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
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[X] Definitive proxy statement. by Rule 14a-6(e)(2)).
[ ] Definitive additional materials.
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Rockford Corporation
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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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ROCKFORD CORPORATION
600 SOUTH ROCKFORD DRIVE
TEMPE, ARIZONA 85281
To the Holders of
Rockford Corporation Common Stock
Re: 2003 ANNUAL SHAREHOLDERS MEETING
Dear Shareholder:
You are cordially invited to attend Rockford's 2003 Annual Shareholders
Meeting. We will hold the meeting on Wednesday, April 23, 2003, at 600 South
Rockford Drive, Tempe, Arizona, 85281. The meeting will begin promptly at 2:00
p.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 2003 ANNUAL SHAREHOLDERS MEETING
March 14, 2003
To the Holders of
Rockford Corporation Common Stock
We will hold our 2003 Annual Shareholders Meeting on Wednesday, April 23,
2003. We will meet at 2:00 p.m., Mountain Standard Time, at 600 South Rockford
Drive, Tempe, Arizona, 85281. At the meeting we will:
* Elect six directors; 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 6,
2003. 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 2002 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 encourage you to vote.
/s/ James M. Thomson
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James M. Thomson
Vice President of Finance,
Chief Financial Officer and Secretary
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PLEASE VOTE -- YOUR VOTE IS IMPORTANT
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PROXY STATEMENT
TABLE OF CONTENTS
General Information......................................................... 1
Required Vote To Approve the Proposal....................................... 2
Who To Call If You Have Questions........................................... 2
Proposal and Board Recommendation........................................... 3
Executive Officers And Board Of Directors................................... 4
About The Board And Its Committees.......................................... 7
Executive Compensation...................................................... 10
Nominating and Compensation Committee Report On Executive Compensation...... 12
Related Party Transactions.................................................. 14
Principal Shareholders And Shareholdings Of Officers and Directors.......... 16
Section 16(A) Beneficial Ownership Reporting Compliance..................... 17
Stock Price Performance Graph............................................... 18
Our Next Annual Meeting and Proposals By Stockholders....................... 19
Annual Report............................................................... 20
GENERAL INFORMATION
WHO MAY VOTE You may vote if our records show that you held shares of our
common stock as of March 6, 2003. As at January 31, 2003,
8,747,197 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. 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 March 14, 2003.
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 You may revoke your proxy if you:
PROXY
* 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.
1
HOW A QUORUM IS If you have returned a Proxy Card or attend the meeting in
DETERMINED 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.
COST OF THIS We will pay the cost of this proxy solicitation, including
SOLICITATION 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 Shareholders 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 $5,000.
ATTENDING THE If your shares are held in street name you may attend the
MEETING IF YOUR meeting, but you must vote through your broker or bank and
SHARES ARE IN cannot vote in person. If you are a beneficial owner of
"STREET NAME" 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 THE PROPOSAL
ELECTION OF SIX The six nominees for director who receive the most votes
DIRECTORS 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.
WHO TO CALL IF YOU HAVE QUESTIONS
INVESTOR RELATIONS If you have questions about the meeting or voting please
COORDINATOR call Victoria Springgay, our Investor Relations Coordinator,
at (480) 517-3042.
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PROPOSAL AND BOARD RECOMMENDATION
PROPOSAL TO ELECT SIX DIRECTORS
DIRECTORS The shareholders will elect the entire Board of Directors, a
TO BE ELECTED total of six directors, at the meeting.
CUMULATIVE VOTING Shareholders may cumulate votes in the election of
ALLOWED 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.
NOMINEES OF THE Our Board has nominated the following individuals to serve
BOARD 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.
3
EXECUTIVE OFFICERS AND BOARD OF DIRECTORS
Our Executive Officers and Board of Directors are listed in the following
table:
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- -----
W. Gary Suttle (1) ........... 62 President, Chief Executive 1992
Officer and Director
David A. Boshes .............. 47 Vice President of Operations
William Jackson .............. 42 Vice President of Mobile Audio
Jacqueline M. Mott ........... 59 Vice President of Human Resources
David L. Richards ............ 56 Vice President of Information
Technology
James C. Strickland .......... 65 Vice President of Engineering
James M. Thomson ............. 56 Vice President of Finance, Chief
Financial Officer and Secretary
Jerry E. Goldress (1)(2)(3) .. 72 Chairman of the Board 1998
Nicholas G. Bartol ........... 48 Director 1985
Timothy C. Bartol (1)(2) ..... 47 Director 1997
Ralph B. Godfrey (2)(3) ...... 63 Director 1999
John P. Lloyd (3) ............ 51 Director 1988
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(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, 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 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.
4
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.
WILLIAM JACKSON Mr. Jackson has served as our Vice President of Mobile
Audio since 2002 and previously has served us since
1995 in various positions, including Managing Director
of Lightning Audio and regional sales manager. Mr.
Jackson has 21 years experience in the consumer
electronics industry. Prior to joining Rockford, he
managed a retail consumer electronics store for 13
years and operated a manufacturer's sales
representative firm for three years. Mr. Jackson holds
a degree in Business Administration and Art from Coe
College in Cedar Rapids, Iowa.
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 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 and Chief Information Officer
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
5
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.
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. Mr. Goldress is also a
director of Alamo Group (NYSE:ALG), a publicly held
manufacturer of Industrial Mowing Equipment and of K2,
Inc., 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 since 1994 by Phillips Information
Resources, serving in multiple positions including his
current position as Director of Application Development
and Chief Technology Officer. 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.
6
ABOUT THE BOARD AND ITS COMMITTEES
BOARD MEETINGS In 2002, our Board held a total of six meetings. Each
Director attended at least 75% of our Board meetings. Each
Director also attended at least 75% of the meetings of each
committee of which he was a member.
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 Executive Committee met six times during 2002.
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 three times during
2002. The current members of the Nominating and Compensation
Committee are Messrs. T. Bartol (Chair), Godfrey and
Goldress.
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
21, 2003, to consider nominees for election at our annual
meeting in 2004.
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 five times
during 2002.
The current members of the Audit and Finance Committee are
Messrs. Lloyd (Chair), Goldress and Godfrey. 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.
AUDIT AND FINANCE The following is the 2002 report of the Audit and Finance
COMMITTEE REPORT Committee.
AND ACTIONS
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;
7
* 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 appropriate financial
personnel on Rockford's staff. We regularly meet privately
with our independent auditors, who have unrestricted access
to the Committee.
The audit committee is responsible for the appointment of
our independent auditors, for establishing their
compensation and for approving any non-audit services they
provide. We also review periodically their performance and
independence from Rockford and its 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. We anticipate that the Board of
Directors will update our charter during 2003 in order to
more fully comply with rules relating to audit committees
and independent auditors that are scheduled to come into
effect during 2003 as a result of the Sarbanes-Oxley Act.
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 accounting principles
generally accepted in the U.S. and discuss with us any
issues they believe should be raised with us.
During 2002 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 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 &
8
Young 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, 2002.
Audit and Finance Committee:
John P. Lloyd
Ralph B. Godfrey
Jerry E. Goldress
DIRECTOR We compensate our non-executive Directors by paying them a
COMPENSATION retainer of $2,500 per quarter and $1,250 per Board meeting
attended, $1,000 per Committee meeting attended and $2,000
per Audit Committee meeting attended. 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, 1997 and 2002 Stock Option
Plans.
COMPENSATION The members of our Nominating and Compensation Committee are
COMMITTEE named above. We did not employ any member of the Nominating
INTERLOCKS AND and Compensation Committee during fiscal year 2002. None of
INSIDER our directors served during fiscal year 2002 as an executive
PARTICIPATION 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.
9
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 2000, 2001 and 2002.
Mr. McLeod, who served as our Vice President of Sales during 2002 and was
one of our most highly compensated executive officers, left Rockford during the
first quarter of 2003 and is no longer an executive officer. He is included in
the following tables in compliance with the SEC's rules.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- ----------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS COMPENSATION(2)
--------------------------- ---- ---------- ---------- ---------- ---------------
W. Gary Suttle .................. 2002 $ 450,000 $ -- -- $4,769,100(3)
President and Chief 2001 450,000 50,000 77,814 1,391,100(4)
Executive Officer 2000 400,000 200,000 -- 41,100(5)
David A. Boshes ................. 2002 $ 180,260 $ -- -- $ 322,926(6)
Vice President of 2001 179,129 10,000 19,000 5,100
Operations 2000 163,300 40,000 -- 5,100
Daniel C. McLeod ................ 2002 $ 196,991 $ -- -- $ --
Vice President of 2001 189,054 6,250 23,000 --
Sales 2000 193,224 20,000 -- --
David L. Richards ............... 2002 $ 184,885 $ -- -- $ 255,027(7)
Vice President of 2001 184,180 11,250 21,000 5,100
Information Technology 2000 165,981 45,000 -- 5,100
James M. Thomson ................ 2002 $ 200,327 $ -- -- $ 9,622(8)
Vice President of Finance 2001 199,149 15,000 27,000 5,100
and Chief Financial Officer 2000 176,893 50,000 -- 5,100
----------
(1) Amounts listed are annual base salaries, with the exception of Mr. McLeod,
who was paid commissions based on our sales. Mr. McLeod's commissions are
included in the salary column.
(2) Except as specifically stated in notes (3) through (7) immediately below,
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 2002
represent:
* Our contribution for Mr. Suttle of $5,100 to our Employee 401(k)
Deferred Compensation Plan; and
* Compensation of $4,764,100 resulting from Mr. Suttle's exercise
of 595,500 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 2001
represent:
* Our contribution for Mr. Suttle of $5,100 to our Employee 401(k)
Deferred Compensation Plan;
10
* 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 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.
(5) 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.
(6) For Mr. Boshes, the amounts shown as All Other Compensation for 2002
represent:
* Our contribution for Mr. Boshes of $5,408 to our Employee 401(k)
Deferred Compensation Plan; and
* Compensation of $317,518 from a disqualified incentive stock
option sale.
(7) For Mr. Richards, the amounts shown as All Other Compensation for 2002
represent:
* Our contribution for Mr. Richards of $5,547 to our Employee
401(k) Deferred Compensation Plan; and
* Compensation of $249,480 from a disqualified incentive stock
option sale.
(8) For Mr. Thomson, the amounts shown as All Other Compensation for 2002
represent:
* Our contribution for Mr. Thomson of $6,010 to our Employee 401(k)
Deferred Compensation Plan; and
* Compensation of $3,612 as a taxable fringe benefit paid for Mr.
Thomson.
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
We did not grant any stock options to our officers during 2002. We have
never granted any stock appreciation rights.
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, 2002 by our officers listed on
the Summary Compensation Table, including:
* The shares that each of them purchased during 2002 by exercising their
stock options; and
* The number and value of unexercised options each of them held at
December 31, 2002. Value is determined by subtracting the exercise
price from the closing market value of $ 5.89 per share as of December
31, 2002.
Number of securities underlying
unexercised options at Value of unexercised in-the-money
Shares Acquired fiscal year end options at fiscal year end
----------------------- -------------------------- ---------------------------
Number Value
Name Exercised Realized Exercisable Unexercisable Exercisable Unexerciseable
---- ---------- ---------- ----------- ------------- ----------- --------------
W. Gary Suttle ....... 595,500 $ 800,000 163,607 38,907 $ 133,443 $ --
David A. Boshes ...... 43,000 $ 312,110 52,500 9,500 62,634 --
Dan C. McLeod ........ -- -- 97,500 11,500 241,542 --
David L. Richards .... 30,100 $ 249,480 66,400 10,500 92,115 --
James M. Thomson ..... -- -- 99,500 13,500 243,904 --
11
NOMINATING AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OUR COMPENSATION We have historically established executive compensation to
PHILOSOPHY 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.
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.
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 2002,
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. We did not increase the base compensation for our
named executive officers during 2002.
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
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employees (including our executive officers) tend to be
larger and to vary more depending on Rockford's performance.
We did not pay cash bonuses in 2002 because our financial
performance for 2001 did not achieve our business and
financial goals. Similarly, we do not intend to pay cash
bonuses in 2003 because of our failure to achieve our
financial goals in 2002. 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 did not grant stock options in
2002.
CHIEF EXECUTIVE We believe that our long-term incentives are generally
OFFICER consistent with the incentives at comparable companies.
At the beginning of 1999 we entered into an 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 maintained it at the same level in
2002.
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 795,000 shares
he acquired during 2001 and 2002 from our largest
shareholder, Monument Investors Limited Partnership,
pursuant to options Monument awarded to him when he joined
us in 1992. Mr. Suttle exercised and sold 200,000 of the
shares available to him from Monument 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.
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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 was
scheduled to expire 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 of the shares available under this option. Grisanti, Galef & Goldress
exercised its option to purchase all 215,000 shares during 2002 and sold 130,000
of these shares pursuant to the registration statement on Form S-3.
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 2000 and 2001 we paid $4,000 each year as compensation for Mr.
Goldress' director fees. During 2002 we paid $15,500 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
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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 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:
$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
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 additional shares, as permitted
by the effective registration statement and Rule 144, in order to permit him to
pay additional taxes arising from the exercise. He has indicated that he intends
to retain the remaining 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.
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PRINCIPAL SHAREHOLDERS AND SHAREHOLDINGS OF OFFICERS AND DIRECTORS
The following tables list our share ownership as of March 1, 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.
NAME AND ADDRESS OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
---------------- ------------------ ------------
Timothy C. Bartol (1) ........................ 2,869,528 32.8%
Monument Investors Limited Partnership (2) ... 2,205,789 25.2
Quaker Capital Management Corporation (3) .... 1,226,500 14.0
Reid S. Walker and G. Stacy Smith (4) ........ 806,336 9.2
W. Gary Suttle (5) ........................... 688,657 7.7
Nicholas G. Bartol (6) ....................... 667,015 7.6
Boulder Investors Limited Partnership (7) .... 602,493 6.9
James M. Thomson (8) ......................... 129,151 1.5
Jerry E. Goldress (9) ........................ 128,590 1.5
Daniel C. McLeod (10) ........................ 102,375 1.2
Ralph B. Godfrey (11) ........................ 86,750 1.0
John P. Lloyd (12) ........................... 80,942 *
David L. Richards (13) ....................... 74,895 *
David A. Boshes (14) ......................... 56,375 *
All Executive Officers and Directors
as a Group (13 persons) (15) ............... 4,388,554 45.9
----------
* 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; 8,600 shares held by Mr. Bartol's
wife; and 1,000 shares underlying vested options granted under our stock
option plans. 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 1,225,500 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.
Reid S. Walker and G. Stacy Smith, and their affiliated companies, have no
affiliation with any of our directors or officers and these shares are not
included in the ownership of our Directors and Executive Officers as a
group.
(5) Includes 181,557 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.
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(6) 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; 4,095
shares held by Mr. Bartol's wife; and 1,000 shares underlying vested
options granted under our stock option plans. 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.
(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 106,000 shares underlying vested options.
(9) Includes 35,400 shares underlying vested options.
(10) Includes 102,375 shares underlying vested options
(11) Includes 76,750 shares underlying vested options.
(12) Includes 74,100 shares underlying vested options.
(13) Includes 71,650 shares underlying vested options.
(14) Includes 56,375 shares underlying vested options.
(15) Includes 819,657 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 2002 except for one inadvertent
situation. During November 2002, one of our executive officers, Mr. Strickland,
exercised options and our staff responsible for helping with Section 16
reporting did not learn of the transaction until after the 2 day reporting
period under the new Section 16 regulations. As a result, his Form 4 was filed 2
days late. This was our first experience with the new 2 day reporting period. We
have put additional safeguards into our procedures and believe that we will be
able to help our officers and directors make timely filings going forward.
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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, 2002, 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 each measurement period
and assumes the reinvestment of dividends. Because of Harman's large
capitalization, this peer group index is dominated by Harman's
performance and you should take this large weighting into account when
using the chart. For each year we adjust the weightings at the end of
each year.
[GRAPH]
April 20, December 31, December 31, December 31,
2000 2000 2001 2002
--------- ------------ ------------ ------------
Rockford Corp 100 45 78 54
Russell 2000 100 101 104 83
Peer Index 100 121 151 180
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INDEPENDENT AUDITOR AND FEES
Ernst & Young LLP served as our independent auditor for fiscal year 2002.
The Board of Directors has also selected them to serve as our independent
auditor for fiscal year 2003. 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 2002 we paid our independent auditors, Ernst & Young LLP, the
following fees for services they provided to us:
Audit Fees ..................................... $ 244,000
Audit Related Fees ............................. 60,000
Other Fees ..................................... 145,000
Financial System Design
And Implementation Fees ...................... --
---------
Total Fees ..................................... $ 449,000
=========
Audit related fees consist primarily of assistance related 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 2002 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 2004 annual meeting will take place on or about April 29,
2004. 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 2004
annual meeting, we must receive it no later than November 21, 2003. You should
direct any proposals and related questions to Ms. Victoria Springgay, our
Investor Relations Coordinator, at (480) 517-3042.
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ANNUAL REPORT
Our Annual Report with certified financial statements for the fiscal year
ended December 31, 2002, accompanies this Notice and Proxy Statement and was
mailed to all shareholders of record on or about March 14, 2003. 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 March 6, 2003.
By order of the Board of Directors.
/s/ James M. Thomson
----------------------------------------
James M. Thomson
Vice President, Chief Financial Officer
and Secretary
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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 600 South Rockford Drive, Tempe, Arizona, 85281, on Wednesday, April 23,
2003, at 2:00 p.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.
NOMINEES: W. Gary Suttle Timothy C. Bartol
Jerry E. Goldress Ralph B. Godfrey
Nicholas G. Bartol John P. Lloyd
______ VOTE for all nominees except those whose names are written on the line
provided below (if any).
______________________________________________________________________
______ VOTE WITHHELD on all nominees.
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.
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