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EXHIBIT 10.17
ROCKFORD CORPORATION
CONVERTIBLE SUBORDINATED DEBENTURE
AMENDMENT AGREEMENT
AND
AGREEMENT TO RENAME AS SENIOR NOTES
OCTOBER 28, 1994
Provident Mutual Life
Insurance Company of Philadelphia
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX. 00000
Ladies and Gentlemen:
The undersigned, Rockford Corporation, an Arizona corporation
(the "Company"), hereby agrees with you as follows:
1. AMENDMENT OF DEBENTURES AND REPLACEMENT WITH SENIOR NOTE.
1.1 Sale of Debentures by the Company. The Company issued
and sold to you (or your predecessor) as of January 12, 1988, $2,000,000 of its
10% Convertible Subordinated Debentures (the "Debentures"), which had the terms
and granted to you the rights set forth in (1) the Convertible Subordinated
Debenture Purchase Agreement dated January 12, 1988 (the "Debenture Purchase
Agreement") and (2) the form of the Debentures.
1.2 Agreement to Amend. Subject to the terms and
conditions of this Agreement, and on the basis of the representations and
warranties set forth herein, you have agreed with the Company to amend the
Debentures by renaming them as Senior Notes (the "Senior Notes"), in principal
amount equal to the Debentures, bearing interest at the same rate as the
Debentures, maturing at the same time as the Debentures, and with amended terms
as set forth in this Agreement. The amendment is intended to effect the
following substantive changes to the Debentures:
(a) Renaming to Senior Notes. The Debentures
shall be renamed as "Senior Notes" in principal amount equal to the Debentures,
bearing interest at the same rate as the Debentures, maturing at the same time
as the Debentures, in the form of Exhibit A to this Agreement, and with amended
terms as set forth in this Agreement and in Exhibit A. The right of holders of
the Debentures to convert the Debentures into the Company's common stock shall
terminate and the Senior Notes shall not be convertible into other securities of
the Company.
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(b) Delivery of Warrants. Upon renaming of the
Debentures as Senior Notes and termination of the conversion rights, the Company
shall deliver to each holder of the Senior Notes warrants (the "Warrants"),
detachable at any time at the election of the holder, which shall entitle the
holder to purchase shares of Company's Common Stock. The Warrants (1) shall be
in the form of Exhibit B to this Agreement; (2) shall require payment of $6.50
per share in cash upon exercise (subject to adjustment as set forth in the
Warrants); (3) shall expire if not exercised before the close of business on
February 3, 2000; and (4) shall be exercisable to purchase 167,400 shares, a
number of shares equal to the number of shares into which the Debentures could
have been converted on the date when they are renamed as Senior Notes and
amended.
The Warrants shall be treated for all purposes as if they had been issued when
the Debentures were issued and shall represent the same right to acquire shares
of common stock as were established in the Debentures. The intended substantive
effect of the renaming of the Debentures as Senior Notes, the amendment of the
Senior Notes, and the delivery of the Warrants is (i) to separate the right to
purchase the Company's common shares, currently attached to the Debentures, into
a security that may be separately held, (ii) to extend the period to exercise
the Warrants from the maturity date of the Debentures to February 3, 2000, and
(iii) to reduce the price of the common shares issuable upon exercise of the
Warrants from $11.9474 per share to $6.50 per share.
(a) Replacement of Covenants. The
representations and warranties, affirmative covenants, and other matters set
forth in the original Debenture Purchase Agreement shall be replaced by the
corresponding representations and warranties, affirmative covenants, and other
matters set forth in this Agreement. The new financial covenants are
substantially the same as the covenants established in the revolving credit
facility entered into between the Company and Norwest Business Credit, Inc.
("NBCI") as of May 1994. This replacement will allow the Company to operate on
financial covenants consistent with the Company's financial projections and will
supersede the existing debt covenants with which the Company is currently unable
to comply.
1.3 Closing of Amendment.
(a) Offer to Holders. In order to accept the
Amendment, you must deliver this Agreement, duly executed by you, to Company
along with the original Debenture held by you.
(b) Closing Date. The closing of this Agreement
(the "Closing") shall take place on the date when Company has received this
Agreement executed by you, the Debentures or such other hour and date as you and
the Company shall agree in writing (the "Closing Date"). On or as soon as
possible after the Closing Date, the Company shall deliver to you (i) a Senior
Note registered in your name in principal amount equal to the principal amount
of the Debenture surrendered and (ii) a Warrant exercisable for the
corresponding number of shares.
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(c) Effect of Closing. As of the Closing Date,
the Debentures held by you shall be renamed for all purposes as the Senior
Notes, the Debentures and Debenture Purchase Agreement shall have no further
force or effect and shall be replaced, superseded, and amended in their entirety
by this Agreement, the Senior Notes, and the Warrants.
2. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to you as follows:
2.1 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona. The Company has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted. On the Closing Date the Company will be duly
qualified or authorized to do business and in good standing in each jurisdiction
where the character of the property owned or leased or the nature of the
business transacted makes such qualification or authorization necessary.
2.2 Capitalization. The authorized and outstanding
capital stock of the Company, and the options, warrants, agreements or similar
rights granted by the Company for the issue or sale by it of any securities, is
as set forth on Exhibit C. All of the issued and outstanding shares of the
Common Stock of the Company have been duly authorized and are validly issued,
fully paid and nonassessable. The Company has reserved 167,400 shares of its
Common Stock for issuance upon exercise of the Warrants. All outstanding shares
of the Common Stock of the Company were issued in compliance with all applicable
Federal and state securities or "blue sky" laws. There are in existence or
contemplated no options, warrants, agreements or similar rights granted by the
Company for the issue or sale by it of any securities, other than the
transactions contemplated by this Agreement and the transactions disclosed in
Exhibit C.
2.3 Financial Position. The Company's Balance Sheets as
at September 30, 1993 and Statements of Income and Retained Earnings and of
changes in Financial Position for its fiscal year then ended, as audited by
Ernst & Young and as set forth in Exhibit D, are true and correct in all
material respects as at such dates and for the periods then ended.
2.4 Duly Issued. The shares of the Common Stock issuable
upon exercise of the Warrants, upon such exercise and upon payment of the
Warrant Price provided therein, will be validly issued, fully paid and
nonassessable.
2.5 Authorization. This Agreement has been duly
authorized, executed and delivered by and on behalf of the Company, and
constitutes the valid and binding agreement of the Company, enforceable in
accordance with its terms. The Company has full power and lawful authority (1)
to amend the Debentures and rename them as the Senior Notes, (2) to deliver the
Warrants on the terms and conditions set forth in this Agreement, and (3) to
issue the Common Stock issuable upon exercise of the Warrants.
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2.6 Compliance with Laws. The Company is in compliance
with all laws, regulations and orders applicable to its business and properties,
and has all necessary permits and licenses.
2.7 Governmental Consents. Neither the execution and
delivery of this Agreement, nor the performance of the terms or consummation of
the transactions contemplated by the Company under this Agreement require any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body, or any filings pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any state other than those obtained prior to and effective as of the
Closing Date. Neither the Company nor any agent acting on its behalf has
offered, or will offer, to sell (or has solicited or will solicit any offer to
buy) the Debentures, the Senior Notes, the Warrants, or any shares of the Common
Stock of the Company issuable upon the exercise of the Warrants, so as to
require the registration of any of such securities under the Securities Act
other than as contemplated by Article 4 of this Agreement. Based in part on your
representations which are set forth in Article 3 of this Agreement, the offer,
sale and issuance of the Debentures pursuant to the Debenture Purchase
Agreement, the renaming of the Debentures as Senior Notes and amendment of the
Senior Notes, the delivery of the Warrants, and the offer, sale and issuance of
shares of the Common Stock to be issued upon exercise of the Warrants are exempt
from the registration requirements of the Securities Act.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
3.1 Investment Representation. You represent and warrant,
and in making the original sale to you of the Debentures, the renaming of the
Debentures as Senior Notes and amendment of the Senior Notes, and the delivery
to you of the Warrants it is specifically understood and agreed, that you
acquired the Debentures, that you agreed to the renaming and amendment of the
Senior Notes, that you are accepting the Warrants, and that you will (if you
choose to exercise the Warrants) acquire the shares of the Common Stock issuable
upon the exercise of the Warrants, for your own account and not with a view to
or for sale in connection with any distribution, and that you have no present
intention of distributing any of the same.
3.2 Stock Not Registered. You represent and acknowledge
that neither the Debentures, the Senior Notes, the Warrants, nor the shares of
the Common Stock issuable upon exercise of the Warrants have been registered
under the Securities Act or applicable state securities laws on the ground that
the original sale of the Debentures and the amendment, renaming, and delivery
provided for in this Agreement were and are exempt from registration under the
Securities Act. You acknowledge that the Company's reliance on such exemption is
predicated on your representations. You understand that the Senior Notes,
Warrants, and shares of Common Stock must be held indefinitely unless the offer
and sale are registered under the Securities Act and applicable state securities
laws or an exemption from registration is available. In particular, you are
aware that the Senior Note and Warrants, and any Common Stock issued on exercise
of the Warrants, may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of such rule are met. Among the
conditions for use of Rule 144 is the availability to the public of current
information about the Company. Such information is not now available and the
Company has no present plans to make such
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information available. You represent that, in the absence of an effective
registration statement covering the Senior Notes, Warrants, or any Common Stock
issued on exercise of the Warrants, you will sell, transfer, or otherwise
dispose of the Senior Notes, Warrants, or any Common Stock issued on exercise of
the Warrants, only in a manner consistent with your representations and then
only in accordance with the provisions of Section 4.1 of this Agreement. You
further represent and acknowledge that any certificate representing the Senior
Notes, Warrants, or the shares of the Common Stock issuable upon exercise of the
Warrants, will bear the legend set forth in Section 4.2 and that the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
with respect to such shares or make appropriate notations to such effect in its
own stock transfer records. You further represent and acknowledge that any
certificate representing the Senior Notes, Warrants, or the shares of the Common
Stock issuable upon exercise of the Warrants, may bear any legends required by
applicable state securities laws.
3.3 Investment Experience Etc. You represent that you (1)
have such knowledge and experience in financial and business matters that you
are capable of evaluating the merits and risks of the purchase of the
Debentures, of their renaming as Senior Notes and amendment, and of the
acceptance of the Warrants, (2) have a net worth significantly in excess of the
amount of your investment in the Debentures and are able to bear the economic
risk of the purchase of the Debentures and of the holding of the Senior Notes
and Warrants, (3) have had access to information with respect to the Company
necessary to permit you to make an informed investment decision, and (4) are an
"accredited investor" as that term is defined in paragraph (a) of Rule 501 of
Regulation D promulgated under the Securities Act.
3.4 Organization Etc. You represent and warrant to the
Company that, on the date hereof and on the Closing Date, (1) if you are a
corporation, you are duly organized and validly existing under the laws of your
state of incorporation, you are and will be in good standing under such laws and
you have the requisite corporate power and authority to enter into this
Agreement, (2) if you are a general or limited partnership, you are and will be
a general or limited partnership duly organized and validly existing under the
laws of your state of formation, and you are and will be in good standing under
such laws, and you have and will have all requisite partnership power and
authority to enter into this Agreement, (3) this Agreement has been duly
authorized, executed and delivered by you to the Company, and (4) upon execution
and delivery by the Company, this Agreement constitutes your valid and binding
agreement, enforceable in accordance with its terms.
4. SECURITIES ACT AND RELATED MATTERS.
4.1 Transfer Restrictions. You agree that you will not
offer for sale, sell or transfer all or any part of the Senior Notes or
Warrants, or the shares of the Common Stock or other securities issuable upon
exercise of the Warrants, unless and until (1) the sale of such securities is
registered under the Securities Act and all other qualifications and proceedings
under other state or federal laws or regulations required in connection with
such sale or transfer have been obtained or taken or (2) such securities are
sold or transferred in accordance with an available exemption from registration
or qualification under the Securities Act and any applicable state securities or
"blue sky" laws and the Company has received an opinion of
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counsel, which opinion and counsel shall each be reasonably satisfactory to the
Company, that registration is not required.
4.2 Legend on Certificate. Each certificate representing
the Senior Notes or Warrants, or any shares of the Common Stock or other
securities issued upon exercise of the Warrants, shall (unless in the opinion of
counsel, which opinion and counsel shall each be reasonably satisfactory to the
Company, the same is not necessary) bear a legend in substantially the following
form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
EFFECTIVE REGISTRATION STATEMENTS OR AN OPINION OF COUNSEL
ACCEPTABLE TO THIS COMPANY THAT REGISTRATION IS NOT REQUIRED."
Each certificate shall also bear any legends required by applicable state
securities laws. As used herein, "Restricted Security" means the Senior Notes
and Warrants, and shares of the Common Stock or other securities issued upon
exercise of the Warrants, and "Restricted Stock" means shares of Common Stock
issued upon exercise of the Warrants.
4.3 Registration Proposed by Company. If the Company
proposes to register any of its securities under the Securities Act (other than
a registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 under the Securities Act is applicable or a
registration using any form that does not permit secondary sales of securities)
it will give written notice to every holder of Warrants or Restricted Stock of
its intention to do so. Upon written request of any such holders delivered to
the Company within 30 days after receipt of such written notice (which request
shall state the number of shares of Restricted Stock to be registered and the
intended method of disposition) the Company will use its best efforts in
connection with such registrations of securities to be sold for the Company's
account, at its own expense to the extent provided in Section 4.5, to register
under the Securities Act all shares of Restricted Stock requested to be
registered by holders, all to the extent required to permit disposition in
accordance with the intended method. If such registration relates to an
underwritten public offering by the Company, only shares of Restricted Stock
which the requesting holders agree to include in the underwriting may be
included in the registration and, if the sole or managing underwriter of the
offering determines that the aggregate number of shares of Restricted Stock
requested to be included in the registration should be limited to a lesser
number due to market conditions or the necessity of including in such
underwriting and registration shares to be sold for the account of the Company,
then each holder who has requested that shares of Restricted Stock be included
in such underwriting and registration may sell only a pro rata portion of shares
of Restricted Stock.
4.4 Registration Requested by Purchasers. Upon written
request of the holder or holders of 50% of the Warrants then outstanding (or any
combination of the Warrants and of
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Common Stock issued upon exercise of the Warrants which together, prior to such
conversion, would have constituted 50% of the Warrants) made at any time (a)
prior to the giving of written notice by the Company of its intention to
register any of its securities under the provisions of Section 4.3, which
registration becomes effective within six months following the giving of such
notice, and (b) after the later of (x) January 12, 1990 or (y) 12 months from
the effective date of any prior registration statement covering shares of the
Company's Common Stock, which request demands that the Company file a
registration statement under the Securities Act covering the registration of
Restricted Stock, the expected price to the public of which equals or exceeds
$7,500,000, then the Company will upon one occasion (l) promptly give written
notice of such proposed registration to every other holder of Restricted
Securities and (2) as expeditiously as possible and in any event within 90 days,
use its best efforts, at its own expense to the extent provided in Section 4.5,
to effect registration under the Securities Act of
(a) the sale of the Restricted Stock which the
Company has been requested to register pursuant to the written
request referred to above, and
(b) all other Restricted Stock the holders of
which shall make written request for registration to the
Company, such written request to be delivered to the Company
within 30 days after the giving of the above written notice by
the Company,
all to the extent required to permit the disposition by the holders of the
securities so registered. The Company agrees that in-connection with effecting
any registration it will execute any required undertakings to file
post-effective amendments. The Company shall have no further obligations under
this Section 4.4 with respect to any subsequent registrations (1) after one
registration filed pursuant to any holder's request under this Section 4.4 (in
addition to any postponed registration as described below in this Section 4.4)
covering shares of Restricted Stock has become effective or (2) after you and
your permitted transferees hold, in the aggregate, an amount of the Warrants or
securities issued upon exercise of the Warrants, which constitute less than 10%
of the Warrants initially issued and sold pursuant to this Agreement.
Notwithstanding the foregoing if, within ten days following the receipt of the
request referred to in the first sentence of this Section 4.4, the Company shall
furnish to the requesting holder or holders a certificate stating that the
Company has determined to file within 60 days thereafter a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company, then the Company shall not be obligated to effect a
registration pursuant to this Section 4.4 for a period of six months from the
date of such certificate, provided that the Company shall actively employ in
good faith all reasonable efforts to cause the registration statement for the
underwritten public offering to become effective as soon as reasonably
practicable. The Company shall not be entitled to delay the exercise of the
rights of the holders under this Section 4.4 by invoking the provisions of the
preceding sentence on more than one occasion.
4.5 Costs and Expenses. All costs and expenses in
connection with the registration of securities under Sections 4.3 and 4.4,
including Federal and state registration and filing fees, printing expenses
(including the number of preliminary and final prospectuses, post-effective
amendments, and supplements reasonably requested by the holders of Restricted
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Stock), and the fees and disbursements of counsel and of independent accountants
and other experts of the Company, shall be borne by the Company; provided,
however, that the Company shall not be obligated to pay underwriter's discounts
and commissions and fees and disbursements of counsel for the holders of
Restricted Stock. The Company will use its best efforts to keep effective any
registration for the period reasonably necessary to effect disposition in
accordance with the intended methods described in the requests for registration,
but if the Company is requested or required to maintain the registration
effective for more than six months, all out-of-pocket expenses of the Company
incurred in maintaining effectiveness after the initial six-month period shall
be borne by the holders of securities who have requested that effectiveness be
maintained in order to continue with the distribution, in such proportions as
they may agree upon.
4.6 Information. The holders of Restricted Stock covered
by a registration statement as provided in Sections 4.3 or 4.4 shall furnish in
writing to the Company such information regarding them, any Restricted Security
held by them, and the intended method of disposition of the Restricted Stock as
the Company shall reasonably request and as shall be required in connection with
the actions to be taken by the Company pursuant to Sections 4.3 or 4.4.
4.7 Blue Sky Registrations. In the case of any
registration under this Article 4 of any shares of Restricted Stock, the Company
will use its best efforts concurrently to register or qualify the same for sale
under the securities laws of those states in which registration or qualification
is required, except that the Company shall not be required to execute a general
consent to service or to qualify to do business in any state.
4.8 Lockup Agreement. In consideration for the Company
agreeing to its obligations under this Article 4, each holder of Restricted
Securities agrees that, in connection with any registration of the Company's
securities, upon the request of the underwriter(s) managing any underwritten
offering of the Company's securities, such holders shall execute an agreement
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Restricted Stock, other than shares included in the
registration, without the prior written consent of the underwriter(s) for the
period of time (not to exceed 90 days) from the effective date of the
registration as the underwriter(s) may specify.
4.9 Transferability. Provided that the requirements of
Section 4.1 have been satisfied with respect to the sale or transfer of a
Restricted Security, any transferee shall be entitled to the rights and benefits
of, and shall be subject to the requirements of, Sections 4.2 through 4.8.
5. COMPANY'S AFFIRMATIVE COVENANTS. The Company shall comply with
the following requirements unless holders of not less than 50% in principal
amount of the Senior Notes then outstanding agree otherwise in writing. These
requirements shall terminate upon the earlier of (1) the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offering and sale of Common Stock, or any
security convertible into Common Stock, (other than a registration under which
more than 25% of Restricted Stock is not registered) or (2) the date when less
than 25% of the Senior Notes
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initially issued and sold under the Debenture Purchase Agreement and this
Agreement are held by the original holders of the Debentures or their permitted
transferees.
5.1 Reporting Requirements. The Company will deliver, or
cause to be delivered, to you each of the following:
(1) As soon as available, and in any event within 90 days
after the end of each fiscal year of the Company, audited financial statements
of the Company with the unqualified opinion of independent certified public
accountants selected by the Company, which annual financial statements shall
include the balance sheet of the Company as at the end of such fiscal year and
the related statements of income, retained earnings and cash flows of the
Company for the fiscal year then ended, all in reasonable detail and prepared in
accordance with generally accepted accounting principles consistently applied,
together with a certificate of the chief financial officer of the Company
stating (i) that such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied, (ii) whether such
officer has knowledge of the occurrence of any default hereunder and, if so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Company is in compliance with the financial covenants set
forth in this Agreement;
(2) As soon as available and in any event within 60 days
after the end of each quarter, an unaudited balance sheet and statements of
income and retained earnings of the Company as at the end of and for such
quarter and for the year to date period then ended, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end audit
adjustments and together with a certificate of the chief financial officer of
the Company stating (i) that such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied,
(ii) whether such officer has knowledge of the occurrence of any default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Company is in compliance with the
financial covenants set forth in this Agreement;
(3) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the Company shall have
sent to its stockholders;
(4) promptly after the sending or filing thereof, copies
of all regular and periodic financial reports which the Company shall file with
the Securities and Exchange Commission or any national securities exchange;
(5) promptly upon knowledge thereof, notice of the
violation by the Company of any law, rule or regulation, the non-compliance with
which could materially and adversely affect its business or its financial
condition; and
(6) from time to time, with reasonable promptness, any
and all other materials, reports, records or information with respect to
Company's financial condition, operations, and affairs as you may request.
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5.2 Books and Records; Inspection and Examination. The
Company will keep accurate books, records and accounts pertaining to the
Company's business and financial condition and such other matters as you may
from time to time request in which true and complete entries will be made in
accordance with generally accepted accounting principles consistently applied
and, upon your request, will permit you or your officer, employee, attorney or
accountant to audit, review, make extracts from or copy any and all corporate
and financial books and records of the Company at all times during ordinary
business hours and to discuss the affairs of the Company with any of its
directors, officers, employees or agents.
5.3 Compliance with Laws; Environmental Indemnity. The
Company will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition and (b) comply with all applicable
Environmental Laws and obtain any permits, licenses or similar approvals
required by any such Environmental Laws. The Company will indemnify, defend and
hold you harmless from and against any claims, loss or damage to which you may
be subjected as a result of any past, present or future existence, use,
handling, storage, transportation or disposal of any hazardous waste or
substance or toxic substance by the Company or on property owned, leased or
controlled by the Company. This indemnification agreement shall survive the
termination of this Agreement and payment of the indebtedness hereunder.
5.4 Payment of Taxes and Other Claims. The Company will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of the Company; provided, that the Company
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
5.5 Maintenance of Properties. The Company will keep and
maintain its properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided, however,
that nothing in this section shall prevent the Company from discontinuing the
operation and maintenance of any of its properties if such discontinuance is in
its judgment desirable in the conduct of the Company's business.
5.6 Insurance. The Company will obtain and at all times
maintain insurance with insurers believed by the Company to be responsible and
reputable, in such amounts and against such risks as is usually carried by
companies engaged in similar business and owning similar properties in the same
general areas in which the Company operates.
5.7 Preservation of Corporate Existence. The Company will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
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5.8 Book Net Worth. The Company shall maintain on the
last day of each quarter occurring in each of the periods set forth below, the
Book Net Worth (as that term is defined in the Company's credit agreement with
NBCI dated May 3, 1994) which is greater than or equal to the amount set forth
opposite such period:
PERIOD BOOK NET WORTH
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Date hereof to and including June 29, 1994 ($4,232,000)
June 30, 1994 to and including September 29, 1994 ($3,300,000)
September 30, 1994 to and including December 30, 1994 ($2,850,000)
December 31, 1994 to and including March 30, 1995 ($3,100,000)
March 31, 1995 to and including June 29, 1995 ($2,650,000)
June 30, 1995 to and including September 29, 1995 ($1,000,000)
September 30, 1995 to and including December 30, 1995 ($ 800,000)
December 31, 1995 to and including March 30, 1996 ($ 900,000)
March 31, 1996 to and including June 29, 1996 ($ 400,000)
June 30, 1996 to and including September 29, 1996 $1,000,000
September 30, 1996 and thereafter $1,600,000
5.9 Earnings Before Interest and Taxes. The Company shall
maintain on each date set forth below operating income determined in accordance
with generally accepted accounting principles but before any deduction for
interest expenses and income taxes and calculated for all dates prior to
September 30, 1994 on a fiscal year to date basis, and thereafter, for the
twelve months ending on such date, which is greater than or equal to the amount
set forth opposite such date:
DATE EBIT
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June 30, 1994 $ 700,000
September 30, 1994 $2,500,000
December 31, 1994 $3,400,000
March 31, 1995 $3,500,000
June 30, 1995 $3,600,000
September 30, 1995 $3,800,000
December 31, 1995 $3,800,000
March 31, 1996 $4,000,000
June 30, 1996 $4,300,000
September 30, 1996 and each fiscal quarter
end thereafter $4,300,000
5.10 Interest Coverage. The Company shall maintain on each
date set forth below, the ratio of (i) the sum of its pre-tax net income, to
(ii) interest expense, in each case determined in accordance with generally
accepted accounting principles, and calculated for all dates prior to September
30, 1994 on a fiscal year to date basis, and thereafter, for the twelve
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months ending on such date, which is greater than or equal to the ratio set
forth opposite such date:
DATE RATIO
---- -----
June 30, 1994 1.65 to 1
September 30, 1994 2.00 to 1
December 31, 1994 2.00 to 1
March 31, 1995 2.00 to 1
June 30, 1995 2.00 to 1
September 30, 1995 2.00 to 1
December 31, 1995 2.00 to 1
March 31, 1996 2.00 to 1
June 30, 1996 2.00 to 1
September 30, 1996 and each fiscal quarter
end thereafter 2.00 to 1
5.11 Minimum Debt Service Coverage. The Company shall
maintain on each date set forth below, the ratio of (i) the sum of its after-tax
net income, depreciation and amortization expense and interest expense, to (ii)
the sum of its interest, capital expenditures and current maturities of long
term debt (excluding as long term debt, the indebtedness of the Company to NBCI
incurred pursuant to the credit agreement between Company and NBCI, or any
replacement of such indebtedness), in each case determined in accordance with
generally accepted accounting principles, and calculated for all dates prior to
September 30, 1994 on a fiscal year to date basis, and thereafter, for the
twelve months ending on such date, which is greater than or equal to the ratio
set forth opposite such date:
DATE RATIO
---- -----
June 30, 1994 1.20 to 1
September 30, 1994 1.25 to 1
December 31, 1994 1.50 to 1
March 31, 1995 1.50 to 1
June 30, 1995 1.50 to 1
September 30, 1995 1.50 to 1
December 31, 1995 1.50 to 1
March 31, 1996 1.50 to 1
June 30, 1996 1.50 to 1
September 30, 1996 and each fiscal quarter
end thereafter 1.50 to 1
6. COMPANY'S NEGATIVE COVENANTS. The Company shall comply with
the following requirements unless holders of not less than 50% in principal
amount of the Senior Notes then outstanding agree otherwise in writing. These
requirements shall terminate upon the earlier of (1) the closing of an
underwritten public offering pursuant to an effective registration
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statement under the Securities Act covering the offering and sale of Common
Stock, or any security convertible into Common Stock, (other than a registration
under which more than 25% of Restricted Stock is not registered) or (2) the date
when less than 25% of the Senior Notes initially issued and sold under the
Debenture Purchase Agreement and this Agreement are held by the original holders
of the Debentures or their permitted transferees.
6.1 Dividends and Stock Repurchases. The Company will not
declare or pay any dividends (other than dividends payable solely in stock of
the Company) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly; provided,
however, that if the Company is an S Corporation within the meaning of the
Internal Revenue Code of 1986, as amended, or shall become such an S Corporation
with your consent, and after first providing such supporting documentation as
you may request, the Company may pay dividends in an amount equal to the amount
of state and federal income tax which would be due by each shareholder with
respect to income deemed to be received by each shareholder from the Company as
a result of the Company's status as an S Corporation at the highest marginal
income tax rate for federal and state (for the state or states in which each
shareholder is liable for income taxes with respect to such income) income tax
purposes, after taking into account any deduction for state income taxes in
calculating the federal income tax liability.
6.2 Sale of Transfer of Assets; Suspension of Business
Operations. The Company will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary or (ii) all or a substantial part of
its assets to any other Person other than the sale of Inventory in the ordinary
course of business and will not liquidate, dissolve or suspend business
operations. The Company will not in any manner transfer any property without
prior or present receipt of full and adequate consideration.
6.3 Accounting. The Company will not adopt any material
change in accounting principles other than as required by generally accepted
accounting principles. The Company will not adopt, permit or consent to any
change in its fiscal year.
6.4 Change in Ownership. Company will not issue or sell
any stock of the Company or permit or suffer to occur the sale, transfer,
assignment, pledge or other disposition of any shares of stock of the Company if
immediately thereafter Xxxxxxxx X. Xxxxxx or her lineal descendants are not
beneficial owners of at least 51% of the outstanding capital stock of the
Company.
7. CONDITIONS OF COMPANY'S OBLIGATION. The obligation of the
Company to effect this Agreement at the Closing is subject to the satisfaction,
prior to or at the Closing, of the condition that the representations and
warranties contained in Article 3 of this Agreement shall be correct when made
and as of the time of the Closing.
8. CONDITIONS OF YOUR OBLIGATION. Your obligation to effect this
Agreement at the Closing is subject to the satisfaction, prior to or at the
Closing, of the following conditions:
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8.1 Representations and Warranties Correct. The
representations and warranties contained in Article 2 of this Agreement shall be
correct when made and at and as of the time of the Closing.
8.2 Performance. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement and
required to be performed or complied with by it prior to or at the Closing.
9. MISCELLANEOUS.
9.1 Expenses. The parties will each pay all of their own
expenses incurred by them in connection with this Agreement.
9.2 Survival of Representations and Warranties. All
covenants, agreements, representations and warranties made in or otherwise in
writing in connection with this Agreement shall survive the execution and
delivery of this Agreement and the issuance and delivery of the Senior Notes and
Warrants.
9.3 Binding Effect Etc. All covenants, agreements,
representations and warranties contained in this Agreement shall bind and inure
to the benefit of the respective heirs, legal representatives, successors and
assigns of the parties. The rights of any transferee of a Restricted Security,
however, are subject to compliance with Section 4.1.
9.4 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received when delivered or
five days after deposit in the United States mail, first class postage prepaid,
addressed as set forth below:
(1) If to the Company:
000 Xxxxx Xxxxx Xxxxx
Xxxxx, Xxxxxxx 00000
Attention: President
with a copy to:
Xxxxx and Roca
00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxxx, Esq.
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(2) If to the Holder:
Provident Mutual Life Insurance Company of Philadelphia
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: _________________________
Any party may alter the person, officer or address to which
communications or copies are to be sent to it by giving notice.
9.5 Amendments and Waivers. Neither this Agreement nor
any of its terms may be changed, waived, discharged or terminated except in a
writing signed by all parties.
9.6 Controlling Law. This Agreement is being executed and
delivered, and the Senior Notes and Warrants are being delivered, in the State
of Arizona and shall be construed in accordance with and governed by the laws of
such state.
9.7 Counterparts. This Agreement may be executed in
several counterparts and each counterpart, when so executed and delivered and
whether or not each counterpart is executed by all the parties, shall constitute
an original instrument, but all such separate counterparts shall together
constitute this Agreement and be parts of the same instrument.
If you are in agreement with the foregoing, please sign the
form of acceptance appearing at the foot of the enclosed counterpart of this
Agreement and return the same to the Company, whereupon it will become a binding
agreement between you and the undersigned.
Yours very truly,
ROCKFORD CORPORATION
By: /s/ W. Xxxx Xxxxxx
__________________________________
President
Attest /s/ Xxxxx X. Xxxxxxx
__________________________________
Secretary
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The foregoing agreement is accepted as of the date first above written.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By: /s/
-----------------------------------------
Title: /s/
--------------------------------------
Attest /s/
--------------------------------------
Title: /s/
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