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Exhibit 10.40
STOCK PURCHASE AGREEMENT
Among
AI Research, Inc. ("Company"),
The Shareholders of Company,
("Shareholders" and, together with Company, "Seller")
and
Rockford Corporation ("Purchaser")
Dated as of June 16, 2001
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STOCK PURCHASE AGREEMENT*
This Stock Purchase Agreement ("Agreement") is between:
- AI Research, Inc. ("Company");
- all shareholders of Company, as identified on the signature
page of this Agreement, ("Shareholders" and, together with
Company, "Seller"); and
- Rockford Corporation ("Purchaser").
Seller and Purchaser agree as follows:
1. BACKGROUND AND DEFINITIONS.
1.1 Company Business Company manufactures and sells custom speaker
enclosures for car audio systems and engages in other related
business (the "Business");
1.2 Acquisition. Shareholders have agreed to sell to Purchaser all
of Company's common stock. Purchaser and Seller have agreed to
complete the acquisition on the terms described in this
Agreement;
1.3 Shareholders. Shareholders hold all of Company's currently
outstanding Shares;
1.4 Purpose. The purpose of this Agreement is to state the terms
of Purchaser's acquisition of the Shares;
1.5 Definitions. In this Agreement:
(a) Affiliate means any Person who controls, is
controlled by, or is under common control with
another Person (directly or indirectly, alone or
together with others);
(b) Agreement means this Agreement and each of the
Schedules and certificates delivered with this
Agreement. The Schedules and certificates are a part
of this Agreement;
(c) Business has the meaning given in Section 1.1 and
includes all operating parts of AI including Q-Logic,
Kenwood OEM, and Garage Storage Cabinets operations;
(d) Closing means the consummation of the transactions
contemplated by this Agreement;
(e) Closing Date means the day on which the Closing
actually takes place;
(f) Company means AI Research, Inc., an Oklahoma
corporation;
(g) Contract means any contract, indenture, mortgage or
deed of trust, lease, purchase order, guaranty,
insurance policy, bond, license, instrument,
understanding, obligation, or other agreement. A
Contract may be written or oral;
* Confidential Treatment Requested. Confidential portions
of this document have been redacted and have been
separately filed with the Commission.
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(h) Employment Contracts means all Contracts related to
employment, including both individual agreements and
collective bargaining agreements;
(i) Employment Plans means all executive compensation
plans, bonus plans, holiday and other bonus
practices, deferred compensation agreements, pension
or retirement plans, employee stock option or stock
purchase plans, employee life, heath, and accident
insurance, and other employee benefit plans,
agreements, arrangements or commitments;
(j) Encumbrance means any mortgage, pledge, lien, claim,
charge, security interest, restriction, easement,
right of way, or other liability that is a charge
against an asset;
(k) Environmental Laws means all Laws relating to the
environment or Hazardous Materials, including the
Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), 42 U.S.C. Section 9601 et seq.; the Toxic
Substance Control Act ("TSCA"), 15 U.S.C. Section
2601 et seq; the Hazardous Materials Transaction Act,
49 U.S.C. Section 1802 et seq; the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Section 9601 et seq; the Clean Water Act ("CWA"), 33
U.S.C. Section 1251 et seq; the Safe Drinking Water
Act, 42 U.S.C. Section 300(f) et seq; the Clean Air
Act ("CAA"), 42 U.S.C. Section 7401 et seq; the
Federal Insecticide, Fungicide and Rodentcide Act
("FIFRA), 7 U.S.C. Section 136 et seq; and the Solid
Waste Disposal Act ("SWDA") 42 U.S.C. Section 6901
et seq;
(l) Financial Statements and Financial Statement Date
have the meaning given in Section 6.8;
(m) Government means any legislature, executive,
department, administrative agency, municipality,
subdivision, instrumentality, or other authority of
the United States, any state, any locality, or any
foreign country or political subdivision of a foreign
country;
(n) Hazardous Materials means hazardous wastes, hazardous
substances, hazardous constituents, toxic substances,
pollutants, contaminants, radioactive materials,
related materials, and any other substances,
constituents or wastes, whether solids, liquids or
gases, subject to regulation under any Environmental
Laws;
(o) Information means information supplied to Purchaser
by Company or Shareholder under Section 8.8 of this
Agreement;
(o1) Kenwood OEM means the business described in the
unexecuted document attached as Exhibit 1.5(o1).
(p) Laws means any law, statute, ordinance, rule,
regulation, or Order;
(q) Loss means all expenses (including reasonable
attorneys and accountants fees), losses, taxes,
claims, damages, awards, fines, interest, penalties,
and liabilities net of related income tax benefits,
if any;
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(r) Order means any order, decree, decision, injunction,
finding, or judgment;
(s) Permits means approvals, permits, licenses, filings,
registrations, certificates, orders, authorizations,
qualifications, or other consents from any
Government, self-regulatory authority, or any other
third party;
(t) Person means any individual person and any
corporation, partnership, joint venture, limited
liability company, or other entity;
(u) Proceeding means any claim, action, suit, mediation,
arbitration, labor grievance, Government
investigation, or other legal or administrative
proceeding;
(v) Properties means all properties and assets reflected
in Company's financial statements or in Schedule
6.17;
(w) Purchase Price means the purchase price of the Shares
equal to $4,500,000 payable as set forth in this
Agreement, subject to adjustment and deductions as
provided in Section 4 of this Agreement;
(x) Purchaser means Rockford Corporation, an Arizona
corporation;
(y) Security Rights means all subscriptions, options,
warrants, calls, contracts, demands, commitments,
convertible securities, preemptive or other
agreements or arrangements to acquire common stock or
other securities of a Person;
(z) Seller means Company or Shareholders;
(aa) Shareholders means each of the Persons who own Shares
(of record or beneficially). Shareholders are
identified on Schedule 6.6;
(bb) Shareholders' Representative means the representative
selected by Shareholders pursuant to Section 8.9 who
is authorized to act on behalf of Shareholders;
(cc) Shares means:
(1) outstanding common stock of Company, and
(2) outstanding Security Rights to acquire
common or preferred stock of Company; and
(dd) Tax means any tax, assessment, duty, or governmental
charge or deposit, including income, property, ad
valorem, gross receipts, sales, use, value added,
transaction privilege, occupation, franchise,
transfer, excise, goods and services, payroll,
employment, profits, capital, severance, production,
premium, payroll, stamp, unemployment insurance,
disability, workers' compensation, withholding, and
social security tax. Tax also includes all interest
and penalties, whether disputed or not, imposed by
any Government.
2. PURCHASE AND SALE OF SHARES. At the Closing and subject to this
Agreement, Purchaser will purchase from Shareholders, and Shareholders
will sell to Purchaser, all of the
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Shares. As a result of the purchase, Purchaser will become the sole
owner of all of the Shares and Company will become a wholly owned
subsidiary of Purchaser.
3. CLOSING. The Closing will take place:
3.1 at 10:00 A.M., local time on or before July 31, 2001 (except
that either party may delay the closing until not later than
August 31, 2001 if a Xxxx-Xxxxx-Xxxxxx or other governmental
filing is required and cannot be completed despite its best
efforts, so that a closing is not possible by July 31); and
3.2 at the offices of Steptoe & Xxxxxxx LLP, Counsel for
Purchaser, 000 X Xxxxxxxxxx Xx., Xxxxx 0000, Xxxxxxx, Xxxxxxx
00000
or at another agreed upon time and place.
4. PAYMENT OF PURCHASE PRICE.
4.1 Purchase Price. Purchaser will pay the Purchase Price to
Shareholders at the Closing, net of the deductions authorized
in this Agreement. The Purchase Price is payable to each
Shareholder in proportion to each Shareholder's ownership of
Shares. The Purchase Price has three components that will be
paid as follows:
(a) $3,800,000 payable to the Shareholders at the Closing
by cashier's check or wire transfer in accordance
with wiring instructions given to Purchaser at least
72 hours prior to Closing (the "Initial Payment");
(b) $200,000 that Purchaser will hold for the purpose of
securing Shareholders' indemnity obligations under
Section 14 (the "Reserve"). Purchaser will retain the
Reserve until expiration of Shareholders' indemnity
obligations (including the resolution of any claims
that Purchaser gives Shareholders' Representative
notice of before expiration). Purchaser will pay to
Shareholders the balance of the Reserve 6 months
after the Closing, but only after deducting all
Losses resulting from valid claims for
indemnification and withholding a reasonable reserve
for any claims made under Sections 14 and 15 below.
For amounts held after 6 months, Purchaser will
promptly pay the balance to Shareholders as soon as
outstanding claims under Sections 14 and 15 are
resolved, after deducting all Losses resulting from
the resolved claims;
(c) $500,000 contingent "earn-out" payment payable to the
Shareholders prorated over 3 years after the Closing
based upon Company meeting the net sales and gross
margin percentage targets shown on Exhibit 4.1(c)
(the "Earnout").
4.2 Closing Adjustments and Procedure at Closing. Purchaser will
reduce the Purchase Price paid at Closing by the amount of the
following deductions:
(a) [Intentionally Omitted]
(b) Bank Debt. The amount of all bank debt outstanding
other than the bank debt listed on Exhibit 4.2(b).
(c) Security Rights. The amount due each Shareholder
holding a Security Right will be computed as if the
Security Right were the number of Shares
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into which the Security Right is convertible and will be net
of the amount Shareholder would pay under the Security Right
to acquire common shares of Company.
4.3 Release of Guaranties. In addition to the Purchase Price,
Purchaser will assume or pay off all debt listed on Exhibit
4.2(b). If Purchaser leaves outstanding after the Closing any
of the debt listed on Exhibit 4.2(b), Purchaser will promptly
take all reasonable steps necessary to secure a release of any
guarantees of such debt provided by the Shareholders or their
affiliates.
5. EMPLOYMENT OF KEY EMPLOYEES AND COMPENSATION. At the Closing, Purchaser
will enter into the following additional agreements and undertake to
provide the following additional consideration:
5.1 Employment of Key Employees. Purchaser will enter into an
Employment Agreement with the Key Employees identified on
Schedule 5.1 substantially in the form of Exhibits 5.1(a) and
5.1(b);
5.2 Employment of other Employees and Retention Incentive Program.
Purchaser will employ the employees of Company identified on
Schedule 5.2 (the "Other Employees") but is not obligated to
enter into an employment agreement with any of the Other
Employees. As a condition to his or her continued employment,
Purchaser may require that each Other Employee sign and
deliver to Purchaser an invention agreement in the form of
Exhibit 5.2. Purchaser will establish an employee retention
incentive program (the "Program") that will, subject to
reasonable eligibility requirements, apply to Company
employees other than Shareholders. Purchaser will design the
Program to pay retention incentives to employees who continue
to work for Company or Purchaser for six months and one year
after the Closing. The incentives will also be payable if
Purchaser completely closes Company's plant before the
incentives would otherwise vest. Purchaser expects to pay an
aggregate of $200,000 to $250,000 to eligible employees under
the Program.
6. REPRESENTATIONS AND WARRANTIES BY COMPANY AND SHAREHOLDERS. Company and
Shareholders represent and warrant to Purchaser that as of the date of
this Agreement and as of the Closing Date:
6.1 Organization and Authority to Conduct Business.
(a) Company is duly organized, validly existing and in
good standing under the laws of Oklahoma.
(b) Company is qualified to do business and is in good
standing in each of the jurisdictions identified on
Schedule 6.1. These are all the jurisdictions in
which Company must be qualified or in which the lack
of such qualification would have a material adverse
effect on the financial condition of the Company.
(c) Company has all requisite corporate power and
authority to carry on its business as now conducted,
to own, lease, or operate its properties and to carry
out the transactions contemplated by this Agreement.
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(d) Each Shareholder has all requisite power and
authority to carry out the transactions contemplated
by this Agreement.
(e) Company has delivered to Purchaser complete copies of
Company's articles of incorporation and bylaws as
amended;
6.2 Authorization and Approval of Agreement. Company and each
Shareholder:
(a) has taken, or will take before the Closing, all
actions; and
(b) has secured, or will secure before the Closing, all
material Permits
required to authorize the execution, delivery, and
consummation of this Agreement and the transactions
contemplated by this Agreement;
6.3 Binding Effect. This Agreement, and each document executed by
Company or a Shareholder in connection with this Agreement:
(a) constitutes the valid, binding, and enforceable
obligation of Company and the Shareholders;
(b) has been duly executed and delivered by Company and
each Shareholder; and
(c) has been duly authorized by all necessary corporate
or other action;
6.4 Execution, Delivery and Performance of Agreement. The
execution, delivery, and performance of this Agreement by
Company and Shareholders will not (with or without the giving
of notice or the passage of time) conflict with, result in a
default under, result in the creation of any Encumbrance
pursuant to, or result in the acceleration of any obligation
under or permit the termination of:
(a) Company's articles of incorporation or bylaws; or
(b) any material Contract or Law to which Company or any
Shareholder is a party or by which it may be bound.
6.5 Subsidiaries. Company does not own or have any investment in
any other Person.
6.6 Capitalization and Share Ownership.
(a) The authorized, issued, and outstanding capital stock
of Company, and the record and beneficial owners of
such capital stock, are as set forth on Schedule 6.6.
(b) Except as set forth on Schedule 6.6, there are no
outstanding Security Rights under which Company is or
may become obligated to issue, assign or transfer any
shares of the capital stock of Company.
(c) All the Shares are validly issued and outstanding,
fully paid, and non-assessable and were issued in
compliance with all applicable securities laws.
(d) Each Shareholder owns the Shares identified on
Schedule 6.6 of record and beneficially, free and
clear of all Encumbrances, rights of first refusal,
preemptive rights or other restrictions except as set
forth on Schedule 6.6.
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(e) Upon delivery of the payment for the Shares at the
Closing, Purchaser will acquire good and valid title
to all the Shares free and clear of all Encumbrances,
rights of first refusal, preemptive rights or other
restrictions;
6.7 Transactions with Affiliates.
(a) Company has not, directly or indirectly,
- purchased, sold, leased, or otherwise
acquired from;
- disposed of any property to;
- obtained any services from or furnished any
services to; or
- otherwise dealt with
any Shareholder, or any Affiliate of Company or a
Shareholder, except as set forth on Schedule 6.7(a).
(b) Company
- does not owe any amount to;
- is not owed any amount by; and
- does not have any Contract with or
commitment to
any shareholder, director, officer, employee,
consultant or Affiliate, except for Contracts for
current services not yet due or as set forth on
Schedule 6.7(b).
(c) Company does not possess or use any properties or
assets of any Shareholder or any Affiliate of any
Shareholder, except as set forth on Schedule 6.7(c);
6.8 Financial Statements. Company has delivered to Purchaser
copies of the following financial statements (the "Financial
Statements"):
(a) balance sheets as of its fiscal years ending June 30,
2001 (the "Financial Statements Date") and June 30,
2000, 1999, 1998, 1997, and 1996; and
(b) statements of earnings and (to the extent reasonably
available) sources and application of funds for the
periods then ended.
The Financial Statements
(1) fairly present Company's financial condition and
results of operations for the periods reported;
(2) are prepared in accordance with Generally Accepted
Accounting Principles, consistently applied ("GAAP")
except for exceptions noted in the Financial
Statements, in Schedule 6.8, or elsewhere in this
Agreement; and
(3) in the case of year end statements, are compiled by
Xxxxxx, Xxxxxxx and Xxxxxxx, Inc., Company's
independent accountants.
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6.9 Absence of Undisclosed Liabilities. As of the Financial
Statements Date Company had no material debts or liabilities
except as disclosed in the Financial Statements or this
Agreement or on Schedule 6.9. Since the Financial Statements
Date Company has not incurred additional material debts or
liabilities except as disclosed in Schedule 6.9 or elsewhere
in this Agreement;
6.10 Litigation. Except as set forth in Schedule 6.10,
(a) There is no material Proceeding pending or, to their
knowledge, threatened; and
(b) There is no material Order in effect or, to their
knowledge, threatened
against or relating to
(1) Company or Company's properties, assets, or business;
(2) Company's officers, directors, or employees in their
capacities as such or on account of any action taken
or done in such capacities; or
(3) the transactions contemplated by this Agreement.
They do not know, or have reason to know, any basis for such a
material Proceeding or Order;
6.11 Bankruptcy Proceedings. Company is not involved in any
Proceeding by or against it
(a) under the Bankruptcy Code;
(b) under any other insolvency or debtors' relief act; or
(c) for the appointment of a trustee, receiver,
liquidator, assignee, sequestrator or other similar
official;
6.12 Taxes. Except as set forth in Schedule 6.12:
(a) Company has paid, or will pay before their due date,
all material Taxes due on or before the Closing or
due after the Closing in respect of Company's
operations before the Closing;
(b) Company has timely filed, or will timely file, all
tax returns required in connection with any material
Taxes, and has not made any requests for extensions.
All such returns are accurate and comply with
applicable Law;
(c) Company has made all material deposits required by
Law.
(d) Company has not been delinquent in the payment of any
material Tax or has paid any penalty and interest
associated with a delinquency; and
(e) Company is not currently the subject of any Tax
audit, has no reassessment of any Tax proposed, and
knows of no basis for any such reassessment;
6.13 Compliance with Laws, Permits, and Contracts. To the best of
Company's and Shareholders's knowledge, and except as set
forth in Schedule 6.13:
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(a) Company has complied in all material respects with
all Laws applicable to its Business, Properties, or
operations as presently conducted and as conducted in
the past;
(b) Company has secured and is in compliance with all
material Permits required for its Business,
Properties, and operations as presently conducted;
(c) Company has not offered, paid, or agreed to pay money
or anything of value for the purpose of or with the
intent of obtaining or maintaining business for
Company, or otherwise benefiting Company, in
violation of any Law (including Section 30A(a) of the
Securities Exchange Act of 1934, as amended); and
(d) The ownership and present use of Company's
properties, and the conduct of its business,
- does not materially conflict with the rights
of any other person; and
- will not (with or without the giving of
notice or the passage of time) conflict with
or result in a default under
(1) Company's articles of incorporation
or bylaws; or
(2) any material Contract or Law to
which Company is a party or by
which it is affected;
6.14 Enforceability of Contracts, No Defaults. Except as set forth
on Schedule 6.14:
(a) all Contracts identified in this Agreement to which
Company is a party are effective, valid, binding, and
enforceable in accordance with their terms; and
(b) Company does not know, or have reason to know, of any
material default (or event which, after notice or
lapse of time, would constitute a material default)
of such Contracts;
6.15 Product Recalls. Except as set forth on Schedule 6.15, Company
has not within the past 5 years:
(a) been party to any Proceeding brought by a Government;
or
(b) been subject to any Order;
that required, or sought to require, that Company recall any
products that Company designed, manufactured, assembled,
shipped, sold, distributed, installed, repaired or maintained.
Company does not know, or have reason to know, of any
voluntary recall undertaken to avoid a Proceeding or Order or
of any pending or threatened Proceeding or Order that would
require such a recall;
6.16 Environmental Matters. Except as set forth on Schedule 6.16:
(a) Company is in material compliance with Environmental
Laws;
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(b) Company has secured all material Permits required
under Environmental Laws for the operation of the
Businesses (and such Permits are listed on Schedule
6.16);
(c) Company does not know, or have reason to know, of any
material pending or threatened Proceedings against
Company with respect to Environmental Laws;
(d) Company does not know, or have reason to know, of any
act attributable to Company that could give rise to
material liability under CERCLA or any other
Environmental Law. Company has not submitted notice
pursuant to Section 103 of CERCLA with respect to any
of the Properties;
(e) To its knowledge, Company owns or operates no
underground storage tank except for tanks in material
compliance with Environmental Laws. All of Company's
underground storage tanks are identified on Schedule
6.16; and
(f) Company does not know, or have reason to know, of any
Hazardous Materials that have been released,
discharged, deposited, emitted, leaked, spilled,
poured, emptied, injected, dumped or disposed of on,
in, or under the Properties by Company or any other
Person in a manner that materially violates any
applicable Environmental Law;
6.17 Properties. Schedule 6.17 lists:
(a) Real Property.
- All real property Company owns, leases, or
uses in its business;
- the terms on which Company owns, leases, or
uses such property; and
- the terms of any Encumbrances affecting
Company's interest in such property;
(b) Personal Property.
- All tangible personal property (other than
inventory and supplies) Company owns, leases
or uses in its business, except for owned
items having a value of less than $1,000 and
leased items requiring lease payments less
than $1,000;
- the terms on which Company owns, leases, or
uses such property; and
- the terms of any Encumbrances affecting
Company's interest in such property;
(c) Title. Company has satisfactory title to all
properties and assets reflected in the Financial
Statements or in Schedule 6.17 (the "Properties"),
free of any Encumbrance, except:
- Properties sold or otherwise disposed of in
the ordinary course of business consistent
with past practice after the Financial
Statements Date; or
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- as set forth in Company's financial
statements or in Schedule 6.17; and
(d) The Properties are in good operating condition and
repair, are suitable for the purposes used, and are
adequate for the current operations of Company.
Together with inventory and supplies, the Properties
are all of the properties and tangible assets used in
connection with, necessary for the conduct of, or
otherwise material to the Business. Company does not
know, or have reason to know, of any pending or
threatened condemnation affecting the Properties;
6.18 Insurance. Schedule 6.18 lists all material insurance policies
insuring, and all material performance bonds issued in favor
of, Company, specifying
(a) the name of the insurer or bonding company;
(b) the risk insured or bonded;
(c) the limits of coverage;
(d) the deductible (if any);
(e) the premium (including any proposed premium increases
known to Company);
(f) any notice of cancellation or nonrenewal; and
(g) the date through which coverage will continue by
virtue of premiums already paid;
6.19 Development and Distribution Agreements. Schedule 6.19 lists
all material Contracts of Company but excluding:
- Contracts listed or excluded elsewhere in
this Agreement; and
- any Contract entered into in the ordinary
course of business terminable by Company in
less than 30 days or involving payment or
receipt of less than $10,000
relating to development of Company's products, Company's
development of products for others, distribution of products,
or the services of an independent contractor;
6.20 Other Contracts. Schedule 6.20 lists:
(a) Each loan, conditional sales, or security agreement
of Company with an unpaid balance more than $10,000;
(b) Each material license agreement relating to
intellectual property of Company (other than licenses
incident to leases of computers, software, or office
or photographic equipment used in the ordinary course
of business); and
(c) All material Contracts of Company but excluding:
- Contracts listed or excluded elsewhere in
this Agreement; and
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- any Contract entered into in the ordinary
course of business terminable by Company in
less than 30 days or involving payment or
receipt of less than $10,000;
6.21 Employment Matters.
(a) Employment Contracts and Plans. Schedule 6.21 lists
- all material Employment Contracts and
Employment Plans of Company; and
- the names and current annual rates of
compensation of all personnel (including
employees and independent contractors) whose
2000 compensation was $75,000 or more;
(b) Compliance with Employment Laws. Company:
- is in material compliance with all Laws
regulating employment practices, terms and
conditions of employment and wages and
hours;
- is not subject to any unfair labor practice
complaint or other petition before the
National Labor Relations Board;
- is not subject to any material labor strike,
dispute, slow-down or stoppage;
- is not subject to any material Proceeding
arising out of or under a collective
bargaining agreement; and
- has not experienced any primary work
stoppage or other labor difficulty involving
its employees during the past three years;
(c) Plan Compliance. Company has administered and
maintained the Employment Plans in material
compliance with all applicable Laws. Company does not
know, or have reason to know, of any prohibited
transaction (as defined in ERISA) relating to any
Employment Plan;
6.22 No Guaranties. Company has not guaranteed the obligations or
liabilities of any Person;
6.23 Intellectual Property. Schedule 6.23 lists all material
patents, trademarks, trade names, service marks, other trade
rights, copyrights, licenses, and similar intangibles (the
"Intellectual Property") that Company owns, uses, or has
registered. Except as disclosed on Schedule 6.23:
(a) Company is not obligated to pay any royalty with
respect to Intellectual Property;
(b) Company does not know, or have reason to know, of any
pending or threatened Proceedings alleging that
Company has infringed on any third party's
Intellectual Property (or of any basis for such a
Proceeding);
6.24 Inventory. Except as disclosed on Schedule 6.24, Company's
inventory and related supplies are merchantable or suitable
for sale in the ordinary course of business;
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6.25 Receivables. Schedule 6.25 lists all accounts receivable of
the Company as of the date indicated. All receivables listed,
and all receivables that have arisen since such date, arose
from transactions in the ordinary course of business. Company
has received no notice, and has no knowledge, that any obligor
of any such receivables contests or disputes the validity or
the amount owed;
6.26 Records. Except as set forth in Schedule 6.26, the books of
account, minute books, stock certificate books, and stock
transfer ledgers ("Books") of Company are complete and correct
in all material respects. Company knows of no material
transactions involving the business of Company that properly
should have been but are not set forth in the Books;
6.27 Official Filings Complete. Company has made all material
required Government filings;
6.28 Absence of Changes or Events. Except as set forth in Schedule
6.28, as expressly permitted or contemplated by the terms of
this Agreement, or with Purchaser's written consent, since the
Financial Statements Date, Company has conducted business only
in the ordinary course and, since the Financial Statements
Date, has not taken, or entered into any agreement or made any
commitment to take, any of the following actions:
(a) Incurred any obligation or liability, except
liabilities
- for trade or business obligations incurred
in the ordinary course of business; or
- which do not materially affect its business
or financial condition;
(b) Paid any obligation or liability other than current
liabilities incurred in the ordinary course of
business;
(c) Declared or paid dividends or other distributions to
its shareholders or purchased, retired or redeemed,
or obligated itself to purchase, retire or redeem,
any of its capital stock;
(d) Purchased, retired or redeemed, or obligated itself
to purchase, retire or redeem, any of its capital
stock;
(e) Issued or sold any Shares or other securities;
(f) Acquired any capital stock of, interest in, or other
securities of any Person, or otherwise made any loan
or advance to or investment in any Person;
(g) Subjected any Properties to any Encumbrance, except
in the ordinary course of business;
(h) Sold or otherwise disposed of any Properties, except
in the ordinary course of business;
(i) Cancelled, compromised, waived, or released any
material debt, claim, or right, except in the
ordinary course of business;
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(j) Received or given notice of termination of any
Contract whose termination has had, or may have, a
material adverse effect on its business or financial
condition;
(k) To its knowledge, experienced any labor union
organizing activity, had any actual or threatened
employee strikes, work stoppages, slow-downs, or
lock-outs, or had any material change in the terms of
agreements with its employees, agents, customers or
suppliers;
(l) Made or agreed to make any change in the compensation
payable to any director, officer, or employee, except
for normal periodic bonus accruals and normal
periodic increases in regular compensation;
(m) Acquired any capital assets that cost in excess of an
aggregate of $50,000;
(n) Instituted, settled or agreed to settle any material
Proceeding; or
(o) Suffered any change, event, condition, damage,
destruction, or loss having a material adverse affect
on its business or financial condition;
6.29 Disclosure. No representation or warranty by Company in this
Agreement and no certificate or other instrument furnished by
or on behalf of Company or Shareholders to Purchaser
(a) contains or will contain any untrue statement of a
material fact; or
(b) omits or will omit to state any material fact
required to make the statements made in this
Agreement and such certificates, taken as a whole,
not misleading.
The representations and warranties contained in this Agreement
will not be affected or deemed waived by reason of any
investigation by Purchaser or its representatives.
7. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser represents and
warrants to Seller that as of the date of this Agreement and as of the
Closing Date:
7.1 Organization and Authority. Purchaser is a corporation duly
organized, validly existing and in good standing under the
laws of Arizona. Purchaser has all requisite power and
authority to carry on its business as presently conducted, to
enter into this Agreement, and to carry out the transactions
contemplated by this Agreement;
7.2 Authorization and Approval of Agreement. Purchaser
(a) has taken all actions; and
(b) has secured, or will secure before the Closing, all
material Permits
required to authorize the execution, delivery, and
consummation of this Agreement and the transactions
contemplated by this Agreement;
7.3 Binding Effect. This Agreement, and each document executed by
Purchaser in connection with this Agreement, constitutes the
valid, binding, and enforceable obligation of Purchaser, has
been duly executed and delivered by Purchaser, and has been
duly authorized by all necessary corporate action;
16
7.4 Execution, Delivery and Performance of Agreement. The
execution, delivery, and performance of this Agreement by
Purchaser will not (with or without the giving of notice or
the passage of time) conflict with, result in a default under,
or result in the creation of any Encumbrance pursuant to:
(a) Purchaser's certificate of incorporation or bylaws;
or
(b) any material Contract or Law to which Purchaser is a
party or by which it may be bound;
7.5 Investment Intent. Purchaser acknowledges that:
(a) the Shares are not registered under the Securities
Act of 1933, as amended (the "Securities Act"); and
(b) Purchaser may not resell the Shares unless they are
registered or exempt from registration;
(c) Purchaser is acquiring the Shares for its own
account, for investment purposes only and not with a
view toward their distribution;
7.6 Purchaser's Independent Investigation. Purchaser and its
representatives have independently investigated Company and
the Business. Purchaser acknowledges that there are no
representations or warranties, express or implied, about
Company or the Business except for the representations and
warranties in this Agreement and each certificate and
instrument furnished in connection with this Agreement.
Purchaser is not relying on any written or oral information
about Company or the Business (including financial or
forward-looking information) except for the representations
and warranties in this Agreement and each certificate and
instrument furnished in connection with this Agreement;
7.7 Plant Closing. Purchaser has no definite plans to implement
any mass lay-off, plant closing, or other covered employment
loss (a "Lay-off"), as those terms are defined by the Worker
Adjustment and Retraining Notification Act, 229 U.S.C. Section
2101-2109 (the "Act"), within sixty-one (61) days of the
Closing Date. If it implements a Lay-off after the Closing,
Purchaser will comply with the Act;
7.8 Litigation. There is no material Proceeding pending or, to its
knowledge, threatened; and there is no material Order in
effect relating to the transactions contemplated by this
Agreement. Purchaser does not know of any basis for such a
Proceeding or Order;
7.9 Disclosure. No representation or warranty by Purchaser in this
Agreement
(a) contains or will contain any untrue statement of a
material fact; or
(b) omits or will omit to state any material fact
required to make the statements made in this
Agreement not misleading.
The representations and warranties contained in this Agreement
will not be affected or deemed waived by reason of any
investigation by Company or its representatives; and
17
7.10 Bankruptcy Proceedings. Purchaser is not involved in any
Proceeding by or against it
(a) under the Bankruptcy Code;
(b) under any other insolvency or debtors' relief act; or
(c) for the appointment of a trustee, receiver,
liquidator, assignee, sequestrator or other similar
official.
8. PRE-CLOSING COVENANTS. After the execution of this Agreement and before
the earlier of the Closing or termination of this Agreement:
8.1 Consents and Approvals. Purchaser and Company will cooperate
(a) to obtain as expeditiously as possible all material
Permits necessary to carry out the transactions
contemplated by this Agreement; and
(b) to comply with all material Laws regulating or
restricting the transactions contemplated by this
Agreement;
8.2 Conduct of Business. Company will conduct business only in the
ordinary course consistent with past practice or as otherwise
specifically permitted by this Agreement except for change to
which Purchaser consents in writing. Company will maintain and
preserve the Properties and will use best efforts:
(a) to preserve the business and organization of Company;
(b) to maintain the general character of the Business and
conduct its business, operations, activities, and
practices in a reasonable manner in accordance with
its past practices;
(c) to keep available to Purchaser the services of
Company's officers, employees, agents and independent
contractors; and
(d) to preserve for the benefit of Purchaser the goodwill
of Company's suppliers, customers, landlords and
others having business relations with it;
8.3 Consultation. Company will consult with Purchaser about
material changes in the conduct of Company's business and,
after Purchaser's due diligence review, will consider
establishing reserves for inventory or other items (for
example, for the Company's Kenwood video inventory) after
consultation with Purchaser. Company is not required to take
or fail to take any action that, in Company's reasonable
judgment, is likely to result in:
(a) a substantial penalty;
(b) a claim for damages by any third party against
Company;
(c) losses to Company;
(d) prejudice to or interference with Company's business
and operations; or
(e) a breach by Company of any of the representations and
warranties made by it in this Agreement;
18
8.4 Approval of Certain Transactions; Operating Requirements.
Company will not, without Purchaser's prior written approval,
take or agree to take the following actions:
(a) change its articles of incorporation or bylaws;
(b) merge or consolidate (or agree to merge or
consolidate) with or into any Person;
(c) sell or purchase any Shares or any other securities;
(d) declare or pay any dividend or other distribution;
(e) authorize or effect any split-up or recapitalization,
or make any changes in its authorized or issued
capital stock;
(f) incur any additional debt, other than trade debt
incurred in the ordinary course of business;
(g) increase the compensation of any officers, directors,
or employees, except for normal periodic bonus
accruals and normal periodic increases in regular
compensation;
(h) assume or guarantee the obligations of any party
except for Company;
(i) take any action which would breach any of its
representations and warranties in this Agreement;
(j) sell or otherwise dispose of any of its assets except
in the ordinary course of business;
(k) subject any Properties to an Encumbrance, other than
in the ordinary course of business; or
(l) enter into or terminate any material Contract except
in the ordinary course of business and except for
those of the type which would not have to be listed
and described in Schedule 6.20 or any other schedule
to this Agreement;
8.4 Material Changes. Company will give Purchaser written notice
of any material change known to Company in any representations
and warranties made by it in this Agreement;
8.5 Share Restrictions. Company will take no action that would
encumber or restrict the Shares or their sale or transfer,
except actions to enforce rights under this Agreement;
8.6 Xxxx-Xxxxx-Xxxxxx Filing. Company, Shareholders, and Purchaser
will make any filing required under the Xxxx-Xxxxx-Xxxxxx Act
within 5 days after this Agreement is signed. Company,
Shareholders, and Purchaser will cooperate to respond promptly
to any comments to the filing and to secure any required
Permits under the Xxxx-Xxxxx-Xxxxxx Act;
8.7 Confidentiality.
19
(a) Agreement. Purchaser and Company have entered into
and remain bound by the Confidentiality Agreement
attached as Exhibit 8.7. Each Shareholder is bound
under the Confidentiality Agreement to the same
extent as Company. Each party will comply with its
obligations under the Confidentiality Agreement;
(b) Press Release. Company and Shareholders acknowledge
that Purchaser will make a public announcement of the
transactions contemplated in this Agreement
immediately after execution of the Agreement. Such an
announcement, and later announcements required by
applicable securities laws, will not be a violation
of Purchaser's confidentiality obligations; and
(c) Communication Plans. The parties will develop, and
cooperatively implement, communication plans to
disclose the planned acquisition and its consequences
to Company's employees and customers.
8.8 Investigations. Upon reasonable notice and during regular
business hours, Company will give Purchaser and Purchaser's
attorneys, accountants and other representatives:
(a) access to Company's officers, directors, employees,
independent contractors, counsel, and independent
accountants;
(b) access to Company's Properties, Contracts, and Books;
(c) copies of documents of Company to the extent
Purchaser reasonably requests; and
(d) information Purchaser reasonably requests with
respect to the affairs of Company;
Information that Company supplies to Purchaser or its
attorneys, accountants or other representatives is subject to
the Confidentiality Agreement. Company does not assume
responsibility for the accuracy or completeness of the
Information except and to the extent specifically provided in
this Agreement. The Information, and Purchaser's
investigation, does not affect Purchaser's right to rely on
the representations and warranties made in this Agreement; and
8.9 Shareholders' Representative.
(a) Shareholders agree that Xxxxx Xxxxxxxxxx or any
successor will act as Shareholders' Representative
(the "Shareholders' Representative") for the purpose
of:
(i) representing Shareholders in any proceedings
relating to this Agreement; and
(ii) performing any other actions specifically
delegated to Shareholders' Representative
under the terms of this Agreement.
Shareholders are bound by any and all actions taken
by Shareholders' Representative on their behalf;
20
(b) Shareholders may remove Shareholders' Representative
only by vote of Shareholders holding more than 50% of
the Shares immediately before Closing, but such vote
is not effective unless Shareholders also vote to
appoint a new Shareholders' Representative. If
Shareholders' Representative resigns or is no longer
able to serve, Shareholders must vote to appoint a
new Shareholders' Representative within 30 days after
the resignation or notice of inability to serve. A
vote to appoint a new Shareholders' Representative is
effective when (1) Shareholders holding more than 50%
of the Shares vote to elect a new Shareholders'
Representative and (2) the new Shareholders'
Representative gives notice to Purchaser and the
prior Shareholders' Representative of such vote;
(c) Purchaser is entitled to rely upon notices given by
Shareholders' Representative. Purchaser is not liable
for actions it takes or does not take in reliance
upon actions Shareholders' Representative takes or
does not take (including Shareholders'
Representative's notices to Purchaser). Until
Purchaser receives notice of appointment of a new
Shareholders' Representative, Purchaser may rely upon
actions taken by the prior Shareholders'
Representative.
8.10 Related Party Lease. Before the Closing:
(a) Purchaser will have the right to review and approve
the existing arrangements between Company and
Shareholders relating to the properties in
Stillwater, Oklahoma, that are used in Company's
operations (the "Leased Property");
(b) Company and Shareholders will amend the existing
lease to allow Company or Purchaser to continue using
the Leased Property for the existing term of 5 years
after the Closing. The lease will be at the rental
rate called for in the present lease agreement.
9. CONDITIONS TO EACH PARTY'S OBLIGATIONS. No party is obligated to close
the transactions contemplated by this Agreement unless the following
conditions are satisfied on or before the Closing Date:
9.1 Consents and Approvals. All Governmental consents and
approvals required pursuant to Section 8.1 must have been
obtained; and
9.2 Proceedings. No proceeding seeking to enjoin or prohibit, and
no Order enjoining or prohibiting, the consummation of the
transactions contemplated by this Agreement may be in effect;
10. CONDITIONS TO PURCHASER'S OBLIGATIONS. Purchaser is not obligated to
close the transactions contemplated by this Agreement unless the
following conditions are satisfied (or waived by Purchaser) on or
before the Closing Date:
10.1 Accuracy of Representations and Warranties. The
representations and warranties of Company and Shareholders in
Section 6 of this Agreement must be true and correct, both
when made and on the Closing Date;
21
10.2 Performance of Obligations and Delivery of Documents. Company
and Shareholders must have:
(a) performed all covenants, agreements, and obligations
required of them by this Agreement; and
(b) executed and delivered to Purchaser all documents
required to be delivered at or prior to the Closing,
including this Agreement;
10.3 Opinion of Counsel. Purchaser must have received an opinion of
Company's counsel, dated as of the Closing Date, substantially
in conformance with the form of opinion attached as Exhibit
10.3; and
10.4 Certificate. Company and each Shareholder must deliver to
Purchaser a certificate, in the form attached as Exhibit 10.4,
that the conditions stated in this Section 10 have been
fulfilled.
11. CONDITIONS TO COMPANY'S AND SHAREHOLDER'S OBLIGATIONS. Company and
Shareholders are not obligated to close the transactions contemplated
by this Agreement unless the following conditions are satisfied (or
waived by Company and Shareholders) on or before the Closing Date:
11.1 Accuracy of Representations and Warranties. The
representations and warranties of Purchaser in Section 7, of
this Agreement must be true and correct, both when made and on
the Closing Date;
11.2 Performance of Obligations and Delivery of Documents.
Purchaser must have:
(a) performed all covenants, agreements, and obligations
required of it by this Agreement; and
(b) executed and delivered to Shareholders all documents
required to be delivered at or prior to the Closing;
11.3 Opinion of Counsel. Shareholders must have received an opinion
of Purchaser's counsel, dated as of the Closing Date,
substantially in conformance with the form of opinion attached
as Schedule 11.3; and
11.4 Certificate. Purchaser must deliver to Shareholders a
certificate, in the form attached as Schedule 11.4, that the
conditions stated in this Section 11 have been fulfilled.
12. OBLIGATIONS AT AND AFTER CLOSING.
12.1 Company and Shareholder Deliveries. At the Closing, Company
and Shareholders will deliver to Purchaser:
(a) Certificates for the Shares sold to Purchaser,
together with stock powers duly executed to transfer
the Shares to Purchaser;
(b) an Employment Agreement in the form of Exhibit 5.1
executed by each Key Employee;
(c) all documents required to be delivered to Purchaser
under this Agreement including this Agreement and all
other documents identified in Section 10.
22
12.2 Purchaser Deliveries. At the Closing, Purchaser will deliver
to Shareholders:
(a) the Initial Payment;
(b) An Employment Agreement in the form of Exhibit 5.1
executed by Purchaser for the benefit of each Key
Employee; and
(c) all other documents required to be delivered to
Shareholders under this Agreement including this
Agreement and all other documents identified in
Section 11.
12.3 Purchase of Garage Storage Cabinet Business. Purchaser grants
to Xxxxx Xxxxxxxxxx or his nominee ("GSC Buyer") an option to
purchase Company's Garage Sale Cabinets business (the "GSC
Business") on the following terms:
(a) GSC Buyer may purchase the business at any time
during the 90 days that start on the second
anniversary of the Closing. GSC Buyer must give
Purchaser notice of the repurchase at least 30 days
before the date on which they wish to purchase the
GSC Business and are obligated to make the purchase
if they give notice;
(b) the purchase will involve only (a) the name "Garage
Storage Cabinets" and other intangible property
rights, trademarks and tradenames used exclusively by
the GSC Business (b) the inventory of GSC Business
products as of the purchase date, and (c) customer
lists, web site and other proprietary information
related solely to the GSC Business. GSC Buyer will
not purchase any equipment, leases, buildings, or
real estate in connection with the purchase of the
GSC Business and Purchaser will retain all such
items; and
(c) GSC Buyer will pay, in cash on the date of purchase
of the GSC Business, a total of (a) $50,000 plus (b)
the book value of the GSC Business net assets
acquired.
13. TERMINATION.
13.1 Rights to Terminate. A party may terminate this Agreement at
any time before the Closing:
(a) by mutual written consent of Company, Shareholders,
and Purchaser;
(b) by written notice to the other parties if the Closing
has not occurred on or before August 31, 2001; or
(c) by written notice to the other parties if
- a material representation or warranty of the
another party was or has become inaccurate
or untrue (except that, if the
misrepresentation or breach is curable then
this Agreement will not terminate until the
responsible party has failed for 10 days
after notice to cure the misrepresentation
or breach); or
- another party has failed to comply with or
perform under this Agreement (except that,
if the misrepresentation or breach is
curable
23
then this Agreement will not terminate until
the responsible party has failed for 10 days
after notice to cure the misrepresentation
or breach).
13.2 Effect of Termination. If this Agreement is terminated, no
party will have any liability or further obligation except for
the Break Up Fee established in Section 13.3 below, unless the
termination was a result of the party's (a) breach, (b)
violation of its duties, obligations, representations, or
warranties, or (c) fraud, bad faith, or willful misconduct.
The Confidentiality Agreement will survive any termination and
govern the parties' obligations with respect to Information
and confidentiality.
13.3 Break-Up Fee Payable by AI Research. If this Agreement is
terminated:
(a) by AI Research pursuant to Section 13.1(b), or
(b) by Rockford pursuant to Section 13.1(c),
then AI Research will pay or cause to be paid to Rockford a
fee equal to $150,000 in immediately available funds within
two business days of the termination.
13.4 Break-Up Fee Payable by Rockford. If this Agreement is
terminated:
(a) by Rockford pursuant to Section 13.1(b), or
(b) by AI Research pursuant to Section 13.1(c),
then Rockford will pay or cause to be paid to AI Research a
fee equal to $20,000 in immediately available funds within two
business days of the termination.
14. INDEMNIFICATION.
14.1 By Purchaser. Purchaser will indemnify each Shareholder from,
and will pay on their behalf, all Loss (whether or not
resulting from third party claims) incurred as a result of any
untrue representation made by Purchaser, any breach of
warranty by Purchaser, or non-fulfillment of any of
Purchaser's covenants or agreements stated in this Agreement;
14.2 By Shareholders. Each Shareholder, jointly and severally with
each other Shareholder, will indemnify and hold harmless
Purchaser and (after the Closing Date) Company from, and will
pay on their behalf, all Losses incurred as a result of any
untrue representation made by Shareholders, any breach of
warranty made by Shareholders, or non-fulfillment of any
covenant or agreement (1) of Company in this Agreement to be
performed at or prior to Closing or (2) Shareholders in this
Agreement.
(a) Deductible. Except as otherwise provided in this
Agreement, Shareholders will have no obligation to
indemnify Purchaser and Company under this Section
14.2 unless the Losses suffered exceed $10,000 in the
aggregate (and then only to the extent of the
excess).
24
(b) Liability Limit. The aggregate liability of
Shareholders under this Section 14.2 will not exceed
the amount of (1) the Reserve plus (2) $400,000 in
addition to the Reserve plus (3) the balance owing on
the Earnout. The obligations of Shareholders under
this Section 14.2 are subject to Section 15 below.
14.3 Procedure.
(a) Notice and Assumption of Defense. Promptly after an
indemnified party receives notice of any potential
Loss, the party must give notice in writing to the
indemnifying party. The indemnifying party must
assume the defense of the Loss and the indemnified
party will reasonably cooperate in connection with
such defense.
(b) Payment of Defense Costs. If the indemnified party
reasonably determines that separate counsel is
necessary (whether due to the existence of different
defenses, potential conflicts of interest or
otherwise), or if the indemnifying party does not
assume the defense, then the indemnified party may
employ separate counsel, and the indemnifying party
will pay such counsel's reasonable fees and
disbursements as incurred.
(c) Settlement. An indemnifying party is not obligated to
reimburse the costs of a settlement unless it has
agreed to the settlement. An indemnifying party may
not settle a claim unless the indemnified party
consents, but if an indemnified party does not
consent to a settlement agreed to by the opposing
party and the indemnifying party, then the
indemnifying party's indemnification obligation will
not exceed (1) the amount of the agreed settlement
plus (2) expenses incurred before the settlement
could have been effected.
14.4 Claims of Shareholders. No Shareholder will have any right to
seek damages, reimbursement, indemnification, contribution, or
similar rights from Company or any officer or employee of
Company for Losses for which Shareholder is liable under this
Section.
15. EXPIRATION OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the parties in this Agreement, or in any instrument
or document furnished in connection with this Agreement, will survive
the Closing and any investigation at any time by or on behalf of the
parties as provided in this Section.
15.1 Survival of Certain Representations and Warranties. The
representations and warranties set forth in Section 6 and
Section 7 will survive only until six months after the Closing
Date except to the extent that prior to that time one or more
claims is submitted in writing to the indemnified party and
identified as a claim for indemnification pursuant to this
Agreement;
15.2 Limit on Claims. A party may maintain a claim or action for
indemnity under Section 14.2 after the expiration of the
representation or warranty only if the party made the claim in
writing before expiration.
15.4 Exclusive Remedy. The indemnification provided by Shareholders
in Section 14.2 is Purchaser's exclusive remedy for breach of
any representation, warranty
25
or covenant by Company or Shareholders, except that nothing in
this Section limits Purchaser's remedies against a Shareholder
in respect of fraud, intentional misrepresentations, or
intentional omissions engaged in personally by Shareholder.
16. NOTICES. Notices under this Agreement must be in writing. Notices are
deemed given:
16.1 when personally delivered;
16.2 when received by facsimile, e-mail, or overnight courier
service; or
16.3 on the fifth business day after mailing by first class
registered mail, return receipt requested.
Notices must be sent to the parties at the addresses stated on the
signature page of this Agreement (or at any other address designated in
a notice given by a party to change its address). Notices to a
Shareholder under this Agreement are sufficient if given to
Shareholders' Representative.
17. CERTAIN COSTS.
17.1 Costs of Proceedings. In any Proceeding arising under or
related to this Agreement the prevailing party is entitled, in
addition to other amounts it recovers, to have the other party
pay all costs and expenses (including reasonable attorneys'
fees) incurred in connection with the Proceeding.
17.2 Expenses. Each party is solely responsible for its own
expenses relating to the preparation, execution, and
consummation of this Agreement and the transactions
contemplated by this Agreement, except that expenses are
recoverable as part of the damages owed by a party whose
failure to perform its obligations results in the termination
of this Agreement.
17.3 Broker's Fees. Each party is solely responsible for, and
indemnifies the other parties against, obligations to any
broker, finder or intermediary retained by it.
18. MISCELLANEOUS.
18.1 Integration and Amendment. This Agreement, together with any
confidentiality agreement, constitutes the entire agreement of
the parties, and supersedes all prior agreements or
understandings among the parties with respect to their subject
matter. This Agreement may be amended only in a written
agreement signed by all of the parties (except that, for
amendments after the Closing, Shareholders' Representative may
sign amendments on behalf of all Shareholders).
18.2 Waivers. No waiver under this Agreement is valid unless it is
in writing and signed by the party giving the waiver. A waiver
of a particular matter does not waive a subsequent or similar
matter.
18.3 Binding Effect. This Agreement is binding upon, and inures to
the benefit of, each party and its successors and assigns.
18.4 No Benefit to Others. This Agreement is solely for the benefit
of the parties (and their successors and assigns) and does not
confer any rights on any other persons.
26
18.5 Severability. The invalidity or unenforceability of any
provision of this Agreement does not affect the other
provisions. This Agreement is to be construed in all respects
as if it excluded any invalid or unenforceable provision.
18.6 Construction and Headings. Whenever a singular word is used in
this Agreement it also includes the plural if required by the
context, and vice versa. Paragraph headings are for
convenience only and do not define or limit the contents of a
paragraph.
18.7 Cooperation. In order to carry out this Agreement, each party
will cooperate, will take further action, and will execute and
deliver further documents as reasonably requested by any other
party.
18.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together are one original.
18.9 Governing Law. This Agreement is governed by the internal Laws
of Arizona. Exclusive jurisdiction and venue for any
litigation arising under this Agreement is in the federal and
state courts located in Maricopa County, Arizona.
[Signature Page is on the following page]
27
19. EFFECTIVE DATE. This Agreement is executed and effective as of
___________, ____.
Rockford Corporation, an Arizona corporation
By:
--------------------------------------------------
President
By:
--------------------------------------------------
Secretary
Address:
-----------------------------------------------
Telephone ( )
--------------------
Facsimile ( )
--------------------
AI Research, Inc., an Oklahoma corporation
By:
--------------------------------------------------
President
By:
--------------------------------------------------
Secretary
Address:
-----------------------------------------------
Telephone ( )
--------------------
Facsimile ( )
--------------------
The undersigned consents to appointment as Shareholders' Representative under
this Agreement, agrees to serve in such capacity at and after the Closing
(subject to removal or resignation as permitted under the Agreement), and agrees
to be bound by the terms of the Agreement.
----------------------------------------
[Name]
Address:
--------------------------------------------
--------------------------------------------
\
--------------------------------------------
Telephone ( )
--------------------
Facsimile ( )
--------------------
28
Shareholder's Signature Page
The Shareholder identified below joins in and agrees that it is bound by the
Stock Purchase Agreement. Shareholder authorizes Company and Purchaser to attach
this Signature Page to the Agreement.
Printed Name:
---------------------------------------
---------------------------------------------------
Individual's Signature
OR
By:
-------------------------------------------------
President
By:
-------------------------------------------------
Secretary
OR
Name of Attorney:
-----------------------------------
---------------------------------------------------
Attorney in Fact's Signature
(Power of Attorney Attached)
Address:
--------------------------------------------
----------------------------------------------------
Attention:
------------------------------------------
Telephone ( )
--------------------------
Facsimile ( )
--------------------------
29
Exhibit 4.1(c)
Net Sales and Gross Profit Targets
The earnout payment under Section 4.1(c) will be paid quarterly over the
first 12 quarters after the Closing, beginning with the 4th Quarter of 2001 and
ending with the 3rd Quarter of 2004. Payments will be made quarterly based on
achievement of
(a) quarterly business plan sales budget, and
(b) gross margin percentage budget
established by AI Research and approved by both Rockford and Shareholders. Each
budget will be established before the Closing
Payments in any quarter are payable if AI Research achieves at least:
(a) ____% of the budgeted net sales in the quarter, and
(b) ____% of the budgeted gross margin percentage.
For this purpose, "gross margin percentage" means (net sales minus (standard
material costs plus purchase price variances plus inbound freight)) divided by
net sales. In computing AI Research sales, Rockford will include the following
product lines:
- Q-Logic
- Kenwood OEM
- Rockford-Q
- Lightning-Q
- Garage Storage Cabinets
If AI Research achieves these targets in a quarter, then Rockford will pay
a contingent payment for the quarter based on a percentage of net sales. The
percentage will be equal to the amount necessary to pay the full $500,000
contingent earnout if AI Research achieves 100% of its quarterly sales budgets
(and the required gross margin percentage) over 12 quarters. The maximum
payment, over the full 12 quarters, is $500,000, but if AI Research exceeds its
budget goals then the earnout may be fully paid in less than 12 quarters.
At the end of 12 quarters, if any quarterly payment was withheld because
of AI Research's failure to achieve the budgeted net sales and gross margin
percentages in the quarter, Rockford will pay the amount of the withheld payment
(up to a maximum aggregate payment of $500,000 including prior payments under
this Exhibit) if AI Research has achieved at least
(a) _____% of the budgeted net sales in the full 12 quarter
period, and
(b) _____% of the budgeted gross margin percentage for the full 12
quarter period.
30
AI RESEARCH, INC.
SCHEDULES FOR AGREEMENT
EXHIBIT 4.2(b)
DEBT
The Company has the following bank debt outstanding at June 30, 2001:
Note Payable - Line of Credit $1,555,003
Note Payable - Forklift $ 0
Note Payable - S&R $ 366,826
The above amounts for bank debt are principal amounts only. Additionally, the
Company may owe amounts for unpaid interest from the last payment date through
June 30, 2001.
31
SCHEDULE 5.1
EMPLOYMENT AGREEMENT
Attached are the Employment Agreements with the Key Employees - Xxxxx Xxxxxxxxxx
and Xxxxxxx Xxxxxx.
32
EXHIBIT 5.1(a)
EMPLOYMENT AGREEMENT OF XXXXX XXXXXXXXXX
33
EMPLOYMENT AGREEMENT
This Agreement is between Rockford Corporation, an Arizona
corporation, ("Rockford") and Xxxxx Xxxxxxxxxx ("Employee"). Rockford and
Employee agree as follows:
1. RECITALS.
1.1 Rockford's Business. Rockford's principal business is the design,
manufacture, and sale of high-performance car audio products. Rockford
has purchased Audio Innovations, Inc., from Employee and other former
shareholders of Audio Innovations to expand Rockford's car audio
business.
1.2 Employee Experience. Employee has worked in the car audio industry and
was an officer of Audio Innovations before Rockford bought it.
1.3 Agreement for Employment. In connection with Rockford's purchase of
Audio Innovations, Rockford recognizes Employee's potential
contribution to Rockford's growth and desires to enter into an
employment agreement with Employee.
1.4 Agreement Purpose. This Agreement states the terms of Rockford's
employment of Employee.
2. EMPLOYMENT. Rockford employs Employee and Employee accepts employment,
subject to the terms and conditions of this Agreement.
3. TITLE AND DUTIES.
3.1 Title and Reporting. Employee will serve as Managing Director of Audio
Innovations. Employee will have the responsibilities and duties
assigned by, and will report to the person designated by Rockford's
President and Chief Executive Officer. Employee will initially report
to Xxxx Xxxxxx, Rockford's Vice President of Operations.
3.2 Duties. Employee's initial duties are to:
(a) serve as Managing Director for Audio Innovations focusing on its
business;
(b) participate as a member of Rockford's management group with
duties as assigned by Rockford's President and Chief Executive
Officer;
(c) participate with other members of the Audio Innovations
management team, as designated by Rockford's President and Chief
Executive Officer, to:
(1) direct all aspects of Audio Innovations' business activities
and ensure the adequacy and soundness of its financial
structure, operations, employee relations, and short and
long-range growth, including the growth and operation of
Audio Innovations' Kenwood OEM and Garage Storage Cabinets
34
businesses;
(2) establish Audio Innovations' overall objectives, policies,
and plans relating to its accessories business;
(3) develop new business; and
(4) develop programs to encourage successful future management.
3.3 No Reduction of Duties; Limitation on Moves. Rockford may not change
Employee's duties in a manner that would substantially reduce
Employee's responsibilities for management of Audio Innovations'
business unless Employee consents to the change. Rockford may not
require Employee to move to a location outside the Stillwater,
Oklahoma area unless Employee consents.
4. COMPENSATION.
4.1 Base Compensation. Rockford will pay Employee a base salary of XXXXX*
annually. Rockford will pay Employee using its regular payroll
practices. Payments are subject to the normal and regular Employee's
portion of withholding tax, workers' compensation and unemployment
tax, and other lawful deductions in the state where Employee is
located.
4.2 Participation in Bonus Plan. Rockford will also pay Employee a bonus
based on (a) Rockford's profit sharing plan as approved by the board
of directors and (b) its evaluation of Employee's performance each
year. Rockford's President and Chief Executive Officer will recommend,
and its compensation committee and board of directors will approve,
Employee's bonus annually, at their discretion. Bonuses are paid based
on Rockford's performance (including net income before taxes, net
operating income, net cash flow, return on equity, increase in
shareholder equity, and corporate transactions). Employee's target
bonus is a XXXXX* but Employee acknowledges that bonuses are
discretionary, may vary in amount from the target, and may not be paid
depending upon the decisions of Rockford's compensation committee and
board of directors.
4.3 Changes of Compensation. After the first year of the Agreement,
Rockford and Employee will meet and adjust Employee's compensation to
take account of changes in the cost of living and of Employee's duties
for and performance at Rockford. Rockford's may increase Employee's
compensation in excess of the cost of living, at its discretion.
*Confidential information redacted and filed separately with the
Commission.
35
5. TERM AND TERMINATION.
5.1 Term. The Agreement is for a term commencing on the effective date of
Rockford's purchase of Audio Innovations and expiring three years
thereafter.
5.2 Termination. Either party may terminate this Agreement (a) for any
reason at any time by giving 30 days written notice of termination or
(b) for cause by giving written notice of termination. Termination
will not affect the obligations of Employee and Rockford which survive
termination. In this Agreement, "Cause" for termination means:
(a) Employee's indictment, conviction or plea of guilty to any act or
acts constituting a felony under the laws of the United States,
any state or any foreign jurisdiction,
(b) Employee's failing or refusing, after a 30-day written notice
from Rockford and an opportunity for Employee to cure, to comply
in a material respect with Rockford's policies, written or
otherwise, or with the material duties and obligations imposed
under this Agreement,
(c) any act by Employee that is unlawful or brings Rockford into
disrepute unless Employee believed in good faith that the act was
lawful and not opposed to Rockford's best interests, or
(d) any act by Employee involving theft or dishonesty involving
$1,000 or more of Rockford's property
5.3 Continuation of Base Compensation and Medical Insurance. If
(a) Rockford terminates this Agreement for cause,
(b) Employee terminates this Agreement, or
(c) Employee dies or becomes permanently disabled
then Rockford is not required to pay Employee after the
termination of the Agreement. If this Agreement is terminated for
any other reason, then Rockford will continue (1) to pay Employee
his base compensation under section 4.1 for the remaining term of
this Agreement and (2) to provide medical insurance comparable to
that provided on the termination date for 6 months after the
termination of this Agreement.
36
6. BENEFITS AND POLICIES.
6.1 Benefit Plans. In addition to the compensation described above,
Employee may participate in all fringe benefit plans made available to
Rockford employees located at Audio Innovations' location. To the
extent permitted by law and the applicable benefit plans, Employee
will be credited with time of service based on continuous periods of
employment for either Rockford or Audio Innovations (Employee
acknowledges that tax law and the terms of benefit plans may restrict
Rockford's right to apply this rule in the case of Rockford's 401 (k)
plan and other tax advantaged benefit plans. Rockford will use its
best efforts to credit Employee with time of service on this basis to
the extent permitted by the rules governing such plans).
6.2 Leave. Employee may take reasonable vacation, holiday, and sick leave,
subject to Rockford's reasonable limits and procedures as applied to
all Rockford employees. For purposes of computing the amount of leave
available to Employee, Employee will be credited with time of service
based on all prior periods of employment for either Rockford or Audio
Innovations. Employee must adjust his vacation and holiday schedule as
necessary to satisfy Rockford's reasonable business needs.
6.3 Expenses. Rockford will reimburse Employee for reasonable expenses
incurred in connection with Employee's employment, on a basis
consistent with Rockford's reimbursement of other employees and
subject to Rockford's right to approve all expenses in advance.
Rockford may adopt reasonable policies for reimbursement of expenses,
may require receipts or other appropriate evidence of each expense,
and may review the reasonableness of each expense.
6.4 Employee Manual. All other terms of Employee's employment will be
governed by Rockford's employee manual. Rockford reserves the right
unilaterally to amend the employee manual, from time to time, and
Employee will be subject to changes made so long as they are applied
to all employees.
6.5 Stock Options. Employee will participate in Rockford's 1997 and 1994
Stock option plans on the same basis as other Rockford management
employees. Rockford's Compensation Committee will determine the amount
and terms of options awarded to Employee. All options are subject to
the terms of the plans.
6.6 No Car. Employee acknowledges that Rockford policy is not to provide a
company car to any employee. At Closing, Rockford will pay Employee a
one-time allowance of XXXXX* in connection with the termination of car
arrangements provided by Audio Innovations.
*Confidential material redacted and filed separately with the
Commission.
37
7. NON-COMPETITION. During:
(a) the term of this Agreement and for one year after this Agreement
terminates or expires; and
(b) any period after the term when Employee is receiving payments of base
compensation (but Employee may elect to terminate payments of base
compensation to terminate this period)
Employee will not engage in, plan for, organize, work for, or assist,
directly or indirectly, any business that manufactures or distributes car
audio products in North America (excluding businesses that sell car audio
products only at retail).
8. CONFIDENTIAL INFORMATION. During and after the term of Employee's
employment, Employee will keep confidential, and will not reproduce, copy or
disclose to any other person or firm, all trade secrets and other
proprietary or confidential information and data concerning Rockford, Audio
Innovations, or their business ("Confidential Information"). Employee will
not, during or after the term of this Agreement, use (either alone or with
others), disclose to any person, or encourage anyone else to disclose any
Confidential Information except within the scope of Employee's duties and
responsibilities for Rockford and Audio Innovations or with Rockford's
consent.
9. RETURN OF ROCKFORD DOCUMENTS. Upon termination of this Agreement, Employee
will return to Rockford all records and documents of or pertaining to
Rockford or Audio Innovations (including, but not limited to, customer
lists, names, or addresses). Employee will not make, retain, or give to any
other person any copy or extract of any such record or document. "Record"
includes but is not limited to, information stored on computer.
10. NON SOLICITATION. During and after the term of this Agreement, Employee will
not solicit, or assist others to solicit, any persons who were, at any time
during the term of Employee's employment, employed by, customers of, or
solicited to become customers of Rockford or Audio Innovations.
11. ACTIONS. Employee acknowledges that it would be difficult to determine
damages, and Rockford will not have an adequate remedy at law, if Employee
breaches this Agreement. Accordingly, if Employee breaches this Agreement,
Rockford may seek injunctive relief to enforce this Agreement. Nothing in
this section limits or excludes any and all other rights, including rights
to money damages, granted to Rockford in law or equity.
12. Reformation and Severability. If a section of this Agreement is deemed
unreasonable as to time or scope by any court or arbitrator, then such court
or arbitrator may modify the section so that it is reasonable and must then
enforce the section as modified. If a section of this Agreement is deemed
unreasonable by a court or arbitrator and cannot be modified so that it is
reasonable, such section is severable from the remainder of this Agreement,
which must be enforced according to its terms.
38
13. Non-delegability of Employee's Rights. The obligations, rights and benefits
of Employee under this Agreement are personal and may not be delegated,
assigned, or transferred without written consent from Rockford.
14. Assignment by Rockford. Rockford may assign its rights under this Agreement
to another business that (1) is controlled by or affiliated with Rockford or
(2) acquires Rockford or the assets of Rockford used in connection with
Employee's employment. After any such assignment all references in this
Agreement to "Rockford" will, where appropriate, be deemed to refer to the
assignee.
15. Notices. Notices under this Agreement must be in writing and are effective
upon delivery or three days after mailing, certified or registered mail,
return receipt requested, to the party's addresses stated on the signature
page of this Agreement. A party may change its address by giving the other
party notice of the change.
16. ENTIRE AGREEMENT AND AMENDMENT. This Agreement is the entire agreement of
the parties with respect to Employee's employment and may be amended only by
a written document signed by both parties.
20. Governing Law. Arizona law will govern this Agreement.
21. Attorneys' Fees. In any proceeding arising out of this Agreement, the
prevailing party is entitled to reasonable attorneys' fees, costs and other
expenses incurred in connection with such proceeding.
22. ARBITRATION. If the parties cannot resolve a dispute arising out of this
Agreement or out of Employee's employment, they will submit it to binding
arbitration in metropolitan Phoenix, Arizona. The arbitration will be before
a single arbitrator, or, if the parties cannot agree upon a single
arbitrator, before a panel of three arbitrators, one selected by each party
(within 10 days after notice of a dispute and failure to agree upon a single
arbitrator) and a third appointed by the arbitrators selected by the
parties. The rules for commercial arbitration of the American Arbitration
Association, as amended to the date of the proceedings, will govern
selection of arbitrators and all arbitration proceedings. Any court having
jurisdiction may enter judgment upon the award. The arbitrators must render
a decision within 30 days after their appointment and may award the costs of
arbitration as they see fit.
23. Execution and Effective Date. This Agreement is executed on ________, and is
effective as of ,
"Rockford"
Rockford Corporation, an Arizona corporation
By
President
39
Address:
"EMPLOYEE"
Xxxxx Xxxxxxxxxx
Address:
40
EXHIBIT 5.1(b)
EMPLOYMENT AGREEMENT OF XXXXXXX XXXXXX
41
EMPLOYMENT AGREEMENT
This Agreement is between Rockford Corporation, an Arizona
corporation, ("Rockford") and Xxxxxxx Xxxxxx ("Employee"). Rockford and Employee
agree as follows:
1. RECITALS.
1.1 Rockford's Business. Rockford's principal business is the design,
manufacture, and sale of high-performance car audio products. Rockford
has purchased AI Research, Inc., from Employee and other former
shareholders of AI Research to expand Rockford's car audio business.
1.2 Employee Experience. Employee has worked in the car audio industry and
was an officer of AI Research before Rockford bought it.
1.3 Agreement for Employment. In connection with Rockford's purchase of AI
Research, Rockford recognizes Employee's potential contribution to
Rockford's growth and desires to enter into an employment agreement
with Employee.
1.4 Agreement Purpose. This Agreement states the terms of Rockford's
employment of Employee.
2. EMPLOYMENT. Rockford employs Employee and Employee accepts employment,
subject to the terms and conditions of this Agreement.
3. TITLE AND DUTIES.
3.1 Title and Reporting. Employee will serve as National Accounts Manager
for Rockford. Employee will have the responsibilities and duties
assigned by, and will report to the person designated by Rockford's
President and Chief Executive Officer. Employee will initially report
to Xxx XxXxxx, Rockford's Vice President of Sales.
3.2 Duties. Employee's initial duties are to:
(a) serve as National Accounts Manager for Rockford focusing on
national accounts for its Rockford Fosgate, Lightning Audio, and
Q-Logic brands. National accounts include Best Buy, Circuit City,
Xxxxxxxxxxx and possible OEM accounts; and
(b) participate as a member of Rockford's management group with
duties as assigned by Rockford's President and Chief Executive
Officer.
3.3 No Reduction of Duties; Limitation on Moves. Rockford may not change
Employee's duties in a manner that would substantially reduce
Employee's responsibilities for management of Rockford's business
unless Employee consents to the change. Rockford
42
may not require Employee to move to a location outside the
metropolitan Phoenix, Arizona area unless Employee consents.
3.4 Patent. Upon execution of this Agreement, Employee will transfer to
Rockford all rights and interest in the box ring invention, including
the patent and patent application that is currently pending. Employee
acknowledges that Rockford will not make any royalty or other payments
related to this invention. Rockford will reimburse Employee for the
actual filing costs Employee has incurred in connection with filing of
the patent application upon presentation of reasonable evidence of the
amount of such filing costs.
4. COMPENSATION.
4.1 Base Compensation. Rockford will pay Employee a base salary of (a)
$xxxxx* annually from the date of this Agreement through January 31,
2002 and (b) $xxxxx* annually beginning on February 1, 2002. Rockford
will pay Employee using its regular payroll practices. Payments are
subject to the normal and regular Employee's portion of withholding
tax, workers' compensation and unemployment tax, and other lawful
deductions in the state where Employee is located.
4.2 Commission. Beginning on February 1, 2002, Rockford will pay Employee
commissions at a rate equal to a percentage of net sales to National
Accounts for which Employee is responsible. Rockford will establish
the commission percentage so that the target annual commission paid to
Employee, assuming Employee achieves reasonable sales goals, is
$xxxxx*. Rockford will make commission payments on the following
basis:
(a) Computation. Commissions are based on net invoice price, defined
as the lowest price at which the invoice may be discharged
through payment on the day after its presentation. Net invoice
price is exclusive of shipping or mailing costs, taxes,
insurance, discounts, allowances, and credits, including but not
limited to discounts and allowances from promotions, cooperative
advertising accruals, rebates, and cash discounts;
(b) Accrual and Payment. Commissions are accrued when an order is
shipped and are payable in accordance with Rockford's regular
commission payment practices for all employees who earn sales
commissions;
(c) Returns. The net invoice price of products returned, and of
products sold but not paid for within 90 days after Rockford's
invoice is presented, will be subtracted in computing the net
sales; and
(d) Exclusions and Exceptions. Sales to employees and sales of repair
parts do not earn commissions. Accommodation sales to sales
representatives, distributors, or dealers (or their employees)
and "demo" sales also do not earn commissions.
4.3 Participation in Bonus Plan. Rockford will also pay Employee a bonus
based on (a)
* Confidential information redacted and filed separately with the
Commission.
43
Rockford's bonus plan as approved by the board of directors and (b)
its evaluation of Employee's performance each year. Rockford's
President and Chief Executive Officer will recommend, and its
compensation committee and board of directors will approve, Employee's
bonus annually, at their discretion. Bonuses are paid based on
Rockford's performance (including net income before taxes, net
operating income, net cash flow, return on equity, increase in
shareholder equity, and corporate transactions). Employee's target
bonus is $xxxxx*, but Employee acknowledges that bonuses are
discretionary, may vary in amount from the target, and may not be paid
depending upon the decisions of Rockford's compensation committee and
board of directors.
4.4 Changes of Compensation. After the first year of the Agreement,
Rockford and Employee will meet and adjust Employee's compensation to
take account of changes in the cost of living and of Employee's duties
for and performance at Rockford. Rockford's may increase Employee's
compensation in excess of the cost of living, at its discretion.
5. TERM AND TERMINATION.
5.1 Term. The Agreement is for a term commencing on the effective date of
Rockford's purchase of AI Research and expiring three years
thereafter.
5.2 Termination. Either party may terminate this Agreement (a) for any
reason at any time by giving 30 days written notice of termination or
(b) for cause by giving written notice of termination. Termination
will not affect the obligations of Employee and Rockford which survive
termination. In this Agreement, "Cause" for termination means:
(a) Employee's indictment, conviction or plea of guilty to any act or
acts constituting a felony under the laws of the United States,
any state or any foreign jurisdiction,
(b) Employee's failing or refusing, after a 30-day written notice
from Rockford and an opportunity for Employee to cure, to comply
in a material respect with Rockford's policies, written or
otherwise, or with the material duties and obligations imposed
under this Agreement,
(c) any act by Employee that is unlawful or brings Rockford into
disrepute unless Employee believed in good faith that the act was
lawful and not opposed to Rockford's best interests, or
(d) any act by Employee involving theft or dishonesty involving
$1,000 or more of Rockford's property
5.3 Continuation of Base Compensation and Medical Insurance. If
(a) Rockford terminates this Agreement for cause,
(b) Employee terminates this Agreement, or
* Confidential information redacted and filed separately with the
Commission.
44
(c) Employee dies or becomes permanently disabled
then Rockford is not required to pay Employee after the termination of
the Agreement. If this Agreement is terminated for any other reason,
then Rockford will continue(1) to pay Employee his base compensation
under section 4.1 for the remaining term of this Agreement and (2) to
provide medical insurance comparable to that provided on the
termination date for 6 months after the termination of this Agreement.
6. BENEFITS AND POLICIES.
6.1 Benefit Plans. In addition to the compensation described above,
Employee may participate in all fringe benefit plans made available to
Rockford employees located at Rockford's Tempe, Arizona location. To
the extent permitted by law and the applicable benefit plans, Employee
will be credited with time of service based on continuous periods of
employment for either Rockford or AI Research (Employee acknowledges
that tax law and the terms of benefit plans may restrict Rockford's
right to apply this rule in the case of Rockford's 401(k) plan and
other tax advantaged benefit plans. Rockford will use its best efforts
to credit Employee with time of service on this basis to the extent
permitted by the rules governing such plans).
6.2 Leave. Employee may take reasonable vacation, holiday, and sick leave,
subject to Rockford's reasonable limits and procedures as applied to
all Rockford employees. Employee will earn vacation leave at a rate of
4 weeks per year. For purposes of computing the amount of leave
available to Employee, Employee will be credited with time of service
based on all prior periods of employment for either Rockford or AI
Research. Employee must adjust his vacation and holiday schedule as
necessary to satisfy Rockford's reasonable business needs.
6.3 Expenses. Rockford will reimburse Employee for reasonable expenses
incurred in connection with Employee's employment, on a basis
consistent with Rockford's reimbursement of other employees and
subject to Rockford's right to approve all expenses in advance.
Rockford may adopt reasonable policies for reimbursement of expenses,
may require receipts or other appropriate evidence of each expense,
and may review the reasonableness of each expense.
6.4 Moving Expenses. Rockford will reimburse, or pay on Employee's behalf,
reasonable costs associated with moving Employee's household and other
personal goods from Employee's current residence in Stillwater,
Oklahoma, to Tempe, Arizona. Employee will cooperate with Rockford to
select a moving company acceptable to Rockford to carry out the move.
Rockford will also provide reasonable temporary housing for up to 90
days at Employee's new location.
45
6.5 Employee Policies and Procedures. All other terms of Employee's
employment will be governed by Rockford's employee policies and
procedures. Rockford reserves the right unilaterally to amend the
policies and procedures, from time to time, and Employee will be
subject to changes made so long as they are applied to all employees.
6.6 Stock Options. Employee will participate in Rockford's 1997 and 1994
stock option plans on the same basis as other Rockford management
employees. Rockford's Compensation Committee will determine the amount
and terms of options awarded to Employee. All options are subject to
the terms of the plans.
7. NON-COMPETITION. During:
(a) the term of this Agreement and for one year after this Agreement
terminates or expires; and
(b) any period after the term when Employee is receiving payments of base
compensation (but Employee may elect to terminate payments of base
compensation to terminate this period)
Employee will not engage in, plan for, organize, work for, or assist,
directly or indirectly, any business that sells, manufactures or
distributes car audio products in North America (excluding businesses that
sell car audio products only at retail).
8. CONFIDENTIAL INFORMATION. During and after the term of Employee's
employment, Employee will keep confidential, and will not reproduce, copy
or disclose to any other person or firm, all trade secrets and other
proprietary or confidential information and data concerning Rockford, AI
Research, or their business ("Confidential Information"). Employee will
not, during or after the term of this Agreement, use (either alone or with
others), disclose to any person, or encourage anyone else to disclose any
Confidential Information except within the scope of Employee's duties and
responsibilities for Rockford and AI Research or with Rockford's consent.
9. RETURN OF ROCKFORD DOCUMENTS. Upon termination of this Agreement, Employee
will return to Rockford all records and documents of or pertaining to
Rockford or AI Research (including, but not limited to, customer lists,
names, or addresses). Employee will not make, retain, or give to any other
person any copy or extract of any such record or document. "Record"
includes but is not limited to, information stored on computer.
10. NON SOLICITATION. During and after the term of this Agreement, Employee
will not solicit, or assist others to solicit, any persons who were, at
any time during the term of Employee's employment, employed by, customers
of, or solicited to become customers of Rockford or AI Research.
11. ACTIONS. Employee acknowledges that it would be difficult to determine
damages, and Rockford will not have an adequate remedy at law, if Employee
breaches this Agreement. Accordingly, if Employee breaches this Agreement,
Rockford may seek injunctive relief to
46
enforce this Agreement. Nothing in this section limits or excludes any and
all other rights, including rights to money damages, granted to Rockford in
law or equity.
12. REFORMATION AND SEVERABILITY. If a section of this Agreement is deemed
unreasonable as to time or scope by any court or arbitrator, then such
court or arbitrator may modify the section so that it is reasonable and
must then enforce the section as modified. If a section of this Agreement
is deemed unreasonable by a court or arbitrator and cannot be modified so
that it is reasonable, such section is severable from the remainder of this
Agreement, which must be enforced according to its terms.
13. NON-DELEGABILITY OF EMPLOYEE'S RIGHTS. The obligations, rights and benefits
of Employee under this Agreement are personal and may not be delegated,
assigned, or transferred without written consent from Rockford.
14. ASSIGNMENT BY ROCKFORD. Rockford may assign its rights under this Agreement
to another business that (1) is controlled by or affiliated with Rockford
or (2) acquires Rockford or the assets of Rockford used in connection with
Employee's employment. After any such assignment all references in this
Agreement to "Rockford" will, where appropriate, be deemed to refer to the
assignee.
15. NOTICES. Notices under this Agreement must be in writing and are effective
upon delivery or three days after mailing, certified or registered mail,
return receipt requested, to the party's addresses stated on the signature
page of this Agreement. A party may change its address by giving the other
party notice of the change.
16. ENTIRE AGREEMENT AND AMENDMENT. This Agreement is the entire agreement of
the parties with respect to Employee's employment and may be amended only
by a written document signed by both parties.
20. GOVERNING LAW. Arizona law will govern this Agreement.
21. ATTORNEYS' FEES. In any proceeding arising out of this Agreement, the
prevailing party is entitled to reasonable attorneys' fees, costs and other
expenses incurred in connection with such proceeding.
22. ARBITRATION. If the parties cannot resolve a dispute arising out of this
Agreement or out of Employee's employment, they will submit it to binding
arbitration in metropolitan Phoenix, Arizona. The arbitration will be
before a single arbitrator, or, if the parties cannot agree upon a single
arbitrator, before a panel of three arbitrators, one selected by each party
(within 10 days after notice of a dispute and failure to agree upon a
single arbitrator) and a third appointed by the arbitrators selected by the
parties. The rules for commercial arbitration of the American Arbitration
Association, as amended to the date of the proceedings, will govern
selection of arbitrators and all arbitration proceedings. Any court having
jurisdiction may enter judgment upon the award. The arbitrators must render
a decision within 30 days after their appointment and may award the costs
of arbitration as they see fit.
47
23. EXECUTION AND EFFECTIVE DATE. This Agreement is executed on , _____ and is
effective as of ___________, ______.
"Rockford"
Rockford Corporation, an Arizona corporation
By
--------------------------------------------
President
Address:
----------------------
----------------------
"EMPLOYEE"
--------------------------------------------
Xxxxxxx Xxxxxx
Address:
----------------------
----------------------
48
SCHEDULE 5.2
EMPLOYEES
Attached is a listing of all employees of the Company as of the date of the
Stock Purchase Agreement.
49
EMPLOYEE AGREEMENT
In exchange for being employed (both past and future) by Wolf Corporation, its
subsidiaries, affiliates, or successors ("Wolf"), I agree that while working for
Wolf:
1. I have and will continue to perform my assigned duties, comply with all
Wolf instructions and regulations, and devote my best efforts to Wolf's
interests. I will not, without Wolf's prior written consent, engage in any
other job or activity detrimental to Wolf's interests.
2. I have and will continue to promptly disclose and do hereby assign to Wolf
my entire rights in all designs, trademarks, copyrights, discoveries,
formulae, processes, manufacturing techniques, trade secrets, inventions,
improvements, ideas or copyrightable works:
(a) related in any way to my work at Wolf (whether or not during normal
working hours);
(b) related in any way to Wolf's business or to Wolf's actual or
demonstrably anticipated research or development; or
(c) aided by the use of Wolf equipment, supplies, facilities or trade
secret information.
This disclosure and assignment is and will be made without additional
compensation and solely in consideration of the compensation paid for my
usual work. I am not conveying rights in designs, trademarks, copyrights,
discoveries, formulae, processes, manufacturing techniques, trade secrets,
inventions, improvements, ideas or copyrightable works I made prior to
working for Wolf which are identified in an attached sheet (which contains
no confidential information). I understand that I am not required to
assign any design, trademark, copyright, discovery, formula, process,
manufacturing technique, trade secret, invention, improvement, idea or
copyrightable work where:
(1) no Wolf equipment, supplies, facilities or trade secret information
were used;
(2) the invention was developed entirely on my own time;
(3) the invention does not relate to Wolf's business or to Wolf's actual
or demonstrably anticipated research or development; and
(4) the invention does not result from my Wolf work.
3. I will during and after my Wolf employment, do whatever is requested by
Wolf, at its expense to sign documents or otherwise assist in obtaining
and enforcing Wolf's rights throughout the world in the assigned items.
4. I have and will continue to hold in confidence and not use or disclose
without Wolf's written authorization any confidential information
(technical or otherwise) I obtain or create during the period of my
employment. Confidential information includes all information that
pertains to any aspect of Wolf's business and is either:
(a) unknown to actual or potential competitors of Wolf; or
(b) proprietary information of Wolf, its customers or suppliers.
I will hold this information in confidence until it becomes generally
known (other than through breaches of this agreement or other similar
agreements). I will not make unauthorized copies of such information and
will return to Wolf upon my termination or upon Wolf's request, all
tangible forms of such information including drawings, computerized data
or programs, specifications, documents, devices, models or any other
material.
50
5. I represent that I have not brought and will not bring or use in the
performance of my duties at Wolf any proprietary or confidential
information (whether or not in writing) of a former employer without that
employer's written authorization.
6. This agreement (a) survives my employment by Wolf, (b) does not in any way
restrict my right or the right of Wolf to terminate my employment, (c)
inures to the benefit of successors and assigns to Wolf, and (d) is
binding upon my heirs and legal representatives.
7. I certify that to the best of my information and belief, I am not a party
to any other agreement which will interfere with my full compliance with
this Agreement except as specifically identified below.
8. I certify and acknowledge that I have carefully read all of the provisions
of this Agreement and that I understand and will fully and faithfully
comply with such provisions.
The effective date of this Agreement is the date my employment began at Wolf.
Wolf EMPLOYEE
By By
--------------------------------- ---------------------------
Director of Human Resources
Printed Name
------------------------
- 2 -
51
EXHIBIT 5.2
INVENTION AGREEMENT
Attached is the standard Purchaser Invention Agreement to be signed by all
employees of the Company.
52
SCHEDULE 6.1
LEGAL JURISDICTIONS OF COMPANY
The Company is qualified to do business and is in good standing in each of the
following jurisdictions:
State of Oklahoma
53
SCHEDULE 6.6
RECORD AND BENEFICIAL OWNERS OF COMPANY COMMON STOCK
The following persons are the record and beneficial owners of Company stock at
the date of the Stock Purchase Agreement:
Xxxxx Xxxxxxxxxx 250 shares of common stock
Xxxxxx Xxxxxxxxxx 250 shares of common stock
Xxxxxxx Xxxxxx 50 shares of common stock
There are no Encumbrances, rights of first refusal, preemptive rights or other
restrictions on the shares listed above.
The Shareholders and Purchaser have agreed that Xxxxx and/or Xxxxxx Xxxxxxxxxx
may, prior to the Closing Date, purchase the Company shares owned by Xxxxxxx
Xxxxxx. If this occurs, Xxxxx and/or Xxxxxx Xxxxxxxxxx will tender all of the
Company shares to Purchaser at the Closing.
54
SCHEDULE 6.7(a)
TRANSACTIONS WITH AFFILIATES
The Company leases its office, manufacturing, storage and parking space from the
Shareholders. The leases are described further in Schedule 6.17. The
Shareholders are also employees of the Company and receive wages for the
services provided. The Company provides (at no cost to employees) leased
vehicles to Xxxxx Xxxxxxxxxx, Xxxxxx Xxxxxxxxxx and Xxxx Xxxxxxxx.
55
SCHEDULE 6.7(b)
RELATED PARTY BALANCES
The Company has the following related party balances at the date of the Stock
Purchase Agreement:
The Company has advances receivable from employees totaling $22,232 at June 30,
2001.
A/R - Southern Plains $14,818 Southern Plains was a company owned by Xxx
Xxxxxxxx, an employee of the Company. This account receivable is probably
uncollectible.
The Company leases its office, manufacturing, storage and parking space from the
Shareholders.
The Company provides leased automobiles to Xxxxx Xxxxxxxxxx, Xxxxxx Xxxxxxxxxx
and Xxxxxxx Xxxxxxxx. The leases are included in Schedule ___.
The Company has accrued but not paid salaries for the period June 16, 2001-June
30, 2001 and matching 401k plan contributions for Xxxxx Xxxxxxxxxx, Xxxxxx
Xxxxxxxxxx, Xxxxxxx Xxxxxx and Xxxxxxx Xxxxxxxx (and other employees).
The Company owes various amounts to financial and legal consultants for services
provided prior to the date of the Stock Purchase Agreement.
The Company has accrued amounts for vacation pay, payroll and related payroll
taxes and withholdings for employees and shareholders as of the date of the
Stock Purchase Agreement.
The accrual for vacation pay has not been reviewed since December 31, 2000 and
may need to be adjusted as of June 30, 2001.
Xxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxxx have personally guaranteed the line of
credit with Stillwater National Bank. Purchaser will cancel the personal
guarantees by Xxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxxx of any Company obligations
as of the Closing Date.
The Company provides (at no cost to employees) leased vehicles to Xxxxx
Xxxxxxxxxx, Xxxxxx Xxxxxxxxxx and Xxxx Xxxxxxxx.
56
SCHEDULE 6.7(c)
SHAREHOLDER ASSETS
The Company leases its office, manufacturing, storage and parking space from the
Shareholders. The leases are described further in Schedule 6.17. The
Shareholders are also employees of the Company and receive wages for the
services provided.
57
SCHEDULE 6.8
GAAP EXCEPTIONS
The Company's Financial Statements are not prepared in accordance with GAAP due
to the following items:
The Financial Statements are prepared on the accounting basis used by the
Company for income tax purposes, which is a comprehensive basis of accounting
other than GAAP. Adjustments may be necessary for the following items, if the
amounts were deemed to be material.
The omission of footnotes to the financial statements.
The omission of a Statement of Cash Flows, except for the June 30, 2001
Financial Statements.
Depreciation is calculated on an accelerated MACRS method used for income tax
purposes rather than in accordance with a GAAP method.
Advance payments from customers are recorded as income as received, in
accordance with income tax requirements.
No warranty reserve is recorded.
No reserve for product returns is recorded.
No allowance for possible bad debts or uncollectible accounts receivable is
recorded.
No adjustment is made to record inventory at lower of cost or market value.
58
SCHEDULE 6.9
UNDISCLOSED LIABILITIES
The Company has the following unrecorded liabilities as of the date of the Stock
Purchase Agreement:
The cost of providing products for advance payments received under the Q-Forms
Program. Product warranty reserves. Reserves for possible product returns.
59
SCHEDULE 6.10
LITIGATION
None.
60
SCHEDULE 6.12
TAXES
The Company has not paid its Franchise Taxes or Property Taxes for 2001. These
taxes are due after the date of the Stock Purchase Agreement.
61
SCHEDULE 6.13
COMPLIANCE WITH LAWS, PERMITS AND CONTRACTS
None.
62
SCHEDULE 6.14
ENFORCEABILITY OF CONTRACTS, NO DEFAULTS
None.
63
SCHEDULE 6.15
PRODUCT RECALLS
None.
64
SCHEDULE 6.16
ENVIRONMENTAL MATTERS
None.
65
SCHEDULE 6.17
PROPERTIES
Attached is a summary of the real and personal property the Company leases under
non-cancellable leases as of the date of the Stock Purchase Agreement.
Attached is a detail listing of the cost and net book value of the Company's
property, plant and equipment on the June 30, 2001 Financial Statements.
The Company's debt is secured by the following items:
Stillwater National Bank Line of Credit - Secured by all assets of the Company.
Note Payable - S&R - Secured by the CNC Equipment.
Operating Leases - Secured by the leased asset.
66
AUDIO INNOVATIONS, INC.
Schedule 6.18
Insurance
Insurer Insurance Type
Hanover Insurance Co Umbrella Insurance
Northwestern Mutual Life Life
Hanover Insurance Co Business Auto Policy
Hanover Insurance Co Commercial Lines Policy
State Insurance Fund Worker's Compensation
Sun Life of Canada Supplemental Life
HealthFirst TPA Health/Life Insurance Med. Plan
Safeco Auto Insurance
67
SCHEDULE 6.19
DEVELOPMENT AND DISTRIBUTION AGREEMENTS
The Company has no material contracts relating to the development of Company's
Products or development of Products for others or for services of independent
contractors. See attached schedule for a listing of
68
SCHEDULE 6.20
OTHER CONTRACTS
Loans:
Stillwater National Bank Line of Credit
Note Payable - S&R
69
SCHEDULE 6.21
EMPLOYMENT CONTRACTS AND PLANS
Attached is the Company's employee manual describing the employee benefit plans.
Attached is a listing of all employees with compensation in excess of $75,000
for calendar year 2000 and their annual base salary, excluding commissions, as
of June 30, 2001 and their Form W-2 wages for calendar year 2000.
70
Schedule 6.23
INTELLECTUAL PROPERTY
The Company has registered the following trademarks, trade names, service marks,
copyrights at the date of the Stock Purchase Agreement:
Audio Innovations
AI Research
Garage Storage Cabinets
Garage Storage Cabinets - Storage System
Q-Logic
Q-Forms
The Right Stuff
Bass Boxx
Impact Mobile Audio Monitors
Tri-Point Suspension
71
SCHEDULE 6.24
INVENTORY
Video and related inventory.
An amount not to exceed 5% of the non-video inventory for possibly excess,
slow-moving and obsolete items.
72
SCHEDULE 6.25
RECEIVABLES
Attached is the detailed accounts receivable listing as of June 30, 2001.
73
SCHEDULE 6.26
RECORDS
The books of account are maintained on the accounting basis used by the company
for income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles. See Schedule 6.8 for the listing of
adjustments which, if material, may be required to present the Financial
Statements in accordance with generally accepted accounting principles.
74
SCHEDULE 6.28
ABSENCE OF CHANGES OR EVENTS
None.
75
EXHIBIT 10.3
OPINION OF COUNSEL
_____________, 2001
Rockford Corporation
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxx, Xxxxxxx 00000
Re: Transaction (the "Transaction") among Rockford
Corporation, an Arizona corporation ("you"), Audio
Innovations, Inc., an Oklahoma corporation ("Company"),
and the Shareholders of the Company
Ladies and Gentlemen:
We have acted as counsel to the Company and Xxxxx and Xxxxxx
Xxxxxxxxxx (collectively, "Seller") in connection with the Transaction evidenced
by the Documents (as defined below). You have requested our opinion about
certain matters pursuant to Section 10.3 of the Agreement (as defined below).
Capitalized terms used and not otherwise defined in this letter shall have the
meanings ascribed to them in the Documents.
For purposes of this opinion, we have examined such questions
of law and fact as we have deemed necessary or appropriate, and have examined
the following documents (collectively, the "Documents"):
a. Stock Purchase Agreement, dated _______, 2001, among the
Company, its Shareholders and you (the "Agreement"); and
b. Employment Agreement, dated _______, 2001, between you and
Xxxxx Xxxxxxxxxx.
We have further examined:
i. The Articles of Incorporation and bylaws of Company, as
amended to date;
76
ii. A Certificate of Good Standing with respect to Company,
dated _______, 2001; and
iii. A Certificate of the President of Company, dated
___________, 2001 (the "Officer's Certificate").
Based on the foregoing, and subject to the qualifications set
forth below, it is our opinion that:
1. Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Oklahoma.
2. Company's authorized capital consists of [50,000] common
shares, par value $1.00 per share, of which [550] shares are issued and
outstanding (the "Shares"). The Shares have been duly authorized and are validly
issued, fully paid, and nonassessable.
3. Company has the requisite corporate power and corporate
authority (i) to own and operate its properties and assets; (ii) to carry out
its business as such business is currently being conducted; and (iii) to carry
out the terms and conditions applicable to it under the Agreement. The
execution, delivery, and performance of the Agreement by Company have been duly
authorized by all requisite corporate action on the part of Company and the
applicable Documents have been duly executed and delivered by Seller.
4. Based solely upon our knowledge, the representations of
Company in the Officer's Certificate, and our examinations as of _________,
2001, of the records of the filings in [the ________ Court of ________ and
United States District Court for the District of Oklahoma], from _________,
20__, through _________, 20__, there is no pending or overtly threatened
litigation or other legal proceeding against Company.
5. The execution and delivery of the Agreement and
consummation of the Transaction by Seller will not conflict with or result in a
violation of any applicable law or rule affecting Seller.
6. No consent, approval, authorization, or other action by, or
filing with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by Seller of the Documents and the
consummation of the Transaction [or, if any of the foregoing is required, it has
been obtained].
7. The execution and delivery of the Agreement and
consummation of the Transaction by the Company will not conflict with or result
in a violation of Company's Articles of Incorporation or bylaws.
8. Based solely upon our knowledge, a review of judgments,
orders, and decrees disclosed by Company in the Officer's Certificate, and by a
search of the records of [the _________Court of __________ and the United States
District Court for the District of Oklahoma for the past ____ years], the
execution and delivery of the Agreement and
77
consummation of the Transaction by Company will not conflict with or result in a
violation of any judgment, order, or decree of any court or governmental agency
to which Company is a party or by which it is bound.
9. Based solely upon our knowledge and a review of those
agreements disclosed to us by Company in the Officer's Certificate, the
execution and delivery of the Agreement, and consummation of the Transaction by
Company will not conflict with or result in a violation of any contract,
indenture, instrument, or other agreement to which Company is a party or by
which it is bound.
10. The Documents constitute legal, valid, and binding
obligations of Seller, as applicable, enforceable in accordance with their
terms.
11. Seller has paid all sales, transfer, documentary and other
taxes (other than income taxes) payable in connection with the sale of the
Shares to you.
In rendering the foregoing opinions we have assumed:
(i) The genuineness of the signatures not witnessed, the
authenticity of documents submitted as originals, and the conformity to
originals of documents submitted as copies;
(ii) The legal capacity of all natural persons executing the
Documents;
(iii) That the Documents accurately describe and contain the
mutual understanding of the parties, and that there are no oral or written
statements or agreements that modify, amend, or vary, or purport to modify,
amend, or vary, any of the terns of the Documents; and
(iv) That Company owns all of the property, assets, and rights
purported to be owned by it.
The opinions set forth above are subject to the following
qualifications and limitations:
a. The enforceability of the Documents may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, or
other similar laws relating to or affecting the rights of creditors generally;
b. The enforceability of the Documents is subject to general
principles of equity; and
c. The enforceability of the Documents is further subject to
the qualification that certain waivers, procedures, remedies, and other
provisions of the Documents may be unenforceable under or limited by the law of
the State of Oklahoma; however, such law does not, in our opinion, substantially
prevent the practical realization of the benefits intended by the
78
Documents.
We are qualified to practice law in the State of Oklahoma, and
we do not purport to be experts on, or to express any opinion concerning, any
law other than the law of the State of Oklahoma and applicable federal law. The
Documents state that they are to be governed by the laws of Arizona. We are not
familiar with those laws and render no opinion about them. For purposes of our
opinion we have assumed, with your consent, that the Documents will be governed
by the laws of Oklahoma notwithstanding their express terms. We express no
opinion about what law will actually govern the Documents.
The opinions expressed in this letter are based upon the law
in effect on the date hereof, and we assume no obligation to revise or
supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise.
This opinion is being furnished to you solely for your benefit
and only with respect to the Transaction. Accordingly, it may not be relied upon
by, quoted in any manner to, or delivered to, any person or entity without, in
each instance, our prior written consent.
Very truly yours,
79
EXHIBIT 10.4
CERTIFICATE
OF
SELLER AND SHAREHOLDERS
This Certificate is issued pursuant to the Stock Purchase Agreement
("Agreement") dated _______________, 2001, among Rockford Corporation
("Purchaser"), Audio Innovations, Inc. ("Company"), and Company's Shareholders
("Shareholders"). Terms used in this Certificate have the same meaning given in
the Agreement.
THE COMPANY AND SHAREHOLDERS CERTIFY THAT:
1. THE CONDITIONS STATED IN SECTION 10 OF THE AGREEMENT HAVE BEEN
COMPLETELY MET IN ALL MATERIAL RESPECTS;
2. THE REPRESENTATIONS AND WARRANTIES OF COMPANY AND ITS SHAREHOLDERS
IN SECTION 6 OF THE AGREEMENT ARE TRUE AND CORRECT WHEN MADE AND ON THE
CLOSING DATE; AND
3. THE COMPANY AND SHAREHOLDERS HAVE PERFORMED ALL COVENANTS, AGREEMENTS,
AND OBLIGATIONS REQUIRED OF THEM BY THE AGREEMENT, AND EXECUTED AND DELIVERED TO
PURCHASER ALL DOCUMENTS REQUIRED TO BE DELIVERED AT OR PRIOR TO THE CLOSING,
INCLUDING THE AGREEMENT ITSELF.
AUDIO INNOVATIONS, INC.
----------------------------------
By: President
----------------------------------
Xxxxx Xxxxxxxxxx, Shareholder
----------------------------------
Xxxxxx Xxxxxxxxxx, Shareholder
----------------------------------
Xxxxxxx Xxxxxx, Shareholder
80
EXHIBIT 11.3
OPINION OF COUNSEL
____________, 2001
Audio Innovations, Inc.,
and its Shareholders
listed on Exhibit A
[Address]
Re: Transaction (the "Transaction") among Rockford
Corporation, an Arizona corporation ("Buyer"), Audio
Innovations, Inc., an Oklahoma corporation
("Company"), and the Shareholders of the Company
("Shareholders" and, together with Company, "Seller")
Ladies and Gentlemen:
We have acted as counsel to Buyer in connection with the
Transaction evidenced by the Documents (as defined below). You have requested
our opinion about certain matters pursuant to Section 11.3 of the Agreement (as
defined below). Capitalized terms used and not otherwise defined in this letter
shall have the meanings ascribed to them in the Documents.
For purposes of this opinion, we have examined such questions
of law and fact as we have deemed necessary or appropriate, and have examined
the following documents (collectively, the "Documents"):
c. Stock Purchase Agreement, dated _______, 2001, between
Seller and Buyer (the "Agreement"); and
d. Employment Agreement, dated _______, 2001, between Buyer
and Xxxxx Xxxxxxxxxx.
We have further examined:
iv. The Articles of Incorporation and bylaws of Buyer, as
amended to date; and
81
v. A Certificate of Good Standing with respect to Buyer, dated
June 27, 2000.
Based on the foregoing, and subject to the qualifications set
forth below, it is our opinion that:
12. Buyer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Arizona.
13. Buyer has the requisite corporate power and corporate
authority (i) to own and operate its properties and assets; (ii) to carry out
its business as such business is currently being conducted; and (iii) to carry
out the terms and conditions applicable to it under the Documents. The
execution, delivery, and performance of the Documents by Buyer have been duly
authorized by all requisite corporate action on the part of Buyer and the
applicable Documents have been duly executed and delivered by Buyer.
14. The execution and delivery of the Documents and
consummation of the Transaction by the Buyer will not conflict with or result in
a violation of Buyer's Articles of Incorporation or bylaws.
15. The Documents constitute legal, valid, and binding
obligations of Buyer, enforceable in accordance with their terms.
In rendering the foregoing opinions we have assumed:
(v) The genuineness of the signatures not witnessed, the
authenticity of documents submitted as originals, and the conformity to
originals of documents submitted as copies;
(vi) The legal capacity of all natural persons executing the
Documents;
(vii) That the Documents accurately describe and contain the
mutual understanding of the parties, and that there are no oral or written
statements or agreements that modify, amend, or vary, or purport to modify,
amend, or vary, any of the terns of the Documents; and
(viii) That Buyer owns all of the property, assets, and rights
purported to be owned by it.
82
The opinions set forth above are subject to the following
qualifications and limitations:
d. The enforceability of the Documents may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, or
other similar laws relating to or affecting the rights of creditors generally;
e. The enforceability of the Documents is subject to general
principles of equity; and
f. The enforceability of the Documents is further subject to
the qualification that certain waivers, procedures, remedies, and other
provisions of the Documents may be unenforceable under or limited by the law of
the State of Arizona; however, such law does not, in our opinion, substantially
prevent the practical realization of the benefits intended by the Documents.
We are qualified to practice law in the State of Arizona, and
we do not purport to be experts on, or to express any opinion concerning, any
law other than the law of the State of Arizona and applicable federal law.
The opinions expressed in this letter are based upon the law
in effect on the date hereof, and we assume no obligation to revise or
supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise.
This opinion is being furnished to you solely for your benefit
and only with respect to the Transaction. Accordingly, it may not be relied upon
by, quoted in any manner to, or delivered to, any person or entity without, in
each instance, our prior written consent.
Very truly yours,
Steptoe & Xxxxxxx LLP
83
Exhibit A
Shareholders
Xxxxx Xxxxxxxxxx
Xxxxxx Xxxxxxxxxx
Xxxxxxx Xxxxxx
84
EXHIBIT 11.4
CERTIFICATE
85
CERTIFICATE OF PURCHASER
This Certificate is issued pursuant to the Stock Purchase Agreement
("Agreement") dated __________________, 2001, among Rockford Corporation
("Purchaser"), Audio Innovations, Inc. ("Company"), and Company's Shareholders
("Shareholders"). Terms used in this Certificate have the same meaning given in
the Agreement.
THE PURCHASER CERTIFIES THAT:
1. THE CONDITIONS STATED IN SECTION 11 OF THE AGREEMENT HAVE BEEN
COMPLETELY MET IN ALL MATERIAL RESPECTS;
2. THE REPRESENTATIONS AND WARRANTIES OF PURCHASER IN SECTION 7 OF THE
AGREEMENT ARE TRUE AND CORRECT WHEN MADE AND ON THE CLOSING DATE; AND
3. PURCHASER HAS PERFORMED ALL COVENANTS, AGREEMENTS, AND OBLIGATIONS
REQUIRED OF IT BY THE AGREEMENT, AND EXECUTED AND DELIVERED TO COMPANY'S
SHAREHOLDERS ALL DOCUMENTS REQUIRED TO BE DELIVERED AT OR PRIOR TO THE CLOSING.
ROCKFORD CORPORATION
---------------------------------
By: President
