SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary proxy statement. [ ] Confidential, for use of the Commission
only (as permitted by Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material under Rule 14a-12.
</Table>
Rockford Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
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(4) Date Filed:
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ROCKFORD CORPORATION
600 SOUTH ROCKFORD DRIVE
TEMPE, ARIZONA 85281
To the Holders of
Rockford Corporation Common Stock
Re: 2002 ANNUAL SHAREHOLDERS MEETING
Dear Shareholder:
You are cordially invited to attend Rockford's 2002 Annual Shareholders
Meeting. We will hold the meeting on Wednesday, May 8, 2002, at Rockford
Technical Training Institute, 636 South River Drive, Tempe, Arizona 85281. The
meeting will begin promptly at 10:00 a.m., Mountain Standard Time. We suggest
you arrive at least 30 minutes early.
The formal notice of the meeting follows on the next page. No admission
tickets or other credentials are required.
We will have some of our directors and officers available before and after
the meeting to speak with you. During the meeting, we will answer your questions
about our business affairs and will consider the matters explained in the Notice
and Proxy Statement that follow.
Please vote, sign and return the enclosed Proxy Card as soon as possible,
whether or not you plan to attend the meeting. Your vote is important.
Sincerely,
/s/ W. GARY SUTTLE
--------------------------------------
W. Gary Suttle
President and Chief Executive Officer
NOTICE OF 2002 ANNUAL SHAREHOLDERS MEETING
April 5, 2002
To the Holders of
Rockford Corporation Common Stock
We will hold our 2002 Annual Shareholders Meeting on Wednesday, May 8,
2002. We will meet at 10:00 a.m., Mountain Standard Time, at Rockford Technical
Training Institute, 636 South River Drive, Tempe, Arizona 85281. At the meeting
we will:
- Elect six Directors;
- Vote on Rockford's proposed 2002 Stock Option Plan; and
- Consider any other matters that properly come before the meeting.
Shareholders may vote at the meeting if they owned our common stock of
record at the opening of business, 8:00 a.m., Eastern Daylight Time, on March
18, 2002. We will have at the meeting a list of the shareholders eligible to
vote. We will also have the list at our principal executive office, 600 South
Rockford Drive, Tempe, Arizona 85281, for ten days before the meeting. Any
shareholder may examine the list for any purpose germane to the meeting.
We have enclosed our 2001 Annual Report, including financial statements,
and our Proxy Statement with this notice of our annual meeting.
The Board of Directors is soliciting your proxy and requests that you
please sign, date and mail the enclosed Proxy Card. We have provided a return
envelope for that purpose, which requires no postage if mailed in the United
States. We urge you to vote as soon as possible.
/s/ JAMES M. THOMSON
--------------------------------------
James M. Thomson
Vice President of Finance,
Chief Financial Officer and Secretary
-----------------------------------------
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
-----------------------------------------
PROXY STATEMENT
TABLE OF CONTENTS
<Table>
<Caption>
General Information......................................... 1
Required Vote To Approve Each Proposal...................... 2
Who To Call If You Have Questions........................... 2
Proposals and Board Recommendations......................... 2
Executive Officers And Board Of Directors................... 10
Executive Compensation...................................... 14
Related Party Transactions.................................. 17
Principal Shareholders And Shareholdings Of Officers and
Directors................................................. 19
Section 16(a) Beneficial Ownership Reporting Compliance..... 20
Stock Price Performance Graph............................... 21
Independent Auditor and Fees................................ 21
Our Next Annual Meeting and Proposals By Shareholders....... 22
Annual Report............................................... 22
</Table>
GENERAL INFORMATION
WHO MAY VOTE You may vote if our records show that you held
shares of our common stock as of March 18,
2002. At that date, 8,378,619 shares were
outstanding and entitled to vote. The enclosed
Proxy Card shows the number of shares you may
vote.
NUMBER OF VOTES You have one vote for each share, except that
you may cumulate votes in the election of
directors. Your individual vote is confidential
and will not be disclosed to third parties.
Because you may cumulate votes in the election
of directors and we will elect six directors,
you have six votes for each share in our
election of directors. You may cast your votes
for a single candidate or you may divide them
as you choose among up to six candidates.
VOTING BY PROXY If you hold your shares in your own name, you
may vote by signing, dating and mailing the
Proxy Card in the envelope provided. If you
give us a proxy without giving specific voting
instructions, the Proxies will vote your shares
as the Board of Directors recommends. If the
meeting is adjourned, the Proxies will vote
your shares on the new meeting date unless you
revoke your proxy.
The Board of Directors is soliciting the
enclosed proxy. We anticipate first mailing
this Proxy Statement and the Proxy Card on
April 5, 2002.
If a broker, bank or other nominee holds your
shares so that they are in "street name," you
will receive instructions from them. You must
follow their instructions if you want to have
your shares voted.
OTHER MATTERS We are not aware of any matters that will be
presented at the Annual Meeting other than
those described in this Proxy Statement. If any
other matters are properly presented at the
meeting, the Proxies will vote your shares
using their own judgment.
VOTING IN PERSON You may vote your shares at the meeting if you
attend in person.
REVOKING YOUR PROXY You may revoke your proxy if you:
- Send us another signed proxy with a later
date and we receive it before the Proxies
vote your shares at the meeting; or
- Send us a letter revoking your proxy and
we receive it before the Proxies vote
your shares at the meeting; or
- Attend the Annual Meeting and vote your
shares in person.
HOW A QUORUM IS DETERMINED If you have returned a Proxy Card or attend the
meeting in person, we will count your shares to
determine whether there is a quorum even if you
abstain from voting.
If a broker indicates on a proxy that the
broker does not have discretionary authority to
vote certain shares on a particular matter, we
will not consider the shares present or
entitled to vote on the matter.
1
COST OF THIS SOLICITATION We will pay the cost of this proxy
solicitation, including the charges of
brokerage firms and others who forward material
to beneficial owners of our shares. We will
solicit proxies by mail and may also solicit
them by personal interview, telephone, e-mail
or telegraph.
Georgeson Shareholder Services will serve as
our proxy solicitation agent, will coordinate
the distribution of proxy materials and will
oversee the return of Proxy Cards. We estimate
the fee for these services will be $4,000.
ATTENDING THE MEETING IF YOUR
SHARES ARE IN "STREET NAME" If your shares are held in street name you may
attend the meeting, but you must vote through
your broker or bank and cannot vote in person.
If you are a beneficial owner of shares held by
a broker or bank you will need proof of
ownership to attend the meeting. We will accept
a recent statement or letter from your broker
or bank, showing your ownership of our shares
on the record date, as proof of ownership.
REQUIRED VOTE TO APPROVE EACH PROPOSAL
ELECTION OF SIX DIRECTORS The six nominees for director who receive the
most votes will be elected. Shareholders may
cumulate votes in the election of directors, so
each shareholder has six votes for each share
in the directors' election. You may cast your
six votes per share for a single candidate or
you may divide them as you choose among up to
six candidates.
APPROVAL OF THE 2002 STOCK
OPTION PLAN The shareholders will approve the 2002 Stock
Option Plan if a majority of the shares present
and voting vote to approve the Plan.
WHO TO CALL IF YOU HAVE QUESTIONS
INVESTOR RELATIONS COORDINATOR If you have questions about the meeting or
voting please call Victoria Springgay, our
Investor Relations Coordinator, at (480)
517-3042.
PROPOSALS AND BOARD RECOMMENDATIONS
PROPOSAL TO ELECT SIX DIRECTORS
DIRECTORS TO BE ELECTED The shareholders will elect the entire Board of
Directors, a total of six directors, at the
meeting.
CUMULATIVE VOTING ALLOWED Shareholders may cumulate votes in the election
of directors, so each shareholder has six votes
for each share. You may cast your six votes per
share for a single candidate or you may divide
them as you choose among up to six candidates.
VOTE REQUIRED The six nominees who receive the most votes
will be elected.
2
NOMINEES OF THE BOARD Our Board has nominated the following
individuals to serve on our Board of Directors:
W. Gary Suttle Jerry E. Goldress
Nicholas G. Bartol Timothy C. Bartol
Ralph B. Godfrey John P. Lloyd
Each nominee is currently serving on the Board,
has agreed to be named in this Proxy Statement
and has agreed to serve if elected. See the
section "Executive Officers and Board of
Directors" for information about each of the
nominees.
Each director elected will hold office until
the next annual meeting or until a successor is
elected and qualified. If a director resigns or
otherwise is unable to complete his term of
office, the Board of Directors may elect
another director for the remainder of the term.
So far as we know, the listed nominees will be
able to serve. If a nominee is unavailable, the
Proxies will vote your shares for any Board of
Directors' proposed substitute nominee.
RECOMMENDATION YOUR DIRECTORS RECOMMEND THAT YOU ELECT THE SIX
NOMINEES.
PROPOSAL TO APPROVE ROCKFORD'S 2002
STOCK OPTION PLAN
APPROVAL OF THE 2002 STOCK
OPTION PLAN The shareholders will decide whether to approve
Rockford's 2002 Stock Option Plan at the
meeting. In voting on the Plan, each
shareholder has one vote for each share.
VOTE REQUIRED The shareholders will approve the 2002 Stock
Option Plan if a majority of the shares present
and voting vote to approve the Plan.
THE 2002 PLAN The Board of Directors adopted Rockford's 2002
Stock Option Plan at its meeting on January 23,
2002. We are submitting the 2002 Plan to the
shareholders for approval, as required by law.
Brief Description of the 2002 Plan
The following summary of the 2000 Plan is
qualified in its entirety by the specific
language of the 2002 Plan, a copy of which is
available to any shareholder upon request.
The 2002 Plan is substantially similar to our
1994 and 1997 Plans. We are adopting a new plan
in order to authorize the issuance of stock
options for up to 600,000 additional shares of
our common stock. This is necessary because we
have granted substantially all of the 2,150,000
options authorized under our 1994 and 1997
Plans.
The 2002 Plan provides for the grant of
incentive stock options and non-qualified stock
options to our consultants, directors, officers
and key employees. The management and employee
group eligible to participate currently
includes approximately 802 people.
The purpose of the plan is to:
- attract and retain skilled and qualified
officers, directors and key employees;
- motivate them to achieve our long-range
goals; and
3
- align their interests with the interests
of our shareholders.
If the shareholders approve the 2002 Plan we
will reserve a total of 600,000 shares of our
common stock for issuance under the 2002 Plan.
Shares of common stock reserved for issuance
upon the exercise of options are available for
future reissuance if the options expire or
terminate without being exercised.
Under the 2002 Plan, the maximum number of
shares any individual may receive is 200,000
shares. In the case of incentive stock options,
the aggregate fair market value of stock that
is exercisable for the first time by any
individual during any calendar year may not
exceed $100,000.
The Nominating and Compensation Committee will
administer the 2002 Plan. The Committee has
discretion to determine:
- who should receive options;
- how many shares to include in each grant;
- the exercise price for each option;
- whether an option should be an incentive
option or a non-statutory option under
the federal tax laws (except that only
our employees may receive incentive
options);
- the vesting schedule for each option;
- the term of each option; and
- other material terms of the options
granted.
Because the Nominating and Compensation
Committee will administer the 2002 Plan and
decide each of these matters, we are not able
to determine at this time the benefits or
amounts that any individual or group will
receive under the 2002 Plan.
We will appoint members of the Nominating and
Compensation Committee so that it satisfies the
requirements for (1) "non-employee directors"
established in Rule 16b-3 under the Securities
Exchange Act of 1934 and (2) "outside
directors" established in Section 162(m) of the
Internal Revenue Code.
The Nominating and Compensation Committee may
make adjustments to options granted to prevent
substantial dilution or enlargement of rights
if we declare a stock dividend, recapitalize,
reorganize, merge, consolidate, split-up,
combine or exchange shares, or make any similar
change of our common stock.
Option holders may pay the exercise price for
options in cash or, at the Committee's
discretion, in shares of common stock that the
option holder has held for at least six months.
Also at the Committee's discretion, option
holders may exercise on a cashless basis
through the same-day sale of the purchased
shares. The 2002 Plan does not authorize the
grant of "Reload" options.
Prior to expiration of the 2002 Plan, generally
the Board of Directors may terminate, amend or
modify the 2002 Plan at any time; however, no
termination, amendment or modification may
4
adversely change the rights of holders of
outstanding options without their consent. The
Board or Committee may make adjustments to the
number of shares subject to outstanding options
in certain recapitalizations or other corporate
events described in the 2002 Plan. The Board or
Committee may terminate outstanding options if
we merge with or sell our assets to another
entity. No amendment will be effective without
prior shareholder approval if the amendment
would:
- materially increase the number of shares
we may issue under the 2002 Plan to
individuals subject to Section 16(b) of
the Securities Exchange Act of 1934
("Insider Participants"); or
- materially modify the requirements for
eligibility to participate in the 2002
Plan to add a class of Insider
Participants.
Other amendments may also require shareholder
approval under applicable law or the Internal
Revenue Code.
Federal Income Tax Treatment of Options and
Shares
This section contains a general discussion of
the federal income tax consequences of the 2002
Plan. If federal tax laws change in the future,
the following discussion may change and no
longer apply. State and local tax provisions
vary and are not covered in this summary.
Participants in the 2002 Plan who review this
document should not rely on it in preparing
their tax returns. They should consult their
own tax advisors about their particular
situation, since other tax rules may cover
them. We do not provide tax advice to
participants in the 2002 Plan.
The tax implications of nonqualified stock
options and incentive stock options are
different. A brief summary of each follows:
Nonqualified Stock Options:
- No Tax Event at Grant. A participant
will not recognize taxable income at the
time a nonqualified stock option is
granted. We will not be allowed a
deduction at that time.
- Tax at Exercise.
- Upon exercise, a participant must
generally recognize ordinary income
equal to the difference between the fair
market value of the shares at the time
of exercise and the option exercise
price paid for the shares. The
participant's basis then becomes the
fair market value of the shares at the
time of exercise. The income constitutes
taxable wages as of the date of the
exercise, subject to unemployment,
Social Security, Medicare and federal
and state income tax withholding. We
will withhold or require the participant
to pay any required withholding.
- We are normally entitled to a deduction
at the same time and in the same amount
as the participant's ordinary income.
5
- Tax at Exercise -- Special Cases.
- If a participant pays for shares by
surrendering already owned shares with a
fair market value equal to all or part
of the exercise price, the participant
will not recognize any gain or loss upon
surrender of the already-owned shares
for an equal number of new shares. The
basis and holding period of the old
shares is carried over to an equal
number of new shares. The participant
must recognize gain or loss as described
above on the balance of the shares. The
basis in the balance of the shares is
the fair market value as of the date of
exercise and the holding period begins
on the exercise date.
- Section 83(c)(3) of the Internal
Revenue Code provides that a recipient
who is subject to potential liability
under Section 16(b) of the Exchange Act
must recognize income on the exercise
date in accordance with the rules
described above if the option was issued
at least six months before the exercise
date. However, an argument can be made
that if an Insider Participant has made,
or could make, other purchases of common
stock within six months before or after
the exercise date of a nonqualified
stock option, taxation may be deferred
until six months after the exercise date
(unless the recipient has made a timely
election under Section 83(b) of the Code
to be taxed as of the date of exercise).
In this case, we may take a deduction
equal to the recipient's ordinary income
recognized but only at the time the
recipient recognizes the income and
subject to proper withholding.
- Tax upon Sale of Shares. When a
participant sells shares acquired upon
the exercise of a nonqualified stock
option, the seller realizes a capital
gain or loss equal to the difference
between the sale price and the basis of
the shares. The capital gain or loss will
be long-term or short-term, depending on
the amount of time between the exercise
and the sale. There is no tax consequence
to us associated with such a sale.
Incentive Stock Options:
- No Tax Event at Grant or Exercise. A
participant generally will not recognize
taxable income at the time an incentive
stock option is granted or exercised,
except that upon exercise a participant
may be responsible for the alternative
minimum tax ("AMT") as discussed below.
- Special Circumstances. Incentive stock
options are subject to several sorts of
disqualifying events that change their
tax treatment (generally to match the
treatment of nonqualified options). The
most significant include:
- If an incentive stock option is
exercised
- more than three months following
termination of employment for any
reason except disability or death
6
- more than one year following
termination of employment because of
disability or death
this is a disqualifying disposition.
The option will then be taxed as a
nonqualified stock option. Special tax
rules allow an estate or beneficiary to
ignore this holding period requirement
in the event of an optionee's death, but
our plan requires exercise of an Option
within 90 days of the employee's death.
- A participant may have to pay AMT for
the year when the option is exercised.
Generally, the "spread" (the fair market
value on the date of exercise minus the
option exercise price) that would be
income if the option were a nonqualified
option, is an item of adjustment that
must be taken into account under the AMT
rules. Because the AMT rules are complex
and their applicability will vary
according to individual circumstances,
participants should consult their tax
advisors about whether the AMT rules
apply to their exercise.
- Tax upon Sale of Shares. When a
participant sells or otherwise disposes
of shares (even in a gift), the
participant will generally recognize
income. (Transfers to a spouse and in
some other limited circumstances are
exceptions.)
- Qualifying Dispositions. A sale or
disposition is a qualifying disposition
if the participant holds the shares for
at least
- one year after exercise of the
incentive stock option, and
- two years after the date the incentive
stock option was granted.
In that case, the participant will
recognize a long-term capital gain (or
loss) equal to the difference between
the amount realized and the option
exercise price.
- Disqualifying Dispositions. A sale or
disposition is a disqualifying
disposition if the participant holds the
shares for less than
- one year after the exercise of the
incentive stock option, or
- two years after the grant of the
incentive stock option.
In that case, the option will be
treated as a nonqualified stock option
and the participant will recognize:
- ordinary income at the time of the
disposition equal to the difference
between the fair market value on the
day of exercise and the option
exercise price, except that
- if the amount realized is less than
the fair market value of the shares on
the day of exercise, the ordinary
income recognized will be limited to
the difference
7
between the option exercise price of
the shares and the amount realized on
the sale or exchange, and
- capital gain equal to any additional
gain resulting from the disqualifying
disposition (long-term if the shares
were held for more than one year
following the date of exercise).
- Our option agreement will require that
participants tell us of any
disqualifying disposition. We may then
withhold, or require the participant to
pay us, as necessary to satisfy
applicable tax withholding requirements.
- Tax Consequences to Rockford. We
generally are not entitled to a deduction
as a result of the grant or exercise of
an incentive stock option. If a
participant recognizes ordinary income as
a result of a disqualifying exercise or
disposition, we are generally entitled to
a deduction of an equivalent amount.
- Limits on Number of Shares. The tax law
requires that the total fair market value
of shares underlying incentive stock
options that vest in a participant in a
year may not exceed $100,000. This limit
applies to all incentive stock options we
grant to a participant in any of our
stock option plans. To the extent that
the aggregate fair market value exceeds
$100,000, the options underlying the
excess shares will be treated as
nonqualified stock options rather than
incentive stock options.
- Pending Regulations. Under proposed IRS
regulations, the excess of the fair
market value of shares received through
the exercise of an incentive stock option
over the price paid will be treated as
wages subject to employment taxes
(unemployment, Social Security, and
Medicare taxes) but not to federal income
tax withholding. The proposed regulations
allow the employer to select from a
number of methods to properly withhold
these taxes. Employment and withholding
taxes do not apply under the proposed
regulations if the participant makes a
disqualifying disposition, but the
employer may be required to report such
income on the employee's Form W-2.
Limitations on Tax Benefits to Rockford
In the case of grants to certain highly
compensated employees, our ability to take any
and all of the deductions described is
qualified by special tax rules that govern the
deductibility of executive compensation.
Further, if the vesting of any options is
accelerated due to certain "changes in
control," some portion of the amounts payable
with respect to such options may be considered
excess parachute payments. Individuals
receiving excess parachute payments are subject
to a 20% excise tax on such payments, and we
would be denied a deduction for such payments.
8
Our Anticipated Use of the 2002 Plan
Our philosophy under our existing plans has
been to issue options each year, for shares in
the range of 1% to 2% of our outstanding
shares. We believe this provides adequate
compensation to our management team and
employees, maintains a portion of outstanding
options unvested so that our team has incentive
to remain with us, and maintains a reasonable
limit on dilution of our shareholders. We
anticipate that this philosophy will continue
under the 2002 Plan, so that the 2002 Plan is
expected to serve us for three to four years.
Our practice, which we expect to continue in
the 2002 Plan, is to grant options with a 10
year term and an option price equal to the fair
market value on the date of grant. The vesting
schedule provides for 25% of the option shares
granted to vest on the date of grant and 25% to
vest on each of the first three anniversaries
of the grant date. The options also fully vest
if we agree to sell all or substantially all of
our assets or shares or to merge with another
company if our shareholders do not have a
controlling interest in the surviving entity.
RECOMMENDATION YOUR DIRECTORS RECOMMEND THAT YOU VOTE TO
APPROVE THE 2002 PLAN.
9
EXECUTIVE OFFICERS AND BOARD OF DIRECTORS
Our Executive Officers and Board of Directors are listed in the following
table:
<Table>
<Caption>
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
W. Gary Suttle(1).................. 61 President, Chief Executive Officer 1992
and Director
David A. Boshes.................... 46 Vice President of Operations
Daniel C. McLeod................... 48 Vice President of Sales
Jacqueline M. Mott................. 58 Vice President of Human Resources
David L. Richards.................. 55 Vice President of Information
Technology
James C. Strickland................ 64 Vice President of Engineering
James M. Thomson................... 55 Vice President of Finance, Chief
Financial Officer and Secretary
Alan R. Zimmerman.................. 45 Vice President of Product Design
and Development
Jerry E. Goldress(1)(2)(3)......... 71 Chairman of the Board 1998
Nicholas G. Bartol................. 47 Director 1985
Timothy C. Bartol(1)(2)(3)......... 46 Director 1997
Ralph B. Godfrey(2)................ 62 Director 1999
John P. Lloyd(3)................... 50 Director 1988
</Table>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Nominating and Compensation Committee.
(3) Member of the Audit and Finance Committee.
W. GARY SUTTLE. Mr. Suttle has served as our President and Chief Executive
Officer since August 1992. From that time through December 31, 1998, he
simultaneously served as a partner in Grisanti, Galef & Goldress, Inc., a
turnaround, growth and profit improvement firm, and provided his services to us
through that firm under a consulting agreement.
From 1982 until 1992, Mr. Suttle was a partner in Grisanti, Galef &
Goldress, Inc., and was involved in consulting and management for various
manufacturing and retail firms. From 1980 to 1982, Mr. Suttle was a consultant
with The Boston Consulting Group. He also served as a captain in the U.S. Marine
Corps where he was involved in special operations. Mr. Suttle holds a B.S. in
Electrical Engineering from Auburn University, an M.S. in Electrical Engineering
from the Georgia Institute of Technology and an M.B.A. from The Harvard Graduate
School of Business Administration.
DAVID A. BOSHES. Mr. Boshes has served as our Vice President of Operations
since 1996 and has served us in various positions since 1993, beginning as
Production Engineering Manager. From 1976 until 1993, Mr. Boshes held various
technical positions with Digital Equipment, ranging from Product Test Engineer
to Plant Engineering Manager. Mr. Boshes holds a B.S. in Electrical Engineering
from Northern Arizona University and an M.B.A. from Arizona State University.
DANIEL C. MCLEOD. Mr. McLeod has served as our Vice President of Sales
since 1991 and has served us in various sales positions since 1985. From 1982 to
1985, Mr. McLeod operated a manufacturers representative firm selling consumer
electronics. From 1975 to 1982, Mr. McLeod was a retail store manager for the
Minneapolis-based chain of Team Electronics.
JACQUELINE M. MOTT. Ms. Mott has served as our Vice President of Human
Resources since October 2000 and, before that, as our Director of Human
Resources since 1995. Before joining Rockford Ms. Mott operated her own human
resources and communication consulting practice. Her other experience includes
10
serving as Vice President of Human Resources for a financial services
corporation and management positions in the retail and publishing industries.
DAVID L. RICHARDS. Mr. Richards has served as our Vice President of
Information Technology since 1996 and, prior to that, as our Director of
Information Technology beginning in 1993. From 1976 until 1993, Mr. Richards
held a number of MIS management positions for Digital Equipment with
responsibility for systems and programming implementation. Mr. Richards also
served in the U.S. Army.
JAMES C. STRICKLAND. Mr. Strickland has served as our Vice President of
Engineering since 1992 and has served us in other engineering and research
positions since 1987. Prior to joining us in 1987, he served in various
engineering capacities with Sony, MCI, Acoustat and The David Hafler Company.
Mr. Strickland holds a B.S. in Mathematics from the University of Miami
(Florida). Mr. Strickland holds nine U.S. patents, three of which have been
assigned to Rockford, involving circuitry used in home and mobile audio
amplifiers.
JAMES M. THOMSON. Mr. Thomson has served as our Vice President of Finance
and Chief Financial Officer since joining us in 1993. Prior to 1993, Mr. Thomson
held positions as Operations Finance Manager, Corporate Controller of Corporate
Planning and Director of Finance and Customer Administration for The Toro
Company Worldwide Irrigation Division. He was also a Senior Financial Analyst
for Litton Industries and operated his own consulting company. Mr. Thomson also
served in the U.S. Navy. Mr. Thomson holds a B.S. and M.S. in Applied Economics
from the University of Wisconsin -- Madison.
ALAN R. ZIMMERMAN. Mr. Zimmerman has served as our Vice President of
Product Design and Development since 1998 and has served us in various positions
since 1988. Mr. Zimmerman was with Honeywell from 1980 to 1988 where he held
various positions in cost and inventory accounting, manufacturing financial
analysis and business planning. Mr. Zimmerman holds a B.S. in Accounting and an
M.B.A. from Arizona State University.
JERRY E. GOLDRESS. Mr. Goldress has served as our Chairman of the Board
since 1998. Mr. Goldress served as an advisory director to us from 1992 until
1998. Since 1981, Mr. Goldress has served as Chairman and Chief Executive
Officer of Grisanti, Galef & Goldress, Inc. Mr. Goldress is also a director of
Alamo Group Inc. (NYSE:ALG), a publicly held manufacturer of industrial mowing
equipment, and of K2 Inc. (NYSE:KTO), a publicly held manufacturer of snow ski
equipment. Mr. Goldress has a B.S. and M.S. in Industrial Engineering from
Pennsylvania State University.
NICHOLAS G. BARTOL. Mr. Bartol has served as a director since 1985, except
for a two-year period from 1991 to 1993. Mr. Bartol was employed by EFW, a
defense contractor, from 1985 until April 1999. Mr. Bartol holds an A.B. from
Brown University, an M.B.A. from Southern Methodist University and a Master of
Theology from Dallas Theological Seminary. Mr. Bartol is the brother of Timothy
C. Bartol.
TIMOTHY C. BARTOL. Mr. Bartol has served as a director since 1997 and
served as our Chairman in 1997 and 1998. Mr. Bartol has been employed by
Phillips Publishing International since 1994 and is currently Vice President and
Chief Technical Officer for one of its divisions, Phillips Information Resources
(PIR). From February 2000 until February 2001, he served as Director of
Information Technology for PIR. Mr. Bartol holds a B.A. from Stanford
University, and an M.B.A. and M.S./M.I.S. from Boston University. Mr. Bartol is
the brother of Nicholas G. Bartol.
RALPH B. GODFREY. Mr. Godfrey has served as a director since April 1999.
Mr. Godfrey was employed by 3Com Corporation, a publicly held manufacturer of
computer networking products from 1990 until he retired in late 2000. He held
various positions at 3Com, including Senior Vice President of Americas Sales and
Senior Vice President of E-Business. Mr. Godfrey holds a B.S.E.E. and an M.S. in
Electrical Engineering from Auburn University.
JOHN P. LLOYD. Mr. Lloyd has served as a director since 1988. Mr. Lloyd
has worked since 1994 as a Managing Director in the Investment Management Group
of Aetna. Mr. Lloyd is a Chartered Financial Analyst and has a B.S. in Finance
from Villanova University and an M.B.A. in Investments from Drexel University.
11
ABOUT THE BOARD AND ITS COMMITTEES
Board Meetings. In 2001, our Board held a total of five meetings. Each
Director attended at least 75% of his Board and Committee meetings.
Board Committees
Executive Committee: The Executive Committee meets periodically to advise
upon and approve our business and affairs that arise between the regularly
scheduled Board meetings. The current members of the Executive Committee are
Messrs. Goldress (Chair), T. Bartol and Suttle.
Nominating and Compensation Committee: The Nominating and Compensation
Committee recommends officers and directors to the Board of Directors and
reviews and approves the amount and type of compensation paid to senior
management. The Nominating and Compensation Committee met four times during
2001. The Nominating and Compensation Committee will consider nominees
recommended by our shareholders. If you wish to make a recommendation please
send it to our Investor Relations Coordinator, Victoria Springgay, at our
executive offices. We must receive nominations no later than November 22, 2002,
to consider nominees for election at our annual meeting in 2003. The current
members of the Nominating and Compensation Committee are Messrs. T. Bartol
(Chair), Godfrey and Goldress.
Audit and Finance Committee: The Audit and Finance Committee reviews our
accounting controls and financial reporting processes. It recommends to the
Board of Directors the engagement of our outside auditors. The Board of
Directors has adopted a written charter for the Audit and Finance Committee. The
Audit and Finance Committee met three times during 2001. The current members of
the Audit and Finance Committee are Messrs. Lloyd (Chair), T. Bartol and
Goldress.
Except for the issue noted below with respect to Mr. T. Bartol, the members
of our Audit and Finance Committee are independent as defined in Rule
4200(a)(15) of the Nasdaq National Market's listing standards. We believe each
of them satisfies the requirements for financial literacy established in Rule
4230 of the Nasdaq National Market's listing standards.
Mr. T. Bartol, directly and through a family limited partnership, is the
beneficial owner of approximately 34.2% of our shares. He is not disqualified
from independence by the objective standards defined in Rule 4200(a)(15) of the
Nasdaq National Market's listing standards; however, Nasdaq's staff has informed
us that it takes the position that a director cannot be considered independent
under the rule if the director owns more than approximately 20% of a company's
shares. In light of this Nasdaq staff position, the Board of Directors voted to
appoint Mr. T. Bartol as a member of the Audit and Finance Committee in
accordance with Rule 4310(c)(26)(B)(ii) of the Nasdaq National Market's listing
standards. This rule allows for the appointment to the Audit and Finance
Committee of one director who is not considered independent. In appointing Mr.
T. Bartol, the Board determined that his position as a former Chairman and
long-time director give him a valuable perspective on our history and operations
and provide continuity to the Audit and Finance Committee. As a result, the
Board of Directors found that Mr. T. Bartol's continued service as a member of
the Audit and Finance Committee is in the interest of Rockford and its
shareholders.
Audit and Finance Committee Report and Actions
The following is the 2001 report of the Audit and Finance Committee.
We focus our audit functions on three areas:
- The adequacy of our internal controls and financial reporting process and
the reliability of our financial statements;
- The independence and performance of our independent auditors; and
- Our compliance with legal and regulatory requirements.
We meet with management periodically to consider the adequacy of our
internal controls and the objectivity of our financial reporting. We discuss
these matters with our independent auditors and with
12
appropriate financial personnel on Rockford's staff. We regularly meet privately
with the independent auditors, who have unrestricted access to the Committee.
We recommend to the Board of Directors the appointment of the independent
auditors and review periodically their performance and independence from
management. In addition, we review Rockford's financing plans and report
recommendations to the full Board of Directors for approval and to authorize
action.
The Board of Directors has adopted a written charter setting out the audit
related functions the Committee is to perform. You can find a copy of that
charter attached to this Proxy Statement as Appendix A.
Management has primary responsibility for our financial statements and the
overall reporting process, including our system of internal controls. Our
independent auditors audit the annual financial statements prepared by
management, express an opinion as to whether those financial statements fairly
present our financial position, results of operations and cash flows in
conformity with generally accepted accounting principles and discuss with us any
issues they believe should be raised with us.
During 2001 we reviewed our audited financial statements and met with both
management and Ernst & Young LLP, our independent auditors, to discuss those
financial statements. Management has represented to us that the financial
statements were prepared in accordance with generally accepted accounting
principles.
We have received from and discussed with Ernst & Young LLP the written
disclosures required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. These disclosures relate to that
firm's independence from Rockford. We also discussed with Ernst & Young LLP any
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
Based on these reviews and discussions, we recommended to the Board of
Directors that our audited financial statements be included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
Audit and Finance Committee:
John P. Lloyd
Timothy C. Bartol
Jerry E. Goldress
DIRECTOR COMPENSATION
We compensate our non-executive Directors by paying them $1,000 per
quarter. In addition to compensation, we reimburse Directors for their
reasonable travel expenses incurred in attending Board and Committee meetings.
We have also customarily granted to our non-executive Directors options
under our 1994 and 1997 Stock Option Plans. We anticipate we will also grant
them options under our 2002 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Nominating and Compensation Committee are listed above.
We did not employ any member of the Nominating and Compensation Committee during
fiscal year 2001. However, Mr. Goldress is a principal of Grisanti, Galef &
Goldress, Inc., a consulting firm under contract with us. For a description of
this contract, see "Related Party Transactions -- Grisanti, Galef & Goldress
Consulting Agreement." None of our directors served during fiscal year 2001 as
an executive officer of any entity whose Compensation Committee (or other
comparable Committee, or the Board of Directors, as appropriate) included a
Rockford executive officer. There are no "interlocks" as defined by the
Securities and Exchange Commission.
13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation we paid our Chief Executive
Officer and each of our four other most highly compensated executive officers
during 1999, 2000 and 2001.
<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
-------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS UNDERLYING OPTIONS COMPENSATION(2)
- --------------------------- ---- --------- -------- ------------------ ---------------
W. Gary Suttle................... 2001 $450,000 $ 50,000 77,814 $1,391,100(3)
President and Chief Executive 2000 400,000 200,000 -- 41,100(4)
Officer 1999 386,154 120,000(5) 86,000 --
David A. Boshes.................. 2001 $179,129 $ 10,000 19,000 $ 5,100
Vice President of Operations 2000 163,300 40,000 -- 5,100
1999 148,551 26,000 -- 4,800
Daniel C. McLeod................. 2001 $189,054 $ 6,250 23,000 $ --
Vice President of Sales 2000 193,224 20,000 -- --
1999 198,407 25,000 -- --
David L. Richards................ 2001 $184,180 $ 11,250 21,000 $ 5,100
Vice President of Information 2000 165,981 45,000 -- 5,100
Technology 1999 150,891 30,000 -- 4,800
James M. Thomson................. 2001 $199,149 $ 15,000 27,000 $ 5,100
Vice President of Finance and 2000 176,893 50,000 -- 5,100
Chief Financial Officer 1999 151,050 30,000 -- 4,800
</Table>
- ---------------
(1) Amounts listed are annual base salaries, with the exception of Mr. McLeod,
who is paid commissions based on our sales. Mr. McLeod's commissions are
included in the salary column.
(2) For officers other than Mr. Suttle, the amounts shown as All Other
Compensation represent Rockford contributions to our Employee 401(k)
Deferred Compensation Plan.
(3) For Mr. Suttle, the amounts shown as All Other Compensation for 2001
represent:
- Our contribution for Mr. Suttle of $5,100 to our Employee 401(k)
Deferred Compensation Plan;
- Our payment of $36,000 of premiums for a "split dollar" life insurance
policy for Mr. Suttle pursuant to his employment agreement. If Mr.
Suttle's dies, we will receive the aggregate amount of our premium
payments and the beneficiary of the policy will receive the excess;
and
- Compensation of $1,350,000 resulting from Mr. Suttle's exercise of
200,000 stock options granted to him by Monument Investors Limited
Partnership, as described below under the heading "Related Party
Transactions." This compensation was paid by Monument Investors
Limited Partnership and not directly by us.
(4) For Mr. Suttle, the amounts shown as All Other Compensation for 2000
represent:
- Our contribution for Mr. Suttle of $5,100 to our Employee 401(k)
Deferred Compensation Plan; and
- Our payment of $36,000 of premiums for a "split dollar" life insurance
policy for Mr. Suttle pursuant to his employment agreement.
(5) This bonus was paid to Grisanti, Galef & Goldress, Inc., under a consulting
agreement with that firm.
14
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
The following table shows the stock options we granted to our officers
during 2001. We have never granted any stock appreciation rights.
The SEC requires that we use the assumed annual compounded rates of stock
price appreciation of 5% and 10% shown in this table. These rates are only an
illustration and are not based on our anticipated results. Our stock price may
increase or decrease based on market conditions, our performance and many other
factors. You should not rely on the amounts in this table as a projection of our
performance.
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR
-------------------------------------------------- OPTION TERM
NUMBER OF PERCENT OF TOTAL EXERCISE -----------------------
SECURITIES OPTIONS GRANTED TO PRICE 5% 10%
UNDERLYING EMPLOYEES IN -------- ---------- ----------
NAME OPTIONS GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE $ $
- ---- ------------------ ------------------ -------- --------------- ---------- ----------
W. Gary Suttle....... 45,014 27.9% $6.68 03/23/2010 $489,798 $779,922
32,800 6.61 12/05/2012 353,157 562,344
David A. Boshes...... 9,000 6.1% 6.68 03/23/2010 97,929 155,936
10,000 6.61 12/05/2012 107,670 171,446
Dan C. McLeod........ 11,000 7.4% 6.68 03/23/2010 119,691 190,588
12,000 6.61 12/05/2012 129,204 205,736
David L. Richards.... 11,000 6.7% 6.68 03/23/2010 119,691 190,588
10,000 6.61 12/05/2012 107,670 171,446
James M. Thomson..... 13,000 8.7% 6.68 03/23/2010 141,453 225,241
14,000 6.61 12/05/2012 150,738 240,025
</Table>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
The following table contains information concerning the exercise of stock
options during the fiscal year ended December 31, 2001 by our officers listed on
the Summary Compensation Table, including:
- The shares that each of them purchased during 2001 by exercising their
stock options; and
- The number and value of unexercised options each of them held at December
31, 2001. Value is determined by subtracting the exercise price from the
closing market value of $8.58 per share as of December 31, 2001.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
--------------------------------- --------------------------- -----------------------------
NAME NUMBER EXERCISED VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------------- -------------- ----------- ------------- ----------- --------------
W. Gary Suttle....... 200,000 $1,350,000 741,954(1) 56,060 $5,050,485 $117,190
David A. Boshes...... -- -- 90,750 14,250 491,692 27,600
Dan C. McLeod........ -- -- 91,750 17,250 484,264 33,405
David L. Richards.... -- -- 91,250 15,750 465,681 30,450
James M. Thomson..... -- -- 92,750 20,250 488,553 39,210
</Table>
- ---------------
(1) Includes 595,500 options granted by Monument Investors Limited Partnership
at an exercise price of $0.70 per share. See "Related Party
Transactions -- Suttle/Bartol Option Agreement."
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our compensation philosophy. We have historically established executive
compensation to provide a base salary that will allow us to hire and retain
qualified management. We have also provided annual cash incentive bonuses
designed to reward all of our employees including executives for their
contributions to our performance.
15
From time to time we have also granted stock options to executives and key
employees that were designed to keep them focused on increasing shareholder
value. Until completion of our initial public offering, these options were
essentially illiquid and could play only a limited role in our overall
compensation system.
We believe that our executive compensation practices provide an overall
level of compensation that is competitive with companies of similar size,
complexity and financial performance and that our executive compensation
practices have allowed us to create an executive team that will be able to
maintain and increase our business. From time to time we have reviewed employee
compensation data provided by compensation consulting firms and have endeavored
to maintain our salary levels at approximately the 75th percentile for
comparable positions at competitive companies.
Procedures. We determine the compensation of our President and set
policies for and review the compensation of our other officers. This is designed
to ensure consistency in compensation of our officers. In reviewing the
individual performance of our officers other than the President, we take into
account the views of the President and, in 2001, established base salary and
bonus for officers other than the President based largely on the President's
recommendations.
We review annually the compensation of all our executives and employees.
Our goal is to assure that all of our executives and employees are properly
motivated to serve the interests of our shareholders.
Base Salary. We set base salaries within the ranges of salaries of
executive officers with comparable qualifications, experience and
responsibilities at other companies of similar size, complexity and
profitability. We take into account the position involved and the executive's
experience. In addition, we consider other factors, including each officer's
contribution to our business as a whole. From 2000 to 2001, we increased the
base compensation for our named executive officers an average of approximately
$20,400, or 9.3%. We approved these increases to keep our compensation
competitive and to allow for increases in the cost of living.
Bonus. We award cash bonuses to all of our employees on a discretionary
basis. In determining bonus awards, we consider our financial and non-financial
achievements, including revenue growth, profitability, expansion of our markets
and new product introductions. Bonuses to lower compensated employees tend to be
a smaller portion of compensation, while bonuses to our most highly compensated
employees (including our executive officers) tend to be larger and to vary more
depending on Rockford's performance.
The cash bonuses we paid to our executive officers in 2001 were paid early
in 2001 and were based on our overall business and financial results in 2000.
Our bonuses paid in 2001 are substantially less than in prior years because our
financial performance for 2000 did not achieve our business and financial goals.
This is in keeping with our objective to adjust bonus compensation for our
executive officers on an annual basis based on financial and business results,
the individual performance of the executive and the job market for key
executives.
Options. Stock options are our primary long-term incentive compensation.
We have awarded stock options to a broad range of our middle and upper level
managers, including the President and other executive officers named in the
Summary Compensation Table. The size of awards is based on position,
responsibilities and individual performance. In general, our expectation is that
we will award option grants to our employees each year equal to between 1% and
2% of our outstanding equity.
We believe that our long-term incentives are generally consistent with the
incentives at comparable companies.
Chief Executive Officer. At the beginning of 1999 we entered into a new
employment agreement with our President and Chief Executive Officer. In
determining his compensation, we considered his demonstrated leadership, the
excellent management team he has developed since joining us in 1992, and
Rockford's performance during 1997 and 1998. As of January 1, 1999, we approved
an increase in Mr. Suttle's salary to $400,000 annually from the former base of
$360,000 annually. We maintained the same salary for 2000. In 2001 we increased
Mr. Suttle's salary to $450,000 annually.
We believe Mr. Suttle's interests are well aligned with the interests of
our shareholders because of our basic compensation system and also because of
the 795,500 options awarded to him when he joined us in 1992.
16
Our largest shareholder awarded these options directly from that shareholder's
shareholdings in order to recruit Mr. Suttle to join us, as a turnaround
specialist, at a time in 1992 when we were in very poor financial condition. Mr.
Suttle exercised and sold 200,000 of these options during 2001 pursuant to a
registration statement on Form S-3. Subsequently, during March 2002, he
exercised the balance of these options and sold 100,000 more of his shares.
Nominating and Compensation Committee:
Timothy C. Bartol
Ralph B. Godfrey
Jerry E. Goldress
RELATED PARTY TRANSACTIONS
GRISANTI, GALEF & GOLDRESS CONSULTING AGREEMENT
We initially retained Grisanti, Galef & Goldress, Inc., to provide Mr.
Suttle's consulting services to us under a February 1992 letter agreement.
Effective on August 1, 1992, we named Mr. Suttle our President and Chief
Executive Officer and entered into a consulting agreement with Grisanti, Galef &
Goldress, Inc. Under the consulting agreement, we retained Grisanti, Galef &
Goldress, Inc., to provide services for three years beginning on August 1, 1992.
We agreed to pay consulting fees of $360,000 per year and bonus fees of up to
$120,000 per year. In addition, we granted Grisanti, Galef & Goldress, Inc., an
option to purchase up to 215,000 shares of our common stock at an exercise price
of $5.35 per share. In October 1994, we agreed to reduce the exercise price of
the option to $1.51 per share.
We renewed our agreement with Grisanti, Galef & Goldress, Inc., effective
as of August 1, 1995, extending the term for five more years. We agreed to
continue paying consulting fees of $360,000 per year and bonus fees up to
$120,000 per year. We paid bonus fees of $120,000 for each of 1997 and 1998. We
also agreed in 1995 to extend the 215,000 share stock option so that it now
expires on August 1, 2002. We filed a registration statement on Form S-3 in
November 2001 to permit Grisanti, Galef & Goldress, Inc., to sell up to 130,000
shares of our common stock that it may acquire pursuant to this option.
Effective January 1, 1999, the consulting agreement was amended to
discharge our remaining obligation to pay consulting fees or bonuses to
Grisanti, Galef & Goldress, Inc., in exchange for a grant to Mr. Goldress of
options to purchase 21,500 shares of our common stock under our 1997 Stock
Option Plan. Also on that date, Mr. Suttle became a Rockford employee under the
terms of a formal employment agreement. The consulting agreement as amended
January 1, 1999, gives us the right, but not the obligation, to retain Grisanti,
Galef & Goldress, Inc., to provide consulting services.
During 1999 we paid Grisanti, Galef and Goldress, Inc., $123,000, including
$120,000 representing a bonus for Mr. Suttle's services under the consulting
agreement during 1998 and $3,000 as compensation for Mr. Goldress' director
fees. During 2000 and 2001 we paid $4,000 each year as compensation for Mr.
Goldress' director fees.
SUTTLE/BARTOL OPTION AGREEMENT
Mr. Suttle held an option to purchase 795,500 shares of our common stock
from Monument Investors Limited Partnership, a family partnership controlled by
two of our directors, Messrs. N. and T. Bartol. This option was originally
granted to Mr. Suttle effective August 1, 1992 and fully vested on August 1,
1995 as consideration for his agreement to serve as director, Chief Executive
Officer and President of Rockford for a period of not less than three years. On
August 1, 1995, the agreement was amended to extend the term of the
17
option from August 1, 1999 to August 1, 2002 and to increase the exercise price
of the options during the extended period. The exercise price of Mr. Suttle's
options increase over time on the following schedule:
<Table>
<Caption>
$0.37 per share.................... On or before August 1, 1995
$0.41 per share.................... After August 1, 1995 and on or before August 1, 1999
$0.70 per share.................... After August 1, 1999 and on or before August 1, 2002
</Table>
Mr. Suttle exercised his option with respect to 200,000 of these shares
during December 2001 and with respect to the balance during March 2002. He
immediately sold 200,000 shares during December 2001, and 100,000 shares during
March 2002, in order to allow him to pay taxes arising from the exercise and
pursuant to a registration statement on Form S-3. For tax purposes, the options
are treated as non-qualified stock options.
Mr. Suttle has indicated that he may sell up to 95,000 additional shares,
as permitted by the effective registration statement. He has indicated that he
intends to retain the remaining 400,500 shares for investment purposes.
SUTTLE EMPLOYMENT AGREEMENT
The principal terms of our agreement with Mr. Suttle are as follows:
- five-year term ending January 1, 2004;
- initial base salary of $400,000 per year, subject to increases at the
discretion of our Nominating and Compensation Committee;
- bonus potential of up to 50% of salary, at the discretion of the Board of
Directors and the Nominating and Compensation Committee, based upon our
performance;
- participation in our stock option plan, with an initial grant of 86,000
shares at $7.67 per share as of January 1, 1999;
- payment by us of up to $36,000 per year in premiums on a "split dollar"
life insurance policy for Mr. Suttle's benefit; and
- we may terminate the agreement at any time after the first year.
If we terminate without good cause, or if Mr. Suttle terminates for good
reason, we must continue to pay Mr. Suttle's base salary for 18 months after the
termination. Mr. Suttle may not compete with us, call on any of our customers or
induce any of our employees to work for another business during the term of the
agreement and for 12 months after the later of (1) the termination date or (2)
the day we stop paying severance payments under the employment agreement.
18
PRINCIPAL SHAREHOLDERS AND SHAREHOLDINGS OF OFFICERS AND DIRECTORS
The following tables list our share ownership as of March 15, 2002 for the
persons or groups specified. Ownership includes direct and indirect (beneficial)
ownership, as defined by SEC rules. To our knowledge, each person, along with
his or her spouse, has sole voting and investment power over the shares unless
otherwise noted.
<Table>
<Caption>
NAME AND ADDRESS OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------- ------------------ ------------
Timothy C. Bartol(1)........................................ 2,868,528 34.2%
Monument Investors Limited Partnership(2)................... 2,205,789 26.3
Quaker Capital Management Corporation(3).................... 962,750 11.5
WS Capital(4)............................................... 671,436 8.0
Nicholas G. Bartol(5)....................................... 666,015 7.9
W. Gary Suttle(6)........................................... 661,807 7.8
Boulder Investors Limited Partnership(7).................... 602,493 7.2
Jerry E. Goldress(8)........................................ 127,590 1.5
James M. Thomson(9)......................................... 117,282 1.4
David L. Richards(10)....................................... 96,216 1.1
Daniel C. McLeod(11)........................................ 94,500 1.1
John P. Lloyd(12)........................................... 72,042 *
Ralph B. Godfrey(13)........................................ 65,875 *
David A. Boshes(14)......................................... 50,000 *
All Executive Officers and Directors as a Group (13
persons)(15).............................................. 4,339,732 47.4
</Table>
- ---------------
* Represents less than 1%
(1) Includes 2,205,789 shares held by Monument Investors Limited Partnership,
for which Mr. Bartol serves as general partner; 602,493 shares held by
Boulder Investors Limited Partnership, for which Mr. Bartol serves as
general partner; 31,782 shares held by GST Exempt Trust, a trust in which
Mr. Bartol has a beneficial interest; and 8,600 shares held by Mr. Bartol's
wife. Mr. Bartol disclaims beneficial ownership of the shares held by his
wife. Mr. Bartol's address is c/o Rockford Corporation, 600 South Rockford
Drive, Tempe, Arizona 85281.
(2) Monument Investors Limited Partnership's address is c/o Mr. T. Bartol,
Rockford Corporation, 600 South Rockford Drive, Tempe, Arizona 85281. It is
owned by Mr. T. Bartol (general partner) and Mr. N. Bartol, Ms. P. Carrio
and Ms. A. Butterfield (limited partners) the four natural children of John
and Caroline Bartol.
(3) Includes 961,400 shares that investment advisory clients of Quaker Capital
Management Corporation own and over which it has discretionary authority.
Quaker Capital Management Corporation disclaims beneficial ownership of
these shares. Its address is 401 Wood Street, Suite 1300, Pittsburg, PA
15222. In light of Quaker Capital Management Corporation's disclaimer, we
do not consider it our affiliate and have not included its shares in
computing shares held by our affiliates.
(4) Includes shares held by WS Capital LLC and its affiliates Walker Smith
Capital, L.P., WS International, WS Ventures and WS Ventures International.
WS Capital's address is 300 Crescent Court, Suite 880, Dallas, Texas 75201.
WS Capital has no affiliation with any of our directors or officers and its
shares are not included in the ownership of our Directors and Executive
Officers as a group.
(5) Includes 602,493 shares held by Boulder Investors Limited Partnership, for
which Mr. Bartol serves as general partner; 31,782 shares held by GST
Exempt Trust, a trust in which Mr. Bartol has a beneficial interest; and
4,095 shares held by Mr. Bartol's wife. Mr. Bartol disclaims beneficial
ownership of the
19
shares held by his wife. Mr. Bartol's address is c/o Rockford Corporation,
600 South Rockford Drive, Tempe, Arizona 85281.
(6) Includes 135,200 shares underlying vested options granted under our stock
option plans. Mr. Suttle's address is c/o Rockford Corporation, 600 South
Rockford Drive, Tempe, Arizona 85281.
(7) Boulder Investors Limited Partnership's address is c/o Mr. T. Bartol,
Rockford Corporation, 600 South Rockford Drive, Tempe, Arizona 85281. It is
controlled by Mr. T. Bartol and Mr. N. Bartol (general partners) and Ms. P.
Carrio and Ms. A. Butterfield (limited partners), the four natural children
of John and Caroline Bartol.
(8) Includes 34,400 shares underlying vested options.
(9) Includes 96,000 shares underlying vested options.
(10) Includes 94,000 shares underlying vested options
(11) Includes 94,500 shares underlying vested options.
(12) Includes 64,500 shares underlying vested options.
(13) Includes 55,875 shares underlying vested options.
(14) Includes 50,000 shares underlying vested options.
(15) Includes 792,017 shares underlying vested options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires
- our executive officers;
- our directors; and
- persons who beneficially own more than ten percent of a registered class
of our equity securities
to file reports of beneficial ownership and changes in beneficial ownership on
Forms 3, 4 and 5 with the SEC and the National Association of Securities
Dealers. These reporting persons must furnish us with copies of all Forms 3, 4
and 5 that they file.
Based solely upon our review of the copies of Forms 3, 4 and 5 and
amendments to these forms, we believe that all reporting persons complied with
all filing requirements on a timely basis during 2001.
20
STOCK PRICE PERFORMANCE GRAPH
The registration statement for the initial public offering of our common
stock was declared effective on April 19, 2000, and our shares began trading on
the Nasdaq National Market on April 20, 2000.
Set forth below is a line graph comparing the cumulative total return over
the period beginning on the date of our initial public offering on April 20,
2000, and ending on December 31, 2001, for an investment of $100 in each of the
following:
- Shares of our common stock;
- The Russell 2000 Index, a broad based equity index of smaller
capitalization companies, with dividends reinvested. We believe this
index is a better comparison for our stock than the S&P 500 or Nasdaq
Stock Market indexes because it includes smaller companies more
comparable in size to us than either of the larger indexes; and
- A peer group we have selected that includes Harman International
Industries, Inc.; Boston Acoustics, Inc.; Recoton Corp.; and Phoenix Gold
International, Inc. The peer group index is weighted based on market
capitalization as of the beginning of the measurement period and assumes
the reinvestment of dividends. For each year we adjust the weightings at
the end of each year.
GRAPH
<Table>
<Caption>
ROCKFORD CORP RUSSELL 2000 PEER INDEX
------------- ------------ ----------
April 20, 2000 100.00 100.00 100.00
December 31, 2000 45.45 101.26 120.78
December 31, 2001 78.00 103.78 151.06
</Table>
INDEPENDENT AUDITOR AND FEES
Ernst & Young LLP served as our independent auditor for fiscal year 2001.
The Board of Directors has also selected them to serve as our independent
auditor for fiscal year 2002. Representatives of Ernst & Young LLP will attend
the Annual Meeting, will have an opportunity to make a statement and will be
available to respond to questions.
During 2001 we paid our independent auditors, Ernst & Young LLP, the
following fees for services they provided to us:
<Table>
Audit Fees.................................................. $220,000
Audit Related Fees.......................................... 300,000
Other Fees.................................................. 194,000
Financial System Design And Implementation Fees............. --
--------
Total Fees.................................................. $714,000
========
</Table>
21
Audit related fees consist primarily of consulting with respect to
accounting transactions. Other fees consist primarily of tax consulting
services.
The Audit and Finance Committee has reviewed the services Ernst & Young LLP
provided to Rockford during 2001 and believes that the audit related fees and
other fees which it has provided did not impinge on the auditor's independence.
OUR NEXT ANNUAL MEETING AND PROPOSALS BY SHAREHOLDERS
We expect our 2003 annual meeting will take place on or about April 23,
2003. As a shareholder you may seek to:
- nominate directors; or
- have proposals presented in our Proxy Statement and considered at our
annual meeting.
Your nomination or proposal must comply with Arizona law and, for the 2003
annual meeting, we must receive it no later than November 22, 2002. You should
direct any proposals and related questions to Ms. Victoria Springgay, our
Investor Relations Coordinator, at (480) 517-3042.
ANNUAL REPORT
Our Annual Report with certified financial statements for the fiscal year
ended December 31, 2001, accompanies this Notice and Proxy Statement and was
mailed to all shareholders of record on or about April 5, 2002. Any exhibit to
the Annual Report will be furnished to any requesting person who makes a good
faith representation that he or she was a beneficial owner of our Common Stock
on April 5, 2002.
By order of the Board of Directors.
/s/ JAMES M. THOMSON
--------------------------------------
James M. Thomson
Vice President, Chief Financial
Officer and Secretary
22
APPENDIX A
ROCKFORD CORPORATION
ACCOUNTING
PROCEDURE: AUDIT AND FINANCE COMMITTEE CHARTER DOCUMENT
I. ORGANIZATION
This charter governs the operations of the audit and finance committee. The
committee will review and reassess the charter at least annually and will be
approved by the board of directors. The committee shall be appointed by the
board of directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the committee will be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All committee
members will be financially literate, or will become financially literate within
a reasonable period of time after appointment to the committee. At least one
member will have accounting or related financial management expertise.
II. STATEMENT OF POLICY
The audit and finance committee will provide assistance to the board of
directors in fulfilling their oversight responsibility to the shareholders,
potential shareholders, the investment community, and others relating to the
Company's financial statements and the financial reporting process, the systems
of internal accounting and financial controls, the annual independent audit of
the Company's financial statements, and the legal compliance and ethics programs
as established by management and the board. In so doing, it is the
responsibility of the committee to maintain free and open communication between
the committee, independent auditors and management of the Company. In
discharging its oversight role, the committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the power to retain outside
counsel, or other experts for this purpose.
III. RESPONSIBILITIES
The primary responsibility of the audit and finance committee is to oversee
the Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee, in carrying
out its responsibilities, believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances, and
to ensure to the directors and shareholders that the corporate accounting and
reporting practices of the corporation are in accordance with all requirements
and are of the highest quality. The committee should take the appropriate
actions to set the overall corporate "tone" for quality financial reporting,
sound business risk practices, and ethical behavior.
The following shall be the principal recurring processes of the audit and
finance committee in carrying out its oversight responsibilities. The processes
are set forth as a guide with the understanding that the committee may
supplement them as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the committee, as representatives of the
Company's shareholders. The committee shall have the ultimate authority
and responsibility to evaluate and, where appropriate, replace the
independent auditors. The committee shall discuss with the auditors their
independence from management and the Company and the matters included in
the written disclosures required by the Independence Standards Board.
Annually, the committee will review and recommend to the board the
selection of the Company's independent auditors, subject to shareholders'
approval.
23
- The committee shall discuss with the independent auditors the overall
scope and plans for their respective audits including the adequacy of
staffing and compensation. Also the committee will discuss with
management and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. The committee will elicit any recommendations for the
improvement of such internal controls or particular areas where new or
more detailed controls or procedures are desirable. Particular emphasis
should be given to the adequacy of internal controls to expose any
payments, transactions or procedures that might be deemed illegal or
otherwise improper. Further, the committee will meet separately with the
independent auditors, with and without management present, to discuss the
results of their examinations.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee will discuss
the results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards. The chair of the committee may represent the
entire committee for the purposes of this review.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K, or the annual report to shareholders if distributed prior to
the filing of Form 10-K, including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee will discuss the results of the
annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
- The committee shall report the results of the annual audit to the board
of directors. If requested by the board, they shall invite the
independent auditors to attend the full board of directors meeting to
assist in reporting the results of the annual audit or to answer other
directors' questions. Alternatively, the other directors, particularly
the other independent directors, may be invited to attend the committee
meeting during which the results of the annual audit are reviewed.
- The committee shall review with financial management the financial
structuring and risks of the company, including issues such as debt
structuring, investment management and foreign currency risk and
exposure.
24
APPENDIX B
Rockford Corporation
2002 Stock Option Plan
1. Purpose.
The Rockford Corporation 2002 Stock Option Plan is intended to assist in
attracting and retaining employees and directors and to motivate such
individuals to use their best efforts on behalf of the Corporation.
2. Definitions.
The following terms have the following meanings:
2.1 "1933 Act" means the Federal Securities Act of 1933 and applicable
state securities laws.
2.2 "1934 Act" means the Securities Exchange Act of 1934.
2.3 "Board" means the Board of Directors of Rockford Corporation.
2.4 "Code" means the Internal Revenue Code of 1986.
2.5 "Committee" means the Compensation Committee of the Board of
Directors of Rockford Corporation.
2.6 "Corporation" means Rockford Corporation and any Subsidiary.
2.7 "Fair Market Value" means, as applied to a specific date, the
closing price for the Stock on such date as reported on the
principal stock exchange upon which the Corporation's Stock is
listed, currently, the Nasdaq Stock Market--National Market System
("NASDAQ"); or, if the stock is not listed, then the mean between
the most recent bid and asked prices of any other recognized trading
market or if no stock was traded on the relevant date, on the next
preceding day on which the Stock was so traded. If no such market
exists, then the Committee shall determine in good faith the fair
market value of the Stock.
2.8 "Grant Date" means the date on which an Option is granted as
specified by the Committee, contingent on the Optionee executing a
Stock Option Agreement in form satisfactory to the Committee.
2.9 "Incentive Option" means an Option eligible for tax treatment as an
incentive option under Section 422 of the Code.
-25-
2.10 "Non-Qualified Option" means an Option that is not eligible for tax
treatment as an incentive option under Section 422 of the Code.
2.11 "Option" means an option to purchase Stock granted under this Plan.
2.12 "Optionee" means an employee or director to whom an Option has been
granted under the Plan.
2.13 "Plan" means the Rockford Corporation 2002 Stock Option Plan, the
terms and conditions of which are covered in this instrument.
2.14 "Stock" means the common stock of the Corporation.
2.15 "Stock Option Agreement" means a written agreement entered into
between the Corporation and the Optionee that provides for the price
and terms of an Option.
2.16 "Subsidiary" means any corporation of which the majority of the
outstanding capital stock is owned, directly or indirectly, by the
Corporation and which meets the definition of a subsidiary
corporation as set forth in Section 424(f) of the Code, at the time
of the granting of the Option.
2.17 "Ten Percent Shareholder" means an individual who owns more than 10%
of the total combined voting power of all classes of stock of the
Corporation.
3. Administration.
3.1 The Plan shall be administered by the Compensation Committee of the
Board, which Committee shall satisfy the requirements for "outside
directors" as set forth in section 162 (m) of the Code and
"non-employee directors" as set forth in rule 16b-3 of the 1934 Act.
Without limiting the powers of the Committee, the Committee shall
have the power to determine the times during which any Option shall
be exercisable, the events upon which any Option shall terminate,
the amounts, if any, payable to beneficiaries of an Optionee upon
the death of such Optionee, the exercisability of any Option on the
sale of all, or substantially all, of the assets of the Corporation,
or a merger where the Corporation is not the surviving corporation
(other than a merger that is only a change in form), and other terms
of exercise. No member of the Committee shall be eligible to vote on
the grant of Options to him or her. All decisions and determinations
of the Committee in administering the Plan shall be final.
3.2 If changes are made to the Code that make it advisable, in the
Committee's sole discretion, to change the character of Options for
income tax purposes, the Committee may change the character of
Options and may impose on Options any conditions deemed necessary or
appropriate to comply with the Code requirements. However, except as
otherwise provided herein, the Committee may
-26-
not change the character or terms of an outstanding Option without
the Optionee's consent.
3.3 The Committee, subject to the provisions of the Plan, shall make
determinations regarding:
(a) The employees or directors who shall receive Options, the
times when such Options shall be granted, the time limits
within which Options may be exercised, the number of shares
subject to each Option, and the terms and provisions of Stock
Option Agreements (which need not be identical);
(b) Interpretation of Plan provisions;
(c) Rules and regulations relating to the Plan;
(d) Stock Option Agreements under the Plan; and
(e) Other determinations advisable for the proper administration
of the Plan.
4. Tax and Other Characteristics of Options.
4.1 Options granted pursuant to the Plan may be designated, but need not
be designated, as Incentive Options. The Stock Option Agreement
shall provide whether an Option is an Incentive Option or a
Non-Qualified Option. In the case of Incentive Options, the
aggregate fair market value of the Stock (at the time the Option is
granted) for Options that are exercisable for the first time by an
Optionee during any calendar year (under all stock option plans of
the Corporation or Subsidiary) shall not exceed $100,000.
Non-employee directors of the Corporation or Subsidiary shall not be
eligible for the grant of Incentive Options.
4.2 At all times during the period beginning on the date of grant of the
Incentive Stock Option and ending on the day three months before the
date of exercise of an Incentive Stock Option, the Optionee must be
an Employee of the Corporation or a Subsidiary. Such 3-month period
shall be extended to twelve (12) months if employment ends due to a
total disability. Additional limitations may be imposed by the terms
of the Option Agreement.
5. Stock Subject to the Plan.
5.1 Subject to adjustments under Section 11, the aggregate number of
shares of Stock that may be issued on the exercise of Options shall
not exceed 600,000 and the maximum number of shares for which
Options may be granted to any one employee shall be 200,000. Such
Stock may be authorized but unissued shares or treasury shares, as
the Committee determines.
-27-
5.2 If an Option expires or is terminated, the shares of Stock allocated
for issuance under such Option may be allocated to a new Option
under the Plan.
6. Eligibility.
All individuals who are officers, directors, advisory directors or
employees of the Corporation or a Subsidiary, including employees who are
officers or directors, shall be eligible for selection by the Committee to
receive Options under the Plan. Only officers and employees of the
Corporation or a Subsidiary may receive Incentive Options under the Plan.
7. Option Exercise Price and Payment of Withholding Taxes.
The Committee shall determine the price at which shares of Stock may be
purchased on the exercise of any Option at the time an Option is granted.
The price shall not be less than 100% of the fair market value of the
Stock at the Grant Date, but if the Corporation desires to grant an
Incentive Option to a Ten Percent Shareholder, the price at which shares
may be purchased under such Option shall not be less than 110% of the fair
market value of the Stock at the Grant Date. Also, any eligible individual
shall pay to the Corporation (or make arrangements for such payment) any
applicable federal and state income and withholding taxes the Corporation
determines are payable on the spread between the fair market value of the
Stock at the date of exercise and the Option price.
8. Term of Options.
The Committee shall determine the term of each Option at the Grant Date.
In no case, however, shall the term of any Option exceed ten years from
the Grant Date, or five years in the case of a grant of an Incentive
Option to a Ten Percent Shareholder.
9. Payment on Exercise of Options.
The price of an exercised Option and any taxes required to be paid by the
Optionee on exercise of such Option shall be paid:
(a) In cash; or
(b) At the discretion of the Committee, through the delivery of
Stock with a fair market value equal to the exercise price and
withholding taxes, if any; or
(c) At the discretion of the Committee, through a combination of
(a) and (b).
-28-
10. Non-Transferability of Options.
(a) Except as provided in (b), below, Options shall not be
transferable by the Optionee, but if an Optionee dies, his or
her personal representative may exercise an Option within 90
days of the date of the Optionee's death.
(b) Options may be transferable pursuant to a valid decree of
divorce; provided, however, that any Incentive Options
required to be so transferred shall cease to be Incentive
Options and become Non-Qualified Options.
11. Adjustments.
If the Corporation:
(a) declares a dividend or makes a distribution on its Stock
payable in Stock or securities convertible into Stock; or
(b) recapitalizes through a split-up of the outstanding shares of
Stock into a greater number or a combination of the
outstanding Stock into a lesser number; or
(c) issues, by reclassification of its Stock, any share of Stock,
or
(d) reorganizes, merges, consolidates, splits-up, combines, or
exchanges shares or engages in any similar transaction to
those described in this Section 11 with respect to the Stock,
the Committee shall make appropriate and equitable adjustments in the
number and kind of shares subject to outstanding Options under the Plan.
Any other adjustments to the Options shall be within the sole discretion
of the Committee. If the adjustment would produce fractional shares with
respect to any unexercised Option, the Committee may adjust appropriately
the number of shares covered by the Option to eliminate the fractional
shares. The price of any shares subject to an outstanding Option shall be
adjusted so there will be no change in the aggregate purchase price
payable upon the exercise of the Option, and such price may be changed at
the Committee's discretion, to avoid any substantial dilution or
enlargement of the rights granted or available to Optionees under the Plan
or to shareholders of the Corporation.
12. Additional Restrictions.
Notwithstanding any other provisions of the Plan, any Stock Option
Agreement may contain such additional or more restrictive provisions as
the Committee deems advisable and consistent with the Plan.
-29-
13. Registration.
The Plan, the Stock to be issued pursuant to the exercise of Options, or
the Options granted under the Plan, may be registered under the Act.
14. Effective Date of Plan.
The Plan shall become effective as of January 23, 2002 and shall remain in
effect for ten years from its effective date, unless the Board terminates
it earlier. No Incentive Options may be issued under the Plan unless the
stockholders of the Corporation approve the Plan within one year from the
date the Plan is adopted by the Corporation.
15. Amendments and Termination.
The Board, in its discretion and at any time, may modify, amend or
terminate the Plan. Neither the termination of the Plan, nor any
modification or amendment thereof, shall adversely affect any rights under
an Option previously granted under the Plan without the consent of the
Optionee except as provided in the Plan and except that, if the
Corporation merges into, consolidates, or sells substantially all of its
assets to another entity, the Corporation may terminate any outstanding
Options without such consent. Notwithstanding the foregoing, the Board may
amend the Plan to the extent necessary to cause Options granted under the
Plan to meet the requirements of the Act and the Code and regulations
thereunder.
16. Miscellaneous.
(a) Nothing in the Plan or any Option granted shall confer upon
any person any right to continue in the service of the
Corporation or a Subsidiary.
(b) The grant of Options under the Plan, the issuance and delivery
of shares upon the exercise of Options, and any other matters
relating thereto shall be subject to all laws, rules and
regulations as may from time to time be applicable, including
but not limited to, any and all rules and regulations of any
stock exchange or exchanges upon which the shares of the
Corporation may be listed and all applicable federal and state
securities laws.
(c) No person shall acquire any rights as an Optionee under this
Plan unless and until a Stock Option Agreement in the form and
containing the terms specified by the Committee shall have
been duly executed on behalf of the Corporation by such
officer or officers as the Committee shall designate for such
purpose, delivered to the Optionee named therein, and executed
by the Optionee.
-30-
(d) No person shall have any rights as a shareholder with respect
to any shares covered by an Option granted pursuant to the
Plan until the date of the issuance of a share certificate to
the Optionee for such shares.
17. Governing Law.
All rights under this Plan shall be governed by and construed in
accordance with the laws of the state of Arizona. The Plan is intended to
comply with all applicable securities laws and to meet the requirements
for Incentive Stock Options and the "performance-based" exception to
section 162(m) of the Code, and the Plan shall be construed and
interpreted in a manner that reflects such intent.
18. Execution.
The President of the Corporation has been authorized to execute this Plan
and has executed the Plan on the date indicated below.
ROCKFORD CORPORATION
-------------------------------------
President
-------------------------------------
Date
-31-
PROXY
ROCKFORD CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints W. Gary Suttle and Jerry E.
Goldress or either of them acting in the absence of the other, with full power
of substitution, the true and lawful attorneys and proxies of the undersigned,
to attend the Annual Meeting of the Shareholders of Rockford Corporation to be
held at Rockford Technical Training Institute at 636 South River Drive, Tempe,
Arizona 85281, on May 8, 2002, at 10:00 a.m., Mountain Standard Time, and any
adjournments thereof, and to vote the shares of Common Stock of Rockford
standing in the name of the undersigned, as directed below, with all the powers
the undersigned would possess if personally present at the meeting.
PROPOSAL NO. 1: To elect six directors to our Board to serve for the next year
or until their successors are elected.
<Table>
NOMINEES: W. Gary Suttle Timothy C. Bartol
Jerry E. Goldress Ralph B. Godfrey
Nicholas G. Bartol John P. Lloyd
</Table>
________VOTE for all nominees except those whose names are written on the line
provided below (if any).
- --------------------------------------------------------------------------------
________VOTE WITHHELD on all nominees.
PROPOSAL NO. 2: To approve Rockford's 2002 Stock Option Plan.
________VOTE for the 2002 Stock Option Plan
________VOTE against the 2002 Stock Option Plan
PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE
This proxy will be voted in accordance with the directions indicated herein.
If no specific directions are given, this proxy will be voted for approval of
all nominees listed herein, for approval of the proposals listed herein and,
with respect to any other business as may properly come before the meeting, in
accordance with the discretion of the Proxies.
Dated:
- -----------------------------------
----------------------------------
Signature
----------------------------------
Signature
When signing as executor,
administrator, attorney, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate name
by president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person. If a joint
tenancy, please have both joint
tenants sign.