exv10w4



 




Exhibit 10.4






Rockford Corporation

2005 Stock Option Plan





	1.	 	Purpose.






The Rockford Corporation 2005 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.
	 
	 	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 2005 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 not change the character or terms of an
outstanding Option without the Optionee’s consent.




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	 	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 (subject to the provisions of this Plan), 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) shall not exceed
$100,000. Non-employee directors of the Corporation 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
Option and ending on the day three months before the date of exercise of an Incentive
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. If the Optionee terminates employment due to death or dies within the
allowable period specified in the Option Agreement for exercise after termination of
employment, the Option may be exercised (to the extent the Optionee was entitled to
exercise the Option on the date of death) by the Optionee’s estate, or by a person who
acquired the right to exercise the Option by bequest or inheritance, or by a person
designed to exercise the Option upon the Optionee’s death, but only within a period
ending upon the earlier of (i) 90 days after the date of death or (ii) the expiration
of the term of the Option set forth in the Option Agreement. Additional limitations
may be imposed by the terms of the Option Agreement.






	5.	 	Stock Subject to the Plan.




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	 	5.1	 	Subject to adjustments under Section 11, the aggregate number of shares of
Stock that may be issued on the exercise of Options (either as Incentive Options,
Non-Qualified Options, or a combination) shall not exceed 500,000. Such Stock may be
authorized but unissued shares or treasury shares, as the Committee determines.
	 
	 	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 and Vesting of Options.






	 	8.1	 	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.
	 
	 	8.2	 	Unless otherwise specified by the Committee in the Option Agreement, 25% of the
Options granted to an individual will be exercisable immediately on the Grant Date,
with another 25% becoming exercisable on each of the first, second, and third
anniversary of the Grant Date. Notwithstanding the previous sentence, and unless
otherwise specified by the Committee in the Option Agreement, Options will be 100%
exercisable when the Optionee attains age 65. These provisions are subject to the
other terms and conditions of the Option Agreement (including the termination date of
the Options).




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	 	8.3	 	Unless specifically stated otherwise in the Option Agreement, all outstanding
Options will become vested and exercisable immediately upon a Change of Control of the
Corporation. For this purpose, “Change of Control” shall be deemed to have occurred
if, after the Effective Date (i) any “person” (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), becomes the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation
representing twenty-five percent (25%) or more of the combined voting power of the
Corporation’s then outstanding securities, (ii) upon the first purchase of the
Corporation’s Stock pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Corporation) or (iii) directors who are not “continuing
directors” become a majority of the Board of Directors. A “continuing director” is a
director who (a) is a director on the date of adoption of this plan, (b) is nominated
to become a director by the Nominating Committee of the corporation and is recommended
by a majority of the continuing directors, or (c) has served as a director for 24
months.
	 
	 	8.4	 	If, in connection with any merger, consolidation, sale or transfer by the
Corporation of substantially all its assets, any Option is not to be assumed by the
surviving corporation or the purchaser, then the Committee, in its sole discretion, may
advance the date on which such Option or any portion of such Option not then
exercisable, may be exercised.






	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).






	10.	 	Non-Transferability of Options.






	 	10.1	 	Except as provided in 10.2, 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 (if the Option is otherwise
exercisable), subject to Section 4.2.
	 
	 	10.2	 	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.




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	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, and if required, shall in all events
comply with Section 409A of the Code so as not to create a modification of the Option. 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; provided that any such
adjustment will comply with Section 409A of the Code, if required, so as not to create a
modification of the Option.




	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.




	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 November 1, 2005 and shall remain in effect for ten
years from its effective date, unless the Board terminates it earlier. No Incentive



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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. 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.






	 	16.1	 	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.
	 
	 	16.2	 	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.
	 
	 	16.3	 	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.
	 
	 	16.4	 	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, as well as the requirements of a stock option plan
exempt from Section 409A of the Code, and the Plan shall be construed and interpreted in a
manner that reflects such intent.



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	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










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