory investment
representations or (2) must provide other evidence reasonably
satisfactory to Rockford that the proposed exercise is exempt
from registration under, and otherwise complies with,
applicable federal and state securities laws.
5.4.7 Notice of Exercise and Payment upon Exercise. 3G or its
permitted assignee must give Rockford written notice of its
intention to exercise the Option not less than 10 nor more
than 90 days before the date on which it intends to exercise
the Option (the "Closing Date" or "Exercise Date"). The notice
must state the Closing Date and the number of shares to be
purchased. The notice creates a binding obligation on 3G or
its permitted assignee to purchase the specified number of
shares on the Closing Date. Rockford must deliver the shares,
and 3G or its permitted assignee must pay for them in cash, on
the Closing Date.
5.4.8 Taxes and Election not to Issue Shares. 3G acknowledges that,
as an independent contractor, upon exercise of the options it
(or its permitted assignee) may become subject to (and is
solely responsible for payment of) tax on the excess of the
fair market value of the shares purchased over the option
exercise price. Rockford may become entitled to a deduction in
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the same amount pursuant to provisions of the Internal Revenue
Code of 1986 and IRS regulations thereunder (the "Code").
Rockford may elect not to issue up to that percentage of
shares that is equal to the maximum marginal rate of taxes 3G
(or its permitted assignee) would be required by the Code to
pay to the IRS upon exercise of the options; Rockford will pay
the fair market value of any withheld shares to the IRS for
the account of 3G or its permitted assignee, as applicable. At
the time of any exercise 3G or its permitted assignee may pay
the cash value attributed to the withheld shares to Rockford
and Rockford will then issue all the shares for which the
Option is exercised. Rockford will make an election to
withhold shares only upon advice of its professional advisors
that such action is necessary to protect its deduction (and
then it will withhold only the amount required by the Code);
such an election will not constitute an admission by either 3G
or Rockford that 3G is an employee of Rockford and 3G will at
all times be an independent contractor to Rockford.
5.5 Split Dollar Life Insurance. Upon 3G's request, Rockford will
institute a program of "split dollar" life insurance covering Suttle
providing for payments by Rockford of up to $36,000 per year.
5.6 Expense Reimbursement. In addition to compensation provided
hereunder, Rockford will reimburse 3G or Suttle for reasonable out
of pocket expenses incurred on Rockford's behalf, subject to
Rockford's right to require adequate documentation of expenses.
6 CONFIDENTIAL INFORMATION. During and after the term of 3G's engagement
pursuant to this Contract, 3G and its associates will keep confidential,
and will not reproduce, copy or disclose to any other person or firm, any
trade secrets or other proprietary or confidential information and data of
Rockford or about its business ("Confidential Information"). 3G and its
associates will not, during or after the term of this Agreement, use
(either alone or with others), disclose to any person, or encourage anyone
else to disclose, any Confidential Information except within the scope of
3G's duties and responsibilities for Rockford or with Rockford's consent.
7 RETURN OF ROCKFORD DOCUMENTS. Upon termination of 3G's engagement pursuant
to this Contract, 3G will return to Rockford all records and documents of
or pertaining to Rockford (including, but not limited to, customer,
distributor, and supplier lists, names, or addresses) and will not make,
retain, or give to any other person any copy or extract of any such record
or document. "Record" includes, but is not limited to, information stored
on computer.
8 NON-SOLICITATION. During and after the term of 3G's engagement for
Rockford pursuant to this Contract, 3G will not solicit, or assist others
to solicit, any customers, distributors, suppliers, or employees of
Rockford who did business or agreed to do business with Rockford at any
time before or during the term of 3G's engagement for Rockford pursuant to
this Contract.
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If this section is deemed unreasonable as to time or scope by any court or
arbitrator, then such court or arbitrator is directed to modify this
section as to time or scope, or both, so that this section is reasonable
and to then enforce this section as modified. 3G acknowledges and agrees
that the market for Rockford's product is limited and international in
scope, so that any solicitation activities in violation of this section
would cause material harm to Rockford.
9 ACTIONS. 3G acknowledges that it would be difficult to determine damages,
and Rockford will not have an adequate remedy at law, if 3G breaches this
Contract. Accordingly, if 3G breaches this Contract, Rockford may seek
injunctive relief to enforce this Contract. Nothing in this section limits
or excludes any and all other rights, including rights to money damages,
granted to Rockford in law or equity.
10 SEVERABILITY. If any section of this Contract is deemed unreasonable by a
court or arbitrator, that section is severable from the remainder of this
Contract, which is to be enforced according to its terms irrespective of
the enforceability of the unreasonable section so long as enforcement is
consistent with the general intent of the parties as evidenced by this
Contract taken as a whole.
11 RELEASE AND INDEMNIFICATION.
11.1 Release. Rockford releases 3G (and its employees, representatives,
and associates working on the Rockford engagement, including Suttle)
from any and all liability to Rockford so long as such liability
arises out of an action, or failure to take action, which 3G (or its
employees, representatives, and associates) believed in good faith
to be in Rockford's best interest and not in contravention of this
Contract or the Agreement.
11.2 Indemnity. Rockford indemnifies and holds harmless 3G, its
employees, representatives and associates, including Suttle (an
"Indemnified Party"), from and against any and all losses, damages,
costs and expenses, including all legal fees, court costs, and
out-of-pocket expenses (a "Loss") in any way arising out of or in
connection with an Indemnified Party's activities on Rockford's
behalf and asserted against an Indemnified Party by Rockford, any of
its officers, Directors, debenture owners or stockholders, or any
other person, so long as the Loss arises out of an action, or
failure to take action, which the Indemnified Party in good faith
believed to be in Rockford's best interest.
11.3 Procedure, Expenses, and Defense. If there is a Loss, an Indemnified
Party must notify Rockford promptly of the claim and Rockford will
advance expenses incurred in connection with the claim on behalf of
the Indemnified Party. Rockford may decline to advance expenses if
its Board of Directors determines, in good faith and within 30 days
after receiving notice of the claim from the Indemnified Party, that
the Indemnified Party is not entitled to indemnification under the
circumstances; however, such determination is not binding upon the
Indemnified Party in any action for indemnification. Rockford is
entitled to assume the defense of any claim, using counsel of its
choice reasonably
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satisfactory to the Indemnified Party, and will not be responsible
for the fees of counsel to the Indemnified Party after it assumes
the defense.
12 NON-ASSIGNABILITY. The rights and obligations of Rockford and 3G under
this Contract are not assignable, except 3G's may assign its option rights
to the extent expressly permitted. Any other purported or attempted
assignment of 3G's or Rockford's rights is a material breach of this
Contract.
13 EMPLOYMENT OF 3G PERSONNEL BY ROCKFORD . If Rockford employs Suttle (or
any other person working for 3G) during the term of this Contract,
Rockford will pay 3G 35% of such person's salary and incentive bonus
during the first year of such person's employment.
14 CONFLICTS WITH AGREEMENT. If there is a conflict between this Contract and
the Agreement, this Contract will regulate the relations between Rockford
and 3G and the Agreement will regulate the relations between Suttle and
Monument.
15 NOTICES. Notices under this Contract are effective upon delivery or three
days after mailing, certified or registered mail, return receipt
requested, to the addresses stated on the signature page of this Contract
(which may be changed by notice).
16 INTEGRATION AND AMENDMENT. This Contract is the entire agreement of the
parties with respect to the engagement of 3G by Rockford, supersedes all
prior agreements between 3G and Rockford (including the Prior Contracts),
and may be amended only by a written document signed by both parties.
17 GOVERNING LAW. Arizona law will govern this Contract and any disputes
arising out of or related in any way to this Contract.
18 ATTORNEYS' FEES. In any proceeding arising out of or related to this
Contract, the prevailing party is entitled to reasonable attorneys' fees,
costs and other expenses incurred in connection with such proceeding.
19 ARBITRATION. Disputes not resolved by the parties and arising out of or
related in any way to this Contract will be submitted to binding
arbitration in metropolitan Phoenix, Arizona, before a single arbitrator
or, if the parties cannot agree upon a single arbitrator, before a panel
of three arbitrators, one selected by each party (within 10 days after
notice of a dispute and failure to agree upon a single arbitrator) and a
third appointed by the arbitrators selected by the parties. The selection
of arbitrators and all arbitration proceedings will be in accordance with
the rules of the American Arbitration Association, as amended to the date
of the proceedings, and judgment upon the award may be entered in any
court having jurisdiction. The arbitrators will render a decision within
30 days after their appointment and may award the costs of arbitration as
they see fit.
20 ASSIGNMENT TO SUTTLE. If Suttle terminates his association with 3G for any
reason then, at Suttle's option, 3G will assign all of its obligations and
rights under this Contract to Suttle and Suttle will assume all such
rights and obligations. Rockford consents to any
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such assignment and agrees that 3G will then be released from its
obligations under this Contract.
21 EXECUTION AND EFFECTIVE DATE. This Contract is executed _______________,
1995, and is effective as of August 1, 1995.
Grisanti, Galef & Goldress, Inc.
By /s/ ________________________________
Jerry Goldress, Chairman
Address: 987 Tahoe Blvd #206
Incline Village, NV 89451
Rockford Corporation
By /s/ ________________________________
Glen Carrio, Chairman
Address: 648 South River Drive
Tempe, Arizona 85281
-7-
<PAGE> 1
Exhibit 10.29
AMENDMENT
OF
CONSULTING AND OPTION CONTRACT
This is an Amendment to the Contract is between Rockford Corporation, an Arizona
corporation ("Rockford") and Grisanti, Galef & Goldress, Inc., a Nevada
corporation ("3G"). Rockford and 3G agree as follows:
1 RECITALS.
1.1 Rockford Business. Rockford manufactures and distributes high
quality car and professional audio products under various brand
names including "Rockford-Fosgate", "Hafler Professional", "Rockford
Acoustic Designs", and "Connecting Punch."
1.2 3G Consulting Services. 3G is in the business of providing executive
and other consulting services. 3G has provided services to Rockford
pursuant to (a) a letter agreement dated February 8, 1992, and
accepted by 3G on February 10, 1992, (b) a Consulting and Option
Contract dated March 10, 1993, and (c) and Amendment and Renewal of
Consulting and Option Contract dated as of August 1, 1995 (the
"Prior Contract"). Pursuant to the Prior Contract, 3G has provided
executive and consulting services to Rockford through W. Gary Suttle
("Suttle") and other 3G's associates.
1.3 Amendment to Agreement. 3G, Rockford, and Suttle have now agreed to
amend the Prior Contract in order that Rockford may directly employ
Suttle as a full time employee.
2 AMENDMENT OF PRIOR CONTRACTS. Sections 2 and 3 of the Prior Agreement are
deleted in their entirety. For the remaining term of the Prior Agreement,
3G will provide executive and advisory services to Rockford through its
associates other than Suttle (with Rockford's advance approval). 3G
consents to Rockford's hiring of Suttle as a full time employee of
Rockford and waives payment of the fee otherwise required by Section 13 of
the Prior Contract in connection with Suttle's employment.
2.1 Nature of Required Services. Rockford and 3G will from time to time
agree on the exact nature of the consulting services to be performed
under the Contract.
2.2 Director. 3G will designate its associate Jerry Goldress to serve as
a Director of Rockford.
2.3 Compensation of 3G Associates. 3G will pay, and bear exclusively,
all compensation of Goldress and other 3G associates working on the
Rockford engagement, except that Rockford will pay Goldress
directors' fees and other compensation consistent with Rockford's
compensation policies for its directors.
<PAGE> 2
3 COMPENSATION AND EXPENSES. Sections 5.1, 5.2, 5.3, and 5.5 of the Prior
Agreement are deleted in their entirety. Rockford and 3G will negotiate
and approve the compensation payable to 3G for its services on a project
by project basis for the remaining term of the Prior Contract. Sections
5.4 and 5.6 are not amended and remain effective.
4 STOCK OPTION. As consideration for Jerry Goldress service as a director
and for 3G's waiver of the placement fees under Section 13, Rockford will
grant to Jerry Goldress as a director, and under the Rockford 1997 Stock
Option Plan, options to purchase an additional 5,000 shares of Rockford
Common Stock under the terms of the plan.
5 NO OTHER CHANGES. Except as set forth herein, the Prior Contract remains
effective without change and is reconfirmed by the parties.
6 EXECUTION AND EFFECTIVE DATE. This Amendment is effective as of January 1,
1999.
Grisanti, GALEF & GOLDRESS, Inc.
By /s/
----------------------------------------
Jerry Goldress, Chairman
Address: P. O. 5240
114 Robert
Incline Village, NV 89450
Rockford Corporation
By /s/
----------------------------------------
W. Gary Suttle, President
Address: 648 South River Drive
Tempe, Arizona 85281
-2-
<PAGE> 1
Exhibit 10.30
Timothy C. and Nadya I. Bartol
- --------------------------------------------------------------------------------
9200 Willow Pond Lane, Potomac, MD 20854 - Home (301) 762-8834
Tim work: (301) 340-7788, ext. 3441 [email protected] o Nadya work:
(703) 902-5311 bartoln @bah.com
Mr. Jim Thomson
Chief Financial Officer
Rockford Corporation
648 South River Drive
Tempe, AZ 85281
Monday, April 26, 1999
Dear Jim,
Please take this letter as formal request to execute paragraph 1.3 of the Bridge
Loan Conversion and Extension Agreement dated July 1, 1996 - which allows the
Boulder Partnership to convert its $1,000.001 note outstanding with Rockford to
67,340 shares of Rockford common stock.
Please tell me if there is additional paperwork I need to sign to accomplish
this goal.
My thanks, Jim. It is a real pleasure to carry out this transaction.
/s/
Tim Bartol
General Partner, the Boulder Partnership.
Cc: Kevin Olson, Steptoe & Johnson
<PAGE> 1
Exhibit 10.31
FIFTH AMENDMENT TO BRIDGE LOAN CONVERSION
AND EXTENSION AGREEMENT
This Amendment is between Rockford Corporation, an Arizona
corporation ("Borrower") and Boulder Investors Ltd. Partnership, as successor
to Carolyn S. Bartol ("Lender"). Borrower and Lender agree as follows:
1. Recitals.
1.1 Existing Agreement. Borrower and Lender are party to a Bridge
Loan Conversion and Extension Agreement (the "Loan Agreement") dated as of July
1, 1996, pursuant to which Borrower owes $1,000,001 of principal to Lender. The
original due date of December 31, 1996,
(a) was extended to March 30, 1997, pursuant to the First
Amendment to Bridge Loan Conversion and Extension Agreement
dated as of December 31, 1996 (the "First Amendment"),
(b) was further extended to June 30, 1997 pursuant to the Second
Amendment to Bridge Loan Conversion and Extension Agreement
dated as of March 30, 1997 (the "Second Amendment"),
(c) was further extended to require principal payments of $200,000
per month beginning on September 15, 1997 pursuant to the
Third Amendment to Bridge Loan Conversion and Extension
Agreement dated as of June 18, 1997 (the "Third Amendment"),
and
(d) was further extended to require principal payments of $200,000
per month beginning on May 15, 1998 pursuant to the Fourth
Amendment to Bridge Loan Conversion and Extension Agreement
dated as of September 15, 1997 (the "Fourth Amendment").
References in this Amendment to the "Agreement" refer to the Loan Agreement as
modified by the First Amendment, the Second Amendment, the Third Amendment, and
the Fourth Amendment. Terms used in this Amendment and not otherwise defined
have the meanings given in the Agreement.
1.2 Agreed Extension. Lender and Borrower have agreed (a) to extend
the due date of the principal owed pursuant to the Agreement to September 15,
1999 (subject to the requirement for principal payments set forth below), (b) in
connection with such extension, to change the interest rate on the Loan to 9%
per annum, and (c) to extend the period for Borrower's exercise of the Option
Shares to September 15, 1999.
2. Extension Agreement. Lender extends the due date for the balance of the
Loan to September 15, 1999, subject to the requirement that Borrower make
principal payments of $200,000 on each of May 15, June 15, July 15, and August
15, 1999. The Note is amended to conform to this extension and principal payment
schedule
3. New Interest Rate. The interest rate on the Loan is changed, effective
as of May
<PAGE> 2
15, 1998, to 9% per annum, payable at the times provided in the Agreement and
Note. If Borrower fails to make any principal payment when due, then (a)
Borrower will within 30 days after notice from Lender meet with Lender to
discuss Borrower's business prospects and plans for payment and (b) Lender may,
by written notice to Borrower, increase the interest rate on the Loan by up to
2% per annum above the rate otherwise payable under the Note and this Amendment.
The Note is amended to conform to this change in the interest rate and the
default interest rate.
4. Extension for Repayment of Principal and Option. The first sentence of
section 5 of the Agreement is amended to read "Borrower will pay the principal
on the Note on or before September 15, 1999, with earlier principal payments as
required in this Agreement." Borrower will continue to have the option to
purchase the Option Shares at any time before repayment of the Note by Borrower,
with the option expiring pro-rata with each reduction in principal. Borrower
will give Lender notice of repayment, and an opportunity to exercise the option,
before repaying the Loan. Notwithstanding any other provisions of the Agreement,
the option to purchase the Option Shares will expire on the date the Securities
and Exchange Commission declares effective a registration statement for the
Borrower's Common Stock.
5. Notice of Sales of Shares. Section 5 of the Agreement is amended to add
the following new sentence: "Borrower will give Lender notice of any proposed
sale of shares to an unaffiliated third party, at least 30 days before the sale
is consummated."
6. Continued Effectiveness of Agreement. Except as expressly amended by
this Amendment, the Agreement and the Note continue in full force and effect.
7. Effective Date. This Amendment is effective as of May 15, 1998.
ROCKFORD CORPORATION
By /s/ James M. Thomson
---------------------------------------
Its Vice President Finance & CFO
---------------------------------------
BOULDER INVESTORS LTD. PARTNERSHIP
By /s/ Timothy C. Smith
---------------------------------------
Its General Partner
---------------------------------------
<PAGE> 1
Exhibit 10.32
BRIDGE LOAN CONVERSION AND EXTENSION AGREEMENT
This Agreement is between Rockford Corporation, an Arizona corporation
("Borrower") and Caroline S. Bartol ("Lender"). Borrower and Lender agree as
follows:
1. RECITALS.
1.1 Borrower Business. Borrower manufacturers high quality auto and
professional audio equipment, including amplifiers, speakers, source
units, and accessories.
1.2 Loan. Lender provided a $2,000,000 loan (the "Bridge Loan") to
Borrower to help finance working capital and general corporate needs
of Borrower pursuant to a Bridge Loan Agreement (the "Original
Agreement") attached as Exhibit A.
1.3 Conversion and Extension. Lender and Borrower have agreed to (a)
convert $999,999 of the Bridge Loan principal into 67,340 shares of
Borrower's common stock (a price of $14.85 per share) and (b) extend
the balance of the Bridge Loan, or $1,000,001 of principal, so that
its due date is December 31, 1996.
1.4 Purpose. The purpose of this Agreement is to set forth the terms of
the agreement to convert and extend the terms of the Bridge Loan.
2. CONVERSION AGREEMENT. Lender subscribes to purchase, and Borrower promises
to issue, 67,340 shares of Borrower's common stock, par value $0.01 per
share (the "Shares"), for a purchase price of $14.85 per share or $999,999
in the aggregate. The purchase price is payable by conversion of $999,999
of the Bridge Loan principal into capital of Borrower and Lender instructs
Borrower to convert such principal into capital upon issuance and delivery
of the Shares to Lender.
In connection with the purchase of the Shares, Lender represents and
acknowledges as follows:
2.1 Investment Intent. Lender is acquiring the Shares for investment and
not with a view to their resale or distribution. Lender has no
contract, undertaking, agreement, or arrangement with any person to
sell, transfer or pledge the Shares and has no present plans to
enter into any such contract, undertaking, agreement, or
arrangement.
2.2 Securities Registration. The Shares are offered and sold without
registration under the Securities Act of 1933 (the "Act") or the
Arizona Securities Act, in reliance upon one or more exemptions
available under the Act and under Arizona Law for non-public
offerings.
2.3 Legend on Shares. The certificates evidencing the Shares will bear a
legend giving notice of the restrictions on transfer of the Shares
resulting from their sale in reliance on exemptions from
registration under applicable state securities laws.
<PAGE> 2
2.4 Accredited Investor. Lender is an Accredited Investor as that term
is defined in the rules of the Securities and Exchange Commission.
2.5 Risk. Lender has the financial ability to bear the economic risk of
Lender's investment in the Shares (including its possible loss).
Lender has adequate means for providing for Lender's current needs
and personal contingencies and has no need for liquidity with
respect to Lender's investment in the Shares. Lender has (alone or
together with Lender's advisers and family) such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Shares and
has obtained, in Lender's judgment, sufficient information to
evaluate the merits and risks of an investment in the Shares.
2.6 Information Supplied. Lender (alone or with representatives) has had
opportunity to ask questions of and receive satisfactory answers
from the Borrower and its officers and directors concerning the
business and prospects of the Borrower and has had the opportunity
to review such documents, records, books, and other information as
Lender has deemed necessary in order to make an investment decision
with respect to the purchase of the Shares. In making the decision
to purchase the Shares subscribed for, Lender has relied solely on
independent investigations and on documents supplied by Company.
3. EXTENSION AGREEMENT. Lender extends the balance of the Bridge Loan after
conversion, $1,000,001 (the "Loan") on the terms set forth in this
agreement. Borrower will execute and deliver to Lender a promissory note
(the "Note") in the form of Exhibit A, in exchange for Lender's delivery
to Borrower of the original promissory note evidencing the Bridge Loan.
Borrower will (a) maintain accurate records of the original principal
amount, payments made, and interest and other charges in connection with
the Loan and (b) render to Lender on request, and at least monthly, an
account statement showing such amounts.
4. INTEREST. The outstanding principal and unpaid interest under this
Agreement will bear interest at the rate of 9% per annum. Interest is
payable monthly on the first day of each month.
5. REPAYMENT OF PRINCIPAL AND OPTION. Borrower will pay the principal on the
Note on December 31, 1996. Borrower grants Lender an option to purchase
additional shares of Borrower's Common Stock (the "Option Shares") by
conversion of the Loan at any time before its repayment by Borrower. The
price for the Option Shares will be (a) the most recent price at which
Borrower has sold its shares to an unaffiliated third party in a
transaction concluded after the date of this Agreement of (b) $14.85 per
share, if Borrower has not sold its shares in such a transaction. Lender
may purchase up to the number of Option Shares computed by dividing the
outstanding principal of the Loan by the price per share established in
the immediately preceding sentence. In connection with any purchase of
Option Shares, Lender will provide Borrower with representations
comparable to those set forth in Section 2 above.
2
<PAGE> 3
6. SUBORDINATION TO BANK LOAN. The Loan is subordinate to Borrower's
obligations under its loan (the "Bank Loan") with its principal lender,
Wells Fargo Bank, formerly First Interstate Bank of Arizona (the "Bank").
All Borrower's obligations to Bank must be first paid to Bank in full
before any payments may be made under this Loan, except for:
6.1 payments of interest when due;
6.2 payments of principal paid from proceeds of a capital investment by
Lender or its affiliates in Borrower; and
6.3 payments of principal when due on December 31, 1996, but only if (a)
Bank has not given Borrower notice that it is in default or
non-compliance under the Bank Loan and (b) the payment of principal
would not cause Borrower to be out of compliance under the Bank Loan
either (i) as of the date made, (ii) as of the most recent quarterly
compliance date under the Bank Loan (assuming the payment had been
made on the last day of such quarter), or (iii) as of the next
quarterly compliance date under the Bank Loan (based on Borrower's
current projected financial statements). If Borrower makes a payment
of principal, Borrower will deliver to Lender and Bank a certificate
confirming that these conditions are satisfied.
6.4 If there is an Event of Default under Section 9.4 below, then
Borrower and its officers, assigns, trustee, receiver, and other
representative are directed to pay Bank the full amount of the Bank
Loan before making any payments to Lender other than payments of
principal out of proceeds of the investment by Lender or its
affiliates in Borrower.
7. NO SECURITY. The Loan is unsecured but constitutes a general obligation of
Borrower.
8. MANAGEMENT BONUS PLAN. If Borrower establishes a management bonus plan for
its fiscal years 1997, 1998, or 1999 Borrower's compensation committee and
management will provide Lender with a written explanation of any
differences between (a) the income projections used to establish fiscal
1997, 1998, and 1999 bonus levels in the plan and (b) the income
projections used by Vrolyk and Company in its evaluation of the value of
Borrower's common stock.
9. ADDITIONAL DOCUMENTS. Borrower will execute and deliver to lender
additional documents as necessary to carry out the purposes of this
Agreement.
10. EVENTS OF DEFAULT. The following events are "Events of Default":
10.1 Borrower fails to pay any amount under this Agreement when due
and payable;
10.2 Borrower fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, representation, or warranty
contained in this Agreement;
10.3 Borrower becomes insolvent; or
3
<PAGE> 4
10.4 A complaint or case is filed by or against borrower under federal
bankruptcy laws and is not dismissed within 60 days of filing;
Borrower admits to inability to pay or fails to pay Borrower's debts
generally as they mature; Borrower makes an assignment for the
benefit of creditors; a receiver is appointed for Borrower; or any
other insolvency proceedings are instituted by or against Borrower
and are not dismissed within 60 days of filing.
11. ACCELERATION OF OBLIGATIONS AND REMEDIES. If there is an event of default,
the outstanding Loan balance and all other amounts owed by Borrower to
Lender will, if Lender elects, become immediately due and payable without
notice to or demand upon Borrower of any kind. Any acceleration, if
elected by Lender, is subject to all applicable laws.
12. USURY SAVINGS CLAUSE. Borrower will not, upon acceleration of maturity by
Lender or otherwise, be required to pay any interest in excess of the
maximum amount permitted by law.
13. MISCELLANEOUS.
13.1 Waiver of Defaults. Lender may, in its sole discretion, waive a
default or cure at Borrower's expense a default. Any waiver in a
particular instance or of a particular default is not a waiver of
other defaults or of the same kind or default at another time.
13.2 Entire Agreement; Amendments. This Agreement is the entire Agreement
of the parties with respect to its subject matter and may not be
changed or amended without the written consent of each party.
13.3 Severability. If any part (or parts) of this Agreement is invalid,
illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability will not effect any provisions of
this Agreement, and this Agreement will be construed as if the
invalid, illegal, or unenforceable provision were omitted, provided
that such construction and omission is consistent with the general
intent of the parties as evidenced by this Agreement considered as
an entirety.
13.4 Notices. Notices required under this Agreement are effective upon
delivery or three days after mailing by registered or certified
mail, return receipt requested, to the address of the parties shown
on the signature page of this Agreement (which may be changed by
notice).
13.5 Governing Law. This Agreement is governed by the laws of Arizona.
13.6 Assignability. This Agreement may not be assigned without the prior
written consent of each party.
13.7 Counterparts. This Agreement may be executed in counterparts and all
counterparts so executed constitute one Agreement.
4
<PAGE> 5
13.8 Attorneys' Fees. In any proceeding arising under this Agreement, the
prevailing party is entitled to recover the attorneys' fees, costs,
and expenses in connection with such proceeding.
14. EXECUTION AND EFFECTIVE DATE. This Agreement is executed ,
----------------
1996 and effective as of July 1, 1996.
"BORROWER"
Rockford Corporation
By: /s/
-----------------------------------
Chief Financial Officer
Address: 648 S. River Drive
Tempe, Arizona 85281
"LENDER"
/ s /
-----------------------------------
Caroline S. Bartol
Address: 38415 Sombrero Road
Carefree, Arizona 85377
P.O. Box 1209
5
<PAGE> 1
Exhibit 10.33
BRIDGE LOAN AGREEMENT
This Agreement is between Rockford Corporation, an Arizona corporation
("Borrower") and Caroline S. Bartol ("Lender"). Borrower and Lender agree as
follows:
1. RECITALS.
1.1. Borrower Business. Borrower manufactures high quality auto and
professional audio equipment, including amplifiers, speakers, "head
units," and accessories.
1.2. Loan. Borrower has sought and, subject to the conditions in this
agreement, Lender has agreed to provide a $2,000,000 loan to
Borrower to help finance working capital and general corporate needs
of Borrower.
1.3. Purpose. The purpose of this Agreement is to set forth the
terms of Lender's agreement to lend to Borrower $2,000,000.
2. LOAN AGREEMENT. Lender will loan Borrower $2,000,000 (the "Loan") on the
terms set forth in this agreement. Borrower will execute and deliver to
Lender a promissory note (the "Note") in the form of Exhibit A. Lender
will advance the amount of the Loan as of the date of this Agreement.
Borrower will (a) maintain accurate records of the amount advanced,
payments made, and interest and other charges in connection with the Loan
and (b) render to Lender on request, and at least monthly, an account
statement showing such amounts.
3. USE OF MONIES LOANED. Borrower will use the amount loaned to for working
capital, to reduce other debt, and to pay trade accounts payable.
4. INTEREST. The outstanding principal and unpaid interest under this
Agreement will bear interest at the rate of 9% per annum. Interest is
payable monthly on the first day of each month.
5. REPAYMENT OF PRINCIPAL. It is intended that this Loan is a "bridge" loan
in advance of an investment by Lender or its affiliates in Borrower of not
less than the principal amount of the Loan. The Loan will be repaid out of
the investment by Lender or its affiliates. Borrower will pay the
principal on the Note on the earlier of (a) receipt of the proceeds of the
capital investment in Borrower committed by Lender or its affiliates or
(b) September 30, 1996.
6. SUBORDINATION TO BANK LOAN. The Loan is subordinate to Borrower's
obligations under its loan (the "Bank Loan") with its principal lender,
First Interstate Bank of Arizona (the "Bank"). All Borrower's obligations
to Bank must be first paid to Bank in full before any payments may be made
under this Loan, except for:
6.1. payments of interest when due;
<PAGE> 2
6.2. payments of principal paid from proceeds of the capital investment
by Lender or its affiliates in Borrower; and
6.3. payments of principal when due on September 30, 1996, but only if
(a) Bank has not given Borrower notice that it is in default or
non-compliance under the Bank Loan and (b) the payment of principal
would not cause Borrower to be out of compliance under the Bank Loan
either (i) as of the date made, (ii) as of the most recent quarterly
compliance date under the Bank Loan (assuming the payment had been
made on the last day of such quarter), or (iii) as of the next
quarterly compliance date under the Bank Loan (based on Borrower's
current projected financial statements). If Borrower makes a payment
of principal, Borrower will deliver to Lender and Bank a certificate
confirming that these conditions are satisfied.
6.4. If there is an Event of Default under Section 9.4 below, then
Borrower and its officers, assigns, trustee, receiver, and other
representative are directed to pay Bank the full amount of the Bank
Loan before making any payments to Lender other than payments of
principal out of proceeds of the investment by Lender or its
affiliates in Borrower.
7. NO SECURITY. The Loan is unsecured but constitutes a general obligation of
Borrower.
8. ADDITIONAL DOCUMENTS. Borrower will execute and deliver to Lender
additional documents as necessary to carry out the purposes of this
Agreement.
9. EVENTS OF DEFAULT. The following events are "Events of Default":
9.1. Borrower fails to pay any amount under this Agreement when due and
payable;
9.2. Borrower fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, representation, or warranty
contained in this Agreement;
9.3. Borrower becomes insolvent; or
9.4. A complaint or case is filed by or against borrower under federal
bankruptcy laws and is not dismissed within 60 days of filing;
Borrower admits to inability to pay or fails to pay Borrower's debts
generally as they mature; Borrower makes an assignment for the
benefit of creditors; a receiver is appointed for Borrower; or any
other insolvency proceedings are instituted by or against Borrower
and are not dismissed within 60 days of filing.
10. ACCELERATION OF OBLIGATIONS AND REMEDIES. If there is an event of default,
the outstanding Loan balance and all other amounts owed by Borrower to
Lender will, if Lender elects, become immediately due and payable without
notice to or demand upon
-2-
<PAGE> 3
Borrower of any kind. Any acceleration, if elected by Lender, is subject
to all applicable laws.
11. USURY SAVINGS CLAUSE. Borrower will not, upon acceleration of maturity by
Lender or otherwise, be required to pay any interest in excess of the
maximum amount permitted by law.
12. MISCELLANEOUS.
12.1. Waiver of Defaults. Lender may, in its sole discretion, waive a
default or cure at Borrower's expense a default. Any waiver in a
particular instance or of a particular default is not a waiver of
other defaults or of the same kind of default at another time.
12.2. Entire Agreement; Amendments. This Agreement is the entire Agreement
of the parties with respect to its subject matter and may not be
changed or amended without the written consent of each party.
12.3. Severability. If any part (or parts) of this Agreement is invalid,
illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability will not effect any other provisions
of this Agreement, and this Agreement will be construed as if the
invalid, illegal, or unenforceable provision were omitted, provided
that such construction and omission is consistent with the general
intent of the parties as evidenced by this Agreement considered as
an entirety.
12.4. Notices. Notices required under this Agreement are effective upon
delivery or three days after mailing by registered or certified
mail, return receipt requested, to the address of the parties shown
on the signature page of this Agreement (which may be changed by
notice).
12.5. Governing Law. This Agreement is governed by the laws of Arizona.
12.6. Assignability. This Agreement may not be assigned without the prior
written consent of each party.
12.7. Counterparts. This Agreement may be executed in counterparts and all
counterparts so executed constitute one Agreement.
12.8. Attorneys' Fees. In any proceeding arising under this Agreement, the
prevailing party is entitled to recover the attorneys' fees, costs,
and expenses in connection with such proceeding.
-3-
<PAGE> 4
13. EXECUTION AND EFFECTIVE DATE. This Agreement is executed and effective
March 18, 1996.
"BORROWER"
Rockford Corporation
By: /s/
---------------------------------------
Chief Financial Officer
Address: 648 S. River Drive
Tempe, Arizona 85281
"LENDER"
/s/
---------------------------------------
Caroline S. Bartol
Address: 38415 Sombrero Road
Carefree, Arizona 85377
-4-
<PAGE> 1
Exhibit 10.34
ROCKFORD CORPORATION
1990 RESTRICTED STOCK GRANT
AND TAX LOAN AGREEMENT
Background: The Board of Directors of Rockford Corporation ("Rockford") has
authorized a Fiscal 1990 Restricted Stock Grant Program pursuant to which (1)
certain of the Company's key employees ("Grantees") will be granted shares of
Rockford common stock (the "Stock") in consideration of their past and present
services to the Company if (2) each such Grantee will agree to pay all federal
and state taxes (the "Tax Payments") due on his grant (the "Grant") and (3)
Rockford will make available to each Grantee loans (the "Tax Loans") in amounts
of up to the Grantee's tax obligations. The Stock awarded to each Grantee is to
be restricted with regard to (I) its beneficial ownership by the Grantee and
(II) his right to resell shares of it by the limitations that (i) twenty percent
(20%) of the Stock will vest in the Grantee on June 1, 1990 and additional
twenty percents of the Stock will vest in the Grantee on each anniversary date
thereafter, to and including June 1, 1994, (the "Vesting Dates"), but only if
(ii) the Grantee shall have been employed by Rockford until each such Vesting
Date. The key employee hereafter named has been selected by Rockford's Board of
Directors as one of the proposed Grantees under the 1990 Program, and he is
willing (A) to pay the taxes due upon such Grant and (B) to accept the
conditions of its vesting in him.
NOW THEREFORE, This Agreement made as of June 1, 1990 by and between Rockford
and Douglas Morby (hereinafter "Recipient") in consideration of (X) the Grant of
Stock being made by Rockford to Recipient, contemporaneous with this Agreement,
and (Y) Recipient's agreement to accept the restrictions and to make the Tax
Payments associated with his Grant, and with both parties intending to be
legally bound hereby, W I T N E S S E T H that Rockford and Recipient have
agreed as follows:
First: Stock Grant - Rockford hereby grants to Recipient as a bonus
1,496 shares of Stock and will deliver to Recipient a certificate for such
Stock, restricted as hereinafter recited, contemporaneous with the execution of
this Agreement.
Second: Acceptance of Grant - Recipient hereby agrees to accept the
Grant as a transfer for, and in consideration of, his past and present services
to the corporation, but subject to his making the Tax Payments and observing the
restrictions upon the vesting and transfer of the Stock Grant, as hereinafter
recited.
Third: Vesting of Stock - The ownership of the Stock shall vest in
Recipient 300 shares on the effective date hereof, 299 shares on June 1, 1991,
299 shares on June 1, 1992, 299 shares on June 1, 1993 and 299 shares on June 1,
1994, provided that Recipient shall have been continuously employed by Rockford
between the effective date hereof and each such Vesting Date (or, if not
continuously employed, then on temporary, compulsory service in the armed forces
of the United States during any gap in employment). If Recipient leaves
Rockford's employ at any time between the effective date of this Agreement and
June 1, 1994
<PAGE> 2
(other than to serve on active duty in the U.S. armed forces) all Stock not then
vested in him pursuant to the provisions of this Agreement shall be forfeited,
and a new certificate for all vested Stock shall be issued by Rockford to
Recipient.
Fourth: Tax Payments - Recipient hereby agrees to reimburse to
Rockford all withholdings and to make all additional payments required to pay
the Tax Payments with respect to his Grant by the U.S. Internal Revenue Code,
the Social Security Act and/or any applicable State tax code, all in accordance
with the regulations of each, whether through current withholdings from
Recipient's salary or in lump sum amounts when required tax payments fall due
subsequently.
Fifth: Tax Loans & Notes - Rockford hereby agrees, at any time when
the Stock cannot be publicly traded, to make available to Recipient
contemporaneous loans in amounts equal to as much as all of the Tax Payments to
be withheld from, or paid by, Recipient pursuant to Fourth hereof, provided that
(A) Recipient shall execute and deliver to Rockford promissory notes
("Note(s)"), in the forms hereto attached and made a part hereof, agreeing to
repay the principal amount of any loan(s) on or before the earliest of the
following dates: May 31, 1993 (_____), May 31, 1995 (_____), or within 180 days
following the first day when the Stock shall have been registered with the
Securities & Exchange Commission and become publicly tradable on NASDAQ or any
registered securities exchange, together with interest thereon at the applicable
federal rate at the time of the making and issuance of any such Note. All such
Notes shall be secured by a pledge of all of the Recipient's Stock as collateral
security for payment in full of all principal and interest due to Rockford
thereunder, which pledge shall be effected by delivery of the certificate for
Recipient's Stock to Rockford with blank stock power attached.
Sixth: Investment Representations - In order to induce the issuance
of 1,496 shares of Stock by Rockford to Recipient, Recipient hereby represents
and warrants to Rockford that in connection with his acceptance of the Stock
Recipient has relied only upon Recipient's own investigation and knowledge of
Rockford. Recipient has such knowledge and experience in business and financial
matters that Recipient is capable of evaluating Rockford's business and the
risks and merits of the accepting the Stock. Recipient is capable of bearing
whatever degree of economic risk may be involved in acceptance of the Stock,
including but not limited to the possibility of a complete loss of the Tax
Payments made by Recipient in connection with his acceptance of the Stock and
the restrictions upon resale and the lack of any public market which may make it
impossible to readily liquidate the Stock. Recipient has had the opportunity, at
no expense and minimal inconvenience, to ask questions of and seek additional
information from Rockford; and Rockford has provided satisfactory answers
concerning the Company, its business, and the Stock. There is no additional
information the Recipient wishes to obtain from Rockford, or from any other
source, with respect to his acceptance of the Stock and agreement to make the
Tax Payments in connection with such acceptance.
Recipient also hereby represents and warrants, and in accepting the
Stock it is understood and agreed, that the Recipient is acquiring the Stock for
his own account and not with a view to, or for sale in connection with, any
distribution, and that he has no present intention of distributing any of the
same. In addition, the undersigned acknowledges that the Stock has not
-2-
<PAGE> 3
been registered under the Securities Act of 1933 or any applicable State
securities laws on the ground that the issuance to him is exempt from
registration under the Securities Act by virtue of the foregoing investment
representation and the fact that no sale to him is being made by Rockford. The
recipient understands that the stock must be held indefinitely unless and until
the restrictions upon portions thereof lapse and the offer and sale thereof are
registered under the Securities Act and applicable State securities laws or an
exemption from such registration is available. He is aware that the Stock may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of such rule are met. Among the conditions for use of Rule 144
is the availability to the public of current information about Rockford. Such
information is not now available, and Rockford has no definite plans to make
such information available in the future. The Recipient also agrees that, in the
absence of an effective registration statement covering all or any of the Stock,
he will not sell, transfer, or otherwise dispose of such Stock in any manner
inconsistent with his representations in this Section.
Seventh: Restrictions on Certificates - Rockford and Recipient agree
that any certificate for Stock issued pursuant to this Agreement shall bear the
following legends on the reverse side:
(1) THE SHARES OF STOCK REPRESENTED HEREBY SHALL NOT VEST IN THE
BENEFICIAL OWNERSHIP OF THE REGISTERED OWNER OF THIS CERTIFICATE
UNLESS SUCH OWNER SHALL HAVE BEEN CONTINUOUSLY IN THE EMPLOY OF
ROCKFORD CORPORATION (OR ON TEMPORARY, COMPULSORY DUTY IN THE ARMED
SERVICES OF THE U.S.) FROM THE DATE HEREOF UNTIL EACH OF THE
FOLLOWING VESTING DATES, AND THEN ONLY WITH RESPECT TO THE NUMBER OF
SHARES RECITED BESIDE EACH DATE:
<TABLE>
<S> <C>
June 1, 1990 300 Shares
June 1, 1991 299 Shares
June 1, 1992 299 Shares
June 1, 1993 299 Shares
June 1, 1994 299 Shares
------------
Total 1,496 Shares
=====
</TABLE>
IF THE REGISTERED OWNER SHALL NOT HAVE BEEN CONTINUOUSLY IN THE
EMPLOY OF ROCKFORD (OR TEMPORARILY SERVING IN THE ARMED FORCES) FROM
THE DATE HEREOF UNTIL ANY SUCH VESTING DATE, ALL SHARES NOT THEN
VESTED SHALL BE FORFEITED IN ACCORDANCE WITH THE PROVISIONS OF THE
1990 RESTRICTED STOCK GRANT AND TAX LOAN AGREEMENT DATED AS OF JUNE
1, 1990 BETWEEN THE REGISTERED OWNER AND ROCKFORD.
-3-
<PAGE> 4
(2) THE SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933 AND HAVE BEEN ACCEPTED PURSUANT TO AN INVESTMENT
REPRESENTATION BY OR ON BEHALF OF THE REGISTERED OWNER. IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION, THE SECURITIES REPRESENTED
HEREBY SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR
OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, EXCEPT UPON
THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF ITS COUNSEL
AND/OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS.
Executed this _____ day of June, 1990, with the intention that it
become effective as of June 1, 1990.
ROCKFORD CORPORATION
By: /s/
------------------------------------
John G. Bartol, Chairman
and
/s/ /s/
- ------------------------------------ ------------------------------------
Douglas Morby, Recipient Robert F. Pothier, President
-4-
<PAGE> 5
$2,633 (or $13,250 ?) June 30, 1990
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promised to pay to the order of
ROCKFORD CORPORATION the sum of TWO THOUSAND SIX HUNDRED THIRTY THREE DOLLARS
($2,633) (or $13,250 ?) on May 31, 1993 (or 1995) together with interest on the
unpaid balance at the rate of 8.82% (or 9.10%) per annum, payable quarterly. The
principal sum evidenced by this Promissory Note (1) may be prepaid by maker, in
whole or in part, on any Rockford payday prior to maturity and (2) must be
prepaid on the 180th day occurring after both (a) payee's common stock becomes
publicly traded and (b) a registration statement covering all of the shares of
payee's common stock then vested in maker's ownership has been filed and become
effective.
/s/
--------------------------------------
Douglas Morby (L.S.)
<PAGE> 1
EXHIBIT 21
ROCKFORD SINGAPORE CORPORATION
RUSS MOORE
SINGAPORE OPERATIONS MANAGER
102 East Pasir Panjang Road
Citilink Warehouse complex #07-06
Singapore 118529
Tele 011-65-278-8996
Fax 011-65-278-3116
ROCKFORD (EUROPE) ELEKTRONIK VERTRIEBS GMBH
JEAN-MICHEL BECK
EUROPEAN OPERATIONS MANAGER
Im Finigen 5
28832 Achim
Germany
Tele 011-49-4202-9450-0
Fax 011-49-4202-9750-50
ROCKFORD JAPAN CORPORATION
HARRY OMAE
PRESIDENT
514-1 Hita, Kannami-Cho
Tagata-Gun
Shizuoka-Ken, 419-01
Japan
Tele 011-81-559-791260
Fax 011-81-559-791265
ROCKFORD FOREIGN SALES CORPORATION
JEANNINE GIRAUDY-MCINTYRE
SENIOR ADMINISTRATOR, CORPORATE SERVICES
Ernst & Young Building
Bay Street
P.O. Box 261
Bridgetown,
Barbados
Tele 1-246-427-5260
Fax 1-246-426-9551
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1999, except for Note 12 as to which the
date is July , 1999, with respect to the financial statements of Rockford
Corporation included in the Registration Statement (Form S-1) and in the related
Prospectus of Rockford Corporation for the registration of shares of its common
stock.
Our audit also included the financial statement schedule of Rockford
Corporation listed in Item 16. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. 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 set forth therein.
ERNST & YOUNG LLP
Phoenix, Arizona
May 24, 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of the restatement of the capital accounts described in Note 12 to
the financial statements.
/s/ERNST & YOUNG LLP
Phoenix, Arizona
May 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 364
<SECURITIES> 0
<RECEIVABLES> 24,435
<ALLOWANCES> 1,295
<INVENTORY> 11,314
<CURRENT-ASSETS> 38,990
<PP&E> 17,622
<DEPRECIATION> 12,585
<TOTAL-ASSETS> 44,703
<CURRENT-LIABILITIES> 23,400
<BONDS> 14,654
0
0
<COMMON> 48
<OTHER-SE> 6,584
<TOTAL-LIABILITY-AND-EQUITY> 44,686
<SALES> 32,026
<TOTAL-REVENUES> 32,026
<CGS> 19,567
<TOTAL-COSTS> 19,567
<OTHER-EXPENSES> 8,883
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> 2,886
<INCOME-TAX> 1,091
<INCOME-CONTINUING> 1,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,802
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 470
<SECURITIES> 0
<RECEIVABLES> 16,140
<ALLOWANCES> 1,043
<INVENTORY> 12,226
<CURRENT-ASSETS> 31,565
<PP&E> 17,548
<DEPRECIATION> 12,541
<TOTAL-ASSETS> 37,307
<CURRENT-LIABILITIES> 18,077
<BONDS> 14,292
0
0
<COMMON> 48
<OTHER-SE> 4,859
<TOTAL-LIABILITY-AND-EQUITY> 37,276
<SALES> 89,006
<TOTAL-REVENUES> 89,006
<CGS> 55,146
<TOTAL-COSTS> 55,146
<OTHER-EXPENSES> 27,776
<LOSS-PROVISION> 561
<INTEREST-EXPENSE> 1,434
<INCOME-PRETAX> 4,040
<INCOME-TAX> 1,717
<INCOME-CONTINUING> 2,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,305
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.37
</TABLE>
