1
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Rockford Corporation an
Arizona Corporation, (hereinafter called the "Company") and W. Xxxx Xxxxxx
(hereinafter called the "Employee") as of January 1, 1999.
RECITALS
A. Employee currently serves as the President and Chief Executive
Officer of the Company.
B. The Board of Directors recognizes Employee's value to the
Company and desires to enter into a long-term employment agreement with the
Employee.
C. Employee is willing to accept employment by the Company on the
terms and conditions set forth herein.
NOW THEREFORE, the Company and the Employee agree as follows:
AGREEMENT
1. Employment
1.1 The Company shall employ the Employee and the Employee shall
serve the Company under this Agreement as President and Chief
Executive Officer of the Company. Subject to the termination
provisions in Section 5, the Employee shall be employed by the
Company to perform the duties set forth in this Agreement,
commencing as of the date hereof and until this Agreement is
terminated in accordance with the terms and conditions in this
Agreement.
1.2 In accordance with the Company's procedures for election of
directors, during the term of the Employee's employment the
Board of Directors will nominate and recommend the Employee to
serve on the Company's Board of Directors. If the shareholders
elect the Employee to the Board of Directors, the Employee
will serve at no additional compensation.
2. Duties
2.1 The Employee shall: (i) carry out all such executive and
managerial duties as are consistent with his position as
President and Chief Executive Officer, as shall be lawfully
assigned to him from time to time by the Board of Directors of
the Company (the "Board"), or as are prescribed by the Bylaws
of the Company; (ii) serve the Company diligently and
faithfully according to his best abilities in all respects;
(iii) except as provided herein, devote his full time, energy
and skill to the performance of his duties under this
Agreement; and (iv) obey and observe all lawful and reasonable
orders and instructions of the Board in relation to the
business of the Company. Employee shall be entitled to retain
existing and engage in noncompetitive outside financial
investments so long as they do not interfere with Employer's
devotion of substantially full time to his duties hereunder,
including serving as a member of a Board of Directors.
3. Employment period
3.1 Initial term. The Employee shall be employed by the Company
for the duties set forth in Section 2 for a five-year period,
commencing as of January 1, 1999, and ending on December 31,
2003 (the "Initial Term"), unless sooner terminated in
accordance with the provisions of this Agreement.
2
3.2 Renewal; Employment Period. This Employment Agreement will be
automatically renewed at the end of the Initial Term for
additional two-year periods commencing on each January 1 and
ending twenty four (24) months later on the following December
31 (the "Renewal Terms"), unless either party serves notice of
desire to terminate or modify this Employment Agreement on the
other. Such notice must be given at least six months before
the end of the Initial Term or the applicable Renewal Term.
The period of time commencing as of the date hereof and ending
on the effective date of the termination of employment of the
Employee under this or any successor Agreement shall be
referred to as the "Employment Period."
4. Compensation and Benefits
4.1 As remuneration for Employee's services hereunder, the Company
shall pay to the Employee, during the continuance of his
employment, a total annual base salary of $400,000 payable in
installments under the Company's standard payroll policies
(base salary). The base salary may be increased as the
Compensation Committee of the Board of Directors of the
Company reasonably determines.
4.2 In addition to the remuneration provided in Section 4.1 above,
the Company shall pay the Employee an annual performance bonus
(the "bonus") based on the Company's profit and bonus plan
(the "plan") as approved by the Board of Directors or the
Compensation Committee. Such annual bonus shall provide
incentives up to 50% of base salary each Fiscal Year in the
event the plan is achieved. This base salary and bonus shall
be referred to as the Employee's "total compensation."
4.2.1 Bonus payments provided herein shall be paid to the
Employee within 30 days after delivery to the Board
of Directors of the audited (or if there is no audit,
Board approved) financial statements of the Company
for the relevant Fiscal Year.
4.2.2 The Employee shall not be entitled to the bonus or
any portion thereof unless he has been employed
throughout the entire relevant Fiscal Year; provided,
however, that if the Employee's employment is
terminated and sections 5.2 or 5.4 below require
payment of partial bonus, then Employee will receive
a pro rata bonus ("Pro Rata Bonus") based on the
number of months which elapsed during the relevant
Fiscal Year before the termination, notwithstanding
that he was not employed on the last day of the
Fiscal Year. Unless Sections 5.2 or 5.4 require
payment of a Pro Rata Bonus, the Employee shall not
be entitled to the bonus or any portion thereof for
the Fiscal Year in which his employment is
terminated.
4.2.3 For the purposes of this Agreement, the term "Fiscal
Year" shall mean the Company's Fiscal Year for
accounting purposes ending December 31.
4.3 The Employee shall be entitled to receive such employee
benefits, including but not limited to, accident, health,
disability and travel insurance, in accordance with the
guidelines applicable to the Company's other senior executive
officers and all employees generally; provided that the
Company shall pay for the cost of coverage under all such
Plans to the same extent as it pays the cost for other senior
executive officers. The Company will reimburse the Employee
for amounts paid by the Employee for any supplemental
disability insurance premiums necessary to provide disability
income equal to the Employee's base salary. The Employee is
entitled to five (5) weeks of paid vacation per calendar year,
with such vacation to be scheduled and taken in accordance
with the Company's standard vacation policies. The Employee
shall be entitled to receive an annual physical from a
physician of his choice with the cost of such physical borne
by the Company (to the extent it is not paid for by the health
insurance provided by Company).
-2-
3
4.4 The Company shall enter into an agreement with the Employee
establishing a "split dollar" life insurance program in a face
amount agreed by Employee and Company. The Company shall pay
100% of the annual premiums on the underlying life insurance
contract up to a maximum payment of $36,000 per year and upon
the Employee's death, the Company shall be entitled to receive
a payment equal to the premiums paid. Such agreement shall be
subject to such other terms and conditions to which the
Company and Employee agree.
4.5 The Company will reimburse the Employee for any and all
necessary, customary, and usual expenses, properly receipted
in accordance with Company policies, incurred by the Employee
on behalf of the Company. Additionally, the Company shall pay
membership dues for the Employee to join various civic and
professional organizations mutually agreed to by the Employee
and the Company.
4.6 If the Employee is unable to perform his duties hereunder
because of his physical or mental illness, the Company will
continue to pay the Employee his then annual base salary for
up to 100 business days of such period of physical or mental
illness during any Fiscal Year. The Company shall have the
right to require a medical certificate for absences of more
than 20 business days and have the Employee examined by a
physician of its choice for any absence exceeding 45 days. Any
payments hereunder shall be reduced by any payments made to or
with respect to the Employee as salary continuation under the
provisions of any disability or workers compensation program
or arrangement to which the Company contributes or reimburses
the Employee for premiums.
4.7 Employee shall be entitled to participate in the Company's
Stock Option Plan as determined by the Board. The Board and
Compensation Committee intend to grant Employee an initial
option under this Agreement to purchase up to 20,000 shares
under the Plan.
5. Termination
5.1 The Company may terminate the Employee's employment at any
time after the first anniversary date of this Agreement by
giving written notice to the Employee not less than six months
prior to the effective date of such termination; provided,
that the Company may terminate the Employee's employment
immediately upon written notice to Employee of termination for
Good Cause (as defined below). Employee may terminate his
employment with the Company immediately upon written notice to
the Company of termination for Good Reason (as defined below).
After delivery of a termination notice described in this
Section 5.1, the Company shall have the right to exclude the
Employee from the Company's premises or from performing any
services for the Company; provided that the Company shall
continue to compensate the Employee as otherwise required by
the terms of this Agreement.
5.1.1 For the purposes of this Agreement, "Good Reason" for
termination by Employee shall be deemed to occur in
the event (i) the Company changes the Employee's
position as Chief Executive Officer or materially
changes the Employee's functions, duties, or
reporting responsibilities which would cause
Employee's position with the Company to become of
materially lesser responsibility or importance than
those associated with his functions, duties, or
responsibilities as of the date hereof, (ii) the
Employee is required without the Employee's consent
to relocate to an employment location that is outside
metropolitan Phoenix, Arizona, (iii) the Employee's
annualized base salary rate or target bonus amount
during the Employment Period is reduced from the
rates set forth in Sections 4.1 and 4.2, as such
rates may be adjusted by the Compensation Committee,
unless
-3-
4
the Employee agrees to a reduction; or (iv) there
exists a "Charge in Control" (as defined on Exhibit A
attached hereto and incorporated herein) of the
Company prior to an initial public offering of
Company's common stock in one or more series of
related transactions.
5.1.2 For purposes of this Agreement, "Good Cause" for
termination by the Company means: (i) the Employee's
indictment, conviction or plea of guilty to any act
or acts constituting a felony under the laws of the
United States, any state thereof or any foreign
jurisdiction, (ii) failing or refusing, after a
30-day written notice from the Company and an
opportunity during such 30-day period for the
Employee to cure, to comply in a material respect
with the Company's policies, written or otherwise, or
with the material duties or obligations imposed upon
him under this Agreement, (iii) any act by the
Employee that is unlawful or brings the Company into
disrepute unless the Employee believed in good faith
that the act was lawful and not opposed to the
Company's best interests, or (iv) any act by the
Employee involving theft or dishonesty involving
$1,000 or more of the Company's property. Good cause
shall be determined by a vote of the Board of
Directors.
5.2 If the Company terminates the employment of the Employee
during the Employment Period for other than Good Cause or if
Employee terminates his employment with the Company during the
Employment Period for Good Reason then the Company shall pay
to Employee any portion of his annual base salary which has
been accrued but not been paid as of the termination date
("Accrued Salary") and his Pro Rata Bonus. In addition, the
Company shall pay the Employee an amount equal to the
Employee's base salary for the 18-month period immediately
preceding the Employee's termination of employment. Such
amount shall be paid according to the Company's payroll
practices over the 18-month period immediately following the
Employee's termination of employment. Further, the Company
will maintain all benefits as described in Section 4.3,
including without limitation all medical and disability
benefits, for the 18-month period immediately following the
Employee's termination of employment. Alternatively, at
Employee's election, Company shall reimburse the cost of the
Employee's COBRA premium during the applicable "period of
coverage" as defined in Section 4980B(f)(2)(B) of the Internal
Revenue Code should the Employee elect to receive such COBRA
coverage.
5.3 If the Employee's employment is terminated for any reason
other than those set forth in Sections 5.2 or 5.4, the Company
shall not be obligated to pay any severance, pay any bonus, or
provide any benefits to the Employee; provided, that the
Company shall pay to Employee his Accrued Salary.
5.4 The employment of the Employee shall terminate upon the
Employee's death. In the event of the Employee's death, the
Company shall be obliged within 30 days thereafter to pay to
Employee's estate all Accrued Salary and, if applicable, Pro
Rata Bonus. The Company shall have the right to terminate the
Employee's employment upon 100 business days prior written
notice in the event of the Employee's total disability. In the
event of the Employee's termination as the result of his total
disability, the Company shall, for a period of 12 months
following termination pay to the Employee in each such month
1/12 of his total compensation for the 12 month period prior
to termination; provided, however, that the dollar amount of
any payment hereunder shall be reduced by any payments made to
or with respect to the Employee as salary continuation under
the provisions of any disability or workers compensation
program or arrangement to which the Company contributes or
reimburses the Employee for premiums. For purposes hereof, a
total disability is a physical or mental disability which
results in the Employee's inability to substantially perform
his duties for a period of six consecutive months or for a
period of 180 days within any period of 12 consecutive months.
-4-
5
5.5 Upon termination of his employment with the Company, the
Employee shall promptly return to the Company of his own
accord all documents, memoranda, computer discs, data,
electronically-stored files, notes and drafts in whatever
medium relating to the Company's business, together with any
and all carbon or other copies thereof. The Employee shall not
be entitled to withhold from the Company any of the
aforementioned papers or documents.
5.6 The Employee's receipt of any of the benefits to be provided
under this Agreement following termination of the Employee's
employment with the Company shall be subject to the Employee's
compliance with any reasonable and lawful policies or
procedures of the Company relating to employee severance,
including the execution and delivery by the Employee of a
release reasonably satisfactory to the Company of any and all
claims that the Employee may have against the Company or any
related person, except for the continuing obligations provided
herein.
6. Covenants
6.1 Nondisclosure. The Employee shall not make use of, divulge, or
otherwise disclose, directly or indirectly, whether during the
term of this Agreement or at any time thereafter, any trade
secret or other confidential or proprietary information
concerning the business (including, but not limited to, its
products, employees, customers, suppliers, services,
practices, or policies) of the Company of which the Employee
may learn or be aware as a result of the Employee's employment
during the term of the Agreement, except to the extent such
use or disclosure is (i) required by applicable law; (ii)
lawfully obtainable from other sources not under a duty of
confidentiality with the Company, (iii) authorized in writing
by the Company, or (iv) necessary to the performance of this
Agreement and in furtherance of the Company's best interest.
The provisions of this provision shall survive the expiration,
suspension, or termination, for any reason, of this Agreement.
6.2 Trade Secrets. The Employee, during the term of employment
under this Agreement, will have access to and become
acquainted with various trade secrets and proprietary and
confidential information, consisting of, but not limited to,
processes, computer programs, compilation of information,
records, sales procedures, customer requirements, pricing
techniques, customer lists, methods of doing business and
other confidential information (collectively referred to as
"Trade Secrets"), which are owned by the Company and regularly
used in the operation of its business, but in connection with
which the Company takes precautions to prevent dissemination
to persons other than certain directors, officers and
employees. The Employee agrees not to disclose any of the
Trade Secrets, directly or indirectly, or use them in any way,
either during the term of this Agreement or at any time
thereafter, except as required in the course of employment by
the Company and for its benefit. All records, files,
information, data, documents, drawings, specifications,
software, electronically-stored data, equipment, and similar
items (and all reproductions thereof) relating to the business
of the Company, including without limitation, all records
relating to suppliers or customers ("Documents"), shall remain
the exclusive property of the Company and shall not be removed
from the premises of the Company or its affiliates under any
circumstances whatsoever, except in the normal course of
business or with the prior consent of the Company. Upon
termination of employment, the Employee agrees to promptly
deliver to the Company all Documents in the possession or
under the control of Employee.
6.3 Non-Competition. Without the prior written consent of the
Company:
6.3.1 During the Employment Period, the Employee shall not
directly or indirectly, either as an individual, a
partner, or a joint venturer, or in any other
capacity (A) engage in any business that competes
with the Company by marketing to customers who are
substantially similar to the customers of the Company
during
-5-
6
the Employment Period, (B) accept employment with or
render services to a competitor of the Company as a
director, officer, agent, employee, or consultant,
(C) contact, solicit, or attempt to solicit or accept
or direct business that is competitive with business
conducted by the Company during the Employment Period
from any of the Company's customers, or (D) take any
action inconsistent with the fiduciary relationship
of an Employee to his employer.
6.3.2 Until the later of (1) 12 months after termination of
the Employment Period or (2) 6 months after final
payment of severance or disability payments under
Sections 5.2 or 5.4 after the Employment Period ends,
the Employee shall not, directly or indirectly,
either as an individual, a partner, or a joint
venturer, or in any other capacity, (A) engage in any
business that competes with the Company by marketing
to customers who are substantially similar to the
customers of the Company during the Employment
Period, (B) accept employment with or render services
to a competitor of the Company as a director,
officer, agent, employee, or consultant, or (C)
contact, solicit, or attempt to solicit or accept or
direct business that is competitive with business
conducted by the Company during the Employment Period
from any of the Company's customers.
6.4 Non-Solicitation. During the term of this Agreement and until
the later of (1) 12 months after termination of the Employment
Period or (2) 6 months after final payment of severance or
disability payments under Sections 5.2 or 5.4 after the
Employment Period ends, the Employee will not, on behalf of
the Employee or on behalf of any other individual,
association, or entity, call on any of the customers of the
Company for the purpose of soliciting or inducing any of such
customers to acquire, or providing to any of such customers,
any product or service provided by the Company nor will the
Employee in any way, directly or indirectly, as agent or
otherwise, in any other manner solicit, influence, or
encourage such customers to take away or to divert or direct
their business to the Employee or any other individual,
association, or entity.
6.5 No Raiding of Employees. During the term of this Agreement and
until the later of (1) 12 months after termination of the
Employment Period or (2) 6 months after final payment of
severance or disability payments under Sections 5.2 or 5.4
after the Employment Period ends, the Employee will not (A)
induce any employee of the Company to leave the Company or to
accept any other employment or position or (B) assist any
other individual, association, or entity in hiring any such
employee.
6.6 Special Remedies and Enforcement. The Employee recognizes and
agrees that a breach by the Employee of any of the covenants
set forth in this Section 6 would cause irreparable harm to
the Company, that the Company's remedies at law in the event
of such breach would be inadequate, and that, accordingly, in
the event of such breach, a restraining order or injunction or
both may be issued against the Employee, in addition to any
other rights and remedies which are available to the Company.
The Company and the Employee agree that, if the Company
breaches its obligation to pay the Employee severance under
Section 5.2, the Employee shall not be bound by the terms of
any provision of this Section 6.
7. STOCK PURCHASING RIGHTS.
7.1 To the extent the Company makes any future equity offerings
prior to its initial public offering the Company will use best
efforts to offer Employee the right to participate on terms
and conditions similar to those offered to any other existing
stockholder.
8. REGISTRATION RIGHTS OF EMPLOYEE.
-6-
7
8.1 LOCK-UP PROVISIONS. Employee acknowledges and understands that
if the Company is able to complete an initial public offering,
all common stock owned by Employee may not be registered by
the Company in connection with the initial public offering.
Employee further acknowledges and agrees that the managing
underwriter of the initial public offering of the Company's
common stock or a subsequent offering of the Company's common
stock may require all shareholders, including the Employee, to
agree not to sell any common stock of their common stock for
up to 180 days. The Employee will sign a "lock-up" agreement
for up to 180 days upon request of the managing underwriter
and on terms substantially similar to those agreed by other
shareholders.
8.2 REGISTRATION. If at any time after an initial public offering
the Company will determine to register any of its common
stock, either for its own account or the account of a security
holder or holders, the Company will:
8.2.1 Promptly (and in any event within five (5) business
days) give to Employee written notice thereof; and
8.2.2 Use best efforts to include in such registration (and
any related qualification under blue sky laws or
other compliance), and in any underwriting involved
therein, up to 50% of the common stock held by
Employee ("Registrable Securities") specified in a
written request or requests, made within ten (10)
days after receipt of such written notice from the
Company, by Employee. Company shall not be obligated
to include any Registrable Securities if there would
be a conflict with any other shareholder's rights.
8.2.3 Employee will furnish to the Company such information
regarding Employee, the Registrable Securities held
by Employee, and the distribution proposed by
Employee as the Company may request in writing and as
will be required in connection with any registration,
qualification, or compliance referred to in this
Section 6.
8.3 1934 ACT COMPLIANCE. When and if the Company becomes subject
to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company
will comply with such requirements so that the "current public
information" requirement of Rule 144 of the Securities Act may
be met.
9. Indemnification. The Company and the Employee will enter into a
separate indemnification agreement governing the Employee's right to
indemnification from the Company.
10. Attorneys Fees
The Employee and the Company agree that in any arbitration or legal
proceedings arising out of this Agreement the prevailing party shall be
entitled to its reasonable attorney's fees and costs of litigation in
addition to any other relief granted.
11. Entire Agreement
This Agreement records the whole of the terms agreed between the
Company and the Employee with respect to the subject matter hereof and
no variation or modification shall be valid unless it is recorded in
writing approved by the Compensation Committee and signed by a senior
executive officer of the Company and by the Employee.
12. Severability
Should any provision of this Agreement be found to be or become
invalid, this shall not prejudice the validity of the remaining
provisions.
-7-
8
13. Specific Performance
In the event of a breach by the Employee or Company of any of the
provisions of this Agreement, the Company or Employee may, in addition
to other rights and remedies existing in its favor, apply to any court
of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce or prevent any violation of the provisions
of this Agreement.
14. Arbitration.
All disputes or claims by Employee against Company relating to this
Agreement or to Employee's employment shall be submitted for resolution
exclusively to arbitration under the Commercial Rules of Arbitration of
the American Arbitration Association in Phoenix, Arizona, no later than
one (1) year from the date such claim arises against Company.
15. Survival.
The provisions of Sections 6, 8, and 9 shall survive termination of
this Agreement.
16. Applicable Law
The Agreement shall be governed by the laws of the State of Arizona.
Signed by the Employee:
Dated: 19 Feb 99
/s/ W. Xxxx Xxxxxx ------------------
----------------------------------------
Signed for and on behalf of the Company:
ROCKFORD CORPORATION
Dated: 2/26/99
By: /s/ Xxxxxxx X. Xxxxxx ------------------
----------------------------------------
Title: General Partner, Monument Investors LP
----------------------------------------
-8-