<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number: 0-26524
MACKIE DESIGNS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1432133
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
16220 WOOD-RED ROAD, N.E., WOODINVILLE, WASHINGTON 98072
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(206) 487-4333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value 12,810,000
- -------------------------- ----------------------------
Class Number of Shares Outstanding
(as of August 12, 1997)
<PAGE> 2
MACKIE DESIGNS INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets - June 30, 1997 and December 31, 1996
Statements of income - Three months and six months ended
June 30, 1997 and 1996
Condensed statements of cash flows - Six months ended June 30, 1997
and 1996
Notes to financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACKIE DESIGNS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,259,494 $ 2,366,184
Marketable securities 11,460,440 11,688,513
Accounts receivable, less allowance for
doubtful accounts 11,649,072 9,693,035
Inventories 11,877,761 10,316,940
Income taxes receivable -- 182,627
Deferred taxes 706,000 685,000
Prepaid expenses and other current assets 831,364 673,585
----------- -----------
Total current assets 39,784,131 35,605,884
Furniture and equipment, net of
accumulated depreciation 10,458,978 10,246,118
Other assets 412,299 403,948
----------- -----------
Total assets $50,655,408 $46,255,950
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,953,883 $ 2,053,079
Commissions payable 729,089 627,374
Accrued payroll and related taxes 521,200 226,498
Accrued vacation 316,465 217,097
Other accrued liabilities 435,991 461,662
Income taxes payable 24,873 --
----------- -----------
Total current liabilities 5,981,501 3,585,710
Deferred rent 61,750 42,250
Deferred taxes 526,000 345,000
Shareholders' equity:
Common stock 30,248,830 30,998,830
Retained earnings 13,837,327 11,284,160
----------- -----------
Total shareholders' equity 44,086,157 42,282,990
----------- -----------
Total liabilities and shareholders' equity $50,655,408 $46,255,950
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
MACKIE DESIGNS INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 18,684,389 $ 20,778,657 $ 35,452,340 $ 40,282,746
Cost of goods sold 11,562,558 12,785,456 21,939,391 24,505,095
------------ ------------ ------------ ------------
Gross profit 7,121,831 7,993,201 13,512,949 15,777,651
Operating expenses:
Marketing and sales 2,561,303 2,378,968 4,868,568 4,970,985
Administrative 1,188,684 1,336,533 2,314,655 2,621,764
Research and development 1,470,931 824,159 2,933,903 1,498,338
------------ ------------ ------------ ------------
Total operating expenses 5,220,918 4,539,660 10,117,126 9,091,087
------------ ------------ ------------ ------------
Operating income 1,900,913 3,453,541 3,395,823 6,686,564
Interest income 208,718 221,444 421,905 437,588
Interest expense -- -- -- --
Other expense -- (23,330) (7,061) (11,104)
------------ ------------ ------------ ------------
Income before income taxes 2,109,631 3,651,655 3,810,667 7,113,048
Income tax provision 696,100 1,208,700 1,257,500 2,354,600
------------ ------------ ------------ ------------
Net income $ 1,413,531 $ 2,442,955 $ 2,553,167 $ 4,758,448
============ ============ ============ ============
Net income per share $ 0.10 $ 0.18 $ 0.19 $ 0.34
============ ============ ============ ============
Shares used in computation of net
income per share 13,646,504 13,876,934 13,591,454 13,839,073
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
MACKIE DESIGNS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 3,096,057 $ 5,953,763
INVESTING ACTIVITIES
Purchases of marketable securities (17,800,334) (25,302,950)
Proceeds from sale of marketable securities 18,028,407 24,097,450
Purchases of furniture and equipment (1,680,820) (4,876,748)
Proceeds from asset dispositions -- 86,630
------------ ------------
Net cash used in investing activities (1,452,747) (5,995,618)
FINANCING ACTIVITIES
Repurchase and retirement of common stock (750,000) --
Net proceeds from exercise of stock options -- 55,500
------------ ------------
Net cash provided by (used in) financing activities (750,000) 55,500
------------ ------------
Net increase (decrease) in cash and cash equivalents 893,310 13,645
Cash and cash equivalents at beginning of period 2,366,184 3,857,185
------------ ------------
Cash and cash equivalents at end of period $ 3,259,494 $ 3,870,830
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for income taxes $ 890,000 $ 1,630,000
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
MACKIE DESIGNS INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Mackie
Designs Inc. (the "Company") in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. The results of operations for the
three and six month periods ended June 30, 1997 are not necessarily indicative
of future financial results. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1996 included
in the Company's Form 10-K filed with the Securities and Exchange Commission.
2. INVENTORIES
Inventories at June 30, 1997 and December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 9,133,101 $ 8,003,941
Work in process 2,139,504 1,331,199
Finished goods 605,156 981,800
----------- -----------
$11,877,761 $10,316,940
=========== ===========
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including, but not limited to, the Company's ability to introduce new products,
the concentration of the Company's current products in a relatively narrow
segment of the professional audio market, technological change and increased
competition in the industry, the Company's ability to manage its rapid growth,
its limited protection of technology and trademarks, various factors that impact
the Company's international operations including custom and tariff regulations,
currency fluctuations and lower gross margins, the Company's dependence on a
limited number of suppliers and on its network of representatives and
distributors, and its dependence on certain key personnel within the Company.
Accordingly, actual results may differ, possibly materially, from the
predictions contained herein.
The Company derives its operating revenue from worldwide sales of audio mixers
and other professional audio equipment. Sales outside the U.S. account for a
significant portion of the Company's total sales. International sales volumes
have historically been affected by foreign currency fluctuations relative to the
U.S. dollar. The Company prices its products in U.S. dollars worldwide. When
weaknesses of local currencies have made the Company's products more expensive,
sales to those countries have declined.
The Company's gross margins are also affected by its international sales.
Typically, gross margins from exported products are lower than from those sold
in the U.S. due to discounts offered to the Company's foreign distributors.
These discounts are given because the foreign distributor typically incurs
certain expenses, including technical support, product service and in-country
advertising, that the Company normally incurs for domestic sales. The Company
offered its foreign distributors a weighted average discount of approximately
7.7% in 1994, 8.1% in 1995, 12.7% in 1996 and 13.7% in the first six months of
1997. The increase in discounts is attributable to the fact that the Company
increased its discounts to foreign distributors after it terminated the services
of its exclusive representative for sales to foreign distributors in 1995 and
began supervising international marketing and sales internally. In conjunction
with the increase in discounts, the Company also eliminated the commissions it
was paying to its international representative. While the Company has eliminated
these commissions, the Company has incurred and will continue to incur
additional expenses associated with managing the international marketing and
sales of its products. This is expected to result in a net decrease in marketing
and sales expenses as a percentage of net sales. Sales outside the U.S.
represented approximately 36%, 34%, 38% and 39% of the Company's net sales in
1994, 1995, 1996 and the first six months of 1997, respectively. The Company
expects to increase the percentage of sales to its international markets. This
trend is expected to have a negative effect on gross margins and a positive
effect on marketing and sales expenses as a percentage of net sales.
The Company's gross margins are also affected by the purchase of some components
abroad. As a result of fluctuations in the value of local currencies relative to
the U.S. dollar, some of the Company's foreign component suppliers have
increased prices and may further increase prices. The Company currently does not
employ any foreign exchange hedging strategies, but may employ such strategies
in the future.
The Company's gross margins have fluctuated from time to time due primarily to
inefficiencies related to the introduction and manufacturing of new products and
inefficiencies associated with integrating new equipment into the Company's
manufacturing processes. Historically, fluctuations have also resulted from
increases in overhead associated with each of the Company's several relocations,
varying prices of components and competitive pressures.
7
<PAGE> 8
The Company plans to introduce new products and product revisions at a more
rapid rate than it has in the past. Some anticipated new products will require
the implementation of manufacturing practices with which the Company is not
familiar. This could result in lower margins as the Company becomes more
familiar with new manufacturing procedures.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997 AS COMPARED WITH QUARTER ENDED JUNE 30, 1996
Net sales decreased 10.1% to $18.7 million in the second quarter of 1997 from
$20.8 million in the second quarter of 1996. The decrease in sales was primarily
attributable to a decrease in sales in two mixer product lines, the 8oBus Series
mixers and compact mixers, partially offset by sales from a new product line,
the FR Series(TM) power amplifier. Sales of the 8oBus Series mixers decreased to
15% of net sales for the second quarter of 1997 from 24% in the second quarter
of 1996. Sales of compact mixers decreased to 51% of net sales for the second
quarter of 1997 from 55% in the second quarter of 1996. Sales of FR Series(TM)
power amplifiers, the Company's first non-mixer related product which became
available in December 1996, accounted for 13% of net sales for the second
quarter of 1997. Sales outside the United States were 37% of the Company's total
net sales in the second quarter of 1997 compared with 37% in the second quarter
of 1996.
Gross margin decreased to 38.1% in the second quarter of 1997 from 38.5% in the
second quarter of 1996. The decrease in gross margin percentage was due to labor
and overhead inefficiencies caused by a lower than anticipated sales volume in
the second quarter of 1997, and also due to a higher weighted average discount
offered to foreign distributors.
Marketing and sales expenses increased to $2.6 million in the second quarter of
1997 from $2.4 million in the corresponding period of 1996. This increase was
due primarily to increased advertising expenses, partially offset by lower
commission payments to independent representatives. As a percentage of net
sales, marketing and sales expenses increased to 13.7% in the second quarter of
1997 from 11.4% in the corresponding period of 1996 due to the application of
fixed marketing and sales expenses over a lower revenue base.
Administrative expenses decreased to $1.2 million for the second quarter of 1997
from $1.3 million for the corresponding period of 1996. The decrease was due
primarily to a reallocation of rent expense from administrative expenses to
manufacturing overhead as additional space was utilized in the manufacturing
process. As a percentage of net sales, these expenses were 6.4% in the second
quarter of 1997 compared with 6.4% in the corresponding period of 1996.
Research and development expenses increased to $1.5 million in the second
quarter of 1997 from $824,000 in the corresponding period of 1996. As a
percentage of net sales, these expenses increased to 7.9% in the second quarter
of 1997 from 4.0% in the corresponding period of 1996. The increase was due
primarily to increases in R&D staff and expenditures as the Company expands its
product line into other pro-audio categories.
Interest income decreased slightly to $209,000 in the second quarter of 1997
compared with $221,000 in the second quarter of 1996 due to a slightly lower
average cash balance.
The provision for income taxes for the second quarter of 1997 of $696,000 is
based upon an expected overall effective rate for 1997 of 33.0%. The provision
for income taxes for the second quarter of 1996 of $1,209,000 was based upon an
expected overall effective rate for 1996 of 33.1%. The decrease in the
8
<PAGE> 9
expected overall effective rate in 1997 compared with 1996 is due to the
increased benefit provided by the Company's foreign sales corporation.
SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net sales decreased 12.0% to $35.5 million in the first six months of 1997 from
$40.3 million in the first six months of 1996. The decrease in sales was
primarily attributable to a decrease in sales in two mixer product lines, the
8oBus Series mixers and compact mixers, partially offset by sales from a new
product line, the FR Series(TM) power amplifier. Sales of the 8oBus Series
mixers decreased to 16% of net sales for the first six months of 1997 from 28%
in the first six months of 1996. Sales of compact mixers were 51% of net sales
for the first six months of 1997 compared with 50% in the first six months of
1996. Sales of FR Series(TM) power amplifiers, the Company's first non-mixer
related product which became available in December 1996, accounted for 10% of
net sales for the first six months of 1997. Sales outside the United States were
39% of the Company's total net sales in the first six months of 1997 compared
with 37% in the first six months of 1996.
Gross margin decreased to 38.1% in the first six months of 1997 from 39.2% in
the first six months of 1996. The decrease in gross margin percentage was due to
startup costs associated with initial production of the SR40o8 and the FR
Series(TM) power amplifier, both of which were shipped in significant quantities
for the first time in the first quarter of 1997. Additionally, the gross margin
decreased due to labor and overhead inefficiencies caused by a lower than
anticipated sales volume in the six months of 1997, and also due to a higher
weighted average discount offered to foreign distributors.
Marketing and sales expenses decreased to $4.9 million in the first six months
of 1997 from $5.0 million in the corresponding period of 1996. This decrease was
due primarily to lower commission payments to independent representatives caused
by the decrease in net sales, partially offset by increased wages and
advertising expenses. As a percentage of net sales, marketing and sales expenses
increased to 13.7% in the first six months of 1997 from 12.3% in the
corresponding period of 1996 due to the application of fixed marketing and sales
expenses over a lower revenue base.
Administrative expenses decreased to $2.3 million for the first six months of
1997 from $2.6 million for the corresponding period of 1996. The decrease was
due primarily to a reallocation of rent expense from administrative expenses to
manufacturing overhead as additional space was utilized in the manufacturing
process. As a percentage of net sales, these expenses were 6.5% in the first six
months of 1997 compared with 6.5% in the corresponding period of 1996.
Research and development expenses increased to $2.9 million in the first six
months of 1997 from $1.5 million in the corresponding period of 1996. As a
percentage of net sales, these expenses increased to 8.3% in the first six
months of 1997 from 3.7% in the corresponding period of 1996. The increase was
due primarily to increases in R&D staff and expenditures as the Company expands
its product line into other pro-audio categories.
Interest income decreased slightly to $422,000 in the first six months of 1997
compared with $438,000 in the first six months of 1996 due to a slightly lower
average cash balance.
The provision for income taxes for the first six months of 1997 of $1,258,000 is
based upon an expected overall effective rate for 1997 of 33.0%. The provision
for income taxes for the first six months of 1996 of $2,355,000 was based upon
an expected overall effective rate for 1996 of 33.1%. The decrease in the
expected overall effective rate in 1997 compared with 1996 is due to the
increased benefit provided by the Company's foreign sales corporation.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, the Company's operating activities
generated cash of $3.1 million. Accounts receivable, net of allowances,
increased to $11.6 million at June 30, 1997 from $9.7 million at December 31,
1996 due to an increase in days' sales outstanding and an increase in net sales
in the second quarter of 1997 compared with the fourth quarter of 1996.
Inventory levels increased to $11.9 million at June 30, 1997 from $10.3 million
at December 31, 1996 due to increased inventory quantities for new products and
an inventory build-up related to increased sales in the second quarter of 1997
compared with the fourth quarter of 1996. Net cash used by investing activities
totaled $1.5 million during this period, attributable to net purchases of
furniture and equipment of $1.7 million and net sales of marketable securities
of $0.2 million. During this same period, the Company repurchased 100,000 shares
of its own stock at a total cost of $750,000.
In November 1995, the Company entered into a business loan agreement with a
bank. The agreement provides three credit facilities to the Company including a
$5.0 million unsecured line of credit to finance any unexpected working capital
requirements. The line of credit bears interest at the bank's prime rate or at a
specified IBOR rate plus 1.5%, whichever the Company chooses. The agreement also
provides a $2.5 million credit facility for capital equipment purchases or
general corporate purposes. Certain terms under this facility such as interest
rate, repayment period and collateral will be determined at the time advances
are made to the Company. The Company also has a $1.75 million line of credit for
the purchase of foreign exchange contracts. There were no borrowings outstanding
on any of the bank credit facilities at June 30, 1997. These credit facilities
expire October 31, 1997. Under the terms of the business loan agreement, the
Company must maintain certain financial ratios and tangible net worth. The
Company is in compliance with all such covenants. The agreement also provides,
among other matters, restrictions on additional financing, dividends, mergers,
and acquisitions. The agreement also imposes an annual capital expenditure limit
of $10 million.
Although the Company cannot accurately anticipate the effects of inflation, the
Company does not believe inflation has had or is likely to have a material
effect on its results of operations or liquidity.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1997, the Company filed a lawsuit against certain parties, including
one of the Company's major competitors and a major dealer of the Company's
products, alleging infringement of it intellectual property rights.
Defendants include Behringer Spezielle Studio-Technick GmbH, Ulrich Bernard
Behringer, Sam Ash Music Corporation, Samson Technologies, Richard Ash and
Scott Goodman. The suit claims damages in the amount of $327 million. The
outcome of the suit cannot be determined at this time. Related to this
lawsuit, the Company has been advised that legal proceedings against the
Company have commenced in Germany. As of August 12, 1997, no legal process
has been served on the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on April 30, 1997, the following
proposals were adopted by the votes indicated:
1. To elect the following nominees as Class 2 Directors to hold office for
a three-year term and until their successors are duly elected and
qualified:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------
For Withheld
-------------- --------------
<S> <C> <C>
Raymond B. Ferguson 12,089,440 12,564
C. Marcus Sorenson 12,089,840 12,164
</TABLE>
2. To approve the Company's Amended and Restated 1995 Stock Option Plan:
<TABLE>
<S> <C>
For 11,852,287
Against 36,679
Abstain 163,349
Broker Non-votes 49,689
</TABLE>
3. To ratify the selection of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997:
<TABLE>
<S> <C>
For 12,090,222
Against 2,830
Abstain 8,951
</TABLE>
11
<PAGE> 12
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Employment Agreement dated April 28, 1997 between
Roy D. Wemyss and the Company
10.2 Employment Agreement dated April 28, 1997 between Patric
Wiesmann and the Company
10.3 Employment Agreement dated May 19, 1997 between
William A. Garrard and the Company
10.4 Employment Agreement dated June 20, 1997 between
Robert May and the Company
11 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the second quarter of
1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACKIE DESIGNS INC.
------------------------------------
(Registrant)
Dated: August 12, 1997 By: /s/ Greg C. Mackie
------------------------------------
Greg C. Mackie
President and Chief Executive
Officer
(Principal Executive Officer)
Dated: August 12, 1997 By: /s/ William A. Garrard
------------------------------------
William A. Garrard
Vice President, Finance and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C>
10.1 Employment Agreement dated April 28, 1997 between Page 15
Roy D. Wemyss and the Company
10.2 Employment Agreement dated April 28, 1997 between Page 22
Patric Wiesmann and the Company
10.3 Employment Agreement dated May 19, 1997 between Page 28
William A. Garrard and the Company
10.4 Employment Agreement dated June 20, 1997 between Page 34
Robert May and Garrard and the Company
11 Computation of Net Income Per Share Page 40
27 Financial Data Schedule
</TABLE>
14
<PAGE> 1
EXHIBITS
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 28th day of April,
1997, by and between Mackie Designs Inc., a Washington corporation ("Mackie"),
and Roy D. Wemyss ("Wemyss").
In consideration of the promises and mutual covenants set forth in this
Agreement, Mackie and Wemyss promise and agree as follows:
1. TERM OF EMPLOYMENT. Mackie hereby employs Wemyss, and Wemyss hereby accepts
employment with Mackie, for a period commencing April 16, 1997, and continuing
until terminated as set forth in Section 5 of this Agreement.
2. SCOPE OF DUTIES.
2.1 DUTIES. Wemyss shall serve as the Chief Operating Officer ("COO") of
Mackie, and, subject to the policies of Mackie's Board of Directors
("Board") as enacted from time to time and the general direction and
control of the Chairman of the Board/Chief Executive Officer ("CEO") of
Mackie, shall be responsible for Mackie's management and day-to-day
operations. Subject to all of Mackie's then-current budgets, business plans
and policies, Wemyss shall have the authority to conduct, and the
responsibility for, all of Mackie's global operations and day-to-day
business activities, specifically including, but not limited to, the
following:
2.1.1 In conjunction with the Board and CEO, the development,
achievement, administration and reporting of current and long-range
strategic objectives, plans, budgets and policies;
2.1.2 The achievement of immediate and long term forecasts and goals
with the intent to achieve stated goals established by the Board
and/or the CEO from time to time; and,
2.1.3 The management, development, identity and coordination of
Mackie's management team, and the coordination of its roles and
performance with the duties and authority of the CEO.
Wemyss shall be a nonvoting, ex officio member of the Board throughout his
term of employment.
2.2 FACILITIES AND STAFF.Wemyss will be furnished with such facilities,
services, staff and working conditions, consistent with Mackie's current
practices, as are suitable to his position and adequate for the performance
of his duties.
2.3 FULL TIME AND ATTENTION. Wemyss will loyally and conscientiously
devote substantially all of his business and professional time, attention
and energies (exclusive of periods of sickness and disability and such
normal holiday and vacation periods as have been established by Mackie) to
the affairs of Mackie. Notwithstanding the above:
2.3.1 Wemyss may expend a reasonable amount of time for educational,
professional or charitable activities; and,
15
<PAGE> 2
2.3.2 This Agreement shall not be interpreted to prohibit Wemyss from
making passive personal investments or conducting private business
affairs, as long as those activities do not materially interfere with
the services required under this Agreement.
2.4 COMPETITIVE ACTIVITIES. During the term of his employment, Wemyss
shall not, directly or indirectly, either as an officer, director,
investor, employee, consultant, agent, independent contractor, principal,
partner, shareholder, or in any other capacity whatsoever, engage or
participate in any business activities or business entity which is, in any
way, competitive with any of the business of Mackie.
2.5 INDEMNIFICATION AND INSURANCE. During the entire term of his
employment, Wemyss will receive the full benefit of the indemnification
provisions for officers and directors that are then contained in Mackie's
Articles of Incorporation and Bylaws, and shall be a named insured under
Mackie's Director's and Officer's liability insurance policy, as such
indemnification provisions and insurance policies are in effect from time
to time.
3. COMPENSATION AND EXPENSES.
3.1 COMPENSATION. During the term of this Agreement, Mackie will pay
Wemyss as follows:
3.1.1 An initial base salary of $175,000 per year, payable at such
times and in such increments as are consistent with Mackie's usual
policies. Any proposed annual salary increase and any salary decrease
will be determined by the Board; provided that Wemyss' salary shall
never be less than that set forth above; and,
3.1.2 Wemyss shall be a member of any bonus pool maintained by Mackie
from time to time on behalf of senior management. Wemyss initial
target bonus for the year 1997 within such pool shall be $175,000. The
bonus plan is established annually by the Compensation Committee of
the Board, with the goals and criteria adjusted from time to time as
the Compensation Committee determines in its sole discretion, and
Wemyss' right of membership in the bonus pool shall give him no vested
rights in any particular criteria or amounts allocated to the bonus
pool (other than his initial target bonus for the year 1997).
3.2 STOCK OPTIONS. Wemyss shall receive 200,000 incentive stock options
per Mackie's Amended and Restated 1995 Stock Option Plan ("Plan"), at a
price equal to the price quoted on the listed exchange for such stock as of
the close of business on April 28, 1997. All of Wemyss' options shall be
subject to, and vest in accordance with, the terms and conditions of the
Plan; provided that, notwithstanding the vesting schedule contained in the
Plan, vesting of the following specified percentages of any unvested
portions of Wemyss' options will accelerate to 100% immediately upon
Mackie's attainment of any one of the following goals:
3.2.1 40% of the then unvested portion of such options will vest on
the last day of any calendar quarter ("Measurement Day") in which
Mackie's earnings per share, measured over the 4 consecutive calendar
quarters ending on the Measurement Day, equal or exceed $1.08.
Increases in earnings per share resulting from repurchases by Mackie
of its common shares will not be considered in determining whether
this goal has been achieved. The amount of sales derived from business
entities acquired by Mackie between the date of this Agreement and the
Measurement Day will not be considered in determining whether this
goal has been achieved.
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3.2.2 30% of the then unvested portion of such options will vest on
any Measurement Day, if the operating income margin reaches an average
of 16.5% measured over the 4 consecutive calendar quarters ending on
the Measurement Day. The operating income margin shall be determined
without regard to the operations of any business entity acquired by
Mackie during this period. The term "operating income margin" shall
have that meaning as is ascribed to it by generally accepted
accounting practices (GAAP), consistently applied.
3.2.3 30% of the then unvested portion of such options will vest on
any Measurement Day if the total sales of Mackie, net of returns, have
reached at least $146,471,850 measured over the 4 consecutive calendar
quarters ending on the Measurement Day. The amount of sales derived
from business entities acquired by Mackie between the date of this
Agreement and the Measurement Day will not be considered in
determining whether this goal has been achieved.
3.2.4 Unless otherwise agreed between the CEO and Wemyss, the issue of
whether any of the above goals has been attained will be determined in
accordance with Mackie's regularly prepared, internal financial
statements as prepared in accordance with GAAP, consistently applied
over the periods in question; provided, that if the Measurement Day is
December 31 of any year, the attainment of such goals will be
determined in accordance with the final audited statements for the
fiscal year in question.
3.2.5 In the event of a "Change in Control," as that term is defined
in the Plan, any of Wemyss' options or portions of such options
outstanding as of the date such Change in Control is determined to
have occurred that are not yet fully vested on such date shall become
immediately exercisable in full.
3.3 HOME SALE COMMISSION. If, during the first 6 years of Wemyss'
employment with Mackie, Wemyss wishes, in lieu of resigning from Mackie's
employ, to lessen the burden of his daily commute from Federal Way,
Washington by moving to a new home within reasonable commuting distance of
Woodinville, Washington, Mackie shall promptly reimburse Wemyss for any
reasonable amount paid by Wemyss to a real estate broker as a sales
commission on the sale of his Federal Way home. Wemyss shall provide Mackie
with satisfactory evidence of payment of any such commission.
3.4 EXPENSES. Mackie will reimburse Wemyss for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement. Such reimbursement will be
made in accordance with general policies and procedures of Mackie in effect
from time to time relating to reimbursement.
3.5 TAXES AND WITHHOLDING. Mackie shall withhold or deduct from sums due
to Wemyss all sums required by applicable state or federal law.
4. BENEFITS.
4.1 VACATION. During the term of this Agreement, Wemyss will be entitled
to at least 10 days of personal/sick time per year, to be taken and
accounted for in accordance with Mackie's policies for same in effect from
time to time. If additional personal time is requested by Wemyss, it shall
be as determined from time to time by the CEO.
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4.2 GROUP BENEFITS. Wemyss shall participate in all pension, insurance or
other employee benefit plan that is maintained by Mackie from time to time
for employees similarly situated. To the extent possible, Mackie will waive
any waiting period required for Wemyss' enrollment in any group medical
plan.
4.3 TRAVEL INSURANCE. Mackie will purchase and maintain a travel accident
insurance policy on Wemyss' life in the face amount of $250,000, payable to
Wemyss' designated beneficiary; provided, that Wemyss must submit to any
physical examination necessary to secure such a policy, and that Mackie's
obligation to purchase such a policy shall depend upon Wemyss meeting basic
insurability standards, if any. This requirement may be satisfied by the
provision of group insurance for employees of Mackie, as long as Wemyss is
a member of the eligible group.
5. TERMINATION.
5.1 TERMINATION. This Agreement, and Wemyss' employment with Mackie, shall
be terminated upon the occurrence of any one of the following events:
5.1.1 The conviction of Wemyss for any crime which is a felony under
applicable law;
5.1.2 At the option of Mackie if any one of the following conditions
occurs and persists after Mackie has given Wemyss prior written notice
of intent to terminate his employment with specific reasons therefor,
and Wemyss fails to correct the specified problems within a period of
30 days of the effective date of the notice:
(A) Chronic alcoholism, drug abuse, or addiction;
(B) Failure of Wemyss to apply his full-time attention and best
efforts to the business of Mackie;
(C) Failure of Wemyss to perform consistently the duties
assigned to him by Mackie; or,
(D) Failure of Wemyss to handle his work or assignments in
accordance with the policies of Mackie, reasonably stated.
5.1.3 The death of Wemyss;
5.1.4 At the option of Wemyss in the event of the insolvency of
Mackie;
5.1.5 At the option of Wemyss upon giving 90 days prior written
notice;
5.1.6 At the option of Mackie upon giving written notice of
termination.
5.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and Wemyss' employment hereunder:
5.2.1 If the termination was pursuant to Section 5.1.6, Wemyss shall
be entitled to receive, during the Payment Period (as hereinafter
defined), (i) the equivalent monthly salary to that set forth in
Section 3.1.1; (ii) a prorata share of any bonus earned by Mackie
senior management pursuant to Section 3.1.2 of this Agreement, with
such pro rata share being determined by multiplying Wemyss' usual
share thereof by a fraction,
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the numerator of which is equal to the total number of working days
worked by Wemyss during the relevant period over which the bonus is
calculated, and the denominator of which is equal to the total number
of working days during the relevant period over which the bonus is
calculated; provided, that the amount payable under this subsection,
if any, shall be payable at the next regularly scheduled date for
payment of such bonus pool; and, (iii) participation in all relevant
employee benefit programs to which he would have been entitled if he
had continued to serve as COO of Mackie during the Payment Period. All
payments required to be made to Wemyss pursuant to this Section 5.2.1
shall continue to be made regardless of whether Wemyss secures other
employment with any other employer. For purposes of this section, the
term "Payment Period" shall mean a period of 6 consecutive months
following the month in which Wemyss is terminated.
5.2.2 If the termination is for any other reason than that set forth
in Section 5.1.6, Wemyss shall (i) have no rights to compensation or
reimbursement for salary or bonus for any period subsequent to the
date of such termination, (ii) have no right to participate in any
employee benefit programs under Section 4 for any period subsequent to
the date of such termination; provided that Mackie will remain
obligated to meet any obligations that it may have under COBRA, and
(iii) have no right to any bonus that would have been payable on a
date subsequent to Wemyss' termination date.
5.3 EFFECT OF MERGER, DISSOLUTION OR TRANSFER OF ASSETS. In the event of
any voluntary or involuntary dissolution of Mackie, any merger or
consolidation of Mackie with a third party whereby Mackie is not a
surviving entity, or any sale of all or substantially all of the assets of
Mackie to any third party and in the further event that the surviving or
acquiring entity declines to assume this Agreement and/or Wemyss'
employment is terminated by Mackie or the surviving entity within 90 days
of the effective date thereof, such nonassumption or termination will be
deemed to have taken place pursuant to section 5.1.6 and Wemyss shall be
entitled to the benefits set forth in section 5.2.1.
6. INVENTIONS. Inventions made or conceived entirely or partially by
Wemyss while employed by Mackie will be the property of Mackie. As used in this
Section, the term "inventions" includes all creations, whether or not patentable
or copyrightable, and all ideas, reports, or other creative works, including,
without limitation, computer programs, manuals and related material, which
relate to the existing or proposed business of Mackie or any other business or
research and development effort conducted by Mackie. All of Wemyss' inventions
which are copyrightable shall be works for hire. Wemyss will cooperate with
Mackie to patent or copyright all inventions by executing all documents tendered
by Mackie for such purpose. Wemyss hereby grants to Mackie a power of attorney
coupled with an interest, whereby Mackie may execute and deliver any and all
documents necessary to so patent or copyright any inventions in Wemyss' name,
place and stead as if such execution and delivery were done by him, with such
power of attorney accruing in the event that he fails to cooperate as required
by the preceding sentence. This provision will be construed in conformity with
RCW 49.44.140. Notwithstanding the above, this provision does not apply to any
invention which was developed solely on Wemyss' own time and not using any of
Mackie's equipment, supplies, facilities or information, unless (a) the
invention relates directly to the business of Mackie or to Mackie's actual or
demonstrably anticipated research or development, or (b) the invention results
from any work performed by Wemyss for Mackie.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Wemyss acknowledges that
during the term of this Agreement he will learn and will have access to
confidential information regarding Mackie and its affiliates, including without
limitation (i) confidential or secret plans, programs, documents, agreements or
other material relating to the business, services or activities, and (ii) trade
secrets, market reports, customer investigations, customer lists, files,
accounts and other similar information that is
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proprietary information (collectively referred to as "Confidential
Information"). Wemyss acknowledges that such Confidential Information is a
special, valuable and unique asset. All records, file materials and Confidential
Information obtained by Wemyss in the course of employment with Mackie or its
affiliates or service as a director of Mackie or its affiliates are confidential
and proprietary and shall remain the exclusive property of the appropriate
entity owning the same. Wemyss will not for any reason use for his own benefit,
or for the benefit of any person with whom he may be associated, any
Confidential Information or disclose any such Confidential Information to any
person for any reason or purpose whatsoever without the prior written consent of
Mackie, unless such Confidential Information previously shall have became public
knowledge through no action or omission of Wemyss. Wemyss, within three (3) days
from the date upon which his employment with Mackie is terminated or otherwise
upon the request of Mackie, shall return to Mackie any and all documents and
material that constitutes Confidential Information.
8. SPECIFIC PERFORMANCE. Mackie and Wemyss recognize that the services
rendered under this Agreement by Wemyss are special, unique and of an
extraordinary character. Accordingly, in the event of any breach by Wemyss of
the provisions of Sections 6 and 7 of this Agreement and in addition to any
other remedies available to Mackie by law, Mackie may specifically enforce
Wemyss' obligations under such sections.
9. MISCELLANEOUS.
9.1 ASSIGNABILITY. The rights and obligations of Mackie under this
Agreement shall inure to the benefit of and be binding up the successors
and assigns of Mackie. The rights and obligations of Wemyss hereunder may
not be assigned or alienated and any attempt to do so by Wemyss will be
void.
9.2 SEPARABILITY. If any provision of this Agreement otherwise is deemed
to be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provisions and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The remaining
provisions of this Agreement shall be valid and binding and of like effect
as though such provision were not included.
9.3 NOTICE. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have duly given if
personally delivered, telexed or telecopied to, or, if mailed, when mailed
to the other party by certified mail, return receipt requested, at (a) in
the case of Mackie, the location of its principal executive offices, or (b)
in the case of Wemyss, the location of his principal residence or last
known principal residence.
9.4 JURISDICTION AND VENUE. The jurisdiction and venue of all actions
between the parties shall lie exclusively in the Superior Court in and for
the State of Washington located in King County, Washington.
9.5 GOVERNING LAW. The validity, performance, construction and effect of
this Agreement shall be governed by the internal, substantive laws of the
State of Washington, without giving effect to the conflict of laws rules
thereof.
9.6 WAIVER; AMENDMENT. The waiver by any party to this Agreement of a
breach of any provision hereof by any party shall not be construed as a
waiver of any subsequent breach by any party. No provision of this
Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or
modification is sought.
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9.7 ATTORNEYS' FEES. In the event of any litigation arising out of the
execution of this Agreement or any claimed breach thereof, the prevailing
party in such litigation shall be entitled to recover its reasonable
attorneys' fees and reasonable costs of litigation (including on appeal
thereof) in addition to any other award or decree given or granted by the
court.
9.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject matter, and there are no other
understandings, either written or oral, which affect the terms hereof. This
Agreement may be supplemented, modified or amended only by a subsequent
written agreement between the parties.
DATED the day and year first above written.
MACKIE DESIGNS, INC.
By:_______________________________ ___________________________________
Title: Roy D. Wemyss
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 28th day of April,
1997, by and between Mackie Designs Inc., a Washington corporation ("Mackie"),
and Patric Wiesmann ("Wiesmann").
In consideration of the promises and mutual covenants set forth in this
Agreement, Mackie and Wiesmann promise and agree as follows:
1. TERM OF EMPLOYMENT. Mackie hereby employs Wiesmann, and Wiesmann hereby
accepts employment with Mackie, for a period commencing January 6, 1997, and
continuing until terminated as set forth in Section 5 of this Agreement.
2. SCOPE OF DUTIES.
2.1 DUTIES. Wiesmann shall serve as Vice President - Marketing and
Business Development, with principal responsibility for overseeing Mackie's
domestic and international sales efforts. Wiesmann shall have such other
and further responsibilities, duties and goals as are established for him
from time to time by Mackie's Chief Operating Officer, Chief Executive
Officer or Board of Directors. Wiesmann shall report directly to Mackie's
Chief Operating Officer and, upon request, to Mackie's Chief Executive
Officer and/or Board.
2.2 FACILITIES AND STAFF.Wiesmann will be furnished with such facilities,
services, staff and working conditions, consistent with Mackie's current
practices, as are suitable to his position and adequate for the performance
of his duties.
2.3 FULL TIME AND ATTENTION. Wiesmann will loyally and conscientiously
devote substantially all of his business and professional time, attention
and energies (exclusive of periods of sickness and disability and such
normal holiday and vacation periods as have been established by Mackie) to
the affairs of Mackie. Notwithstanding the above:
2.3.1 Wiesmann may expend a reasonable amount of time for educational,
professional or charitable activities; and,
2.3.2 This Agreement shall not be interpreted to prohibit Wiesmann
from making passive personal investments or conducting private
business affairs, as long as those activities do not materially
interfere with the services required under this Agreement.
2.4 COMPETITIVE ACTIVITIES. During the term of his employment, Wiesmann
shall not, directly or indirectly, either as an officer, director,
investor, employee, consultant, agent, independent contractor, principal,
partner, shareholder, or in any other capacity whatsoever, engage or
participate in any business activities or business entity which is, in any
way, competitive with any of the business of Mackie.
2.5 INDEMNIFICATION AND INSURANCE. During the entire term of his
employment, Wiesmann will receive the full benefit of the indemnification
provisions for officers and directors that are then contained in Mackie's
Articles of Incorporation and Bylaws, and shall be a named insured under
Mackie's Director's and Officer's liability insurance policy, as such
indemnification provisions and insurance policies are in effect from time
to time.
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3. COMPENSATION AND EXPENSES.
3.1 COMPENSATION. During the term of this Agreement, Mackie will pay
Wiesmann as follows:
3.1.1 An initial base salary of $150,000 per year, payable at such
times and in such increments as are consistent with Mackie's usual
policies. Any proposed annual salary increase and any salary decrease
will be determined by the Board; provided that Wiesmann's salary shall
never be less than that set forth above; and,
3.1.2 Wiesmann shall be a member of any bonus pool maintained by
Mackie from time to time on behalf of senior management. Wiesmann's
initial target bonus for the year 1997 within such pool shall be
$150,000. The bonus plan is established annually by the Compensation
Committee of the Board, with the goals and criteria adjusted from time
to time as the Compensation Committee determines in its sole
discretion, and Wiesmann's right of membership in the bonus pool shall
give him no vested rights in any particular criteria or amounts
allocated to the bonus pool (other than his initial target bonus for
the year 1997).
3.2 STOCK OPTIONS. Wiesmann shall receive 150,000 incentive stock options
per Mackie's Amended and Restated 1995 Stock Option Plan (`Plan"), at a
price equal to the price quoted on the listed exchange for such stock as of
the close of business on April 28, 1997. All of Wiesmann's options shall be
subject to, and vest in accordance with, the terms and conditions of the
Plan; provided that, notwithstanding the vesting schedule contained in the
Plan, vesting of the following specified percentages of any unvested
portions of Wiesmann's options will accelerate to 100% immediately upon
Mackie's attainment of any one of the following goals:
3.2.1 40% of the then unvested portion of such options will vest on
the last day of any calendar quarter ("Measurement Day") in which
Mackie's earnings per share, measured over the 4 consecutive calendar
quarters ending on the Measurement Day, equal or exceed $1.08.
Increases in earnings per share resulting from repurchases by Mackie
of its common shares will not be considered in determining whether
this goal has been achieved. The amount of sales derived from business
entities acquired by Mackie between the date of this Agreement and the
Measurement Day will not be considered in determining whether this
goal has been achieved.
3.2.2 30% of the then unvested portion of such options will vest on
any Measurement Day, if the operating income margin reaches an average
of 16.5% measured over the 4 consecutive calendar quarters ending on
the Measurement Day. The operating income margin shall be determined
without regard to the operations of any business entity acquired by
Mackie during this period. The term "operating income margin" shall
have that meaning as is ascribed to it by generally accepted
accounting practices (GAAP), consistently applied.
3.2.3 30% of the then unvested portion of such options will vest on
any Measurement Day if the total sales of Mackie, net of returns, have
reached at least $146,471,850 measured over the 4 consecutive calendar
quarters ending on the Measurement Day. The amount of sales derived
from business entities acquired by Mackie between the date of this
Agreement and the Measurement Day will not be considered in
determining whether this goal has been achieved.
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3.2.4 Unless otherwise agreed between the CEO and Wiesmann, the issue
of whether any of the above goals has been attained will be determined
in accordance with Mackie"s regularly prepared, internal financial
statements as prepared in accordance with GAAP, consistently applied
over the periods in question; provided, that if the Measurement Day is
December 31 of any year, the attainment of such goals will be
determined in accordance with the final audited statements for the
fiscal year in question.
3.2.5 In the event of a "Change in Control," as that term is defined
in the Plan, any of Wiesmann's options or portions of such options
outstanding as of the date such Change in Control is determined to
have occurred that are not yet fully vested on such date shall become
immediately exercisable in full.
3.3 EXPENSES. Mackie will reimburse Wiesmann for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement. Such reimbursement will be
made in accordance with general policies and procedures of Mackie in effect
from time to time relating to reimbursement.
3.5 TAXES AND WITHHOLDING. Mackie shall withhold or deduct from sums due
to Wiesmann all sums required by applicable state or federal law.
4. BENEFITS.
4.1 VACATION. During the term of this Agreement, Wiesmann will be entitled
to at least 10 days of personal/sick time per year, to be taken and
accounted for in accordance with Mackie's policies for same in effect from
time to time. If additional personal time is requested by Wiesmann, it
shall be as determined from time to time by the CEO.
4.2 GROUP BENEFITS. Wiesmann shall participate in all pension, insurance
or other employee benefit plan that is maintained by Mackie from time to
time for employees similarly situated. To the extent possible, Mackie will
waive any waiting period required for Wiesmann's enrollment in any group
medical plan.
4.3 TRAVEL INSURANCE. Mackie will purchase and maintain a travel accident
insurance policy on Wiesmann's life in the face amount of $250,000, payable
to Wiesmann's designated beneficiary; provided, that Wiesmann must submit
to any physical examination necessary to secure such a policy, and that
Mackie's obligation to purchase such a policy shall depend upon Wiesmann
meeting basic insurability standards, if any. This requirement may be
satisfied by the provision of group insurance for employees of Mackie, as
long as Wiesmann is a member of the eligible group.
5. TERMINATION.
5.1 TERMINATION. This Agreement, and Wiesmann's employment with Mackie,
shall be terminated upon the occurrence of any one of the following events:
5.1.1 The conviction of Wiesmann for any crime which is a felony under
applicable law;
5.1.2 At the option of Mackie if any one of the following conditions
occurs and persists after Mackie has given Wiesmann prior written
notice of intent to terminate his employment with specific reasons
therefor, and Wiesmann fails to correct the specified problems within
a period of 30 days of the effective date of the notice:
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3.2.4 Unless otherwise agreed between the CEO and Wiesmann, the issue
of whether any of the above goals has been attained will be determined
in accordance with Mackie"s regularly prepared, internal financial
statements as prepared in accordance with GAAP, consistently applied
over the periods in question; provided, that if the Measurement Day is
December 31 of any year, the attainment of such goals will be
determined in accordance with the final audited statements for the
fiscal year in question.
3.2.5 In the event of a "Change in Control," as that term is defined
in the Plan, any of Wiesmann's options or portions of such options
outstanding as of the date such Change in Control is determined to
have occurred that are not yet fully vested on such date shall become
immediately exercisable in full.
3.3 EXPENSES. Mackie will reimburse Wiesmann for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement. Such reimbursement will be
made in accordance with general policies and procedures of Mackie in effect
from time to time relating to reimbursement.
3.5 TAXES AND WITHHOLDING. Mackie shall withhold or deduct from sums due
to Wiesmann all sums required by applicable state or federal law.
4. BENEFITS.
4.1 VACATION. During the term of this Agreement, Wiesmann will be entitled
to at least 10 days of personal/sick time per year, to be taken and
accounted for in accordance with Mackie's policies for same in effect from
time to time. If additional personal time is requested by Wiesmann, it
shall be as determined from time to time by the CEO.
4.2 GROUP BENEFITS. Wiesmann shall participate in all pension, insurance
or other employee benefit plan that is maintained by Mackie from time to
time for employees similarly situated. To the extent possible, Mackie will
waive any waiting period required for Wiesmann's enrollment in any group
medical plan.
4.3 TRAVEL INSURANCE. Mackie will purchase and maintain a travel accident
insurance policy on Wiesmann's life in the face amount of $250,000, payable
to Wiesmann's designated beneficiary; provided, that Wiesmann must submit
to any physical examination necessary to secure such a policy, and that
Mackie's obligation to purchase such a policy shall depend upon Wiesmann
meeting basic insurability standards, if any. This requirement may be
satisfied by the provision of group insurance for employees of Mackie, as
long as Wiesmann is a member of the eligible group.
5. TERMINATION.
5.1 TERMINATION. This Agreement, and Wiesmann's employment with Mackie,
shall be terminated upon the occurrence of any one of the following events:
5.1.1 The conviction of Wiesmann for any crime which is a felony under
applicable law;
5.1.2 At the option of Mackie if any one of the following conditions
occurs and persists after Mackie has given Wiesmann prior written
notice of intent to terminate his employment with specific reasons
therefor, and Wiesmann fails to correct the specified problems within
a period of 30 days of the effective date of the notice:
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(A) Chronic alcoholism, drug abuse, or addiction;
(B) Failure of Wiesmann to apply his full-time attention and
best efforts to the business of Mackie;
(C) Failure of Wiesmann to perform consistently the duties
assigned to him by Mackie; or,
(D) Failure of Wiesmann to handle his work or assignments in
accordance with the policies of Mackie, reasonably stated.
5.1.3 The death of Wiesmann;
5.1.4 At the option of Wiesmann in the event of the insolvency of
Mackie;
5.1.5 At the option of Wiesmann upon giving 90 days prior written
notice;
5.1.6 At the option of Mackie upon giving written notice of
termination.
5.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and Wiesmann's employment hereunder:
5.2.1 If the termination was pursuant to Section 5.1.6, Wiesmann shall
be entitled to receive, during the Payment Period (as hereinafter
defined), (i) the equivalent monthly salary to that set forth in
Section 3.1.1; (ii) a prorata share of any bonus earned by Mackie
senior management pursuant to Section 3.1.2 of this Agreement, with
such pro rata share being determined by multiplying Wiesmann's usual
share thereof by a fraction, the numerator of which is equal to the
total number of working days worked by Wiesmann during the relevant
period over which the bonus is calculated, and the denominator of
which is equal to the total number of working days during the relevant
period over which the bonus is calculated; provided, that the amount
payable under this subsection, if any, shall be payable at the next
regularly scheduled date for payment of such bonus pool; and, (iii)
participation in all relevant employee benefit programs to which he
would have been entitled if he had continued to serve as COO of Mackie
during the Payment Period. All payments required to be made to
Wiesmann pursuant to this Section 5.2.1 shall continue to be made
regardless of whether Wiesmann secures other employment with any other
employer. For purposes of this section, the term "Payment Period"
shall mean a period of 6 consecutive months following the month in
which Wiesmann is terminated.
5.2.2 If the termination is for any other reason than that set forth
in Section 5.1.6, Wiesmann shall (i) have no rights to compensation or
reimbursement for salary or bonus for any period subsequent to the
date of such termination, (ii) have no right to participate in any
employee benefit programs under Section 4 for any period subsequent to
the date of such termination; provided that Mackie will remain
obligated to meet any obligations that it may have under COBRA, and
(iii) have no right to any bonus that would have been payable on a
date subsequent to Wiesmann's termination date.
5.3 EFFECT OF MERGER, DISSOLUTION OR TRANSFER OF ASSETS. In the event of
any voluntary or involuntary dissolution of Mackie, any merger or
consolidation of Mackie with a third party whereby Mackie is not a
surviving entity, or any sale of all or substantially all of the assets of
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Mackie to any third party and in the further event that the surviving or
acquiring entity declines to assume this Agreement and/or Wiesmann's
employment is terminated by Mackie or the surviving entity within 90 days
of the effective date thereof, such nonassumption or termination will be
deemed to have taken place pursuant to section 5.1.6 and Wiesmann shall be
entitled to the benefits set forth in section 5.2.1.
6. INVENTIONS. Inventions made or conceived entirely or partially by
Wiesmann while employed by Mackie will be the property of Mackie. As used in
this Section, the term "inventions" includes all creations, whether or not
patentable or copyrightable, and all ideas, reports, or other creative works,
including, without limitation, computer programs, manuals and related material,
which relate to the existing or proposed business of Mackie or any other
business or research and development effort conducted by Mackie. All of
Wiesmann's inventions which are copyrightable shall be works for hire. Wiesmann
will cooperate with Mackie to patent or copyright all inventions by executing
all documents tendered by Mackie for such purpose. Wiesmann hereby grants to
Mackie a power of attorney coupled with an interest, whereby Mackie may execute
and deliver any and all documents necessary to so patent or copyright any
inventions in Wiesmann's name, place and stead as if such execution and delivery
were done by him, with such power of attorney accruing in the event that he
fails to cooperate as required by the preceding sentence. This provision will be
construed in conformity with RCW 49.44.140. Notwithstanding the above, this
provision does not apply to any invention which was developed solely on
Wiesmann's own time and not using any of Mackie's equipment, supplies,
facilities or information, unless (a) the invention relates directly to the
business of Mackie or to Mackie's actual or demonstrably anticipated research or
development, or (b) the invention results from any work performed by Wiesmann
for Mackie.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Wiesmann acknowledges that
during the term of this Agreement he will learn and will have access to
confidential information regarding Mackie and its affiliates, including without
limitation (i) confidential or secret plans, programs, documents, agreements or
other material relating to the business, services or activities, and (ii) trade
secrets, market reports, customer investigations, customer lists, files,
accounts and other similar information that is proprietary information
(collectively referred to as "Confidential Information"). Wiesmann acknowledges
that such Confidential Information is a special, valuable and unique asset. All
records, file materials and Confidential Information obtained by Wiesmann in the
course of employment with Mackie or its affiliates or service as a director of
Mackie or its affiliates are confidential and proprietary and shall remain the
exclusive property of the appropriate entity owning the same. Wiesmann will not
for any reason use for his own benefit, or for the benefit of any person with
whom he may be associated, any Confidential Information or disclose any such
Confidential Information to any person for any reason or purpose whatsoever
without the prior written consent of Mackie, unless such Confidential
Information previously shall have became public knowledge through no action or
omission of Wiesmann. Wiesmann, within three (3) days from the date upon which
his employment with Mackie is terminated or otherwise upon the request of
Mackie, shall return to Mackie any and all documents and material that
constitutes Confidential Information.
8. SPECIFIC PERFORMANCE. Mackie and Wiesmann recognize that the services
rendered under this Agreement by Wiesmann are special, unique and of an
extraordinary character. Accordingly, in the event of any breach by Wiesmann of
the provisions of Sections 6 and 7 of this Agreement and in addition to any
other remedies available to Mackie by law, Mackie may specifically enforce
Wiesmann's obligations under such sections.
9. MISCELLANEOUS.
9.1 ASSIGNABILITY. The rights and obligations of Mackie under this
Agreement shall inure to the benefit of and be binding up the successors
and assigns of Mackie. The rights and
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obligations of Wiesmann hereunder may not be assigned or alienated and any
attempt to do so by Wiesmann will be void.
9.2 SEPARABILITY. If any provision of this Agreement otherwise is deemed
to be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provisions and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The remaining
provisions of this Agreement shall be valid and binding and of like effect
as though such provision were not included.
9.3 NOTICE. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have duly given if
personally delivered, telexed or telecopied to, or, if mailed, when mailed
to the other party by certified mail, return receipt requested, at (a) in
the case of Mackie, the location of its principal executive offices, or (b)
in the case of Wiesmann, the location of his principal residence or last
known principal residence.
9.4 JURISDICTION AND VENUE. The jurisdiction and venue of all actions
between the parties shall lie exclusively in the Superior Court in and for
the State of Washington located in King County, Washington.
9.5 GOVERNING LAW. The validity, performance, construction and effect of
this Agreement shall be governed by the internal, substantive laws of the
State of Washington, without giving effect to the conflict of laws rules
thereof.
9.6 WAIVER; AMENDMENT. The waiver by any party to this Agreement of a
breach of any provision hereof by any party shall not be construed as a
waiver of any subsequent breach by any party. No provision of this
Agreement may be terminated, amended, supplemented, waived or modified
other than by an instrument in writing signed by the party against whom the
enforcement of the termination, amendment, supplement, waiver or
modification is sought.
9.7 ATTORNEYS' FEES. In the event of any litigation arising out of the
execution of this Agreement or any claimed breach thereof, the prevailing
party in such litigation shall be entitled to recover its reasonable
attorneys' fees and reasonable costs of litigation (including on appeal
thereof) in addition to any other award or decree given or granted by the
court.
9.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject matter, and there are no other
understandings, either written or oral, which affect the terms hereof. This
Agreement may be supplemented, modified or amended only by a subsequent
written agreement between the parties.
DATED the day and year first above written.
MACKIE DESIGNS, INC.
By:_______________________________ ___________________________________
Title: Patric Wiesmann
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 19th day of May,
1997, by and between Mackie Designs Inc., a Washington corporation ("Mackie"),
and William A. Garrard ("Garrard").
In consideration of the promises and mutual covenants set forth in this
Agreement, Mackie and Garrard promise and agree as follows:
1. Term of Employment. Mackie hereby employs Garrard, and Garrard hereby
accepts employment with Mackie, for a period commencing May 19, 1997, and
continuing until terminated as set forth in Section 5 of this Agreement.
2. Scope of Duties.
2.1 Duties. Garrard shall serve as Chief Financial Officer ("CFO"), with
principal responsibility for overseeing Mackie's accounting, finances and
treasury. Garrard shall have such other and further responsibilities, duties and
goals as are established for him from time to time by Mackie's Chief Operating
Officer, Chief Executive Officer or Board of Directors. Garrard shall report
directly to Mackie's Chief Operating Officer and, upon request, to Mackie's
Chief Executive Officer and/or Board.
2.2 Facilities and Staff.Garrard will be furnished with such facilities,
services, staff and working conditions, consistent with Mackie's current
practices, as are suitable to his position and adequate for the performance of
his duties.
2.3 Full Time and Attention. Garrard will loyally and conscientiously
devote substantially all of his business and professional time, attention and
energies (exclusive of periods of sickness and disability and such normal
holiday and vacation periods as have been established by Mackie) to the affairs
of Mackie. Notwithstanding the above:
2.3.1 Garrard may expend a reasonable amount of time for educational,
professional or charitable activities; and,
2.3.2 This Agreement shall not be interpreted to prohibit Garrard from
making passive personal investments or conducting private business affairs, as
long as those activities do not materially interfere with the services required
under this Agreement.
2.4 Competitive Activities. During the term of his employment, Garrard
shall not, directly or indirectly, either as an officer, director, investor,
employee, consultant, agent, independent contractor, principal, partner,
shareholder, or in any other capacity whatsoever, engage or participate in any
business activities or business entity which is, in any way, competitive with
any of the business of Mackie.
2.5 Indemnification and Insurance. During the entire term of his
employment, Garrard will receive the full benefit of the indemnification
provisions for officers and directors that are then contained in Mackie's
Articles of Incorporation and Bylaws, and shall be a named insured under
Mackie's Director's and Officer's liability insurance policy, as such
indemnification provisions and insurance policies are in effect from time to
time.
3. Compensation and Expenses.
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3.1 Compensation. During the term of this Agreement, Mackie will pay
Garrard as follows:
3.1.1 An initial base salary of $100,000 per year, payable at such
times and in such increments as are consistent with Mackie's usual policies. Any
proposed annual salary increase and any salary decrease will be determined by
the Board; provided that Garrard's salary shall never be less than that set
forth above; and,
3.1.2 Garrard shall be a member of any bonus pool maintained by Mackie
from time to time on behalf of senior management. Garrard's initial target bonus
for the year 1997 within such pool shall be $75,000, which will be prorated over
the time actually worked in 1997. The bonus plan is established annually by the
Compensation Committee of the Board, with the goals and criteria adjusted from
time to time as the Compensation Committee determines in its sole discretion,
and Garrard's right of membership in the bonus pool shall give him no vested
rights in any particular criteria or amounts allocated to the bonus pool (other
than his initial target bonus for the year 1997).
3.2 Stock Options. Garrard shall receive 100,000 incentive stock options
per Mackie's Amended and Restated 1995 Stock Option Plan ("Plan"), as of a date
to be determined by the committee administering the Plan. All of Garrard's
options shall be subject to, and vest in accordance with, the terms and
conditions of the Plan; provided that, notwithstanding the vesting schedule
contained in the Plan, vesting of the following specified percentages of any
unvested portions of Garrard's options will accelerate to 100% immediately upon
Mackie's attainment of any one of the following goals:
3.2.1 40% of the then unvested portion of such options will vest on
the last day of any calendar quarter ("Measurement Day") in which Mackie's
earnings per share, measured over the 4 consecutive calendar quarters ending on
the Measurement Day, equal or exceed $1.08. Increases in earnings per share
resulting from repurchases by Mackie of its common shares will not be considered
in determining whether this goal has been achieved. The amount of sales derived
from business entities acquired by Mackie between the date of this Agreement and
the Measurement Day will not be considered in determining whether this goal has
been achieved.
3.2.2 30% of the then unvested portion of such options will vest on
any Measurement Day, if the operating income margin reaches an average of 16.5%
measured over the 4 consecutive calendar quarters ending on the Measurement Day.
The operating income margin shall be determined without regard to the operations
of any business entity acquired by Mackie during this period. The term
"operating income margin" shall have that meaning as is ascribed to it by
generally accepted accounting practices (GAAP), consistently applied.
3.2.3 30% of the then unvested portion of such options will vest on
any Measurement Day if the total sales of Mackie, net of returns, have reached
at least $146,471,850 measured over the 4 consecutive calendar quarters ending
on the Measurement Day. The amount of sales derived from business entities
acquired by Mackie between the date of this Agreement and the Measurement Day
will not be considered in determining whether this goal has been achieved.
3.2.4 Unless otherwise agreed between the CEO and Garrard, the issue
of whether any of the above goals has been attained will be determined in
accordance with Mackie's regularly prepared, internal financial statements as
prepared in accordance with GAAP, consistently applied over the periods in
question; provided, that if the Measurement Day is December 31 of any year, the
attainment of such goals will be determined in accordance with the final audited
statements for the fiscal year in question.
3.2.5 In the event of a "Change in Control," as that term is defined
in the Plan, any of Garrard's options or portions of such options outstanding as
of the date such Change in Control is
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determined to have occurred that are not yet fully vested on such date shall
become immediately exercisable in full.
3.3 Expenses. Mackie will reimburse Garrard for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement. Such reimbursement will be made
in accordance with general policies and procedures of Mackie in effect from time
to time relating to reimbursement.
3.5 Taxes and Withholding. Mackie shall withhold or deduct from sums due
to Garrard all sums required by applicable state or federal law.
3.6 Moving Expenses. Mackie shall pay Garrard's reasonable expenses of
moving his household goods and personal items from Vancouver, British Columbia
to the Woodinville, Washington area; provided that Mackie shall not be obligated
to pay more than $7,500.00 for such purpose.
4. Benefits.
4.1 Vacation. During the term of this Agreement, Garrard will be entitled
to at least 10 days of personal/sick time per year, to be taken and accounted
for in accordance with Mackie's policies for same in effect from time to time.
If additional personal time is requested by Garrard, it shall be as determined
from time to time by the CEO.
4.2 Group Benefits. Garrard shall participate in any pension, insurance or
other employee benefit plan that is maintained by Mackie from time to time for
employees similarly situated. To the extent possible, Mackie will waive any
waiting period required for Garrard's enrollment in any group medical plan.
4.3 Travel Insurance. Mackie will purchase and maintain a travel accident
insurance policy on Garrard's life in the face amount of $250,000, payable to
Garrard's designated beneficiary; provided, that Garrard must submit to any
physical examination necessary to secure such a policy, and that Mackie's
obligation to purchase such a policy shall depend upon Garrard meeting basic
insurability standards, if any. This requirement may be satisfied by the
provision of group insurance for employees of Mackie, as long as Garrard is a
member of the eligible group.
5. Termination.
5.1 Termination. This Agreement, and Garrard's employment with Mackie,
shall be terminated upon the occurrence of any one of the following events:
5.1.1 The conviction of Garrard for any crime which is a felony under
applicable law;
5.1.2 At the option of Mackie if any one of the following conditions
occurs and persists after Mackie has given Garrard prior written notice of
intent to terminate his employment with specific reasons therefor, and Garrard
fails to correct the specified problems within a period of 30 days of the
effective date of the notice:
(A) Chronic alcoholism, drug abuse, or addiction;
(B) Failure of Garrard to apply his full-time attention and best
efforts to the business of Mackie;
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(C) Failure of Garrard to perform consistently the duties
assigned to him by Mackie; or,
(D) Failure of Garrard to handle his work or assignments in
accordance with the policies of Mackie, reasonably stated.
5.1.3 The death of Garrard;
5.1.4 At the option of Garrard in the event of the insolvency of
Mackie;
5.1.5 At the option of Garrard upon giving 90 days prior written
notice;
5.1.6 At the option of Mackie upon giving written notice of
termination.
5.2 Effect of Termination. In the event of the termination of this
Agreement and Garrard's employment hereunder:
5.2.1 If the termination was pursuant to Section 5.1.6, Garrard shall
be entitled to receive, during the Payment Period (as hereinafter defined), (i)
the equivalent monthly salary to that set forth in Section 3.1.1; (ii) a prorata
share of any bonus earned by Mackie senior management pursuant to Section 3.1.2
of this Agreement, with such pro rata share being determined by multiplying
Garrard's usual share thereof by a fraction, the numerator of which is equal to
the total number of working days worked by Garrard during the relevant period
over which the bonus is calculated, and the denominator of which is equal to the
total number of working days during the relevant period over which the bonus is
calculated; provided, that the amount payable under this subsection, if any,
shall be payable at the next regularly scheduled date for payment of such bonus
pool; and, (iii) participation in all relevant employee benefit programs to
which he would have been entitled if he had continued to serve as CFO of Mackie
during the Payment Period. All payments required to be made to Garrard pursuant
to this Section 5.2.1 shall continue to be made regardless of whether Garrard
secures other employment with any other employer. For purposes of this section,
the term "Payment Period" shall mean a period of 6 consecutive months following
the month in which Garrard is terminated.
5.2.2 If the termination is for any other reason than that set forth
in Section 5.1.6, Garrard shall (i) have no rights to compensation or
reimbursement for salary or bonus for any period subsequent to the date of such
termination, (ii) have no right to participate in any employee benefit programs
under Section 4 for any period subsequent to the date of such termination;
provided that Mackie will remain obligated to meet any obligations that it may
have under COBRA, and (iii) have no right to any bonus that would have been
payable on a date subsequent to Garrard's termination date.
5.3 Effect of Merger, Dissolution or Transfer of Assets. In the event of
any voluntary or involuntary dissolution of Mackie, any merger or consolidation
of Mackie with a third party whereby Mackie is not a surviving entity, or any
sale of all or substantially all of the assets of Mackie to any third party and
in the further event that the surviving or acquiring entity declines to assume
this Agreement and/or Garrard's employment is terminated by Mackie or the
surviving entity within 90 days of the effective date thereof, such
nonassumption or termination will be deemed to have taken place pursuant to
section 5.1.6 and Garrard shall be entitled to the benefits set forth in section
5.2.1.
6. Inventions. Inventions made or conceived entirely or partially by Garrard
while employed by Mackie will be the property of Mackie. As used in this
Section, the term "inventions" includes all creations, whether or not patentable
or copyrightable, and all ideas, reports, or other creative works, including,
without limitation, computer programs, manuals and related material, which
relate to the existing or proposed business of Mackie or any other business or
research and development effort
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conducted by Mackie. All of Garrard's inventions which are copyrightable shall
be works for hire. Garrard will cooperate with Mackie to patent or copyright all
inventions by executing all documents tendered by Mackie for such purpose.
Garrard hereby grants to Mackie a power of attorney coupled with an interest,
whereby Mackie may execute and deliver any and all documents necessary to so
patent or copyright any inventions in Garrard's name, place and stead as if such
execution and delivery were done by him, with such power of attorney accruing in
the event that he fails to cooperate as required by the preceding sentence. This
provision will be construed in conformity with RCW 49.44.140. Notwithstanding
the above, this provision does not apply to any invention which was developed
solely on Garrard's own time and not using any of Mackie's equipment, supplies,
facilities or information, unless (a) the invention relates directly to the
business of Mackie or to Mackie's actual or demonstrably anticipated research or
development, or (b) the invention results from any work performed by Garrard for
Mackie.
7. Nondisclosure of Confidential Information. Garrard acknowledges that during
the term of this Agreement he will learn and will have access to confidential
information regarding Mackie and its affiliates, including without limitation
(i) confidential or secret plans, programs, documents, agreements or other
material relating to the business, services or activities, and (ii) trade
secrets, market reports, customer investigations, customer lists, files,
accounts and other similar information that is proprietary information
(collectively referred to as "Confidential Information"). Garrard acknowledges
that such Confidential Information is a special, valuable and unique asset. All
records, file materials and Confidential Information obtained by Garrard in the
course of employment with Mackie or its affiliates or service as a director of
Mackie or its affiliates are confidential and proprietary and shall remain the
exclusive property of the appropriate entity owning the same. Garrard will not
for any reason use for his own benefit, or for the benefit of any person with
whom he may be associated, any Confidential Information or disclose any such
Confidential Information to any person for any reason or purpose whatsoever
without the prior written consent of Mackie, unless such Confidential
Information previously shall have became public knowledge through no action or
omission of Garrard. Garrard, within three (3) days from the date upon which his
employment with Mackie is terminated or otherwise upon the request of Mackie,
shall return to Mackie any and all documents and material that constitutes
Confidential Information.
8. Specific Performance. Mackie and Garrard recognize that the services
rendered under this Agreement by Garrard are special, unique and of an
extraordinary character. Accordingly, in the event of any breach by Garrard of
the provisions of Sections 6 and 7 of this Agreement and in addition to any
other remedies available to Mackie by law, Mackie may specifically enforce
Garrard's obligations under such sections.
9. Miscellaneous.
9.1 Assignability. The rights and obligations of Mackie under this
Agreement shall inure to the benefit of and be binding up the successors and
assigns of Mackie. The rights and obligations of Garrard hereunder may not be
assigned or alienated and any attempt to do so by Garrard will be void.
9.2 Separability. If any provision of this Agreement otherwise is deemed
to be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall considered
divisible as to such provisions and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding and of like effect as though such provision were not
included.
9.3 Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have duly given if
personally delivered, telexed or telecopied to, or, if
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mailed, when mailed to the other party by certified mail, return receipt
requested, at (a) in the case of Mackie, the location of its principal executive
offices, or (b) in the case of Garrard, the location of his principal residence
or last known principal residence.
9.4 Jurisdiction and Venue. The jurisdiction and venue of all actions
between the parties shall lie exclusively in the Superior Court in and for the
State of Washington located in King County, Washington.
9.5 Governing Law. The validity, performance, construction and effect of
this Agreement shall be governed by the internal, substantive laws of the State
of Washington, without giving effect to the conflict of laws rules thereof.
9.6 Waiver Amendment. The waiver by any party to this Agreement of a
breach of any provision hereof by any party shall not be construed as a waiver
of any subsequent breach by any party. No provision of this Agreement may be
terminated, amended, supplemented, waived or modified other than by an
instrument in writing signed by the party against whom the enforcement of the
termination, amendment, supplement, waiver or modification is sought.
9.7 Attorneys' Fees. In the event of any litigation arising out of the
execution of this Agreement or any claimed breach thereof, the prevailing party
in such litigation shall be entitled to recover its reasonable attorneys' fees
and reasonable costs of litigation (including on appeal thereof) in addition to
any other award or decree given or granted by the court.
9.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties regarding the subject matter, and there are no other
understandings, either written or oral, which affect the terms hereof. This
Agreement may be supplemented, modified or amended only by a subsequent written
agreement between the parties.
DATED the day and year first above written.
MACKIE DESIGNS, INC.
By:_______________________________ ___________________________________
Title: William A. Garrard
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 20th day of June,
1997, by and between Mackie Designs Inc., a Washington corporation ("Mackie"),
and Robert May ("May").
In consideration of the promises and mutual covenants set forth in this
Agreement, Mackie and May promise and agree as follows:
1. Term of Employment. Mackie hereby employs May, and May hereby accepts
employment with Mackie, for a period commencing June 16, 1997, and continuing
until terminated as set forth in Section 5 of this Agreement.
2. Scope of Duties.
2.1 Duties. May shall serve as head of manufacturing operations with the
title Vice President Manufacturing, such title subject to being granted by the
Board of Directors of Mackie at its next regularly scheduled meeting. May's
duties include principal responsibility for overseeing all of Mackie's
manufacturing operations. May shall have such other and further
responsibilities, duties and goals as are established for him from time to time
by Mackie's Chief Operating Officer, Chief Executive Officer or Board of
Directors. May shall report directly to Mackie's Chief Operating Officer and,
upon request, to Mackie's Chief Executive Officer and/or Board.
2.2 Facilities and Staff.May will be furnished with such facilities,
services, staff and working conditions, consistent with Mackie's current
practices, as are suitable to his position and adequate for the performance of
his duties.
2.3 Full Time and Attention. May will loyally and conscientiously devote
substantially all of his business and professional time, attention and energies
(exclusive of periods of sickness and disability and such normal holiday and
vacation periods as have been established by Mackie) to the affairs of Mackie.
Notwithstanding the above:
2.3.1 May may expend a reasonable amount of time for educational,
professional or charitable activities; and,
2.3.2 This Agreement shall not be interpreted to prohibit May from
making passive personal investments or conducting private business affairs, as
long as those activities do not materially interfere with the services required
under this Agreement.
2.4 Competitive Activities. During the term of his employment, May shall
not, directly or indirectly, either as an officer, director, investor, employee,
consultant, agent, independent contractor, principal, partner, shareholder, or
in any other capacity whatsoever, engage or participate in any business
activities or business entity which is, in any way, competitive with any of the
business of Mackie. 2.5 Indemnification and Insurance. During the entire term of
his employment, May will receive the full benefit of the indemnification
provisions for officers and directors that are then contained in Mackie's
Articles of Incorporation and Bylaws, and shall be a named insured under
Mackie's Director's and Officer's liability insurance policy, as such
indemnification provisions and insurance policies are in effect from time to
time.
3. Compensation and Expenses.
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3.1 Compensation. During the term of this Agreement, Mackie will pay May
as follows:
3.1.1 An initial base salary of $100,000 per year, payable at such
times and in such increments as are consistent with Mackie's usual policies. Any
proposed annual salary increase and any salary decrease will be determined by
the Board; provided that May's salary shall never be less than that set forth
above; and,
3.1.2 May shall be a member of any bonus pool maintained by Mackie
from time to time on behalf of senior management. May's initial target bonus for
the year 1997 within such pool shall be $75,000, which will be prorated over the
time actually worked in 1997. The bonus plan is established annually by the
Compensation Committee of the Board, with the goals and criteria adjusted from
time to time as the Compensation Committee determines in its sole discretion,
and May's right of membership in the bonus pool shall give him no vested rights
in any particular criteria or amounts allocated to the bonus pool (other than
his initial target bonus for the year 1997).
3.2 Stock Options. May shall receive 100,000 incentive stock options per
Mackie's Amended and Restated 1995 Stock Option Plan ("Plan"), as of a date to
be determined by the committee administering the Plan. All of May's options
shall be subject to, and vest in accordance with, the terms and conditions of
the Plan; provided that, notwithstanding the vesting schedule contained in the
Plan, vesting of the following specified percentages of any unvested portions of
May's options will accelerate to 100% immediately upon Mackie's attainment of
any one of the following goals:
3.2.1 40% of the then unvested portion of such options will vest on
the last day of any calendar quarter ("Measurement Day") in which Mackie's
earnings per share, measured over the 4 consecutive calendar quarters ending on
the Measurement Day, equal or exceed $1.08. Increases in earnings per share
resulting from repurchases by Mackie of its common shares will not be considered
in determining whether this goal has been achieved. The amount of sales derived
from business entities acquired by Mackie between the date of this Agreement and
the Measurement Day will not be considered in determining whether this goal has
been achieved.
3.2.2 30% of the then unvested portion of such options will vest on
any Measurement Day, if the operating income margin reaches an average of 16.5%
measured over the 4 consecutive calendar quarters ending on the Measurement Day.
The operating income margin shall be determined without regard to the operations
of any business entity acquired by Mackie during this period. The term
"operating income margin" shall have that meaning as is ascribed to it by
generally accepted accounting practices (GAAP), consistently applied.
3.2.3 30% of the then unvested portion of such options will vest on
any Measurement Day if the total sales of Mackie, net of returns, have reached
at least $146,471,850 measured over the 4 consecutive calendar quarters ending
on the Measurement Day. The amount of sales derived from business entities
acquired by Mackie between the date of this Agreement and the Measurement Day
will not be considered in determining whether this goal has been achieved.
3.2.4 Unless otherwise agreed between the CEO and May, the issue of
whether any of the above goals has been attained will be determined in
accordance with Mackie's regularly prepared, internal financial statements as
prepared in accordance with GAAP, consistently applied over the periods in
question; provided, that if the Measurement Day is December 31 of any year, the
attainment of such goals will be determined in accordance with the final audited
statements for the fiscal year in question.
3.2.5 In the event of a "Change in Control," as that term is defined
in the Plan, any of May"s options or portions of such options outstanding as of
the date such Change in Control is
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determined to have occurred that are not yet fully vested on such date shall
become immediately exercisable in full.
3.3 Expenses. Mackie will reimburse May for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement. Such reimbursement will be made
in accordance with general policies and procedures of Mackie in effect from time
to time relating to reimbursement.
3.5 Taxes and Withholding. Mackie shall withhold or deduct from sums due
to May all sums required by applicable state or federal law.
4. Benefits.
4.1 Vacation. During the term of this Agreement, May will be entitled to
at least 10 days of vacation per year, to be taken and accounted for in
accordance with Mackie"s policies for same in effect from time to time. If
additional personal time is requested by May, it shall be as determined from
time to time by the CEO.
4.2 Group Benefits. May shall participate in any pension, insurance or
other employee benefit plan that is maintained by Mackie from time to time for
employees similarly situated. To the extent possible, Mackie will waive any
waiting period required for May"s enrollment in any group medical plan.
4.3 Travel Insurance. Mackie will purchase and maintain a travel accident
insurance policy on May's life in the face amount of $250,000, payable to May's
designated beneficiary; provided, that May must submit to any physical
examination necessary to secure such a policy, and that Mackie's obligation to
purchase such a policy shall depend upon May meeting basic insurability
standards, if any. This requirement may be satisfied by the provision of group
insurance for employees of Mackie, as long as May is a member of the eligible
group.
5. Termination.
5.1 Termination. This Agreement, and May's employment with Mackie, shall
be terminated upon the occurrence of any one of the following events:
5.1.1 The conviction of May for any crime which is a felony under
applicable law;
5.1.2 At the option of Mackie if any one of the following conditions
occurs and persists after Mackie has given May prior written notice of intent to
terminate his employment with specific reasons therefor, and May fails to
correct the specified problems within a period of 30 days of the effective date
of the notice:
(A) Chronic alcoholism, drug abuse, or addiction;
(B) Failure of May to apply his full-time attention and best
efforts to the business of Mackie;
(C) Failure of May to perform consistently the duties assigned
to him by Mackie; or,
(D) Failure of May to handle his work or assignments in
accordance with the policies of Mackie, reasonably stated.
36
<PAGE> 4
5.1.3 The death of May;
5.1.4 At the option of May in the event of the insolvency of Mackie;
5.1.5 At the option of May upon giving 90 days prior written notice;
5.1.6 At the option of Mackie upon giving written notice of
termination.
5.2 Effect of Termination. In the event of the termination of this
Agreement and May's employment hereunder:
5.2.1 If the termination was pursuant to Section 5.1.6, May shall be
entitled to receive, during the Payment Period (as hereinafter defined), (i) the
equivalent monthly salary to that set forth in Section 3.1.1; (ii) a prorata
share of any bonus earned by Mackie senior management pursuant to Section 3.1.2
of this Agreement, with such pro rata share being determined by multiplying
May's usual share thereof by a fraction, the numerator of which is equal to the
total number of working days worked by May during the relevant period over which
the bonus is calculated, and the denominator of which is equal to the total
number of working days during the relevant period over which the bonus is
calculated; provided, that the amount payable under this subsection, if any,
shall be payable at the next regularly scheduled date for payment of such bonus
pool; and, (iii) participation in all relevant employee benefit programs to
which he would have been entitled if he had continued to serve as Vice President
Manufacturing of Mackie during the Payment Period. All payments required to be
made to May pursuant to this Section 5.2.1 shall continue to be made regardless
of whether May secures other employment with any other employer. For purposes of
this section, the term "Payment Period" shall mean a period of 6 consecutive
months following the month in which May is terminated.
5.2.2 If the termination is for any other reason than that set forth
in Section 5.1.6, May shall (i) have no rights to compensation or reimbursement
for salary or bonus for any period subsequent to the date of such termination,
(ii) have no right to participate in any employee benefit programs under Section
4 for any period subsequent to the date of such termination; provided that
Mackie will remain obligated to meet any obligations that it may have under
COBRA, and (iii) have no right to any bonus that would have been payable on a
date subsequent to May's termination date.
5.3 Effect of Merger, Dissolution or Transfer of Assets. In the event of
any voluntary or involuntary dissolution of Mackie, any merger or consolidation
of Mackie with a third party whereby Mackie is not a surviving entity, or any
sale of all or substantially all of the assets of Mackie to any third party and
in the further event that the surviving or acquiring entity declines to assume
this Agreement and/or May's employment is terminated by Mackie or the surviving
entity within 90 days of the effective date thereof, such nonassumption or
termination will be deemed to have taken place pursuant to section 5.1.6 and May
shall be entitled to the benefits set forth in section 5.2.1.
6. Inventions. Inventions made or conceived entirely or partially by May while
employed by Mackie will be the property of Mackie. As used in this Section, the
term "inventions" includes all creations, whether or not patentable or
copyrightable, and all ideas, reports, or other creative works, including,
without limitation, computer programs, manuals and related material, which
relate to the existing or proposed business of Mackie or any other business or
research and development effort conducted by Mackie. All of May's inventions
which are copyrightable shall be works for hire. May will cooperate with Mackie
to patent or copyright all inventions by executing all documents tendered by
Mackie for such purpose. May hereby grants to Mackie a power of attorney coupled
with an interest, whereby Mackie may execute and deliver any and all documents
necessary to so patent or copyright any
37
<PAGE> 5
inventions in May's name, place and stead as if such execution and delivery were
done by him, with such power of attorney accruing in the event that he fails to
cooperate as required by the preceding sentence. This provision will be
construed in conformity with RCW 49.44.140. Notwithstanding the above, this
provision does not apply to any invention which was developed solely on May's
own time and not using any of Mackie's equipment, supplies, facilities or
information, unless (a) the invention relates directly to the business of Mackie
or to Mackie's actual or demonstrably anticipated research or development, or
(b) the invention results from any work performed by May for Mackie.
7. Nondisclosure of Confidential Information. May acknowledges that during the
term of this Agreement he will learn and will have access to confidential
information regarding Mackie and its affiliates, including without limitation
(i) confidential or secret plans, programs, documents, agreements or other
material relating to the business, services or activities, and (ii) trade
secrets, market reports, customer investigations, customer lists, files,
accounts and other similar information that is proprietary information
(collectively referred to as "Confidential Information"). May acknowledges that
such Confidential Information is a special, valuable and unique asset. All
records, file materials and Confidential Information obtained by May in the
course of employment with Mackie or its affiliates or service as a director of
Mackie or its affiliates are confidential and proprietary and shall remain the
exclusive property of the appropriate entity owning the same. May will not for
any reason use for his own benefit, or for the benefit of any person with whom
he may be associated, any Confidential Information or disclose any such
Confidential Information to any person for any reason or purpose whatsoever
without the prior written consent of Mackie, unless such Confidential
Information previously shall have became public knowledge through no action or
omission of May. May, within three (3) days from the date upon which his
employment with Mackie is terminated or otherwise upon the request of Mackie,
shall return to Mackie any and all documents and material that constitutes
Confidential Information.
8. Specific Performance. Mackie and May recognize that the services rendered
under this Agreement by May are special, unique and of an extraordinary
character. Accordingly, in the event of any breach by May of the provisions of
Sections 6 and 7 of this Agreement and in addition to any other remedies
available to Mackie by law, Mackie may specifically enforce May's obligations
under such sections.
9. Miscellaneous.
9.1 Assignability. The rights and obligations of Mackie under this
Agreement shall inure to the benefit of and be binding up the successors and
assigns of Mackie. The rights and obligations of May hereunder may not be
assigned or alienated and any attempt to do so by May will be void.
9.2 Separability. If any provision of this Agreement otherwise is deemed
to be invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall considered
divisible as to such provisions and such provision shall be inoperative in such
state or jurisdiction and shall not be part of the consideration moving from
either of the parties to the other. The remaining provisions of this Agreement
shall be valid and binding and of like effect as though such provision were not
included.
9.3 Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have duly given if
personally delivered, telexed or telecopied to, or, if mailed, when mailed to
the other party by certified mail, return receipt requested, at (a) in the case
of Mackie, the location of its principal executive offices, or (b) in the case
of May, the location of his principal residence or last known principal
residence.
38
<PAGE> 6
9.4 Jurisdiction and Venue. The jurisdiction and venue of all actions
between the parties shall lie exclusively in the Superior Court in and for the
State of Washington located in King County, Washington.
9.5 Governing Law. The validity, performance, construction and effect of
this Agreement shall be governed by the internal, substantive laws of the State
of Washington, without giving effect to the conflict of laws rules thereof.
9.6 Waiver Amendment. The waiver by any party to this Agreement of a
breach of any provision hereof by any party shall not be construed as a waiver
of any subsequent breach by any party. No provision of this Agreement may be
terminated, amended, supplemented, waived or modified other than by an
instrument in writing signed by the party against whom the enforcement of the
termination, amendment, supplement, waiver or modification is sought.
9.7 Attorneys' Fees. In the event of any litigation arising out of the
execution of this Agreement or any claimed breach thereof, the prevailing party
in such litigation shall be entitled to recover its reasonable attorneys' fees
and reasonable costs of litigation (including on appeal thereof) in addition to
any other award or decree given or granted by the court.
9.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties regarding the subject matter, and there are no other
understandings, either written or oral, which affect the terms hereof. This
Agreement may be supplemented, modified or amended only by a subsequent written
agreement between the parties.
DATED the day and year first above written.
MACKIE DESIGNS INC.
By:_______________________________ ___________________________________
Title: Robert May
39
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 12,852,583 12,879,176 12,868,702 12,877,088
Net effect of dilutive stock equivalents
based on the treasury stock method
using ending market price in 1997 and
average market price in 1996 793,921 997,758 722,752 961,985
----------- ----------- ----------- -----------
Total weighted shares outstanding 13,646,504 13,876,934 13,591,454 13,839,073
=========== =========== =========== ===========
Net income $ 1,413,531 $ 2,442,955 $ 2,553,167 $ 4,758,448
=========== =========== =========== ===========
Net income per share $ 0.10 $ 0.18 $ 0.19 $ 0.34
=========== =========== =========== ===========
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,259,494
<SECURITIES> 11,460,440
<RECEIVABLES> 12,581,465
<ALLOWANCES> (932,393)
<INVENTORY> 11,877,761
<CURRENT-ASSETS> 39,784,131
<PP&E> 15,390,159
<DEPRECIATION> (4,931,181)
<TOTAL-ASSETS> 50,655,408
<CURRENT-LIABILITIES> 5,981,501
<BONDS> 0
0
0
<COMMON> 30,248,830
<OTHER-SE> 13,837,327
<TOTAL-LIABILITY-AND-EQUITY> 50,655,408
<SALES> 35,452,340
<TOTAL-REVENUES> 35,452,340
<CGS> 21,939,391
<TOTAL-COSTS> 9,992,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 124,269
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,810,667
<INCOME-TAX> 1,257,500
<INCOME-CONTINUING> 2,553,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,553,167
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
