Exhibit-10.74
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
     THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”),
dated as of August 31, 2006, is entered into among WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN), a California corporation formerly known as Congress
Financial Corporation (Western) (“Agent”), as administrative and collateral
agent for the Lenders party to the Loan Agreement (as defined below) from time
to time (“Lenders”), WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), a
California corporation formerly known as Congress Financial Corporation
(Western), as a Lender (“Wachovia”), ROCKFORD CORPORATION, an Arizona
corporation (“Borrower Agent”), and AUDIO INNOVATIONS, INC., an Oklahoma
corporation (“AII” and together with Rockford, collectively, “Borrowers”).
RECITALS
     A. Agent, Wachovia, Wachovia Bank, National Association, as arranger, and
Borrowers have previously entered into that certain Loan and Security Agreement
dated March 29, 2004 as amended by the First Amendment to Loan and Security
Agreement and Conditional Default Waiver dated as of June 10, 2004, the Second
Amendment to Loan and Security Agreement dated as of December 30, 2004, the
Third Amendment to Loan and Security Agreement dated as of August 31, 2005 and
the Fourth Amendment to Loan and Security Agreement and Consent dated as of
March 21, 2006 (the “Loan Agreement”), pursuant to which Wachovia has made
certain loans and financial accommodations available to Borrowers. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.
     B. Borrowers have requested Agent and Wachovia to amend the Loan Agreement
in certain respects, and Agent and Wachovia are now willing to accommodate such
request on the terms and conditions set forth herein.
     C. Borrowers are entering into this Amendment with the understanding and
agreement that, except as specifically provided herein, none of Agent’s or
Lenders’ rights or remedies as set forth in the Loan Agreement is being waived
or modified by the terms of this Amendment.
AGREEMENT
     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
     1. Reserve. The amount of the Reserve established pursuant to Section 1 of
the First Amendment to Loan and Security Agreement and Conditional Default
Waiver dated as of June 10, 2004, as amended by the Third Amendment to Loan and
Security Agreement dated as of August 31, 2005, is hereby increased to Three
Million Five Hundred Thousand Dollars

 

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($3,500,000). Such Reserve is a permanent Reserve under the Loan and Security
Agreement and shall not be reduced or eliminated without the written consent of
Agent and the Lenders.
     2. Amendments to Loan Agreement.
          (a) The first sentence of the definition of “Borrowing Base” in
Section 1.6 of the Loan Agreement is hereby amended and restated to read in its
entirety as follows:
     “‘Borrowing Base’ shall mean, at any time, the amount equal to: (a) the sum
of (i) eighty-five percent (85%) of Eligible Accounts (other than Eligible
Accounts described in the immediately following clause (ii)), plus (ii) the
lesser of Two Million Dollars ($2,000,000) or seventy percent (70%) of foreign
Eligible Accounts subject to credit insurance as set forth in clause (e)(ii) of
the within definition of ‘Eligible Accounts’, plus (b) the least of: (i) the sum
of (A) during the months of December through May, inclusive, fifty-five percent
(55%) of the Value of Eligible Inventory consisting of finished goods, and at
all other times, fifty percent (50%) of the Value of such Eligible Inventory,
plus (B) thirty-five percent (35%) of the Value of Eligible Inventory consisting
of raw materials for such finished goods or (ii) eighty-five percent (85%) of
the Net Orderly Liquidation Value of Eligible Inventory, or (iii) Seven Million
Five Hundred Thousand Dollars ($7,500,000), less (c) any Reserves.”
          (b) The definition of “Eurodollar Rate Margin” in Section 1.34 of the
Loan Agreement is hereby amended and restated to read in its entirety as
follows:
          “1.34 ‘Eurodollar Rate Margin’ shall mean five percent (5.00%) per
annum.”
          (c) The definition of “Letter of Credit Rate” in Section 1.56 of the
Loan Agreement is hereby amended and restated to read in its entirety as
follows:
          “1.56 ‘Letter of Credit Rate’ shall mean five percent (5.00%) per
annum.”
          (d) The definition of “Maximum Credit” in Section 1.60 of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
          “1.60 ‘Maximum Credit’ shall mean the amount of Twenty Million Dollars
($20,000,000).”
          (e) The definition of “Prime Rate Margin” in Section 1.76 of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
          “7.76 ‘Prime Rate Margin’ shall mean one percent (1.00%) per annum.”
          (f) The definition of “Revolving Loan Limit” in Section 1.89 of the
Loan Agreement is hereby amended and restated to read in its entirety as
follows:
          “1.89 ‘Revolving Loan Limit’ shall mean the amount of Twenty Million
Dollars ($20,000,000).”

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          (g) Section 9.17.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
     “9.17.1 EBITDA. Borrowers and their Subsidiaries, on a consolidated basis,
shall earn EBITDA, calculated as of the last day of each period set forth below,
of not less then the amount set forth opposite such periods:

      Period   Amount
Three months ending September 30, 2006
  <$   950,000>
Four months ending October 31, 2006
  <$1,187,000>
Five months ending November 30, 2006
  <$1,447,000>
Six months ending December 31, 2006
  <$1,529,000>

     For the purposes hereof, ‘EBITDA’ shall mean the net income of Borrowers
and their Subsidiaries determined on a consolidated basis in accordance with
GAAP consistently applied, but excluding any extraordinary or one-time gains,
plus (a) depreciation, amortization and other non-cash charges (to the extent
deducted in the computation of such net income), plus (b) Interest Expense (to
the extent deducted in the computation of such net income), plus (c) charges for
federal, state, local and foreign income taxes (to the extent deducted in the
computation of such income).
     On or before December 15 of each year (commencing with December 15, 2006),
Borrowers shall furnish Agent with projected consolidated and consolidating
financial statements (including in each case, forecasted balance sheets and
statements of income and loss, statements of cash flow, and statements of
shareholders’ equity) of Borrowers and their Subsidiaries for the next fiscal
year, all in reasonable detail, and in a format consistent with the projections
previously delivered by Borrowers to Agent, together with such supporting
information as Agent may reasonably request. Such projected financial statements
shall be prepared on a monthly basis for the next succeeding fiscal year. Such
projections shall represent the reasonable estimate by Borrowers of the future
financial performance of Borrowers and their Subsidiaries for the periods set
forth therein and shall have been prepared on the basis of the assumptions set
forth therein which Borrowers believe are fair and reasonable as of the date of
preparation in light of current and reasonably foreseeable business conditions
(it being understood that actual results may differ from those set forth in such
projected financial statements). Based upon each such projected financial
statement, Agent shall reasonably set minimum EBITDA levels for Borrowers and
their Subsidiaries for the subject fiscal year, and Borrowers and their
Subsidiaries shall earn EBITDA of not less than such minimum EBITDA levels.”
     3. Effectiveness of this Amendment. Agent must have received the following
items, in form and content acceptable to Agent, before this Amendment is
effective.

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          (a) Amendment; Acknowledgement. This Amendment and the attached
Acknowledgement by Guarantors, each fully executed in a sufficient number of
counterparts for distribution to all parties.
          (b) Amendment Fee. An amendment fee in the amount of Twenty-Five
Thousand Dollars ($25,000), which fee shall be paid to Agent by Borrower on or
before the date hereof and is fully earned as of the date hereof.
          (c) Representations and Warranties. The representations and warranties
set forth herein and in the Loan Agreement must be true and correct.
          (d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded and shall be in form and substance
satisfactory to Agent.
     4. Representations and Warranties. Each Borrower represents and warrants as
follows:
          (a) Authority. Such Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its obligations
hereunder and under the Financing Agreements (as amended or modified hereby) to
which it is a party. The execution, delivery and performance by such Borrower of
this Amendment have been duly approved by all necessary corporate action and no
other corporate proceedings are necessary to consummate such transactions.
          (b) Enforceability. This Amendment has been duly executed and
delivered by such Borrower. This Amendment and each Financing Agreement (as
amended or modified hereby) is the legal, valid and binding obligation of such
Borrower, enforceable against such Borrower in accordance with its terms, and is
in full force and effect.
          (c) Representations and Warranties. The representations and warranties
contained in each Financing Agreement (other than any such representations or
warranties that, by their terms, are specifically made as of a date other than
the date hereof) are correct on and as of the date hereof as though made on and
as of the date hereof.
          (d) Due Execution. The execution, delivery and performance of this
Amendment are within the power of such Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on such Borrower.
          (e) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
     5. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by,

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and construed in accordance with the internal laws of the State of California
governing contracts only to be performed in that State.
     6. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
     7. Reference to and Effect on the Financing Agreements.
          (a) Upon and after the effectiveness of this Amendment, each reference
in the Loan Agreement to “this Agreement”, “hereunder”, “hereof” or words of
like import referring to the Loan Agreement, and each reference in the other
Financing Agreements to “the Loan Agreement”, “thereof” or words of like import
referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as modified and amended hereby.
          (b) Except as specifically amended above, the Loan Agreement and all
other Financing Agreements, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed and shall
constitute the legal, valid, binding and enforceable obligations of Borrowers to
Agent and Lenders.
          (c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of Agent or any Lender under any of the Financing Agreements,
nor constitute a waiver of any provision of any of the Financing Agreements.
          (d) To the extent that any terms and conditions in any of the
Financing Agreements shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified or amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified or amended
hereby.
     8. Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.
     9. Severability. In case any provision in this Amendment shall be invalid,
illegal or unenforceable, such provision shall be severable from the remainder
of this Amendment and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

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     IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.

                  ROCKFORD CORPORATION    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           
 
           
 
  AUDIO INNOVATIONS, INC.    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           
 
                WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN),
as Agent and as a Lender    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           

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ACKNOWLEDGEMENT BY GUARANTORS
Dated as of August 31, 2006
     Each of the undersigned, being a guarantor (each a “Guarantor” and
collectively, the “Guarantors”) under their Guaranty and Security Agreement
dated March 29, 2004, made in favor of Agent and Lenders (as amended, modified
or supplemented, the “Guaranty”) hereby acknowledges and agrees to the foregoing
Fifth Amendment to Loan and Security Agreement (the “Amendment”) and confirms
and agrees that the Guaranty is and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that, upon
the effectiveness of, and on and after the date of the Amendment, each reference
in the Guaranty to the Loan Agreement (as defined in the Amendment),
“thereunder”, “thereof” or words of like import referring to the “Loan
Agreement”, shall mean and be a reference to the Loan Agreement as amended or
modified by the Amendment. Although Lender has informed Guarantors of the
matters set forth above, and Guarantors have acknowledged the same, each
Guarantor understands and agrees that Lender has no duty under the Loan
Agreement, the Guaranty or any other agreement with any Guarantor to so notify
any Guarantor or to seek such an acknowledgement, and nothing contained herein
is intended to or shall create such a duty as to any advances or transaction
hereafter.
     If any action or proceeding is filed in a court of the State of California
by or against any Guarantor in connection with any of the transactions
contemplated by the Loan Agreement or any document related thereto, the court
shall, and is hereby directed to, make a general reference pursuant to
California Code of Civil Procedure Section 638 to a referee or referees to hear
and determine all of the issues in such action or proceeding (whether of fact or
of law) and to report a statement of decision, provided that at the option of
Lender, any such issues pertaining to a “provisional remedy” as defined in
California Code of Civil Procedure Section 1281.8 shall be heard and determined
by the court.

                  ROCKFORD SINGAPORE CORPORATION    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           
 
                ROCKFORD SALES.COM, INC.    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           

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                  MB QUART SHANGHAI, INC.    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Title:        
 
           

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