-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FpPONZz6ElDR9ArwhR8JeImEwJc6VnwPH6T1gyFwKbufIvrqEdWa9++4qPEHgvXs XbZgA+O0tWj+xLPWQEOZbA== 0000912057-02-009700.txt : 20020415 0000912057-02-009700.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-009700 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020313 GROUP MEMBERS: HARMAN ACQUISITION CORP. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CIRCUIT RESEARCH LABS INC CENTRAL INDEX KEY: 0000725897 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 860344671 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-56483 FILM NUMBER: 02573804 BUSINESS ADDRESS: STREET 1: 2522 W GENEVA DR CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6024380888 MAIL ADDRESS: STREET 1: 2522 W GENEVA DR CITY: TEMPE STATE: AZ ZIP: 85282 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HARMAN INTERNATIONAL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000800459 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 112534306 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1101 PENNSYLVANIA AVENUE N W STREET 2: STE 1010 CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 2023931101 MAIL ADDRESS: STREET 1: 1101 PENNSYLVANIA AVENUE NW STREET 2: SUITE 1010 CITY: WASHINGTON STATE: DC ZIP: 20004 SC 13D 1 a2073144zsc13d.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D (RULE 13d-101) Information to be Included in Statements Filed Pursuant to Rule 13d-1(a) and Amendments Thereto Filed Pursuant to Rule 13d-2(a) Under the Securities Exchange Act of 1934 CIRCUIT RESEARCH LABS, INC. (Name of Issuer) COMMON STOCK, $0.10 PAR VALUE (Title of Class of Securities) 172743205 (CUSIP Number) EDWIN SUMMERS VICE PRESIDENT AND GENERAL COUNSEL HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED 8500 BALBOA BLVD. NORTHRIDGE, CALIFORNIA 91329 (218) 893-8411 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) with a copy to: James E. O'Bannon Jones, Day, Reavis & Pogue 2727 North Harwood Dallas, Texas 75201 (214) 220-3939 MAY 31, 2000 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. |_| (continued on following pages) (Page 1 of 104 Pages) - ---------------------------------------- -------------------------------------- CUSIP NO. 172743205 13D PAGE 2 OF 104 PAGES - ---------------------------------------- -------------------------------------- - ------- -------------------------------------------------------------------------------------------------------------- 1 Name of Reporting Person Harman Acquisition Corp. - ------- -------------------------------------------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (a) |_| (b) |_| - ------- -------------------------------------------------------------------------------------------------------------- 3 SEC Use Only - ------- -------------------------------------------------------------------------------------------------------------- 4 Source of Funds 00 - ------- -------------------------------------------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e) |_| - ------- -------------------------------------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - ------------------------------ ------ -------------------------------------------------------------------------------- Number of 7 Sole Voting Power Shares 1,279,775(1) ------ -------------------------------------------------------------------------------- Beneficially 8 Shared Voting Power 0 ------ -------------------------------------------------------------------------------- Owned by 9 Sole Dispositive Power Each 1,279,775(1) ------ -------------------------------------------------------------------------------- Reporting 10 Shared Dispositive Power Person With 0 - ------------------------------ ------ -------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,279,775(1) - ------- -------------------------------------------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares |_| - ------- -------------------------------------------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 26.0%(2) - ------- -------------------------------------------------------------------------------------------------------------- 14 Type of Reporting Person CO - ------- --------------------------------------------------------------------------------------------------------------
- ---------- (1) All shares of common stock, par value $.10 per share ("Common Stock") of Circuit Research Labs, Inc., an Arizona corporation ("CRL"), covered by this Schedule 13D may be acquired by Harman Acquisition Corp. ("HAC") upon exercise of a warrant issued to HAC as of May 31, 2000 (the "Warrant"). Prior to the exercise of the Warrant, HAC is not entitled to any rights as a stockholder of CRL. (2) Based on 2,388,880 shares outstanding at September 30, 2001 according to the Quarterly Report on Form 10-Q filed by Circuit Research Labs, Inc. for the quarter ended September 30, 2001, plus 1,250,000 shares issued in connection with an acquisition by CRL, plus 1,279,775 shares issuable upon exercise of the Warrant described in Item 6 below. (Page 2 of 104 Pages) - ---------------------------------------- -------------------------------------- CUSIP NO. 172743205 13D PAGE 3 OF 104 PAGES - ---------------------------------------- -------------------------------------- - ------- -------------------------------------------------------------------------------------------------------------- 1 Name of Reporting Person Harman International Industries, Incorporated - ------- -------------------------------------------------------------------------------------------------------------- 2 Check the Appropriate Box if a Member of a Group (a) |_| (b) |_| - ------- -------------------------------------------------------------------------------------------------------------- 3 SEC Use Only - ------- -------------------------------------------------------------------------------------------------------------- 4 Source of Funds 00 - ------- -------------------------------------------------------------------------------------------------------------- 5 Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e) |_| - ------- -------------------------------------------------------------------------------------------------------------- 6 Citizenship or Place of Organization Delaware - ------------------------------ ------ -------------------------------------------------------------------------------- Number of 7 Sole Voting Power Shares 0 ------ -------------------------------------------------------------------------------- Beneficially 8 Shared Voting Power 1,279,775(1) ------ -------------------------------------------------------------------------------- Owned by 9 Sole Dispositive Power Each 0 ------ -------------------------------------------------------------------------------- Reporting 10 Shared Dispositive Power Person With 1,279,775(1) - ------- -------------------------------------------------------------------------------------------------------------- 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,279,775(1) - ------- -------------------------------------------------------------------------------------------------------------- 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares |_| - ------- -------------------------------------------------------------------------------------------------------------- 13 Percent of Class Represented by Amount in Row (11) 26.0%(2) - ------- -------------------------------------------------------------------------------------------------------------- 14 Type of Reporting Person CO - ------- --------------------------------------------------------------------------------------------------------------
- ---------- (1) All shares of Common Stock covered by this Schedule 13D may be acquired by HAC upon exercise of the Warrant described in Item 6 below. HAC is a wholly owned subsidiary of Harman International Industries, Incorporated ("Harman"). As such, Harman may be deemed to have shared voting and dispositive power with respect to the shares covered by this Schedule 13D. (2) Based on 2,388,880 shares outstanding at September 30, 2001 according to the Quarterly Report on Form 10-Q filed by Circuit Research Labs, Inc. for the quarter ended September 30, 2001, plus 1,250,000 shares issued in connection with an acquisition by CRL, plus 1,279,775 shares issuable upon exercise of the Warrant described in Item 6 below. (Page 3 of 104 Pages) ITEM 1. SECURITY AND ISSUER. This Schedule 13D relates to the common stock, par value $0.10 per share (the "Common Stock"), of Circuit Research Labs, Inc., an Arizona corporation ("CRL"). CRL's principal executive office is located at 2522 West Geneva Drive, Tempe, Arizona 85282. ITEM 2. IDENTITY AND BACKGROUND. This joint Schedule 13D is filed by Harman International Industries, Incorporated ("Harman") and its wholly owned subsidiary, Harman Acquisition Corp. ("HAC"). 1. (a) HAC is a Delaware corporation. (b) HAC's principal office is located at Balboa Blvd., Northridge, California 91329. (c) HAC is a holding company. Its sole purpose is to hold a warrant dated May 31, 2000 (the "Warrant") to purchase Common Stock as described in Item 6 below and two notes, one for $5,000,000 and one for $3,500,000, of CRL Systems, Inc., a Nevada corporation ("Systems"), and a wholly owned subsidiary of CRL, as described in Item 6 below. (d) HAC has not, and, to the best of its knowledge, none of the persons listed on SCHEDULE A hereto has, during the last five years been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors). (e) HAC has not, and, to the best of its knowledge, none of the persons listed on SCHEDULE A hereto has, during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding is or was subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. 2. (a) Harman is a Delaware corporation. (b) Harman's principal office is located at Harman is 1101 Pennsylvania Avenue, Washington, D.C. 20004. (c) The principal business of Harman is the manufacture of high-quality, high-fidelity audio products targeted at the consumer and professional audio markets. (d) Harman has not, and, to the best of its knowledge, none of the persons listed on SCHEDULE A hereto has, during the last five years been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors). (Page 4 of 104 Pages) (e) Harman has not, and, to the best of its knowledge, none of the persons listed on SCHEDULE A hereto has, during the last five years been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding is or was subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. The name, citizenship, business address and present principal occupation or employment, as well as the name and address of any corporation or other organization in which such occupation or employment is conducted, of each of the directors and executive officers of each of HAC and Harman are set forth on SCHEDULE A hereto, which SCHEDULE A is incorporated herein by reference. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION In connection with the sale by HAC of substantially all of the assets of HAC to Systems, CRL issued the Warrant to HAC. The Warrant is exercisable for Common Stock, as more fully described in the response to Item 6. The beneficial ownership of Common Stock by Harman and HAC reported in this Schedule 13D is based solely on the ownership of the Warrant. No cash consideration was paid for the Warrant. ITEM 4. PURPOSE OF TRANSACTION. In connection with the sale by HAC of substantially all of the assets of HAC to Systems, CRL issued the Warrant to HAC. The beneficial ownership of Common Stock by Harman and HAC reported in this Schedule 13D is based solely on the ownership of the Warrant. HAC has no present intent to exercise the Warrant. Except as described in the response to Item 6, neither Harman nor HAC have formulated any plans or proposals which relate to or would result in: (i) acquisition or disposition of securities of CRL; (ii) an extraordinary corporate transaction involving CRL or any of its subsidiaries; (iii) a sale or transfer of a material amount of the assets of CRL or any of its subsidiaries; (iv) any change in the present board of directors or management of CRL; (v) any material change in CRL's capitalization or dividend policy; (vi) any other material change in CRL's business or corporate structure; (vii) any change in CRL's charter or bylaws or other instruments corresponding thereto or other action which may impede the acquisition of control of CRL by any person; (viii) causing a class of CRL's securities becoming deregistered or delisted; (ix) an action similar to any of those enumerated above. The response to Item 6 is incorporated herein by reference. (Page 5 of 104 Pages) ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) As a result of HAC's ownership of the Warrant, HAC is deemed to beneficially own 1,279,775 shares of Common Stock or approximately 26.0% of the Common Stock that would be outstanding after giving effect to the exercise in full of the Warrant. Harman owns all of the outstanding capital stock of HAC and as a result, Harman is deemed to also beneficially own these 1,279,775 shares of Common Stock or approximately 26.0% of the Common Stock that would be outstanding after giving effect to the exercise in full of the Warrant. (b) Under SEC regulations, HAC is deemed to have sole voting and dispositive power with respect to 1,279,775 shares of Common Stock as a result of its ownership of the Warrant. HAC is a wholly owned subsidiary of Harman. As such, under SEC regulations Harman may be deemed to also have shared voting and dispositive power with respect to 1,279,775 shares of Common Stock as a result of HAC's ownership of the Warrant. (c) None. (d) Not applicable (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. On May 31, 2000, Systems and HAC entered into an Asset Sale Agreement (the "Asset Sale Agreement") pursuant to which Systems acquired substantially all of the assets of HAC (the "Transaction"). As consideration for the assets of HAC, HAC received $1,500,000 in cash, a $3.5 million short-term note (the "Tranche B Note"), a $5 million long-term note (the "Tranche A Note" and, together with the Tranche B Note, the "Notes") and the Warrant to purchase 1,000,000 shares of Common Stock, exercisable for $2.25 per share. The Warrant expires on May 31, 2003 and can be exercised either (i) by payment in cash, (ii) by reducing the amount of the unpaid principal on the Tranche A Note or the Tranche B Note, or (iii) by any combination of (i) and (ii). The provisions of the Warrant also provide HAC with anti-dilution protection under certain circumstances, including for stock splits, stock dividends, combinations, reclassifications and issuances of Common Stock at prices below the current trading price or the exercise price of the Warrant. As a result of certain transactions effected by CRL subsequent to the issuance of the Warrant, the aggregate number of shares of Common Stock issuable upon exercise of the Warrant increased to 1,279,775 shares, and the exercise price per share decreased to $1.7386 per share. The provisions of the Warrant further provide HAC with certain rights to cause CRL to register the shares of Common Stock issuable to HAC upon exercise of the Warrant. CRL has filed a registration statement registering the sale by HAC of the shares issuable upon exercise of the Warrant. (Page 6 of 104 Pages) Under the terms of the Asset Purchase Agreement, Systems and HAC entered into an $8,500,000 Credit Agreement (the "Credit Agreement") that governs the repayment of the Notes. In addition, CRL, Systems and HAC entered into a Guarantee and Collateral Agreement (the "Guarantee") whereby each of CRL and Systems pledged all of their respective assets, including the stock of Systems, as collateral for the repayment of the Notes. Among other things, the Guarantee provides that the cash proceeds received by CRL from any sale of debt or equity securities or sales of assets by CRL will be applied to pay amounts owed under the Notes. Between May 31, 2000 and October 31, 2001, HAC and Systems agreed to several payment extensions on the Notes. On October 1, 2001, Systems and HAC entered into an amendment to the Credit Agreement under which both Notes were amended and restated (the "Amended Credit Agreement"). Under the Amended Credit Agreement, the Notes were converted to demand notes payable on the demand of HAC or if no demand is sooner made, on the dates and in the amounts specified in the Amended Credit Agreement. Interest only payments remain payable from time to time for both Notes and are also due on demand. Additionally, under the Amended Credit Agreement, the first principal payment on the Tranche A Note of $250,000 was increased to $1,250,000 and is now due April 30, 2002, unless HAC demands payment at an earlier date. HAC acquired the Warrant (and as a result, beneficial ownership of the Common Stock issuable upon exercise of the Warrant) as consideration received in the Transaction. HAC from time to time intends to review its investment in CRL on the basis of various factors, including CRL's business, financial condition, results of operations and prospects, general economic and industry conditions, the securities markets in general and for CRL's securities in particular, as well as other developments and other investment opportunities. Based upon such review, it will take such actions in the future as it may deem appropriate in light of the circumstances existing from time to time, including but not limited to demanding payment of all or a portion of the principal and interest due under the Notes and/or exercising its rights under the Credit Agreement, as amended, the Guarantee or the Asset Sale Agreement. Depending on market and other factors, HAC may determine to dispose of some or all of the Notes and/or the Warrant. The foregoing descriptions of the Asset Sale Agreement, the Warrant, and the Guarantee are qualified in their entirety by reference to the copies of such agreements which have been filed as exhibits to this Schedule 13D. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. The following are filed herewith as Exhibits to the Schedule 13D:
Exhibit No. Description ----------- ----------- 1 Asset Sale Agreement, dated as of May 31, 2000, between Harman Acquisition Corp. (F/K/A Orban, Inc.) and CRL Systems, Inc. 2 Warrant, dated May 31, 2000, issued by Circuit Research Labs, Inc. to Harman Acquisition Corp. 3 Guarantee and Collateral Agreement, dated as of May 31, 2000, made by Circuit Research Labs, Inc., as Parent, CRL Systems, Inc., as Borrower, in favor of Harman Acquisition Corp., as Lender. 4 Joint Filing Agreement
(Page 7 of 104 Pages) SIGNATURE After reasonable inquiry and to the best of my knowledge and believe, I certify that the information set forth in this Schedule 13D is true, complete and correct. Dated: March 13, 2002 HARMAN ACQUISITION CORP. By: /s/ Frank Meredith --------------------------------- Frank Meredith, Secretary HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: /s/ Frank Meredith ----------------------------------- Frank Meredith, Executive Vice President and Chief Financial Officer (Page 8 of 104 Pages) SCHEDULE A CERTAIN INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS OF HARMAN ACQUISITION CORP. AND HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Set forth below are the names, positions with HAC and/or Harman, business addresses and principal occupations of the directors and executive officers of HAC and Harman. Each individual is a United States citizen.
HAC Names, Positions and Business Addresses Present Principal Occupation --------------------------------------- ---------------------------- Dr. Sidney Harman Executive Chairman and Director and President Chairman of the Board of Harman 1101 Pennsylvania Avenue Suite 1010 Washington, D.C. 20004 Bernard A. Girod Chief Executive Officer of Harman Director and Vice President and Secretary 8500 Balboa Blvd. Northridge, CA 91329 Frank Meredith Chief Financial Officer of Harman Chief Financial Officer and Assistant Secretary 8500 Balboa Blvd. Northridge, CA 91329 HARMAN Names, Positions and Business Addresses Present Principal Occupation --------------------------------------- ---------------------------- Dr. Sidney Harman Executive Chairman and Executive Chairman and Chairman of the Chairman of the Board of Harman Board of Harman 1101 Pennsylvania Avenue Suite 1010 Washington, D.C. 20004 Bernard A. Girod Chief Executive Officer of Harman Vice Chairman of the Board and Chief Executive Office of Harman 8500 Balboa Blvd. Northridge, CA 91329
(Page 9 of 104 Pages)
Names, Positions and Business Addresses Present Principal Occupation --------------------------------------- ---------------------------- Gregory P. Stapleton President of Harman President, Chief Operating Officer and a Director of Harman 8500 Balboa Blvd. Northridge, CA 91329 Frank Meredith Chief Financial Officer of Harman Executive Vice President and Chief Financial Officer of Harmon 8500 Balboa Blvd. Northridge, CA 91329 William S. Palin Vice President-Controller of Harman Vice President - Controller of Harman 8500 Balboa Blvd. Northridge, CA 91329 Shirley M. Hufstedler Senior Counsel, Morrison & Director Foerster, LLP., the address of 555 West Fifth Street which is the same as that for Ms. Suite 3500 Hufstedler Los Angeles, CA 90013-1024 Ann McLaughlin Korologos Senior Advisor, Benedetto Gartland Director & Company, Inc., 728 Post Road 1155 23rd Street, N.W. East, Suite 202, Westport, CT 06880 Suite 7B Washington, D.C. 20037 Edward H. Meyer Chairman of the Board, Chief Director Executive Officer and President of 777 Third Avenue Grey Global Group, Inc., the New York, NY 10017 address of which is the same as that for Mr. Meyer Stanley A. Weiss Chairman of Business Executives for Director National Security, the address of 1717 Pennsylvania Avenue, N.W. which is the same as that for Mr. Suite 350 Weiss Washington, DC 20006
(Page 10 of 104 Pages) EX-1 3 a2073144zex-1.txt EXHIBIT 1 EXHIBIT 1 ================================================================================ ASSET SALE AGREEMENT BETWEEN ORBAN, INC. AND CRL SYSTEMS, INC. MAY 31, 2000 ================================================================================
TABLE OF CONTENTS PAGE I. THE ACQUISITION.........................................................................................1 1.1. PURCHASE AND SALE OF ASSETS....................................................................1 1.1.1. PERSONAL PROPERTY...................................................................1 1.1.2. INVENTORY...........................................................................1 1.1.3. CONTRACT RIGHTS.....................................................................2 1.1.4. INTELLECTUAL PROPERTY...............................................................2 1.1.5. GOVERNMENTAL LICENSES, PERMITS AND APPROVALS........................................2 1.1.6. ACCOUNTS RECEIVABLE.................................................................2 1.2. EXCLUDED ASSETS................................................................................2 1.2.1. CASH................................................................................2 1.2.2. ORDINARY COURSE OF BUSINESS DISPOSITIONS............................................2 1.2.3. PROPERTY TO BE LEASED...............................................................2 1.2.4. EMPLOYEE PLANS......................................................................2 1.2.5. NAMES...............................................................................2 1.2.6. ADMINISTRATIVE SYSTEMS..............................................................2 1.2.7. EXCLUDED CONTRACTS..................................................................2 1.2.8. SOFTWARE LICENSES...................................................................3 1.2.9. OTHER SPECIFIED ASSETS..............................................................3 1.3. NONASSIGNABLE CONTRACTS GENERALLY..............................................................3 1.3.1. NONASSIGNABILITY....................................................................3 1.3.2. SELLER TO USE REASONABLE EFFORTS....................................................3 1.3.3. IF WAIVERS OR CONSENTS CANNOT BE OBTAINED...........................................3 1.3.4. OBLIGATION OF PURCHASER TO PERFORM..................................................3 II. PURCHASE PRICE..........................................................................................3 2.1. PURCHASE PRICE.................................................................................3 2.2. UTILITY DEPOSIT PRORATION......................................................................4 2.3. NET ACCOUNTS RECEIVABLE ADJUSTMENT.............................................................4 2.4. TIMING OF ADJUSTMENTS..........................................................................5 2.5. ALLOCATION OF PURCHASE PRICE...................................................................5 III. ASSUMPTION OF LIABILITIES...............................................................................5 3.1. ASSUMED LIABILITIES............................................................................5 3.2. RETAINED LIABILITIES...........................................................................5 IV. REPRESENTATIONS AND WARRANTIES..........................................................................6 4.1. REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................6 4.1.1. CORPORATE MATTERS...................................................................6 4.1.2. AUTHORIZATION AND EFFECT OF AGREEMENT...............................................6 4.1.3. NO RESTRICTIONS AGAINST SALE OF THE ASSETS..........................................6 4.1.4. COMPLIANCE WITH LAWS................................................................6 4.1.5. ACCOUNTS RECEIVABLE.................................................................6
i 4.1.6. TANGIBLE PERSONAL PROPERTY..........................................................7 4.1.7. LEASED REAL PROPERTY................................................................7 4.1.8. INTELLECTUAL PROPERTY...............................................................7 4.1.9. LICENSES AND PERMITS................................................................7 4.1.10. INSURANCE...........................................................................8 4.1.11. LITIGATION; DECREES; WARRANTY CLAIMS................................................8 4.1.12. CONTRACT RIGHTS.....................................................................8 4.1.13. TAXES...............................................................................8 4.1.14. ENVIRONMENTAL MATTERS...............................................................9 4.1.15. CUSTOMERS AND SUPPLIERS.............................................................9 4.1.16. SUFFICIENCY OF THE TOTAL ASSETS.....................................................9 4.1.17. BROKERS, FINDERS AND AGENTS.........................................................9 4.1.18. ASSUMED LIABILITIES.................................................................9 4.1.19. EMPLOYEE PLANS; LABOR RELATIONS....................................................10 4.1.20. ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................10 4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................................10 4.2.1. CORPORATE MATTERS..................................................................10 4.2.2. AUTHORIZATION AND EFFECT OF AGREEMENT..............................................10 4.2.3. BROKERS, FINDERS AND AGENTS........................................................11 4.2.4. HSR................................................................................11 4.2.5. ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................11 V. COVENANTS..............................................................................................11 5.1. INVESTIGATION BY PURCHASER....................................................................11 5.2. PRESS RELEASES................................................................................11 5.3. REGULATORY APPROVALS..........................................................................11 5.4. INJUNCTIONS...................................................................................12 5.5. OPERATION OF THE BUSINESS.....................................................................12 5.6. CONSENTS AND APPROVALS........................................................................12 5.7. EMPLOYEE MATTERS..............................................................................12 5.8. CERTAIN TAX MATTERS...........................................................................13 5.9. SATISFACTION OF CONDITIONS....................................................................13 5.10. INTENTIONALLY OMITTED.........................................................................13 5.11. NONCOMPETITION................................................................................13 5.12. CREDIT AGREEMENT..............................................................................13 5.13. SENIOR FINANCING..............................................................................14 5.14. CHANGE OF NAME................................................................................14 5.15. POST-CLOSING AUDIT............................................................................14 VI. THE CLOSING............................................................................................14 6.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND SELLER...................................14 6.2. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER...................................14 6.2.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................14 6.2.2. COMPLIANCE WITH COVENANTS..........................................................14 6.2.3. DELIVERY OF DOCUMENTS BY OR ON BEHALF OF SELLER....................................14 6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER................................................14 6.3.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................15
ii 6.3.2. COMPLIANCE WITH COVENANTS..........................................................15 6.3.3. DELIVERY OF DOCUMENTS BY OR ON BEHALF OF PURCHASER.................................15 6.3.4. CREDIT AGREEMENT...................................................................15 6.4. THE CLOSING...................................................................................15 6.5. TERMINATION...................................................................................16 VII. REPURCHASE TRANSACTION.................................................................................17 VIII. SURVIVAL AND INDEMNIFICATION...........................................................................17 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.........................................17 8.2. INDEMNIFICATION BY PURCHASER..................................................................17 8.3. INDEMNIFICATION BY SELLER.....................................................................18 8.4. NOTICE OF CLAIM; RIGHT TO PARTICIPATE IN AND DEFEND THIRD PARTY CLAIM.........................18 8.5. LIMITATIONS...................................................................................19 8.5.1. EFFECT OF SCHEDULES................................................................19 8.5.2. THRESHOLDS AND DEDUCTIBLES.........................................................19 8.5.3. MAXIMUM LIABILITY..................................................................19 8.5.4. EXCLUSIVE RIGHTS...................................................................19 8.5.5. OFFSET.............................................................................19 IX. MISCELLANEOUS PROVISIONS...............................................................................19 9.1. NOTICES.......................................................................................19 9.2. EXPENSES......................................................................................20 9.3. SUCCESSORS AND ASSIGNS........................................................................20 9.4. WAIVER........................................................................................21 9.5. ENTIRE AGREEMENT..............................................................................21 9.6. AMENDMENTS, SUPPLEMENTS, ETC..................................................................21 9.7. RIGHTS OF THE PARTIES.........................................................................21 9.8. APPLICABLE LAW; JURISDICTION..................................................................21 9.9. ARBITRATION...................................................................................21 9.10. WAIVER OF TRIAL BY JURY.......................................................................22 9.11. TITLES AND HEADINGS...........................................................................22 9.12. PASSAGE OF TITLE AND RISK OF LOSS.............................................................22 9.13. CERTAIN INTERPRETIVE MATTERS AND DEFINITIONS..................................................22 9.14. EXECUTION IN COUNTERPARTS.....................................................................22 9.15. RELIANCE ON INFORMATION.......................................................................22
iii EXHIBITS EXHIBIT A Form of Note A EXHIBIT B Form of Note B EXHIBIT C Form of Assignment and Assumption Agreement and Consent of Landlord to Assignment and Assumption Agreement EXHIBIT D Form of Assumption Agreement EXHIBIT E Form of Credit Agreement SCHEDULES Schedule 1.1.1 Owned Tangible Personal Property Schedule 1.1.5 Licenses, Permits and Authorizations Schedule 1.2.3 Property To Be Leased Schedule 1.2.9 Other Specified Assets Schedule 2.5 Allocation of Purchase Price Schedule 4.1.4 Noncompliance With Laws Schedule 4.1.6 Tangible Personal Property Liens Schedule 4.1.7(a) Parties in Possession of Property To Be Leased Schedule 4.1.7(b) Real Property Lease Schedule 4.1.8 Material Intellectual Property Rights Schedule 4.1.10 Insurance Schedule 4.1.11 Litigation Schedule 4.1.12(a) Assumed Contracts Schedule 4.1.19(a) Employee Plans Schedule 5.7 Severance Plans iv ASSET SALE AGREEMENT This ASSET SALE AGREEMENT (this "AGREEMENT") is made and entered into as of the 31st day of May, 2000, between Orban, Inc., a Delaware corporation ("SELLER"), and CRL Systems, Inc., a Nevada corporation ("PURCHASER"). RECITALS: A. Seller is presently engaged in the business (the "BUSINESS") of manufacturing and selling signal processing equipment used in broadcast applications principally for radio stations. B. Seller desires to Transfer (as defined herein) to Purchaser, and Purchaser desires to purchase from Seller, all of Seller's right, title and interest in and to the rights, properties and assets owned or leased by Seller in connection with the conduct of the Business, other than the Excluded Assets (as defined herein), on the terms and subject to the conditions set forth in this Agreement. C. Seller desires to delegate to Purchaser, and Purchaser is willing to assume from Seller, the Assumed Liabilities (as defined herein), on the terms and subject to the conditions set forth in this Agreement. D. Seller agrees to accept a portion of the Purchase Price in the form of promissory notes, on the terms and conditions set forth in the Credit Agreement, dated as of even date with this Agreement between Purchaser and Seller (the "CREDIT AGREEMENT"). NOW, THEREFORE, the parties hereto agree as follows: I. THE ACQUISITION 1.1. PURCHASE AND SALE OF ASSETS. On the terms and subject to the conditions hereof, at the Closing (as defined herein), Seller will sell, transfer, grant, convey, assign and deliver ("TRANSFER") to Purchaser, and Purchaser will purchase and accept from Seller, all of Seller's right, title and interest in and to the rights, properties and assets owned or leased by Seller in connection with the conduct of Business as of the date hereof, or acquired by Seller in connection with the conduct of Business between the date hereof and the Closing Date (as defined herein), including all of Seller's right, title and interest in and to the rights, properties and assets described in this Section 1.1 (collectively the "ASSETS"): 1.1.1. PERSONAL PROPERTY. The furnishings, furniture, equipment, tools, supplies, spare parts, computers, printers, files, books, records, and all other tangible personal property owned by Seller, including those items listed or described on SCHEDULE 1.1.1 (collectively, the "OWNED TANGIBLE PERSONAL PROPERTY"); 1.1.2. INVENTORY. All raw materials, work-in-process and finished goods inventories relating to the Business (collectively, the "INVENTORY"); 1.1.3. CONTRACT RIGHTS. All leases (including the Real Property Lease (as defined herein)), agreements, and contracts relating to the Business (collectively, the "CONTRACTS"); 1.1.4. INTELLECTUAL PROPERTY. All patents, copyrights, trademarks, trade names, service marks, and trade secrets, whether registered or unregistered, and any applications for any of the foregoing used exclusively in the Business (collectively, the "INTELLECTUAL PROPERTY RIGHTS"); 1.1.5. GOVERNMENTAL LICENSES, PERMITS AND APPROVALS. To the extent Transferable without any cost or expense to Seller, all licenses, permits and authorizations (collectively, the "LICENSES") issued or requested to be issued by any foreign, United States, state, local or other governmental entity or municipality or any subdivision thereof or any authority, department, commission, board, bureau, agency, court, arbitration panel or instrumentality (collectively, "GOVERNMENTAL ENTITIES") in connection with the conduct of the Business, including to the extent transferable without any cost or expense to Seller, the licenses, permits and authorizations listed or described on SCHEDULE 1.1.5; and 1.1.6. ACCOUNTS RECEIVABLE. All accounts receivable arising from the conduct of the Business (the "ACCOUNTS RECEIVABLE"). 1.2. EXCLUDED ASSETS. Notwithstanding anything contained in this Agreement to the contrary, the following rights, properties and assets (collectively, the "EXCLUDED ASSETS") will not be included in the Assets: 1.2.1. CASH. Cash and equivalent assets, promissory notes owing to Seller and investment securities; 1.2.2. ORDINARY COURSE OF BUSINESS DISPOSITIONS. Inventory and Owned Tangible Personal Property that will have been Transferred or otherwise disposed of by Seller between the date hereof and the Closing Date in the ordinary and normal course of the conduct of the Business consistent with past practices (the "ORDINARY COURSE"); 1.2.3. PROPERTY TO BE LEASED. The fee simple title to the real property described on SCHEDULE 1.2.3 (the "PROPERTY TO BE LEASED"); 1.2.4. EMPLOYEE PLANS. All assets and rights held in connection with any Employee Plans (as defined herein); 1.2.5. NAMES. The name "HARMAN" and any similar words. 1.2.6. ADMINISTRATIVE SYSTEMS. Any accounting or other administrative systems that are owned and used by any Affiliate of Seller outside of the Business; 1.2.7. EXCLUDED CONTRACTS. Any contracts or agreements that benefit Seller's Affiliates' operations outside the Business; and 2 1.2.8. SOFTWARE LICENSES. Any computer software licensed to Seller other than ordinary, prepackaged consumer software such as Microsoft Word and similar packaged software. 1.2.9. OTHER SPECIFIED ASSETS. Any right, property or asset, including any asset leased by Seller pursuant to a Contract, that is listed or described on SCHEDULE 1.2.9. 1.3. NONASSIGNABLE CONTRACTS GENERALLY. 1.3.1. NONASSIGNABILITY. To the extent that any Contract to be Transferred pursuant to the terms of Section 1.1.3 is not capable of being Transferred without the consent, approval or waiver of a third person or entity (including a Governmental Entity), or if such Transfer or attempted Transfer would constitute a breach thereof or a violation of any law, statute, rule, regulation, ordinance, order, code, arbitration award, judgment, decree or other legal requirement of any Governmental Entity (collectively, "LAWS"), nothing in this Agreement will constitute a Transfer or an attempted Transfer thereof. 1.3.2. SELLER TO USE REASONABLE EFFORTS. Seller will use commercially reasonable efforts, and Purchaser will cooperate with Seller in such efforts to obtain such consents, approvals and waivers, to resolve the impracticalities of Transfer referred to in Section 1.3.1 and to obtain any other consents, approvals and waivers necessary to Transfer to Purchaser all of such Contracts. 1.3.3. IF WAIVERS OR CONSENTS CANNOT BE OBTAINED. To the extent that the consents, approvals and waivers referred to in Section 1.3.1 are not obtained by Seller, or until the impracticalities of Transfer referred to therein are resolved, Seller will, during the term of the affected Contract, use reasonable efforts at Purchaser's sole cost and expense to (a) provide to Purchaser the benefits of any Contract referred to in Section 1.3.1, (b) cooperate in any reasonable and lawful arrangement designed to provide such benefits to Purchaser, and (c) enforce, at the written request of Purchaser, for the account of Purchaser, any rights of Seller arising from any such Contract (including the right to elect to terminate such Contract in accordance with the terms thereof upon the advice of Purchaser). 1.3.4. OBLIGATION OF PURCHASER TO PERFORM. Purchaser will perform the obligations arising under all Contracts referred to in Section 1.3.1 for the benefit of Seller and the other party or parties thereto, but only if Seller performs as required pursuant to Section 1.3.3. II. PURCHASE PRICE 2.1. PURCHASE PRICE. In addition to assuming the Assumed Liabilities (as defined herein), Purchaser will pay for the Assets an aggregate purchase price in the amount of $10,000,000 subject to adjustment as provided in Sections 2.2 and 2.3 (the "PURCHASE PRICE"), payable as follows: (i) $1,500,000, payable in cash by wire transfer of immediately available funds; (ii) $5,000,000, payable in the form of a promissory note ("NOTE A"), having such terms and conditions as set forth in the Credit Agreement and in the form attached hereto as EXHIBIT A; and (iii) $3,500,000, payable in the form of a promissory note ("NOTE B"), having such terms and conditions as set forth in the Credit Agreement and in the form attached hereto as EXHIBIT B 3 (Note A together with Note B, the "NOTES"). At the Closing, the Deposit will be applied as a credit to the Purchase Price. 2.2. UTILITY DEPOSIT PRORATION. A list of all security deposits, escrows, utility deposits and other deposits of a similar nature (collectively, the "PREPAID DEPOSITS") of Seller in respect of the Business shall be provided by Seller to Purchaser on the Closing Date (the "DEPOSIT CERTIFICATE"). Purchaser shall pay to Seller on the Closing Date the aggregate amount of all items shown on the Deposit Certificate and the Prepaid Deposits reflected on the Deposit Certificate shall be included in the Assets. 2.3. NET ACCOUNTS RECEIVABLE ADJUSTMENT. 2.3.1. As used in this Agreement, "NET ACCOUNTS RECEIVABLE" means: (a) 80% of the face amount of all Accounts Receivable existing at the Closing (excluding all Accounts Receivable with a due date earlier than the 90th day prior to the Closing) minus (b) the minimum amount that would be required to be accrued on the face of a balance sheet of Seller as of the Closing prepared in accordance with Generally Accepted Accounting Principals ("GAAP") (a "CLOSING BALANCE SHEET") for trade accounts payable of Seller included in the Assumed Liabilities. Within 90 days following the Closing, Purchaser will prepare (under the observation of Seller or Seller's designee) and will provide Seller with a calculation of Net Accounts Receivable. Following the preparation of the Net Accounts Receivable calculation, Purchaser and Seller will in good faith work to promptly agree on a final calculation of Net Accounts Receivable. 2.3.2. If Seller disagrees with Purchaser's calculation of Net Accounts Receivable, Seller may, within 30 days (the "OBJECTION PERIOD") after the delivery to Seller by Purchaser of the Net Accounts Receivable calculation, deliver a notice (the "OBJECTION NOTICE") to Purchaser disputing such calculation and setting forth Seller's calculation thereof. Any Objection Notice shall, to the extent reasonably practicable, specify in reasonable detail those items or amounts as to which Seller disagrees and the basis for disagreement. Except with respect to the items set forth in the Objection Notice and items affected by the disputed items, Seller shall be deemed to have agreed with all other items and amounts contained in Purchaser's Net Accounts Receivable calculation. 2.3.3. If an Objection Notice shall be properly and timely delivered, Purchaser and Seller shall cause the Los Angeles office of PricewaterhouseCoopers LLP (or, if they are unable or unwilling to serve, a firm of independent accountants of nationally recognized standing reasonably satisfactory to Purchaser and Seller (which shall not have any material relationship with Purchaser or Seller)) (the "ACCOUNTANTS") to promptly review this Agreement and the disputed items or amounts for the purpose of calculating the final Net Accounts Receivable. In making such calculation, the Accountants shall consider only those items or amounts in Purchaser's calculation of Net Accounts Receivable as to which Seller has, in the Objection Notice, disagreed and such other issues as may reasonably be affected by the items as to which Seller has disagreed. The Accountants shall deliver to Purchaser and Seller, as promptly as practicable, a written report setting forth their calculation of the disputed items. Absent manifest 4 error, such report shall be final and binding upon Purchaser and Seller. The cost of such review and report shall be divided equally between Purchaser and Seller. 2.3.4. Each of Purchaser and Seller will cooperate and assist in the preparation of the Net Accounts Receivable calculation and in the conduct of the reviews referred to in this Section 2.3, including, without limitation, (a) Purchaser making available to the extent reasonably necessary or helpful any books, records and personnel relating to the Assets, the Accounts Receivable and trade accounts payable included in the Assumed Liabilities or the Business and (b) Seller making available to the extent reasonably necessary or helpful any books, records and personnel of Seller. 2.3.5. Within 30 days following the determination of Net Accounts Receivable, Seller will pay Purchaser an amount equal to the amount by which, if any, Net Accounts Receivable are less than $0.00. 2.4. TIMING OF ADJUSTMENTS. All adjustments to the Purchase Price will be calculated as of 11:59 p.m. on the Closing Date. 2.5. ALLOCATION OF PURCHASE PRICE. The Purchase Price represents the amount agreed upon by Purchaser and Seller to be the aggregate fair market value of the Assets. Purchaser and Seller have agreed that the Purchase Price will be allocated among the Assets in the manner set forth in SCHEDULE 2.5. Purchaser and Seller will allocate the Purchase Price to the Assets in such manner consistently for all purposes, including in connection with all federal, foreign, state, local and other Tax Returns (as defined herein) and reports prepared and filed by or for either of Purchaser or Seller. III. ASSUMPTION OF LIABILITIES 3.1. ASSUMED LIABILITIES. Subject to Section 3.2 hereof, as of the Closing, Purchaser will assume and thereafter in due course pay, perform and discharge the following liabilities and obligations of Seller (the "ASSUMED LIABILITIES"): 3.1.1. All liabilities and obligations of Seller arising under the terms of the Contracts. 3.1.2. All accounts payable and other liabilities and obligations (whether fixed or contingent) of Seller arising out of or incurred in connection with the conduct or operation of the Business or use of the Assets at the Property To Be Leased including, without limitation, all warranty obligations, capital lease obligations, and employee benefit, salary and severance obligations. 3.2. RETAINED LIABILITIES. Seller will retain, and Purchaser will not assume, liabilities with respect to, any liabilities or obligations of Seller that relate to long-term or short-term bank debt obligations of Seller, any Taxes that are income Taxes, or any Taxes due prior to the Closing Date (collectively the "RETAINED LIABILITIES"). 5 IV. REPRESENTATIONS AND WARRANTIES 4.1. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser as follows: 4.1.1. CORPORATE MATTERS. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller is duly qualified to conduct business as a foreign corporation in each other jurisdiction in which its ownership or lease of property or conduct of the Business requires such qualification under applicable Laws. 4.1.2. AUTHORIZATION AND EFFECT OF AGREEMENT. Seller has the requisite corporate power to execute and deliver this Agreement and to perform the transactions contemplated by this Agreement to be performed by Seller. The execution and delivery by Seller of this Agreement and the performance by Seller of the transactions contemplated by this Agreement to be performed by Seller have been duly authorized by all necessary action on the part of Seller. This Agreement has been duly executed and delivered by Seller and, assuming the due execution and delivery of this Agreement by Purchaser, constitutes a valid and binding obligation of Seller enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally. 4.1.3. NO RESTRICTIONS AGAINST SALE OF THE ASSETS. Except as set forth on SCHEDULE 4.1.3, to Seller's knowledge, the execution and delivery of this Agreement by Seller does not, and the performance by Seller of the transactions contemplated hereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any Assumed Contract, except where such conflict, violation, default, termination, cancellation or acceleration would not have a material adverse effect on the continued conduct of the Business or Purchaser's use of the Acquired Assets or the Property To Be Leased (collectively, the "TOTAL ASSETS") taken as a whole ("MATERIAL ADVERSE EFFECT"). To Seller's knowledge, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to Seller under any applicable Law in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby to be performed by it, except where the failure to obtain or make such consent, approval, order, authorization, resolution, declaration or filing would not have a Material Adverse Effect. 4.1.4. COMPLIANCE WITH LAWS. Except as described on SCHEDULE 4.1.4, to Seller's knowledge Seller has complied with all Laws applicable to it, except where the failure to be in compliance would not have a Material Adverse Effect. Except as set forth on SCHEDULE 4.1.4, Seller has not received any written notice of any violation of any Law, or any potential liability under any Law, which violation or liability would have a Material Adverse Effect. 4.1.5. ACCOUNTS RECEIVABLE. The Accounts Receivable are ordinary trade receivables that have arisen from bona fide transactions in the Ordinary Course. To Seller's knowledge, the Accounts Receivable are not subject to any presently existing claim of offset or rebate. 6 4.1.6. TANGIBLE PERSONAL PROPERTY. (a) Seller has marketable title to the Owned Tangible Personal Property, and the Owned Tangible Personal Property is free and clear of all liens, mortgages, security interests, preemptive purchase rights or other similar encumbrances (collectively, "LIENS"), except for Permitted Tangible Personal Property Liens (as defined herein) and any additional Liens listed or described in SCHEDULE 4.1.6. (b) The delivery to Purchaser at Closing of the instruments of Transfer contemplated by this Agreement will vest in Purchaser title to the Owned Tangible Personal Property and Inventory, free and clear of all Liens, except for (i) Liens for current property Taxes or governmental charges or levies which are not yet due and payable and (ii) Liens listed or described on SCHEDULE 4.1.6 and marked with an "*" (the Liens described in the foregoing clauses (i) and (ii) being collectively referred to herein as "PERMITTED TANGIBLE PERSONAL PROPERTY LIENS"). (c) To Seller's knowledge, the Owned Tangible Personal Property is in working order, reasonable wear and tear excepted. 4.1.7. LEASED REAL PROPERTY. The Property To Be Leased constitutes all of the real property used by Seller in connection with the conduct of the Business. Except as described on SCHEDULE 4.1.7(a), Seller has not sublet, as sublessor, and no third party is in possession of, any of the Property To Be Leased. The real property lease (the "REAL PROPERTY LEASE"), a copy of which is attached hereto as SCHEDULE 4.1.7(b) pursuant to which Seller leases the Property To Be Leased is, to Seller's knowledge, in full force and effect and no default on the part of Seller exists. 4.1.8. INTELLECTUAL PROPERTY. (a) SCHEDULE 4.1.8 lists or describes all material registered patents, copyrights, trademarks, trade names, service marks and applications therefor used in the conduct of the Business (collectively, the "SCHEDULED INTELLECTUAL PROPERTY RIGHTS"). (b) Seller has title to, or the valid and enforceable right to use, the Scheduled Intellectual Property Rights free and clear of all Liens. The delivery to Purchaser at the Closing of the instruments of Transfer contemplated by this Agreement will vest title to the Scheduled Intellectual Property Rights owned by Seller in Purchaser, free and clear of all Liens. (c) Seller has title to, or a valid and enforceable right to use, the intellectual property consisting of Version 3.0 of Audicy as used in Seller's current product lines, free and clear of all Liens. The delivery to Purchaser at the Closing of the instruments of Transfer contemplated by this Agreement will vest title to the rights of Seller in Version 3.0 of Audicy in Purchaser, free and clear of all Liens. 4.1.9. LICENSES AND PERMITS. SCHEDULE 1.1.5 contains a true and complete list of all material Licenses owned or held by Seller. To Seller's knowledge, each of the Licenses is valid and in full force and effect, and Seller is in compliance with all the provisions of the Licenses except where such invalidity, non-effectiveness or non-compliance would not have a Material Adverse Effect. 7 4.1.10. INSURANCE. SCHEDULE 4.1.10 sets forth a true and complete list of all policies of property, casualty, liability and other forms of insurance of Seller covering any portion of the Total Assets or aspect of the Business. Except as set forth on SCHEDULE 4.1.10, to Seller's knowledge all such insurance is in full force and effect and Seller is not in default under any such policies. 4.1.11. LITIGATION; DECREES; WARRANTY CLAIMS. Except as listed or described on SCHEDULE 4.1.11, there are no pending or, to the knowledge of Seller, threatened lawsuits or administrative or other proceedings against Seller arising out of or relating to this Agreement or the transactions contemplated by this Agreement or the conduct of the Business, or otherwise pertaining to or affecting the Total Assets that would have a Material Adverse Effect if decided adversely, and Seller is not aware of any facts or circumstances that could reasonably be expected to give rise to any such lawsuits or proceedings that would have a Material Adverse Effect if decided adversely. 4.1.12. CONTRACT RIGHTS. (a) SCHEDULE 4.1.12(a) contains a true and complete list of all written Contracts other than (i) Contracts entered into with unaffiliated third parties in the Ordinary Course which are not material to the conduct of the Business, which are terminable without payment of premium or penalty at will or upon not more than 30 days' notice, or which impose monetary obligations not in excess of $100,000, and (ii) Employee Plans (as defined herein). Except as set forth on SCHEDULE 4.1.12(a), no Contract listed or described on SCHEDULE 4.1.12(a) has been amended. Seller heretofore has provided or made available to Purchaser true, complete and correct copies of each of the Contracts listed or described on SCHEDULE 4.1.12(a). (b) To Seller's knowledge (i) Seller has performed all obligations required to be performed by it to date under the Contracts, (ii) Seller has not improperly terminated and is not in breach or default under such Contracts, and (iii) each of the Contracts is in full force and effect and is a legal, binding and enforceable obligation of Seller. 4.1.13. TAXES. (a) Seller has (i) filed or caused to be filed with the appropriate Governmental Entities all returns, declarations, reports and information returns or statements relating to Taxes, including any amendments thereto ("TAX RETURNS"), required to be filed by it on or prior to the Closing Date (taking into account all extensions of due dates). All such Tax Returns were correct and complete in all material respects, and all amounts in respect of Taxes due to or claimed to be due by any Governmental Entity or other taxing authority or any other person or entity from Seller have been fully and timely paid. (b) For purposes of this Agreement, the term "TAXES" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, withholding, payroll, employment, excise, severance, stamp, occupation, property, customs, duties, or other taxes, fees, assessments, or charges of any kind whatever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto, and the term "TAX" means any one of the foregoing Taxes. 8 4.1.14. ENVIRONMENTAL MATTERS. (a) Except in compliance with all applicable Environmental Requirements, (i) neither the Seller nor, to Seller's knowledge, any other person or entity has engaged in or permitted any operations or activities upon, or any use or occupancy of, the Property To Be Leased or any portion thereof, resulting in the storage, emission, release, discharge, dumping or disposal of any Hazardous Materials (as defined herein) on, under, in or about the Property To Be Leased, in violation of any Law, except where such violation would not have a Material Adverse Effect; and (ii) to Seller's knowledge no Hazardous Materials have migrated from the Property To Be Leased to, upon, about or beneath other properties in violation of any Law, except where such violation would not have a Material Adverse Effect. (b) To Seller's knowledge, Seller is in compliance with all laws pertaining to existence, handling, use, generation, treatment, storage, reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials except where such noncompliance would not have a Material Adverse Effect. To Seller's knowledge, Seller has filed all reports relating to Hazardous Materials required to be filed by Seller pursuant to any applicable Law. (c) For purposes of this Agreement, the term "HAZARDOUS MATERIALS" means any substance: (i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law; (ii) which is or has been identified as a potential hazardous waste, or hazardous substance, under any applicable Law, or (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, reactive, or otherwise hazardous and has been specifically identified as regulated by any Governmental Entity. 4.1.15. CUSTOMERS AND SUPPLIERS. Seller is not involved in any material claim or controversy with any material customer or supplier. 4.1.16. SUFFICIENCY OF THE TOTAL ASSETS. The Total Assets constitute all of the properties, assets and rights required for the continued conduct of the Business as presently conducted. 4.1.17. BROKERS, FINDERS AND AGENTS. Seller has not taken any action that would directly or indirectly obligate Seller, Purchaser or anyone else to anyone acting as a broker, finder, financial advisor or in any other similar capacity in connection with this Agreement or the transactions contemplated by this Agreement. 4.1.18. ASSUMED LIABILITIES. The face amount of all Accounts Receivable existing at the Closing (excluding all Accounts Receivable with a due date earlier than the 90th day prior to the Closing) shall be at least equal to (i) the minimum amount that would be required to be accrued on a Closing Balance Sheet for the Assumed Liabilities less (ii) the trade accounts payable of Seller included in the Assumed Liabilities. 9 4.1.19. EMPLOYEE PLANS; LABOR RELATIONS. (a) For purposes of this Agreement, the term "EMPLOYEE PLAN" means each employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other than a multiemployer plan within the meaning of Section 3(37) of ERISA ("MULTIEMPLOYER PLAN"), sponsored or maintained by Seller or to which Seller contributes or is obligated to contribute. The term "EMPLOYEE" means any person presently employed by Seller in the Business and includes, where an Employee Plan provides benefits for beneficiaries or dependents, the beneficiaries and dependents of an Employee. Except as set forth on SCHEDULE 4.1.19(a), each Employee Plan that provides benefits to an Employee has been maintained in all material respects in accordance with its terms and applicable Law except where the failure to do so would not result in a Material Adverse Effect. Seller has delivered to Purchaser, a summary or description of the Employee Plans under which any Employee participates or has accrued any rights, or under which Seller is liable in respect of any Employee. (b) (i) Seller is not party to or subject to any collective bargaining agreements with respect to any Employees, (ii) to Seller's knowledge there are no controversies, disputes or proceedings pending or threatened between Seller and any Employees (singly or collectively) except where the resolution of the controversy, dispute or proceeding will not have a Material Adverse Affect, (iii) to Seller's knowledge no labor union or other collective bargaining unit represents or claims to represent any of the Employees, and (iv) to Seller's knowledge, there is no union campaign being conducted to solicit cards from Employees to authorize a union to request a National Labor Relations Board certification election with respect to any Employees. 4.1.20. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of Seller contained in Section 4.1 of this Agreement will be true and correct on the Closing Date as if made anew on and as of such date. 4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to Seller as follows: 4.2.1. CORPORATE MATTERS. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Purchaser is duly qualified to conduct business as a foreign corporation in each jurisdiction in which its ownership or lease of property or conduct of its business requires such qualification under applicable law. 4.2.2. AUTHORIZATION AND EFFECT OF AGREEMENT. Purchaser has the requisite corporate power to execute and deliver this Agreement and to perform the transactions contemplated hereby to be performed by Purchaser. The execution and delivery by Purchaser of this Agreement and the performance by Purchaser of the transactions contemplated hereby to be performed by Purchaser have been duly authorized by all necessary action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and, assuming the due execution and delivery of this Agreement by Seller, constitutes a valid and binding obligation of Purchaser enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally. 10 4.2.3. BROKERS, FINDERS AND AGENTS. Except for Serafin Bros., Inc., Purchaser has not taken any action that would directly or indirectly obligate Seller, Purchaser or anyone else to anyone acting as a broker, finder, financial advisor or in any other similar capacity in connection with this Agreement or the transactions contemplated by this Agreement. Purchaser will be responsible for any brokerage fees, finders fees, financial advisor fees, and commissions incurred by Purchaser in connection with the transactions contemplated by this Agreement. 4.2.4. HSR. Neither Purchaser (individually, or when aggregated with C. Jayson Brentlinger or any Affiliate of Purchaser), nor C. Jayson Brentlinger, now, or at the Closing, meets the $10 million size of person test in 15 U.S.C.ss. 18(a) and the implementing regulations in 16 C.F.R.ss. 800 et esq. Except for C. Jayson Brentlinger, no stockholder of Circuit Research Labs, Inc. owns 50% or more of the outstanding capital stock of Circuit Research Labs, Inc. entitled to vote generally in the election of directors. Circuit Research Labs, Inc. owns all of the issued and outstanding capital stock of Purchaser. 4.2.5. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of Purchaser contained in Section 4.2 of this Agreement will be true and correct on the Closing Date as if made anew on and as of such date. V. COVENANTS 5.1. INVESTIGATION BY PURCHASER. Prior to the Closing, Seller will afford to the officers, attorneys, accountants, environmental consultants, engineers and other authorized representatives of Purchaser full reasonable access to the facilities (including the Property To Be Leased), personnel and books and records of Seller relating to the Business so as to afford Purchaser a reasonable opportunity to make at its sole cost and expense such review, examination and investigation of the Business and the Total Assets as Purchaser may reasonably desire to make, including a so-called Phase I (I.E., documentary review and walk-through site inspection) preliminary environmental evaluation. Purchaser will be permitted to prepare such extracts from or to make such copies of such books and records relating to the Business as it may reasonably desire. 5.2. PRESS RELEASES. Prior to the Closing, no party will issue or cause the publication of, or permit any of its Affiliates to issue or cause the publication of, any press release or other public announcement (including announcements to employees of Seller) with respect to this Agreement or the transactions contemplated hereby without the prior written consent of Purchaser (in the case of Seller and its Affiliates) or Seller (in the case of Purchaser and its Affiliates), which consent will not be unreasonably withheld; provided, however, that nothing herein will prohibit any party or its Affiliates from issuing or causing publication of any such press release or public announcement to the extent that such party determines such action to be required by Law or the rules of any national stock exchange applicable to it or its Affiliates, in which event the party making such determination will, if practicable in the circumstances, use reasonable efforts to allow the other party reasonable time to comment on such release or announcement in advance of its issuance. 5.3. REGULATORY APPROVALS. Seller and Purchaser will use their respective commercially reasonable efforts to obtain any authorizations, consents, orders and approvals of 11 any Governmental Entity necessary for the performance of their respective obligations pursuant to this Agreement and any of the other transaction documents, and the consummation of the transactions contemplated hereby and thereby, and will cooperate fully with each other in all reasonable respects in promptly seeking to obtain such authorizations, consents, orders and approvals. Neither Seller nor Purchaser will take any action that will have the effect of delaying, impairing or impeding the receipt of any required regulatory approvals. 5.4. INJUNCTIONS. Without limiting the generality or effect of any provision of Section 5.3, if any federal, state or foreign court having jurisdiction over any party issues or otherwise promulgates any injunction, decree or similar order prior to the Closing which prohibits the consummation of the transactions contemplated hereby, the parties will use their respective reasonable efforts to have such injunction, decree or order dissolved or otherwise eliminated as promptly as possible and, prior to or after the Closing, to pursue the underlying litigation diligently and in good faith. 5.5. OPERATION OF THE BUSINESS. During the period from the date hereof through the Closing Date, Seller will conduct the Business, operate the Total Assets and perform the Contracts in the Ordinary Course. 5.6. CONSENTS AND APPROVALS. Seller and Purchaser will use their respective commercially reasonable efforts to obtain or cause to be obtained prior to the Closing Date consents to the assignment to Purchaser of all Contracts and Licenses which require the consent of any third party by reason of the transactions provided for in this Agreement provided, however, Seller will in no event be required to expend any sum of money to obtain such consents and assignments. 5.7. EMPLOYEE MATTERS. (a) EMPLOYMENT. Purchaser will, or will cause one of its Affiliates to, offer employment, from and after the Closing, to all Employees (including Employees on authorized leave of absence, military leave or lay-off with recall rights), with compensation and employee benefits that in the aggregate are at least equal to the compensation and employee benefits provided to each Employee under Employee Plans in effect on the Closing Date, including without limitation severance benefits provided under any severance plan, guideline, policy or agreement listed on SCHEDULE 5.7. Nothing in this Agreement will limit Purchaser's or any of its Affiliates' right and authority to discontinue, suspend or modify the employment of any Employee or any employee benefits provided to Employees after the Closing; PROVIDED, HOWEVER, that in the event of any such discontinuance, suspension or modification Purchaser will assume and be solely responsible for any liabilities imposed upon Seller or any of its Affiliates that result from such discontinuance, suspension or modification. (b) EMPLOYEE BENEFITS. Purchaser agrees that, under any employee benefit plan made available or established after the Closing for Employees, Employees will receive credit for the years of service credited to them by Seller or any of its Affiliates prior to the Closing in determining eligibility and vesting thereunder and in determining the amount of benefits under any applicable sick leave, vacation, severance or other welfare plan. Purchaser will, or will cause one of its Affiliates to, cover Employees as of the Closing under a group 12 health plan and waive any preexisting condition limitations applicable to Employees under any group health plan made available to them, and Purchaser will, or will cause one of its Affiliates to, take all action necessary to ensure that Employees are given full credit for all co-payments and deductibles incurred under any group health plan of Seller or any of its Affiliates for the plan year that includes the Closing Date. 5.8. CERTAIN TAX MATTERS. (a) Any sales, use, transfer, vehicle transfer, stamp, conveyance, value added or other similar Taxes that may be imposed by any Governmental Entity, and all recording or filing fees, notarial fees and other similar costs of Closing with respect to the purchase and sale of the Assets, the assignment of the Real Property Lease or otherwise on account of this Agreement or the transactions contemplated hereby, will be borne by Purchaser. (b) Seller and Purchaser will (i) each provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other examination by any taxing authority or judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other with any records or other information that may be relevant to such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax Return of the other for any period. 5.9. SATISFACTION OF CONDITIONS. Without limiting the generality or effect of any provision of Article VI, prior to the Closing, Seller and Purchaser each will use commercially reasonable efforts to satisfy promptly all conditions required hereby to be satisfied by such party in order to expedite the consummation of the transactions contemplated hereby. 5.10. INTENTIONALLY OMITTED. 5.11. NONCOMPETITION. For a period of two years following the Closing Date, Seller and its Affiliates (so long as such Affiliates remain Affiliates of Seller) shall not, directly or indirectly, compete in the Business as currently conducted within the territory where Seller currently transacts the Business. The provisions of this section shall not apply (i) to the extent Seller's Affiliates are, as of the Closing, engaged in any business similar to the Business, or (ii) if any of Seller or Seller's Affiliates acquires the shares in or the assets of a company or group of companies which competes with the Business so long as the competing business is not that company's or group of companies' core business and Seller or any of Seller's Affiliates, as the case may be, promptly informs Purchaser of the acquisition after the date of such acquisition, or (iii) if Seller's or any of Seller's Affiliates participation in a company or group of companies which competes with the Business is merely a financial investment. 5.12. CREDIT AGREEMENT. At or prior to the Closing, Purchaser will have executed, and delivered to Seller, the Credit Agreement in substantially the form of EXHIBIT E and all documents required by the Credit Agreement in the forms attached thereto. 13 5.13. SENIOR FINANCING. Purchaser will, as expeditiously as is commercially practicable, obtain debt financing for Purchaser to repay Note B prior to its maturity date, and, upon receipt of the proceeds of such debt financing, promptly pay Note B. 5.14. CHANGE OF NAME. Seller agrees that within 90 days from the Closing, Seller will change its name to a name that does not include the word Orban or any part thereof or any similar words and will file with the Secretary of State of Delaware and any other necessary or proper Government Entity all documents necessary to effect such change. 5.15. POST-CLOSING AUDIT. From and after the Closing, for a period of 60 days, Seller will, at Purchaser's sole expense, upon reasonable notice and during normal business hours and in a manner that does not disrupt the business of Seller, make available to Purchaser and Purchaser's independent auditors, all reasonably necessary books, financial records and personnel of Seller for the purpose of such independent auditors to conduct an audit of Seller's financial statements for the years ended December 31, 1998 or 1999. VI. THE CLOSING 6.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND SELLER. The obligations of each of Purchaser and Seller under this Agreement to consummate the transactions contemplated hereby will be subject to the satisfaction, at or prior to Closing, of the condition that there will not have been entered a preliminary or permanent injunction, temporary restraining order or other judicial or administrative order or decree in any domestic jurisdiction, the effect of which prohibits the Closing. 6.2. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser under this Agreement to consummate the transactions contemplated hereby will be further subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived by Purchaser at its option: 6.2.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained in this Agreement will be true and correct in all material respects both on and as of the date of this Agreement and on and as of the Closing Date (with the same force and effect as if made anew on and as of the Closing Date). 6.2.2. COMPLIANCE WITH COVENANTS. All terms, covenants and conditions of Seller contained in this Agreement to be performed and complied with by Seller on or before the Closing Date will have been performed and complied with in all material respects. 6.2.3. DELIVERY OF DOCUMENTS BY OR ON BEHALF OF SELLER. At or prior to the Closing, Seller will have effected the deliveries required of it pursuant to Section 6.4(b). 6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller under this Agreement to consummate the transactions contemplated hereby will be further subject to the satisfaction, at or prior to the Closing, of all of the following conditions, any one or more of which may be waived by Seller at its option. 14 6.3.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser contained in this Agreement will be true and correct in all material respects both on and as of the date of this Agreement and on and as of the Closing Date (with the same force and effect as if made anew on and as of the Closing Date). 6.3.2. COMPLIANCE WITH COVENANTS. All terms, covenants and conditions of this Agreement to be performed and complied with by Purchaser on or before the Closing Date will have been performed and complied with in all material respects. 6.3.3. DELIVERY OF DOCUMENTS BY OR ON BEHALF OF PURCHASER. At or prior to the Closing, Purchaser will have effected the deliveries required of it pursuant to Section 6.4(c). 6.3.4. CREDIT AGREEMENT. At or prior to the Closing, Purchaser will have executed, and delivered to Seller, the Credit Agreement in substantially the form of EXHIBIT E and all documents required by the Credit Agreement in the forms attached thereto. 6.4. THE CLOSING. (a) Subject to the fulfillment or waiver of the other conditions precedent specified in Sections 6.1, 6.2 and 6.3 hereof, the consummation of the purchase and sale of the Assets and the assignment of the Real Property Lease contemplated hereby (the "CLOSING") will take place on May __, 2000. The Closing will take place at the offices of Orban, Inc., 1525 Alvarado Street, San Leandro, California 94577. (b) At the Closing, Seller will deliver to Purchaser, at the expense of Seller, the following: (1) CERTIFICATES OF SELLER. A certificate of Seller, signed by an authorized officer of Seller and certifying that the conditions set forth in Sections 6.2.1 and 6.2.2 have been satisfied; and the Deposit Certificate. (2) ASSIGNMENT AND ASSUMPTION AGREEMENT AND CONSENT OF LANDLORD TO ASSIGNMENT AND ASSUMPTION AGREEMENT. An executed Assignment and Assumption Agreement and Consent of Landlord to Assignment and Assumption Agreement, each in the form attached hereto as EXHIBIT C, from the lessor under the Real Property Lease consenting to the assignment of the Real Property Lease to Purchaser. (3) TRANSFER DOCUMENTS. Such bills of sale, assignments, certificates of title and other instruments of transfer (the "TRANSFER DOCUMENTS"), duly executed by Seller, as are necessary for the Assets to Purchaser. (c) At the Closing, Purchaser will deliver to Seller, at the expense of Purchaser, the following: (1) CERTIFICATE OF PURCHASER. A certificate of Purchaser, dated the Closing Date and signed by an authorized officer of Purchaser, to the effect that the conditions set forth in Sections 6.3.1 and 6.3.2 have been satisfied. 15 (2) ASSUMPTION AGREEMENT. An executed Assignment and Assumption Agreement on the form attached hereto as EXHIBIT D, from Purchaser assuming the Contracts and Assumed Liabilities. (3) PAYMENT OF PURCHASE PRICE. An amount equal to the Purchase Price, including the amount described in Section 2.2. (4) WARRANT. A Warrant Agreement of Circuit Research Labs, Inc. in a form reasonably satisfactory to Seller and Circuit Research Labs, Inc. with the following material terms: (i) exercisable in whole for 500,000 shares (as adjusted therein) of common stock, par value $.10 of Circuit Research Labs, Inc.; (ii) exercise price of $4.50 per share, payable in cash or by cancellation of outstanding indebtedness owed by Purchaser to Seller, and the resulting reduction of the obligations of Circuit Research Labs, Inc. under the Guarantee and Collateral Agreement (as defined in the Credit Agreement); (iii) piggyback registration rights on the capital stock for which the warrant is exercisable; (iv) a term of 3 years following the Closing Date; and (v) customary representations and warranties, including a "10b-5" representation and a representation that Circuit Research Labs, Inc. has terminated its listing agreement with the National Association of Securities Dealers. (5) CERTIFICATE OF INSURANCE. A certificate of insurance evidencing insurance on the Assets and the Collateral (as defined in the Guaranty and Collateral Agreement) of the type required by the Credit Agreement and the Guarantee and Collateral Agreement and in amounts reasonably satisfactory to Seller. 6.5. TERMINATION. Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated at any time prior to the Closing: (a) By the mutual written consent of Seller and Purchaser; (b) By Seller on or after June 15, 2000 by written notice to Purchaser if any of the conditions to the obligations of Seller contained in this Agreement have not been satisfied or, if unsatisfied, have not been waived in writing by Seller on or prior to June 15, 2000; (c) By Purchaser on or after June 15, 2000 by written notice to Seller if any of the conditions to the obligations of Purchaser contained in this Agreement have not been satisfied or, if unsatisfied, have not been waived in writing by Purchaser on or prior to June 15, 2000; (d) By Seller or Purchaser if there will have been entered a final, nonappealable order or injunction of any Governmental Entity restraining or prohibiting the consummation of the transactions contemplated hereby or any material part thereof; and Except as provided in the next sentence, in the event of termination of this Agreement under this Section 6.5, there will be no further liability hereunder on the part of any party hereto if this Agreement is so terminated, except for obligations of the parties hereto under Article VIII and Sections 9.2 and 9.9 which shall survive termination of this Agreement. Nothing in this Section 6.5 shall, however, relieve either party to this Agreement of liability for 16 breach of this Agreement occurring prior to such termination, or for breach of any provision of this Agreement which specifically survives termination hereunder. VII. REPURCHASE TRANSACTION If, as of the six month anniversary of the Closing Date Purchaser has not paid in full the Note B, Seller may, in its sole discretion, rescind the transactions contemplated by this Agreement and the parties to this Agreement will, subject to the terms of this Article VII, be restored, to the greatest extent possible, to their respective positions of ownership as existed immediately prior to the consummation of this Agreement. If Seller exercises its option under this Article VII to rescind the transactions contemplated by this Agreement, Seller will return the Purchase Price to Purchaser, less $750,000 which will be retained by Seller as liquidated damages to compensate Seller for the failure of Purchaser to satisfy the covenant contained in Section 5.13 and the costs, expenses and losses, including lost profits, incurred or that will be incurred as a result of Seller having to rescind the transactions contemplated by this Agreement, which costs, expenses and losses the parties hereto agree are difficult, if not impossible to predict or calculate. Upon exercise by Seller of its option under this Article VII to rescind, Purchaser shall transfer the Assets (except to the extent sold in the Ordinary Course) together with all contracts, accounts receivables and inventories of the Business, with the accounts receivable and inventory each being at levels not less than the levels delivered by Seller to Purchaser at the Closing. Seller will have the right, but not the obligation, to hire all employees employed in the Business and Purchaser will make representations to Seller about the Assets, contracts, accounts receivable, and inventory and the Business comparable to those given by Seller to Purchaser in this Agreement. Seller will not be obligated to assume any liabilities of the Business. Purchaser and Seller agree to execute all necessary or desirable instruments, certificates or agreements to facilitate the performance of, and as near as possible effect the meaning of, this article VII. VIII. SURVIVAL AND INDEMNIFICATION 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of the parties contained in this Agreement will be deemed to have been made on the date of this Agreement and on the Closing Date will survive the Closing Date and will remain operative and in full force and effect for a period of one year from the Closing Date. 8.2. INDEMNIFICATION BY PURCHASER. From and after the Closing, Purchaser will indemnify, defend and hold Seller, its Affiliates, and their respective directors, officers, representatives, employees and agents harmless from and against any and all claims, actions, suits, demands, assessments, judgments, losses, liabilities, damages, costs and expenses (including interest, penalties, attorneys' fees, accounting fees and investigation costs) (collectively, "LIABILITIES") resulting or arising from, relating to or incurred in connection with: (a) any failure of Purchaser to pay, perform and discharge any of the Assumed Liabilities, (b) any material breach of any representation or warranty of Purchaser contained in this Agreement, (c) any material breach of any covenant of Purchaser contained in this Agreement, (d) actions of Purchaser, its employees and agents under Section 5.1 or (e) the termination of any Employee by Purchaser from and after the Closing. 17 8.3. INDEMNIFICATION BY SELLER. From and after the Closing, Seller will indemnify, defend and hold Purchaser, its Affiliates, and their respective directors, officers, representatives, employees and agents harmless from and against any and all Liabilities resulting or arising from, relating to or incurred in connection with: (a) any failure of Seller to pay, perform and discharge any of the Retained Liabilities, (b) any material breach of any representation or warranty of Seller contained in this Agreement, (c) any material breach of any covenant of Seller contained in this Agreement. 8.4. NOTICE OF CLAIM; RIGHT TO PARTICIPATE IN AND DEFEND THIRD PARTY CLAIM. (a) If any indemnified party receives notice of the assertion of any claim, the commencement of any suit, action or proceeding, or the imposition of any penalty or assessment by a third party in respect of which indemnity may be sought hereunder (a "THIRD PARTY CLAIM"), and the indemnified party intends to seek indemnity hereunder, then the indemnified party will promptly provide the indemnifying party with prompt written notice of the Third Party Claim, but in any event not later than 30 calendar days after receipt of such notice of Third Party Claim. The failure by an indemnified party to notify an indemnifying party of a Third Party Claim will not relieve the indemnifying party of any indemnification responsibility under this Article VIII, except to the extent, if any, that such failure prejudices the ability of the indemnifying party to defend such Third Party Claim. (b) The indemnifying party will have the right to control the defense, compromise or settlement of the Third Party Claim with its own counsel (reasonably satisfactory to the indemnified party); PROVIDED, HOWEVER, that the indemnifying party will not enter into any settlement of any Third Party Claim which would impose or create any obligation or any financial or other liability on the part of the indemnified party if such liability or obligation (i) requires more than the payment of a liquidated sum or (ii) is not covered by the indemnification provided to the indemnified party hereunder. In its defense, compromise or settlement of any Third Party Claim, the indemnifying party will timely provide the indemnified party with such information with respect to such defense, compromise or settlement as the indemnified party may request. The indemnified party will be entitled (at the indemnified party's expense) to participate in the defense by the indemnifying party of any Third Party Claim with its own counsel. (c) In the event that the indemnifying party does not undertake the defense, compromise or settlement of a Third Party Claim in accordance with subsection (b) of this Section 8.4, the indemnified party will have the right to control the defense or settlement of such Third Party Claim with counsel of its choosing; PROVIDED, HOWEVER, that the indemnified party will not settle or compromise any Third Party Claim without the indemnifying party's prior written consent, unless (i) the terms of such settlement or compromise release the indemnified party and the indemnifying party from any and all liability with respect to the Third Party Claim or (ii) the indemnifying party will not have acknowledged its obligations to indemnify the indemnified party with respect to such Third Party Claim in accordance with this Article VIII. The indemnifying party will be entitled (at the indemnifying party's expense) to participate in the defense of any Third Party Claim with its own counsel. 18 (d) Any indemnifiable claim hereunder that is not a Third Party Claim will be asserted by the indemnified party by promptly delivering notice thereof to the indemnifying party. 8.5. LIMITATIONS. 8.5.1. EFFECT OF SCHEDULES. Notwithstanding any other provision of this Agreement, if the Closing occurs, no claim for indemnification may be asserted under Sections 8.2 or 8.3 with respect to any matter set forth in the Schedules to this Agreement. 8.5.2. THRESHOLDS AND DEDUCTIBLES. Notwithstanding any other provision of this Agreement or of any applicable Law, no indemnified party will be entitled to make a claim against an indemnifying party under Section 8.2(b), on the one hand, or Section 8.3(b), on the other hand, unless and until the aggregate amount of claims which may be asserted for Liabilities under Section 8.2(b), on the one hand, or Section 8.3(b), on the other hand, as applicable, exceeds $250,000 and then only to the extent of the excess. 8.5.3. MAXIMUM LIABILITY. Notwithstanding any other provision of this Agreement, (i) the indemnification obligations of Purchaser under Section 8.2(b) will not exceed $2,000,000, and (ii) the indemnification obligations of Seller under Section 8.3(b) will not exceed $2,000,000. 8.5.4. EXCLUSIVE RIGHTS. Except as set forth in Section 6.5, as between Purchaser and its Affiliates, on the one hand, and Seller and its Affiliates, on the other hand, the rights and obligations set forth in this Article VIII will be the exclusive rights and obligations with respect to this Agreement, the events giving rise to this Agreement and the transactions contemplated hereby. Without limiting the generality or effect of the foregoing, as a material inducement to the other parties hereto entering into this Agreement, each of the parties to this Agreement hereby (a) waives any claim or cause of action which it otherwise might assert, including without limitation under common law or federal or state securities, trade regulation or other Laws, by reason of this Agreement, the events giving rise to this Agreement and the transactions provided for herein or contemplated hereby, except for claims or causes of action brought under and subject to the terms and conditions of this Article VIII and (b) agrees that, regardless of the foregoing provisions, no party will have any liability in respect of any claim or cause of action that is or may be brought except in respect of a Liability, and then only to the extent expressly provided in this Article VIII. 8.5.5. OFFSET. In the event any indemnification obligation arising under Section 8.3 results in any final, non-appealable Liability of Seller, Purchaser may, at Seller's option, offset amounts owing by Seller to Purchaser against amounts owed to Seller by Purchaser under the Notes or any other obligation. IX. MISCELLANEOUS PROVISIONS 9.1. NOTICES. All notices and other communications required or permitted hereunder will be in writing and, unless otherwise provided in this Agreement, will be deemed to have been duly given when delivered in person or when dispatched by telegram or electronic facsimile transfer (confirmed in writing by mail simultaneously dispatched) or one business day after 19 having been dispatched by a nationally recognized overnight courier service to the appropriate party at the address specified below: (a) If to Purchaser, to: CRL Systems, Inc. c/o Circuit Research Labs, Inc. 2522 West Geneva Drive Tempe, AZ 85282 Facsimile No.: (602) 431-8517 Attention: C. Jayson Brentlinger with a copy to: Gust Rosenfeld PLC 201 N. Central Avenue Suite 3300 Phoenix, AZ 85073 Facsimile No.: (602) 254-2878 Attention: John Hay (b) If to Seller, to: Orban, Inc. c/o Harman International Industries 8500 Balboa Blvd. Northridge, California 91329 Facsimile No: (818) 893-7345 Attention: Ed Summers, Vice President and General Counsel with a copy to: Jones, Day, Reavis & Pogue 2727 N. Harwood Dallas, Texas 75201 Facsimile No.: (214) 969-5100 Attention: Michael Weinberg or to such other address or addresses as any such party may from time to time designate as to itself by like notice. 9.2. EXPENSES. Except as otherwise expressly provided herein, Seller and Purchaser each will pay any expenses incurred by it incident to this Agreement and in preparing to consummate and consummating the transactions provided for herein. 9.3. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but will not be assignable or delegatable by any party without the prior written consent of the other party. 20 9.4. WAIVER. Either Purchaser or Seller by written notice to the other may (a) extend the time for performance of any of the obligations or other actions of the other under this Agreement, (b) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any Closing Document, (c) waive compliance with any of the conditions or covenants of the other contained in this Agreement, or (d) waive performance of any of the obligations of the other under this Agreement. Except as provided in the immediately preceding sentence, no action taken pursuant to this Agreement will be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and will not operate or be construed as a waiver of any subsequent breach, whether of a similar or dissimilar nature. 9.5. ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits) supersedes any other agreement, whether written or oral, that may have been made or entered into by any party hereto or any of their respective Affiliates (or by any director, officer or representative thereof) relating to the matters contemplated hereby. This Agreement (including the Schedules and Exhibits) constitutes the entire agreement by and among the parties hereto and there are no agreements or commitments by or among such parties or their Affiliates except as expressly set forth herein. 9.6. AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended or supplemented at any time by additional written agreements as may mutually be determined by Purchaser and Seller to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto. 9.7. RIGHTS OF THE PARTIES. Except as provided in Article VIII or in Section 9.3, nothing expressed or implied in this Agreement is intended or will be construed to confer upon or give any person or entity other than the parties hereto any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. 9.8. APPLICABLE LAW; JURISDICTION. This Agreement and the legal relations among the parties hereto will be governed by and construed in accordance with the substantive laws of the State of New York, without giving effect to the principles of conflict of laws thereof. 9.9. ARBITRATION. In the event of any dispute concerning this Agreement, its effect, or the transactions contemplated by it, such dispute shall be settled by arbitration conducted in Maricopa County, State of Arizona before a panel of three arbitrators in accordance with the then applicable provisions of the American Arbitration Association ("AAA") using the rules of procedure of the State of New York. Each of (a) Purchaser, on the one hand, and (b) Seller, on the other hand, will appoint one arbitrator, and those two arbitrators will appoint a third arbitrator. In the event that the two arbitrators cannot agree on a third arbitrator within 10 days following the appointment of the second arbitrator, then the third arbitrator shall be appointed by the AAA in accordance with its then applicable rules. Punitive or exemplary damages will not be permitted under any circumstances. All determinations made by a majority of the arbitrators shall be final, conclusive and binding on Purchaser and Seller with costs paid by the party who does not prevail in the arbitration. 21 9.10. WAIVER OF TRIAL BY JURY. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY OF THE DOCUMENTS OR CERTIFICATES EXECUTED IN CONNECTION HEREWITH, OR ANY CLAIMS, DEFENSES, RIGHTS OF SET-OFF OR OTHER ACTIONS PERTAINING HERETO OR THERETO. 9.11. TITLES AND HEADINGS. Titles and headings to Sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.12. PASSAGE OF TITLE AND RISK OF LOSS. Legal title, equitable title and risk of loss with respect to the Total Assets will not pass to Purchaser until such Total Assets are Transferred or leased at the Closing, which transfer, once it has occurred, will be deemed effective for tax, accounting and other computational purposes as of 11:59 P.M. (Pacific Time) on the Closing Date. 9.13. CERTAIN INTERPRETIVE MATTERS AND DEFINITIONS. (a) Unless the context otherwise requires, (i) all references to Sections, Articles, Schedules or Exhibits are to Sections, Articles, Schedules or Exhibits of or to this Agreement, (ii) each term defined in this Agreement has the meaning assigned to it, (iii) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, (iv) "OR" is disjunctive but not necessarily exclusive, (v) words in the singular include the plural and VICE VERSA, (vi) the terms "SUBSIDIARY" and "AFFILIATE" have the meanings given to those terms in Rule 12b-2 of Regulation 12B under the Securities Exchange Act of 1934, as amended, and for purposes of Section 4.1.15, the term "AFFILIATE" includes any entity which is (or at any relevant time was) a member of a controlled group of corporations with, under common control with, or otherwise required to be aggregated with a party hereto as set forth in Section 414(b), (c), (m) or (o) of the Code, (vii) the phrase "LIABILITIES AND OBLIGATIONS" means all such matters of any nature, whether fixed or contingent, known or unknown, or arising under Contract, law, equity, or otherwise, and (viii) the word "INCLUDING" and similar terms following any statement will not be construed to limit the statement to the matters listed after such word or term, whether a phrase of nonlimitation such as "WITHOUT LIMITATIONS" is used. All references to "$" or dollar amounts will be to lawful currency of the United States of America. (b) No provision of this Agreement will be interpreted in favor of, or against, any of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. 9.14. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. 9.15. RELIANCE ON INFORMATION. Except for the information contained in this Agreement (including the Schedules and Exhibits), Purchaser acknowledges and agrees that it is not relying on any information provided by or statements made by Seller, its officers or directors. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. ORBAN, INC. /s/ Roger Sales -------------------------------------- Roger Sales, Authorized Representative CRL SYSTEMS, INC. /s/ C. Jayson Brentlinger -------------------------------------- C. Jayson Brentlinger, President and Chairman of the Board EX-2 4 a2073144zex-2.txt EXHIBIT 2 EXHIBIT 2 NEITHER THIS WARRANT NOR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) A REGISTRATION STATEMENT THAT IS EFFECTIVE UNDER SUCH ACT OR (B) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, WHERE SUCH AN EXEMPTION IS RELIED UPON, THERE IS FURNISHED TO THE COMPANY A WRITTEN OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION OF SUCH SECURITIES IS REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS IN CONNECTION WITH SUCH TRANSFER. WARRANT THIS CERTIFIES that, for value received, Orban, Inc. ("ORBAN," together with its successors and permitted assigns, "HOLDER"), is entitled to purchase from Circuit Research Labs, Inc., an Arizona corporation, (the "COMPANY") 500,000 shares (subject to adjustment from time to time as set forth herein) of common stock, par value $.10 per share of the Company ("COMMON STOCK") on the terms and subject to the conditions hereinafter set forth. Section 1. DEFINITIONS. The terms defined in this Section, whenever used in this Warrant, shall, unless the context otherwise requires, have the respective meanings hereinafter specified. "BUSINESS DAY": any day which is not a day on which banks are authorized or required to close under the laws of the State of New York. "EXERCISE DATE": the date upon which the Warrant is exercised. "EXERCISE PRICE": shall equal the product of (i) the Warrant Price times (ii) the aggregate number of shares being purchased by Holder upon exercise of this Warrant. "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement dated May 31, 2000 by the Company, as parent, the Subsidiary, as borrower and certain of their subsidiaries in favor of Orban as lender. "NOTE A": the Tranche A Promissory Note dated May 31, 2000 of the Subsidiary in favor of Orban. "PERSON": any individual, corporation, association, limited liability company, partnership, trust, unincorporated association, government or agency or political subdivision thereof, or any other entity. "SECURITIES ACT": the Securities Act of 1933, as amended. "SUBSIDIARY": CRL Systems, Inc., a Nevada corporation and wholly owned subsidiary of the Company. "WARRANT": this Warrant. "WARRANT PRICE": as defined in Section 2.A. "WARRANT SHARES": the shares of Common Stock or any other securities or property purchasable upon exercise of this Warrant. Section 2. EXERCISE OF WARRANT. A. GENERAL. This Warrant represents the one time right of Holder to purchase 500,000 (subject to adjustment as from time to time set forth herein) shares of Common Stock which shares may be purchased through one or more, but not more than three, exercises of this Warrant, for the per share payment of the Warrant Price in effect on the date of such exercise. The "WARRANT PRICE" shall initially be $4.50 per share, shall be adjusted and readjusted from time to time as provided in Section 4 and, as so adjusted or readjusted, shall remain in effect until a future adjustment or readjustment thereof is required by Section 4. The number and kind of Warrant Shares are subject to adjustment from time to time as set forth herein. B. TIME OF EXERCISE. This Warrant may be exercised by Holder at any time on any Business Day for all or any portion of the Warrant Shares purchasable upon its exercise; PROVIDED, HOWEVER, that this Warrant shall expire and be void and all rights represented hereby shall cease unless this Warrant is exercised on or before the third anniversary of the date hereof. C. MANNER OF EXERCISE. In order to exercise this Warrant in whole or in part, Holder shall deliver to the Company at its office (i) a written notice of Holder's election to exercise this Warrant in the form of the Exercise Form attached hereto as EXHIBIT A, (ii) this Warrant, and (iii) the Exercise Price, payable either (a) in cash by wire transfer of immediately available funds to an account designated by the Company for such purpose, (b) by reducing the unpaid principal amount of Note A by an amount equal to the Exercise Price (which shall have the result of corresponding reduction in the guarantee obligations of the Company under Section 2.1(e) of the Guarantee and Collateral Agreement), or (c) any combination of (a) or (b) above. If this Warrant is exercised in whole or in part pursuant to clause (b) above, any interest due and the final principal payment due on Note A on March 31, 2003 shall be reduced accordingly, but the quarterly payments due to Orban shall remain unchanged. D. DELIVERY OF WARRANT SHARES. The Company shall, upon receipt of the materials described in Subsection C of this Section 2, as promptly as practicable (and in any event within five Business Days) thereafter, amend its books and records to reflect the name of the exercising Holder (or, subject to the applicable provisions hereof, its designee) as set forth on the Exercise Form, and the Warrant Shares purchased upon such exercise. This Warrant shall be deemed to have been exercised, and Holder (or any other Person so designated to be named therein) shall be deemed to have become a recordholder of such Warrant Shares for all purposes, as of the date the Company receives all of the materials required by Section 2.C, as the case may be. E. PAYMENT OF TAXES, ETC. The Company and Holder shall each pay its own expenses in connection with the issuance of the Warrant Shares hereunder, and all taxes and other governmental charges that may be imposed in respect of such issuance shall be paid by the 2 Company. Notwithstanding the foregoing, the Company shall not be required to pay any tax or other charge imposed in connection with any transfer involved in the issue of any Warrant Shares in any name other than that of Holder, and in such case the Company shall not be required to issue any Warrant Shares until such tax or other charge has been paid by Holder or it has been established to the Company's satisfaction that no such tax or other charge is due. Section 3. TRANSFER. Upon notice duly given to the Company, this Warrant may be transferred in whole, or in part, by Holder, subject to the provisions of this Section 3. Notwithstanding the foregoing, (A) Holder may not transfer this Warrant or any Warrant Shares, whether by operation of law or otherwise, unless (i) such transfer is permitted under applicable law and (ii) Holder has furnished to the Company a written opinion of counsel to the effect that no registration or qualification of this Warrant or the Warrant Shares to be transferred, as the case may be, is required under the Securities Act or any applicable state securities laws, other than those registrations and qualifications, if any, as are then in full force and effect, (B) Holder may not transfer this Warrant to any Person unless and until there shall have been delivered to the Company a written instrument, signed by such Person, in a form reasonably satisfactory to the Company, stating that such Person represents, warrants, covenants and agrees that it will be bound by the provisions of this Warrant, and (C) any purported or attempted transfer of this Warrant or Warrant Shares that is not made in compliance with this Section 3 shall be null and void and the purported transferee shall not acquire any rights in this Warrant or such Warrant Shares, as applicable. Subject to the foregoing, this Warrant, and the Warrant Shares issued upon exercise of the Warrant, may be sold, assigned or otherwise transferred voluntarily by Holder to Holder's parent or subsidiary corporations. Section 4. ADJUSTMENTS. A. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number and kind of shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment and reset from time to time upon the happening of certain events, as hereinafter defined; PROVIDED, HOWEVER, that the provisions of this Section 4 will not apply to (i) the purchase of shares of Common Stock, by Persons pursuant to Subscription Agreements (the "MAY SUBSCRIPTION AGREEMENTS") entered into on or prior to May 31, 2000 (such Persons being herein referred to as the "NEW INVESTORS") and (ii) the exercise of options by C. Jayson Brentlinger for the purchase of 591,500 shares of Common Stock in the aggregate, pursuant to options granted prior to May 31, 2000. B. MECHANICAL ADJUSTMENTS. The number of shares and the Exercise Price shall be subject to adjustment as follows: (i) In case the Company shall at any time after the date of this Warrant (a) declare or pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (b) subdivide its outstanding shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (d) issue any shares of its capital stock or other assets in a reclassification or reorganization of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing entity), this Warrant shall be adjusted to the number of shares and amount of any other securities, cash or other property of the Company 3 which such Holder would have owned or have been entitled to receive after the happening of any of the events described above, had this Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this paragraph (i) shall become effective retroactive to the record date, if any, for such event. Any Warrant Shares purchasable as a result of such adjustment shall not be issued prior to the effective date of such event. (ii) In case the Company shall issue shares of its capital stock or rights, options or warrants to subscribe for or purchase, or other securities exchangeable for or convertible into, shares of Common Stock at a subscription, offering, exercise or conversion price per share which is lower than the current market price per share of Common Stock (as defined in paragraph (v) below) at the record date mentioned below, whether or not such options, warrants, exchangeable securities or convertible securities are immediately exercisable or convertible, the number of Warrant Shares shall be adjusted and shall then be determined by multiplying the number of Warrant Shares immediately prior to any adjustment in connection with such issuance by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) on the record date for determining stockholders entitled to receive such rights, options, warrants or other securities plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) on the record date for determining stockholders entitled to receive such rights, options, warrants or other securities plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the current market price per shares of Common Stock at such record date. Such adjustment shall be made whenever such rights, options, warrants or other securities are issued, retroactive to the record date, if any, for such event. For purposes of this paragraph (ii), the "offering price" per share of Common Stock shall be determined by dividing (a) the total amount received or receivable by the Company in consideration of the issuance of such rights, options, warrants or other securities, plus the total consideration payable to the Company upon exercise thereof, by (b) the total number of shares of Common Stock covered by such rights, options, warrants or other securities. (iii) In case the Company shall issue shares of its capital stock or rights, options or warrants to subscribe for or purchase, or other securities exchangeable for or convertible into, shares of Common Stock at a subscription, offering, exercise or conversion price per share which is lower than the Warrant Price, whether or not such options, warrants, exchangeable securities or convertible securities are immediately exercisable or convertible, the number of Warrant Shares shall be adjusted and shall then be determined by multiplying the number of Warrant Shares immediately prior to any adjustment in connection with such issuance by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) on the record date for determining stockholders entitled to receive such rights, options, warrants or other securities plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding (exclusive of any treasury shares) on the record date for determining stockholders entitled to receive such rights, options, warrants or other securities plus the number of shares which the aggregate lower warrant price would purchase at the Warrant Price at such record date. Such adjustment shall be made whenever such rights, options, warrants or other securities are issued, retroactive to the record date, if any, for 4 such event. For purposes of this paragraph (iii), the "lower warrant price" shall be determined by dividing (a) the total amount received or receivable by the Company in consideration of the issuance of such rights, options, warrants or other securities, plus the total consideration payable to the Company upon exercise thereof, by (b) the total number of shares of Common Stock covered by such rights, options, warrants or other securities. If any issuance by the Company would result in an adjustment under both this paragraph (iii) and under paragraph (ii) above, then only the greater adjustment need be effected. (iv) In case the Company shall distribute to any holder of its shares of Common Stock evidences of its indebtedness or assets (including securities and cash dividends), but excluding dividends or distributions referred to in paragraph (i) above or rights, options, warrants or other securities referred to in paragraph (ii) above, then in each case the number of Warrant Shares shall be determined by multiplying the number of Warrant Shares by a fraction, of which the numerator shall be the current market price per share of Common Stock (as defined in paragraph (v) below) on the record date for such distribution, and of which the denominator shall be such current market price per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company acting reasonably and in good faith) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective on the date of distribution retroactive to the record date for the determination of stockholders entitled to receive such distribution. (v) For the purpose of any computation under paragraphs (ii) and (iv) of this Section, the current market price per share of Common Stock at any date shall be the average of the daily closing prices for the 10 consecutive trading days prior to the earlier to occur of (a) the date as of which the market price is to be computed or (b) the last full trading day before the commencement of "ex-dividend" trading in the Common Stock relating to the event giving rise to the adjustment required by paragraph (ii) or (iv). The closing price for each day shall be the last such reported sales price regular way or, in case no such reported sales takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange or in the NASDAQ National Market System on which the shares of Common Stock are listed or to which such shares are admitted to trading, or, if not listed or admitted to trading, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market as reported by NASDAQ or any comparable system, or if the Common Stock is not listed on the NASDAQ or any comparable system, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Board of Directors of the Company for that purpose. In the absence of all of the foregoing, the Board of Directors of the Company shall determine the current market price on the basis of such quotations as it reasonably and in good faith considers appropriate. In the event the Company's Common Stock is not then publicly traded or if any other reason the current market price per share cannot be determined pursuant to the foregoing provisions of this paragraph (iv), the appropriate current market price per share shall be the fair market value thereof (without regard to any transfer restrictions imposed by law or contract thereon or lack of liquidity thereof and without regard to any concentration of the ownership of the Common Stock among one or more holders thereof) as determined by an independent investment bank of national recognition selected, with the consent (not to be unreasonably withheld or delayed) of the Holder, by the Company. 5 (vi) Whenever the number of Warrant Shares are adjusted as herein provided, the Exercise Price payable upon exercise of this Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares immediately thereafter. (vii) No adjustment in the number of Warrant Shares shall be required hereunder unless such adjustment would result in an increase or decrease of at least one percent (1%) of the Exercise Price; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (vii) are not required to be, and are not so, made shall be carried forward and taken into account at the earlier of the time of any subsequent adjustment or three full years. All calculations shall be made to the nearest one-hundredth of a cent or to the nearest one-thousandth of a share, as the case may be. (viii) No adjustment in the number of Warrant Shares need be made under paragraphs (ii), (iii) or (iv) if the Company issues or distributes to each Holder the rights, options, warrants or other securities or evidences of indebtedness or assets or cash referred to in those paragraphs which each Holder would have been entitled to receive had the Warrants been exercised prior to the happening of such event or the record date with respect thereto. (ix) For the purpose of this Section 4.B, the term "shares of Common Stock" shall mean (a) the classes of stock designated as the Common Stock of the Company at the date of this Warrant, (b) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value or (c) any other capital stock of the Company which is not by its terms restricted in amount or timing to the entitlement to dividends. In the event that at any time, as a result of an adjustment made pursuant to this subsection 4.B, the Holders shall become entitled to receive any securities of the Company other than shares of Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Section 4. C. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC. In case of any consolidation of the company with or merger of the Company into another person or in case of any sale, transfer or lease to another person of all or substantially all the property of the Company, the Company or such successor or purchasing person, as the case may be, shall agree (and such merger, consolidation or transfer of assets shall not be consummated without such agreement) that each Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of this Warrant the kind and amount of shares and other securities, cash and other property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale, transfer or lease had this Warrant been exercised immediately prior to such action (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company, then for the purpose of this Section 4, the kind and amount of securities, cash and other property receivable upon exercise of this Warrant immediately after such consolidation, merger, sale or transfer shall 6 be the kind and amount so receivable per share by a majority of the holders of Common Stock), and if the successor or purchasing person is not a corporation, such person shall provide appropriate tax indemnification with respect to such shares and other securities and property so that upon exercise of the Warrant, the Holder would have the same benefits it otherwise would have had if such successor or purchasing person were a corporation. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4 and that such adjustments shall similarly apply to successive consolidations, mergers, sales, transfers or leases. D. OTHER EVENTS. If any event occurs as to which the foregoing provisions of this Section 4 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the parties hereto, fairly and adequately protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of such provisions, then the parties shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the parties, to protect such purchase rights as aforesaid. E. STATEMENT ON WARRANT CERTIFICATES. Irrespective of any adjustments in the Exercise Price or the number of kind of Warrant Shares, this Warrant may continue to express the same price and number and kind of shares as are stated on the first page hereof. Section 5. NOTICES. In the event that at any time prior to the expiration of this Warrant and prior to its exercise: (i) the Company shall declare any stock split, stock dividend, subdivision, combination, or similar distribution with respect to the capital stock, regardless of the effect of any such event on the outstanding number of shares of capital stock; (ii) there shall be an event described in Section 4; or (iii) there shall be a voluntary dissolution, liquidation, or winding up of the Company (other than in connection with a consolidation, merger, or sale of all or substantially all of its property, assets and business as an entity); (each such event hereinafter being referred to as a "NOTIFICATION EVENT"), the Company shall cause to be mailed to Holder, not less than 20 days prior to the record date, if any, in connection with such Notification Event (PROVIDED, HOWEVER, that if there is no record date, or if 20 days prior notice is impracticable, as soon as practicable, but in no event less than 10 days prior to the effective date thereof), written notice specifying the nature of such event and the effective date of, or the date on which the books of the Company shall close or a record shall be taken with respect to, such event. Such notice shall also contain a certificate from a firm of independent public accountants, selected by the Company and agreed to by Holder, setting forth the facts requiring such adjustment, the computation by which such adjustment was made and indicating the effect of such action (to the extent such effect may be known at the date of such notice) on the kind and amount of the shares of stock or other securities or property deliverable upon exercise of the Warrant. 7 Section 6. INFORMATION AVAILABLE TO WARRANT HOLDERS. The Company shall keep at its principal office, and shall cause to be available for inspection at said office during normal business hours by Holder copies of the following statements prepared in accordance with generally accepted accounting principles consistently applied: (A) within 90 days after the close of each fiscal year, an audited balance sheet of the Company as of the end of such fiscal year and audited statements of operations, stockholders' equity and cash flows for such fiscal year, in each case setting forth in comparative form the corresponding figures for the preceding fiscal year, and (B) within 45 days after the close of each of the first three quarters of each fiscal year of the Company, an unaudited balance sheet of the Company as of the end of such quarter and unaudited statements of operations, stockholders' equity and cash flows for the portion of such fiscal year preceding the end of such quarter, in each case setting forth in comparative form the corresponding figures for the corresponding period of the preceding fiscal year. Copies of such materials may be obtained by Holder upon written request by mail to the Company at its office in accordance with Section 11. Section 7. REGISTRATION RIGHTS. A. The Company agrees that the Holder shall have the one-time right, beginning on the date which is one year following the date of the exercise of this Warrant, upon written notice to the Company, to require that the Company prepare and promptly file a registration statement, as may be required under the Securities Act, in connection with the public offering, on a time-to-time basis or otherwise, of up to 100% of the then outstanding Warrant Shares. In connection therewith, the Company shall be obligated to prepare and file such registration statement within 45 days of receipt of any such initial notice and shall be further obligated to use its reasonable best efforts, including the filing of any amendments or supplements thereto, to have any such registration statement declared effective under the Securities Act and the rules and regulations promulgated thereunder as soon as practicable after the filing date thereof. The Company shall also use its reasonable best efforts to keep any such registration statement, and the accompanying prospectus, effective and current under the Securities Act at its expense for such period of time as is not otherwise burdensome to the Company, in no event to be less than 90 days. B. In addition to the rights of Holder pursuant to Section 7.A, the Company agrees that, at any time or times hereafter, as and when it intends to register any of its securities under the Securities Act whether for its own account and/or on behalf of selling stockholders (except in connection with an offering on Form S-8 or an offering solely related to an acquisition or exchange on a Form S-4 or any subsequent similar form) the Company will notify Holder in writing of such intention (a "REGISTRATION NOTICE") and, upon request from Holder, Holder will have the right to participate in such registration and have the Warrant Shares registered under the Securities Act; provided, however, that during the first year after the exercise of this Warrant, the maximum number of Warrant Shares with respect to which the Holder shall be entitled to participate in such registration shall be one-half of the maximum number of Warrant Shares with respect to which this Warrant could have been exercised on the Exercise Date (adjusted for subsequent stock splits, stock dividends and similar events). C. If a registration pursuant to this Section 7 involves an underwritten offering, the Company shall, (i) select the underwriter or underwriters, and (ii) if requested by 8 Holder, arrange for such underwriters to include the Warrant Shares among the shares of capital stock to be distributed by such underwriters. In such case, Holder shall be a party to the underwriting agreement and may in its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of Holder. Holder, in its capacity as owner of the Warrant Shares shall not be required to make any representations and warranties to, or agreements with, the Company or the underwriters other than (i) representations or warranties regarding Holder, (ii) representations or warranties regarding Holder's intended method of distribution, (iii) representations or warranties regarding any other information provided by Holder for inclusion in the registration statement or prospectus, (iv) representations, warranties or agreements required by law, or (v) representations, warranties or agreements reasonably requested by the underwriters. (i) If a registration pursuant to this Section 7 involves an underwritten offering, and the managing underwriter shall advise the Company that the number of shares of capital stock of any class requested to be included in such registration exceeds the number which can be sold in (or during the time of ) such offering without delaying or jeopardizing the success of the offering, then the Company will include in such registration, to the extent to which the Company is advised can be sold in such offering, shares of capital stock as follows: a. if such registration is for the account of the Company, first, all shares proposed by the Company to be sold for its own account, second, such Warrant Shares requested by Holder to be included in such registration, and third, all other shares of capital stock of the Company requested to be included in such registration in such amount and in such manner as the Company shall determine. b. if such registration is for the account of Holder, first, such shares proposed by Holder to be sold for its own account, and all shares proposed to be sold by the New Investors provided such shares were purchased pursuant to the May Subscription Agreements, second all other shares requested to be included in such registration in such amount and in such manner as the Company shall determine. c. if such registration is not for the account of the Company or Holder, first, such shares requested by the stockholder(s) requesting the registration to be included in such registration and all other shares proposed to be sold by other holders (including Holder) shall be included in such registration pro rata on the basis of the number of shares so proposed to be sold, and second, all shares proposed by the Company to be sold for its own account. (ii) The Company will use its reasonable best efforts to keep each such registration statement current for such period of time as it not otherwise burdensome to the Company, in no event to be less than 90 days. D. Any registration statement referred to in Section 7.A. hereof shall be prepared and processed in accordance with the following terms and conditions: 9 (i) Holder will cooperate in furnishing promptly to the Company in writing any information requested by the Company in connection with the preparation, filing and processing of such registration statement. (ii) The Company will furnish to Holder such number of prospectuses or other documents incident to such registration as may from time to time be reasonably requested, and cause its shares to be qualified under the blue-sky laws of those states reasonably requested by Holder. (iii) The Company will indemnify Holder (and any officer, director or controlling person of Holder) and any underwriters acting on behalf of Holder against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) to which they may become subject under the Securities Act or otherwise, arising out of or based upon any untrue or alleged untrue statement of any material facts contained in any registration statement filed pursuant thereto, or any document relating thereto, including all amendments and supplements, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein contained not misleading, and will reimburse Holder (or such other aforementioned parties) or such underwriters for any legal and all other expenses reasonably incurred in accordance with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable where the untrue or alleged untrue statement or omission or alleged omission is based upon information furnished in writing to the Company by Holder or any underwriter retained by Holder expressly for use therein, or as a result of Holder's or any such underwriter's failure to furnish to the Company information duly requested in writing by counsel for the Company specifically for use therein. This indemnity agreement shall be in addition to any other liability the Company may have. The indemnity agreement of the Company contained in this paragraph (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Warrant Shares. (iv) Holder will indemnify the Company (and any officer, director or controlling person of the Company) and any underwriters acting on behalf of Company against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) to which they may become subject under the Securities Act or otherwise, arising out of or based upon any untrue or alleged untrue statement filed pursuant thereto, or any document relating thereto, including all amendments and supplements, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein contained not misleading, and, will reimburse the Company (or such other aforementioned parties) or such underwriters for any legal and other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that Holder will be liable as aforesaid only to the extent that such untrue or alleged untrue statement or omission or alleged omission is based upon information furnished in writing to the Company by Holder or any underwriter retained by Holder expressly for use therein, or as a result of Holder's or such underwriter's failure to furnish to the Company information duly requested in writing by counsel for the Company specifically for use therein. The indemnity agreement contained in this paragraph (iv) shall remain operative and in full force 10 and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the delivery of and payment for the Warrant Shares. (v) Promptly after receipt by an indemnified party under this Section 7.C. of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party, promptly notify the indemnifying party of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party except to the extent that the indemnifying party is prejudiced by such failure. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 7.B. for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation or out-of-pocket expenses or losses or cost incurred in collaborating in the defense. (vi) Except as set forth in Section 7.C. (vii), the Company shall bear all costs and expenses incident to any registration pursuant to this Section 7. (vii) Holder shall pay any and all underwriters' discounts, commissions, brokerage fees and transfer taxes incident to the sale of any securities sold by Holder pursuant to this Section 7, and shall pay the fees and expenses of any attorneys or accountants or other advisors retained by it. Section 8. PURCHASED FOR INVESTMENT. Orban, by accepting this Warrant, represents, warrants, covenants and agrees that this Warrant is being acquired for investment and not for resale or distribution and that it will not transfer this Warrant or Warrant Shares unless and until it has furnished to the Company a written opinion of counsel, reasonably satisfactory to the Company, to the effect that no registration or qualification of this Warrant or Warrant Shares to be transferred, as the case may be, is required under the Securities Act or any applicable state securities laws, other than those, if any, as are then in full force and effect. Section 9. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Holder that: A. AUTHORIZATION; ENFORCEABILITY. The execution and delivery of this Warrant and the performance by the Company of its obligations hereunder have been duly authorized by the Company. This Warrant constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. B. FULLY PAID; NONASSESSABLE. The Warrant Shares, when issued, paid for and delivered as provided in this Agreement, will be duly and validly issued and outstanding, fully paid, nonassessable, and free and clear of any and all liens and encumbrances, other than the restrictions on transfer and other restrictions contemplated by this Agreement. 11 C. NO CONFLICT. The execution, delivery and performance of this Warrant by the Company does not and will not (a) conflict with or violate any applicable law or any judgment, order, decree, stipulation or injunction to which the Company is subject, (b) violate or conflict with the provisions of its charter or bylaws, (c) result in the breach of, or constitute a default under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any lien on any of its assets or properties pursuant to, any note, bond, contract, lease, license, permit, indenture, mortgage, or any other instrument or agreement to which the Company, as of the date of this Warrant, is a party or by which any of its property is bound. D. CONSENTS. No consent, approval, authorization, license, order or permit of, or declaration, registration or filing with, or notification to, any governmental authority or any other Person is required in connection with the execution, delivery and performance of this Warrant, or the consummation of any transaction contemplated hereby. E. CAPITALIZATION. The entire authorized capital stock of the Company consists of 20,000,000 shares of common stock, par value $.10 per share and 500,000 shares of preferred stock, par value $100,000 per share, and as of May 30, 2000, 702,682 shares of common stock and 0 shares of preferred stock are issued and outstanding. F. NASD. The Company has terminated its listing agreements with The National Association of Securities Dealers, Inc. G. FULL DISCLOSURE. All documents provided to Holder, and the representations and warranties of the Company contained in this Warrant and any documents referred to in this Warrant, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company has not provided or made available to Holder any information that is misleading or inaccurate in any material respect or withheld from or failed to disclose to Holder any data, documents or other information that, insofar as the Company can now reasonably foresee, could materially adversely affect its assets, properties, business, financial condition or its ability to perform its obligations under this Warrant and any documents referred to in this Warrant. Section 10. LOSS OR MUTILATION. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to it in the exercise of its reasonable discretion (it being understood that the written agreement of Holder hereof shall be sufficient indemnity) and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor. Section 11. NOTICE GENERALLY. Any notice, demand, delivery or other communication required or permitted to be given hereunder shall be in writing and shall be delivered by hand or telecopy, or sent, postage prepaid, by registered, certified or express mail, or reputable overnight courier service and shall be deemed given when so delivered by hand or telecopy, or if mailed domestically, three days after mailing (one business day in the case of 12 express mail or overnight courier service), or if mailed overseas, five days after mailing (two business days in the case of express mail or overnight courier service) as follows: (i) if to the Company, Circuit Research Labs, Inc. 2522 West Geneva Drive Tempe, AZ 85282 Attn: C. Jayson Brentlinger Facsimile: (602) 431-8517 With a copy to: Gust Rosenfeld PLC 201 N. Central Avenue, Suite 3300 Phoenix, AZ 85073 Attn: John Hay Facsimile: (602) 254-2878 (ii) if to the Orban, Orban, Inc. c/o Harman International Industries 8500 Balboa Blvd. Northridge, CA 91329 Attn: Ed Summers, Vice President and General Counsel Facsimile: (818) 893-7348 with a copy to: Jones, Day, Reavis & Pogue 2727 N. Harwood St. Dallas, TX 75201 Attn: Michael Weinberg Facsimile: (214) 969-5100 Section 12. NO RIGHTS AS A STOCKHOLDER. Subject to Section 2 hereof, nothing contained in this Warrant shall be construed as conferring upon Holder any rights whatsoever as a stockholder of the Company. Section 13. AMENDMENT AND WAIVER. This Warrant may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the Company and Holder. Section 14. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon and inure to the benefit of the Company and Holder and their respective successors and permitted assigns. 13 Section 15. TITLES AND HEADINGS. Titles and headings to Sections or Subsections herein are inserted for convenience of reference only and are not intended to be part of or affect the meaning or interpretation of this Warrant. Section 16. CERTAIN INTERPRETIVE MATTERS. Unless the context otherwise requires, (A) all references to Sections or Subsections are to Sections or Subsections of this Warrant, (B) each term defined in this Warrant has the meaning assigned to it, (C) all uses of "herein," "hereto," "hereof" or other words similar thereto in this Warrant refer to this Warrant in its entirety and not solely to the Section or Subsection in which it appears, (D) "or" is disjunctive but not necessarily exclusive, and (E) words in the singular include the plural and VICE VERSA. All references to "$" or dollar amounts will be to lawful currency of the United States of America. Section 17. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement among the Company and Holder with respect to the subject matter hereof, and there are no agreements between them except as expressly set forth herein. Section 18. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. 14 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of May 31, 2000. CIRCUIT RESEARCH LABS, INC. /s/ C. Jayson Brentlinger -------------------------------------- C. Jayson Brentlinger, President and Chairman of the Board AGREED TO AND ACCEPTED: ORBAN, INC. /s/ Roger Sales - ----------------------------------------------------- Roger Sales, Authorized Representative CRL SYSTEMS, INC. /s/ C. Jayson Brentlinger - ----------------------------------------------------- C. Jayson Brentlinger, President and Chairman of the Board EXERCISE FORM (To be executed only upon exercise of Warrant) The undersigned registered owner of this Warrant irrevocably exercises this Warrant for and purchases ____ shares of Common Stock of Circuit Research Labs, Inc., purchasable with this Warrant, and herewith makes payment of $_________ therefor (or a reduction of $__________ in the unpaid principal amount of Note A (as defined in the Warrant)), and requests that the certificates for such shares be issued in the name of, and delivered to, _______________________, whose address is ____________________________________. Dated: ______________________________________ (Signature of Registered Owner) ______________________________________ (Street Address) ______________________________________ (City) (State) (Zip Code) EX-3 5 a2073144zex-3.txt EXHIBIT 3 EXHIBIT 3 ================================================================================ GUARANTEE AND COLLATERAL AGREEMENT made by CIRCUIT RESEARCH LABS, INC., as Parent CRL SYSTEMS, INC., as Borrower and certain of their Subsidiaries in favor of ORBAN, INC., as Lender Dated as of May 31, 2000 ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1. DEFINED TERMS......................................................1 1.1 DEFINITIONS......................................................1 1.2 OTHER DEFINITIONAL PROVISIONS....................................5 SECTION 2. GUARANTEE..........................................................6 2.1 GUARANTEE........................................................6 2.2 RIGHT OF CONTRIBUTION............................................6 2.3 NO SUBROGATION...................................................6 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS........7 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL.............................7 2.6 REINSTATEMENT....................................................8 2.7 PAYMENTS.........................................................8 SECTION 3. GRANT OF SECURITY INTEREST.........................................8 SECTION 4. REPRESENTATIONS AND WARRANTIES.....................................9 4.1 TITLE; NO OTHER LIENS............................................9 4.2 PERFECTED FIRST PRIORITY LIENS...................................9 4.3 CHIEF EXECUTIVE OFFICE..........................................10 4.4 INVENTORY AND EQUIPMENT.........................................10 4.5 FARM PRODUCTS...................................................10 4.6 INVESTMENT PROPERTY.............................................10 4.7 RECEIVABLES.....................................................10 4.8 INTELLECTUAL PROPERTY...........................................10 4.9 VEHICLES........................................................11 4.10 PARENT REPRESENTATIONS.........................................11 SECTION 5. COVENANTS.........................................................12 5.1 DELIVERY OF INSTRUMENTS, CERTIFICATED SECURITIES AND CHATTEL PAPER...................................................13 5.2 MAINTENANCE OF INSURANCE........................................13 5.3 PAYMENT OF OBLIGATIONS..........................................13 5.4 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION...................................................13 5.5 CHANGES IN LOCATIONS, NAME, ETC.................................14 5.6 NOTICES.........................................................14 5.7 INVESTMENT PROPERTY.............................................14 5.8 RECEIVABLES.....................................................15 5.9 INTELLECTUAL PROPERTY...........................................16 5.10 VEHICLES.......................................................17 5.11 NOTATION OF SECURITY INTERESTS ON BOOKS AND RECORDS............17 5.12 LANDLORD AND WAREHOUSEMAN WAIVERS..............................17 5.13 FINANCIAL STATEMENTS...........................................17 5.14 MANDATORY PREPAYMENT...........................................18 i Page ---- SECTION 6. REMEDIAL PROVISIONS...............................................18 6.1 CERTAIN MATTERS RELATING TO RECEIVABLES.........................18 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE............19 6.3 PLEDGED STOCK...................................................20 6.4 PROCEEDS TO BE TURNED OVER TO LENDER............................20 6.5 APPLICATION OF PROCEEDS.........................................21 6.6 CODE AND OTHER REMEDIES.........................................21 6.7 REGISTRATION RIGHTS.............................................22 6.8 WAIVER; DEFICIENCY..............................................23 SECTION 7. THE LENDER........................................................23 7.1 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC...................23 7.2 DUTY OF LENDER..................................................24 7.3 EXECUTION OF FINANCING STATEMENTS...............................25 SECTION 8. MISCELLANEOUS.....................................................25 8.1 AMENDMENTS IN WRITING...........................................25 8.2 NOTICES.........................................................25 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES.............25 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION...........................25 8.5 SUCCESSORS AND ASSIGNS..........................................26 8.6 SET-OFF.........................................................26 8.7 COUNTERPARTS....................................................26 8.8 SEVERABILITY....................................................26 8.9 SECTION HEADINGS................................................27 8.10 INTEGRATION....................................................27 8.11 GOVERNING LAW..................................................27 8.12 SUBMISSION TO JURISDICTION; WAIVERS............................27 8.13 ACKNOWLEDGMENTS................................................27 8.14 ADDITIONAL GRANTORS AND SECURITY...............................28 8.15 RELEASES.......................................................29 8.16 WAIVER OF JURY TRIAL...........................................29 ii SCHEDULES Schedule 1 Notice Addresses Schedule 2 Investment Property Schedule 3 Perfection Matters Schedule 4 Jurisdictions of Organization and Chief Executive Offices Schedule 5 Inventory and Equipment Locations Schedule 6 Intellectual Property Schedule 7 Vehicles iii GUARANTEE AND COLLATERAL AGREEMENT GUARANTEE AND COLLATERAL AGREEMENT, dated as of May 31, 2000, made by CIRCUIT RESEARCH LABS, INC., an Arizona corporation (the "PARENT"), and each of the signatories hereto (together with the Parent and any other entity that may become a party hereto as provided herein, the "GRANTORS"), in favor of ORBAN, INC., a Delaware corporation (the "LENDER"), pursuant to the Credit Agreement dated as of even date herewith (as amended, supplemented, restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), between CRL SYSTEMS, INC., a Nevada corporation (the "BORROWER"), and the Lender. PRELIMINARY STATEMENTS A. The Borrower and the Lender have entered into that certain Asset Sale Agreement, dated as of even date herewith (as amended or modified, the "ASSET SALE AGREEMENT"), pursuant to which the Borrower will acquire certain of the Lender's assets. B. The Borrower and the Lender have entered into the Credit Agreement. C. Pursuant to the Asset Sale Agreement and the Credit Agreement, the Lender has agreed to accept the Notes as partial payment by the Borrower for the Assets (as defined in the Asset Sale Agreement). D. The Borrower is a member of an affiliated group of companies that includes each other Grantor. E. The Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making by the Lender of the extensions of credit under the Credit Agreement. F. It is a condition precedent to the obligation of the Lender to extend credit under the Credit Agreement that the Grantors shall have executed and delivered to the Lender this Guarantee and Collateral Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Lender to enter into the Credit Agreement and to induce the Lender to make the extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Lender as follows: SECTION 1. DEFINED TERMS 1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Documents, Equipment, Farm Products, Goods, Instruments and Inventory. (b) The following terms shall have the following meanings: "AGREEMENT": this Guarantee and Collateral Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time. "BORROWER OBLIGATIONS": the collective reference to the unpaid principal of and interest on the Notes and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Notes and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents or any other document made, delivered or given in connection with any of the foregoing, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Lender that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "COLLATERAL": as defined in Section 3. "COLLATERAL ACCOUNT": any collateral account established by the Lender as provided in Section 6.1 or 6.4. Collateral Accounts may be established at any financial institution designated by the Lender. "COPYRIGHTS": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in SCHEDULE 6), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals and extensions thereof. "COPYRIGHT LICENSES": all written agreements naming any Grantor as licensor or licensee (including, without limitation, those listed in SCHEDULE 6), granting any right under any Copyright, including, without limitation, the grant of rights in all derivative works based upon any Copyright, and all renewals and extensions thereof. "DEPOSIT ACCOUNT": as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including, without limitation, the Collateral Accounts, the Lockbox Account, and any demand, time, savings, passbook or like account maintained with a depositary institution. "EXCLUDED REAL PROPERTY": the real property located at 2522 West Geneva Drive, Tempe, Arizona 85282. 2 "FIXTURES": all items of Equipment, whether now owned or hereafter acquired, of any Grantor that become so related to particular real estate that an interest in them arises under any real estate law applicable thereto. "FOREIGN SUBSIDIARY": any Subsidiary organized under the laws of any jurisdiction outside the United States of America. "FOREIGN SUBSIDIARY VOTING STOCK": the voting Capital Stock of any Foreign Subsidiary. "GENERAL INTANGIBLES": all "general intangibles" as such term is defined in Section 9-106 of the New York UCC and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented, restated or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder. "GUARANTOR OBLIGATIONS": with respect to any Guarantor, all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including, without limitation, Section 2) or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Lender that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). "GUARANTORS": the collective reference to each Grantor other than the Borrower. "INTELLECTUAL PROPERTY": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses and all products, royalties and Proceeds thereof or received in connection therewith and all claims and rights to sue at law or in equity for past, present or future (i) infringement, dilution or other impairment thereof, or (ii) injury to the goodwill associated with any Trademark or Trademark License, including the right to receive all proceeds and damages from the foregoing. "INTERCOMPANY NOTE": any promissory note evidencing loans made by any Grantor to the Parent or any of its Subsidiaries. "INVESTMENT PROPERTY": the collective reference to (i) all "investment property" as such term is defined in Section 9-115 of the New York UCC (other than any Foreign Subsidiary Voting Stock excluded from the definition of "Pledged Stock") and 3 (ii) whether or not constituting "investment property" as so defined, all Pledged Notes and all Pledged Stock. "ISSUERS": the collective reference to each issuer of any Investment Property. "LOCKBOX ACCOUNT": account number 73880 at the Lockbox Bank. "NEW YORK UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "OBLIGATIONS": (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "PATENTS": (i) all letters patent, including, without limitation, utility patents, design patents, industrial designs and utility model registrations, of the United States, any other country or any political subdivision thereof and all reissues and extensions thereof, including, without limitation, those listed in SCHEDULE 6, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, those listed in SCHEDULE 6 and (iii) all rights to obtain any reissues, reexaminations or extensions of the foregoing. "PATENT LICENSE": all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to make, use, sell, offer to sell or import any invention covered in whole or in part by a Patent, including, without limitation, those listed in SCHEDULE 6, and all renewals and extensions thereof. "PLEDGED NOTES": all promissory notes listed on SCHEDULE 2, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business). "PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; PROVIDED that in no event shall more than 65% of the total outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary be required to be pledged hereunder. "PRIME RATE": the rate of interest established from time to time by Bank of America, N.A. as its prime rate. "PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto. "RECEIVABLE": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and 4 whether or not it has been earned by performance (including, without limitation, any Account). "SECURITIES ACT": the Securities Act of 1933, as amended. "SUBSIDIARY": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Parent. "TRADEMARKS": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, service marks, logos, words, terms, names, symbols and devices and all combinations thereof, and other source or business identifiers, and all goodwill of the business connected with the use thereof and symbolized thereby, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, including, without limitation, those listed in SCHEDULE 6, and (ii) the right to obtain all renewals and extensions thereof. "TRADEMARK LICENSE": all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, those listed in SCHEDULE 6, and all renewals and extensions thereof. "VEHICLES": all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state and, in any event including, without limitation, the vehicles listed on SCHEDULE 7 and all tires and other appurtenances to any of the foregoing. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. 5 SECTION 2. GUARANTEE 2.1 GUARANTEE. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Lender and its successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Lender hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full. (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full. 2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Lender, and each Guarantor shall remain liable to the Lender for the full amount guaranteed by such Guarantor hereunder. 2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Lender for 6 the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Lender by the Borrower on account of the Borrower Obligations are paid in full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Lender, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Lender in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Lender, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Lender may determine. 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Lender may be rescinded by the Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented, restated or terminated, in whole or in part, as the Lender may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. The Lender shall have no obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Lender, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such 7 Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Lender without set-off or counterclaim in Dollars at the office of the Lender located at c/o Harman International Industries, 8500 Balboa Blvd., Northridge, California 91329. SECTION 3. GRANT OF SECURITY INTEREST Each Grantor hereby assigns and transfers to the Lender, and hereby grants to the Lender, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "COLLATERAL"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations,: (a) all Accounts; (b) all Chattel Paper; (c) all Deposit Accounts; (d) all Documents; (e) all Equipment; 8 (f) all Fixtures; (g) all General Intangibles; (h) all Goods; (i) all Instruments; (j) all Intellectual Property; (k) all Inventory; (l) all Investment Property; (m) all Vehicles; (n) all books and records, including, without limitation, all computer disks, computer tapes and other computer records, pertaining to the Collateral; (o) all other property of any kind or character, tangible or intangible, not otherwise described above, except for the Excluded Real Property; and (p) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into the Credit Agreement and to induce the Lender to make the extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Lender that: 4.1 TITLE; NO OTHER LIENS. Except for the security interest granted to the Lender pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Lender pursuant to this Agreement or as are permitted by the Credit Agreement. 4.2 PERFECTED FIRST PRIORITY LIENS. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on SCHEDULE 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Lender in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Lender as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law. 9 4.3 CHIEF EXECUTIVE OFFICE. On the date hereof, such Grantor's jurisdiction of organization and the location of such Grantor's chief executive office or sole place of business are specified on SCHEDULE 4. 4.4 INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on SCHEDULE 5. 4.5 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 4.6 INVESTMENT PROPERTY. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock, if less, 65% of the outstanding Foreign Subsidiary Voting Stock of each relevant Issuer. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. (c) Each of the Pledged Notes constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (d) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 4.7 RECEIVABLES. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. (b) None of the obligors on any Receivables is a Governmental Authority. (c) The amounts represented by such Grantor to the Lender from time to time as owing to such Grantor in respect of the Receivables will at such times be accurate. 4.8 INTELLECTUAL PROPERTY. (a) SCHEDULE 6 lists all Intellectual Property owned by such Grantor in its own name on the date hereof. (b) On the date hereof, all Intellectual Property is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other Person. (c) Except as set forth in SCHEDULE 6, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement. 10 (d) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property. (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property or such Grantor's ownership interest therein or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. 4.9 VEHICLES. SCHEDULE 7 is a complete and correct list of all Vehicles owned by such Grantor on the date hereof. 4.10 PARENT REPRESENTATIONS. In the case of the Parent: (a) The Parent (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (iii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (iv) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, prospects or property of the Parent and its Subsidiaries taken as a whole. (b) The Parent has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of the Loan Documents to which the Parent is a party. This Agreement has been, and each other Loan Document to which it is a party will be, duly executed and delivered on behalf of the Parent. This Agreement constitutes, and each other Loan Document to which it is a party when executed and delivered will constitute, a legal, valid and binding obligation of the Parent enforceable against the Parent in accordance with its terms, subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of the Loan Documents to which the Parent is a party will not violate any Requirement of Law or Contractual Obligation of the Parent or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation (other than pursuant to this Agreement). (d) No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Parent, threatened by or against 11 the Parent or any of its Subsidiaries or against any of its or their respective properties or revenues with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby. (e) The Parent has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien of any nature whatsoever except the Excluded Real Property. (f) The Parent has filed or caused to be filed all tax returns which, to the knowledge of the Parent, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Parent); no tax Lien has been filed, and, to the knowledge of the Parent, no claim is being asserted, with respect to any such tax, fee or other charge. (g) The balance sheets of the Parent as at December 31, 1998 and December 31, 1999 and the related statements of income and of cash flows for the fiscal years ended on each such date, reported on by Deloitte & Touche LLP, copies of which have heretofore been furnished to the Lender, are complete and correct and present fairly the financial condition of the Parent as at such dates, and the results of its operations and its cash flow for the fiscal years then ended. The unaudited balance sheet of the Parent as at March 31, 2000 and the related unaudited statement of income and of cash flow for the three-month period ended on such date, certified by the President or Chief Financial Officer of Parent, copies of which have heretofore been furnished to the Lender, are complete and correct and present fairly the financial condition of the Parent as at such date, and the results of its operations and its cash flow for the three-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants, and as disclosed therein). At the date of the most recent balance sheet referred to above, the Parent had no material contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other financial derivative, which is not reflected in the foregoing statements or in the notes thereto. During the period from December 31, 1999, to and including the date hereof there has been no sale, transfer or other disposition by the Parent of any material part of its business or property and no purchase or other acquisition of any business or property (including any Capital Stock of any other Person) material in relation to the financial condition of the Parent at December 31, 1999 (except as contemplated by the Asset Sale Agreement). SECTION 5. COVENANTS Each Grantor covenants and agrees with the Lender that, from and after the date of this Agreement until the Obligations shall have been paid in full: 12 5.1 DELIVERY OF INSTRUMENTS, CERTIFICATED SECURITIES AND CHATTEL PAPER. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be immediately delivered to the Lender, duly indorsed in a manner satisfactory to the Lender, to be held as Collateral pursuant to this Agreement. 5.2 MAINTENANCE OF INSURANCE. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory, Equipment and Vehicles against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Lender and (ii) insuring such Grantor and the Lender against liability for personal injury and property damage relating to such Inventory, Equipment and Vehicles, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Lender. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Lender of written notice thereof, (ii) name the Lender as insured party or loss payee, (iii) if reasonably requested by the Lender, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Lender. (c) The Borrower shall deliver to the Lender a report of a reputable insurance broker with respect to such insurance substantially concurrently with each delivery of the Borrower's audited annual financial statements and such supplemental reports with respect thereto as the Lender may from time to time reasonably request. 5.3 PAYMENT OF OBLIGATIONS. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.4 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest and the priority thereof against the claims and demands of all Persons whomsoever. (b) Such Grantor will furnish to the Lender from time to time statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Lender may reasonably request, all in reasonable detail. 13 (c) At any time and from time to time, upon the written request of the Lender, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property, Deposit Accounts and any other relevant Collateral, taking any actions necessary to enable the Lender to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto. 5.5 CHANGES IN LOCATIONS, NAME, ETC. Such Grantor will not, except upon 15 days' prior written notice to the Lender and delivery to the Lender of (a) all additional executed financing statements and other documents reasonably requested by the Lender to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to SCHEDULE 5 showing any additional location at which Inventory or Equipment shall be kept: (i) permit any of the Inventory or Equipment to be kept at a location other than those listed on SCHEDULE 5; (ii) change its jurisdiction of organization or the location of its chief executive office or sole place of business from that referred to in Section 4.3; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Lender in connection with this Agreement would become misleading. 5.6 NOTICES. Such Grantor will advise the Lender promptly, in reasonable detail, of: (a) any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Lender to exercise any of its remedies hereunder; (b) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby; and (c) the occurrence of any Default or Event of Default. 5.7 INVESTMENT PROPERTY. (a) If such Grantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Lender, hold the same in trust for the Lender and deliver 14 the same forthwith to the Lender in the exact form received, duly indorsed by such Grantor to the Lender, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Lender so requests, signature guaranteed, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Investment Property upon the liquidation or dissolution of any Issuer shall be paid over to the Lender to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Investment Property or any property shall be distributed upon or with respect to the Investment Property pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Lender, be delivered to the Lender to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Lender, hold such money or property in trust for the Lender, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Lender, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Lender to sell, assign or transfer any of the Investment Property or Proceeds thereof. (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Investment Property issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Lender promptly in writing of the occurrence of any of the events described in Section 5.7(a) with respect to the Investment Property issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Investment Property issued by it. 5.8 RECEIVABLES. (a) Other than in the ordinary course of business consistent with its past practice, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof. (b) Such Grantor will deliver to the Lender a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 15 5.9 INTELLECTUAL PROPERTY. (a) Such Grantor (either itself or through licensees approved by the Lender) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Lender shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee approved by the Lender thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees approved by the Lender) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees approved by the Lender) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof approved by the Lender to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees approved by the Lender) do any act whereby any material portion of the Copyrights may fall into the public domain. (d) Such Grantor (either itself or through licensees approved by the Lender) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Such Grantor will notify the Lender immediately if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) Whenever such Grantor, either by itself or through any agent, employee, licensee approved by the Lender, or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Lender within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Lender, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Lender may request to evidence the Lender's security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. 16 (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Lender after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. 5.10 VEHICLES. (a) No Vehicle shall be removed from the state which has issued the certificate of title or ownership, as the case may be, therefor for a period in excess of four (4) months. (b) Within 30 days after the date hereof, and, with respect to any Vehicles acquired by such Grantor subsequent to the date hereof, within 30 days after the date of acquisition thereof, all applications for certificates of title or ownership, as the case may be, indicating the Lender's first priority security interest in the Vehicle covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction which the Lender shall deem advisable to perfect its security interests in the Vehicles. 5.11 NOTATION OF SECURITY INTERESTS ON BOOKS AND RECORDS. Each Grantor shall cause the security interest granted by it hereunder to at all times be noted on its books and records. 5.12 LANDLORD AND WAREHOUSEMAN WAIVERS. Upon the request of the Lender, each Grantor shall deliver to the Lender waivers of contractual and statutory landlord's, landlord's mortgagee's and warehouseman's Liens in form and substance satisfactory to the Lender under each lease, warehouse agreement or similar agreement to which such Grantor is a party. If any Collateral is at any time in the possession or control of any warehouseman, bailee or any of the agents or processors of any Grantor, such Grantor shall notify such warehouseman, bailee, agent or processor of the security interests created hereby and to hold all such Collateral for the Lender's account subject to the Lender's instructions. 5.13 FINANCIAL STATEMENTS. The Parent shall furnish to the Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Parent, a copy of the audited consolidated balance sheet of the Parent and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification 17 or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Parent, the unaudited consolidated balance sheet of the Parent and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a the chief financial officer of the Parent as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each fiscal year of the Parent (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Parent and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by the chief financial officer of the Parent as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 5.14 MANDATORY PREPAYMENT. If the Parent or any of its Subsidiaries (other than the Borrower or any of its Subsidiaries as to which Section 3.3(b) of the Credit Agreement is applicable) (i) receives Net Cash Proceeds from the issuance or incurrence of any Indebtedness (other than Indebtedness not in excess of $100,000 in the aggregate), (ii) receives Net Cash Proceeds from the issuance of Capital Stock or from any capital contribution (other than capital contributions by the Borrower to its Subsidiaries), (iii) sells, assigns, transfers, leases or otherwise disposes of any of its assets (other assets having a value not to exceed $100,000 in the aggregate), or (iv) has assets other than the Excluded Real Property that become the subject of a Casualty Event, then no later than two Business Days after receipt of the Net Cash Proceeds therefrom, the Notes shall be prepaid by an amount equal to 100% of such Net Cash Proceeds in accordance with Section 3.3(c) of the Credit Agreement. Notwithstanding anything to the contrary contained in this Section 5.14, this Section shall not apply to the exercise by C. Jayson Brentlinger of options to purchase up to 671,500 shares of Common Stock, par value $0.10 of the Parent, which options existed as of the date hereof. SECTION 6. REMEDIAL PROVISIONS 6.1 CERTAIN MATTERS RELATING TO RECEIVABLES. (a) The Lender shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Lender may require in connection with such test verifications. At any time 18 and from time to time, upon the Lender's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Lender to furnish to the Lender reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables. (b) The Lender hereby authorizes each Grantor to collect such Grantor's Receivables, subject to the Lender's direction and control, and the Lender may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default, PROVIDED that all times after the date hereof all Receivables of the Borrower shall be deposited by the Borrower, immediately upon receipt, into the Lockbox Account on the terms and conditions contained in the Lockbox Agreement. If required by the Lender at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Lender if required, in a Collateral Account maintained under the sole dominion and control of the Lender, subject to withdrawal by the Lender only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Lender, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At the Lender's request, each Grantor shall deliver to the Lender all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all original orders, invoices and shipping receipts. 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE. (a) The Lender in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to the Lender's satisfaction the existence, amount and terms of any Receivables. (b) Upon the request of the Lender at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables that the Receivables have been assigned to the Lender and that payments in respect thereof shall be made directly to the Lender. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. The Lender shall have no obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Lender of any payment relating thereto, nor shall the Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 19 6.3 PLEDGED STOCK. (a) Unless an Event of Default shall have occurred and be continuing and the Lender shall have given notice to the relevant Grantor of the Lender's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Investment Property; PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or other action taken which, in the Lender's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Lender shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in such order as the Lender may determine, and (ii) any or all of the Investment Property shall be registered in the name of the Lender or its nominee, and the Lender or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Investment Property at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Lender of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it, but the Lender shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Grantor hereby authorizes and instructs each Issuer of any Investment Property pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Lender in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Investment Property directly to the Lender. 6.4 PROCEEDS TO BE TURNED OVER TO LENDER. In addition to the rights of the Lender specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Lender, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Lender in the exact form received by such Grantor (duly indorsed by such Grantor to the Lender, if required). All Proceeds received by the Lender hereunder shall be held by the Lender 20 in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Lender in a Collateral Account (or by such Grantor in trust for the Lender) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 APPLICATION OF PROCEEDS. At such intervals as may be agreed upon by the Borrower and the Lender, or, if an Event of Default shall have occurred and be continuing, at any time at the Lender's election, the Lender may apply all or any part of Proceeds held in any Collateral Account in payment of the Obligations in such order as the Lender may elect, and any part of such funds which the Lender elects not so to apply and deems not required as collateral security for the Obligations shall be paid over from time to time by the Lender to the Borrower or to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds remaining after the Obligations shall have been paid in full shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same. 6.6 CODE AND OTHER REMEDIES. If an Event of Default shall occur and be continuing, the Lender may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Lender's request, to assemble the Collateral and make it available to the Lender at places which the Lender shall reasonably select, whether at such Grantor's premises or elsewhere. The Lender shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Lender may elect, and only after such application and after the payment by the Lender of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the New York UCC, need the Lender account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Lender shall have 21 the right to enter the real property leased or owned by each Grantor for the purpose of exercising any of the foregoing rights or remedies. Each Grantor waives all rights of marshaling, valuation and appraisal with respect to the Collateral or any part thereof. For the purpose of enabling the Lender, during the existence of an Event of Default, to exercise rights and remedies hereunder at such time as the Lender will be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Lender an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor), until the Obligations are paid in full, to use, assign, license or sublicense any of the Intellectual Property now owned or hereafter acquired by such Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. 6.7 REGISTRATION RIGHTS. (a) If the Lender shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 6.6, and if in the opinion of the Lender it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Lender, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Stock, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Lender, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Lender shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Grantor recognizes that the Lender may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Lender shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the 22 covenants contained in this Section 6.7 will cause irreparable injury to the Lender, that the Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 WAIVER; DEFICIENCY. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the New York UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Lender to collect such deficiency. SECTION 7. THE LENDER 7.1 LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) Each Grantor hereby irrevocably constitutes and appoints the Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Lender the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Lender may request to evidence the Lender's security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the 23 Lender or as the Lender shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Lender may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Lender shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Lender were the absolute owner thereof for all purposes, and do, at the Lender's option and such Grantor's expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Lender agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Lender, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Lender incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the Prime Rate in effect from time to time plus three percent (3%), from the date of payment by the Lender to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Lender on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 DUTY OF LENDER. The Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender nor any of its officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise 24 dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Lender hereunder are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon the Lender to exercise any such powers. The Lender shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the New York UCC and any other applicable law, each Grantor authorizes the Lender to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Lender determines appropriate to perfect the security interests of the Lender under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented, restated or otherwise modified except pursuant to a written agreement executed by the affected Grantor and the Lender; PROVIDED, HOWEVER, that any provision of this Agreement imposing obligations on any Grantor may be waived by the Lender in a written instrument executed by the Lender. 8.2 NOTICES. All notices, requests and demands to or upon the Lender or any Grantor hereunder shall be effected in the manner provided for in subsection 9.2 of the Credit Agreement; PROVIDED, HOWEVER, that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on SCHEDULE 1. 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. The Lender shall not by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION. (a) Each Guarantor agrees to pay or reimburse the Lender for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender. 25 (b) Each Guarantor agrees to pay, and to save the Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Lender harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to subsection 9.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Lender and its successors and assigns; PROVIDED, HOWEVER, that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Lender. 8.6 SET-OFF. Each Grantor hereby irrevocably authorizes the Lender at any time and from time to time while an Event of Default pursuant to Section 8.1 of the Credit Agreement shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Lender may elect, against and on account of the obligations and liabilities of such Grantor to the Lender hereunder and claims of every nature and description of the Lender against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as the Lender may elect, whether or not the Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Lender shall notify such Grantor promptly of any such set-off and the application made by the Lender of the proceeds thereof; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. 8.7 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 26 8.9 SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 INTEGRATION. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT OF THE GRANTORS AND THE LENDER WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Lender shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 ACKNOWLEDGMENTS. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) the Lender does not have any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, 27 and the relationship between the Grantors, on the one hand, and the Lender, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Grantors and the Lender. 8.14 ADDITIONAL GRANTORS AND SECURITY. (a) Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to subsection 6.10(b) of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. (b) With respect to any Person that, subsequent to the Closing Date, becomes a Subsidiary of the Parent (other than the Borrower and its Subsidiaries which are governed by Section 6.10 of the Credit Agreement or an Excluded Foreign Subsidiary), the Parent shall cause such Subsidiary to promptly (and in any event within twenty days after such Person becomes such a Subsidiary of the Parent): (i) execute and deliver to and for the benefit of the Lender an Assumption Agreement in the form of Annex 1 hereto, upon execution and delivery of which Assumption Agreement such Subsidiary shall become a Grantor for all purposes of this Agreement; (ii) deliver to the Lender the certificates representing the Capital Stock of such Subsidiary which is owned by the Parent or other Subsidiary of the Parent (other than the Borrower or any Subsidiary of Borrower), together with undated stock powers executed and delivered in blank by a duly authorized officer of the Parent or such Subsidiary, as the case may be; (iii) execute and deliver to the Lender such Security Documents (including Mortgages and financing statements) as may be required by the Lender to create and perfect Liens in favor of the Lender on all present and future property of such Subsidiary; (iv) execute and deliver such documents and certificates as the Lender or its counsel may request relating to the organization, existence and good standing of such Subsidiary, the authorization of the transactions contemplated hereby and by the other Loan Documents relating to such Subsidiary, and any other legal matters relating to such Subsidiary and the Loan Documents to which it is or is to become a party (including, if requested by the Lender, satisfactory environmental reports or assessments with respect to each parcel of real property covered by a Mortgage), all in form and substance satisfactory to the Lender and its counsel; (v) in the case of a Mortgage, deliver to the Lender such surveys, title insurance policies, environmental assessments, and other documents as the Lender may request, all in form and substance satisfactory to the Lender; and (vi) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described in clauses (i), (ii), (iii) and (iv) immediately preceding, which opinions shall be in form and substance, and from counsel, satisfactory to the Lender. (c) With respect to any assets acquired after the Closing Date by the Parent or any of its Subsidiaries (other than (w) any such assets of the Borrower or any of its Subsidiaries which are governed by Section 6.10 of the Credit Agreement, (x) leased real property, (y) any property described in paragraph (b) above, or (z) property acquired by an Excluded Foreign Subsidiary), the Parent shall or shall cause such Subsidiary of Parent, as the case may be, to promptly (and in any event within twenty days after the acquisition thereof): (i) execute and deliver to the Lender such amendments to the relevant Security Documents or such other documents (including Mortgages) as the Lender shall deem necessary or advisable to grant to 28 and for the benefit of the Lender a Lien on such assets; (ii) take all actions necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law as contemplated by such Security Documents, including the filing of financing statements in such jurisdictions as may be requested by the Lender; (iii) in the case of a Mortgage, deliver to the Lender such surveys, policies and other documents as the Lender may request, all in form and substance satisfactory to the Lender; and (iv) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, satisfactory to the Lender. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Parent or any of its Subsidiaries (other than any such assets of the Borrower and its Subsidiaries which are governed by Section 6.10 of the Credit Agreement), the Parent shall, and shall cause its Subsidiaries to, promptly (i) execute and deliver to the Lender such amendments to the Guarantee and Collateral Agreement as the Lender deems necessary or advisable to grant to the Lender, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Parent or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Lender the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Parent or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Lender, desirable to perfect the Lender's security interest therein, and (iii) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Lender. 8.15 RELEASES. At such time as the Notes and the other Obligations shall have been paid in full, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Lender and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Lender shall deliver to such Grantor any Collateral held by the Lender hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. 8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 29 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. CRL SYSTEMS, INC., a Nevada corporation /s/ C. JAYSON BRENTLINGER -------------------------------------------------- C. Jayson Brentlinger, President and Chairman of the Board CIRCUIT RESEARCH LABS, INC., an Arizona corporation /s/ C. JAYSON BRENTLINGER -------------------------------------------------- C. Jayson Brentlinger, President and Chairman of the Board 30 SCHEDULE 1 NOTICE ADDRESSES OF GUARANTORS if to Circuit Research Labs, Inc.: Circuit Research Labs, Inc. 2522 West Geneva Drive Tempe, AZ 85282 (602) 438-0888 (602) 438-8277 (fax) if to CRL Systems, Inc.: CRL Systems, Inc. c/o Circuit Research Labs, Inc. 2522 West Geneva Drive Tempe, AZ 85282 (602) 438-0888 (602) 431-8517 (fax) Attention: C. Jayson Brentlinger SCHEDULE 2 DESCRIPTION OF INVESTMENT PROPERTY PLEDGED STOCK:* Issuer Class of Stock Stock Certificate No. No. of Shares - ----------------- -------------- --------------------- ------------- CRL Systems, Inc. Common 1 2,500 PLEDGED NOTES: Issuer Payee Principal Amount - ----------------- --------------------- ---------------- NONE N/A N/A - ---------- * Stock is assumed to be common stock unless otherwise indicated. SCHEDULE 3 FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS UNIFORM COMMERCIAL CODE FILINGS CRL SYSTEMS, INC. Secretary of State, Arizona Secretary of State, California Secretary of State, Nevada County Clerk, Clark County, Nevada CIRCUIT RESEARCH LABS, INC. Secretary of State, California Secretary of State, Arizona County Clerk, Maricopa County, Arizona PATENT, TRADEMARK AND COPYRIGHT FILINGS PATENTS: CRL SYSTEMS, INC. United States PATENTS: CIRCUIT RESEARCH LABS, INC. United States TRADEMARKS: CRL SYSTEMS, INC. United States Canada Chile European Community Australia Brazil France Germany Hong Kong Japan India Singapore Taiwan Thailand United Kingdom TRADEMARKS: CIRCUIT RESEARCH LABS, INC. United States COPYRIGHTS: CRL SYSTEMS, INC. United States COPYRIGHTS: CIRCUIT RESEARCH LABS, INC. United States ACTIONS WITH RESPECT TO PLEDGED STOCK AND PLEDGED NOTES 1. Delivery of original Certificates representing Pledged Stock and stock powers signed in blank to the Lender. OTHER ACTIONS 1. Delivery by CRL Systems, Inc., of executed originals of each of the (i) Patent Security Agreement, (ii) Copyright Security Agreement and (iii) Trademark Security Agreement, each between CRL Systems, Inc. and Lender and dated as of even date herewith. 2. Delivery by Circuit Research Labs, Inc., of executed originals of each of the (i) Patent Security Agreement, (ii) Copyright Security Agreement and (iii) Trademark Security Agreement, each between Circuit Research Labs, Inc. and Lender and dated as of even date herewith. SCHEDULE 4 LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE GRANTOR LOCATION ------- -------- Circuit Research Labs, Inc. 2522 West Geneva Drive, Tempe, Arizona, 85282 CRL Systems, Inc. 2522 West Geneva Drive, Tempe, Arizona, 85282 SCHEDULE 5 LOCATION OF INVENTORY AND EQUIPMENT GRANTOR LOCATION ------- -------- Circuit Research Labs, Inc. 2522 West Geneva Drive, Tempe, Arizona, 85282 CRL Systems, Inc. 2522 West Geneva Drive, Tempe, Arizona, 85282 8500 Balboa Blvd. Northridge, CA 91329 SCHEDULE 6 COPYRIGHTS AND COPYRIGHT LICENSES
CRL SYSTEMS, INC. - ---------------------------------------- ------------------------------------- ------------------------------------- TITLE REGISTRATION NUMBER EFFECTIVE DATE - ---------------------------------------- ------------------------------------- ------------------------------------- Optimod - FM 8200 TX 4199358 May 8, 1996 Digital 1996 Brochure - ---------------------------------------- ------------------------------------- ------------------------------------- Optimod - FM 8200 TX 4199359 May 8, 1996 Digital 1992 Brochure - ---------------------------------------- ------------------------------------- ------------------------------------- CIRCUIT RESEARCH LABS, INC. - ---------------------------------------- ------------------------------------- ------------------------------------- TITLE REGISTRATION NUMBER EFFECTIVE DATE - ---------------------------------------- ------------------------------------- ------------------------------------- AM4 Stereo Matrix System TX 145685 June 14, 1983 SMP 900 Instructions - ---------------------------------------- ------------------------------------- ------------------------------------- SSM Dynafex Noise Reduction System MW 1361 July 28, 1986 - ---------------------------------------- ------------------------------------- -------------------------------------
PATENTS AND PATENT LICENSES
CRL SYSTEMS, INC. - ------------------------------ ---------------------------- --------------------------- ---------------------------- PATENT NO./ COUNTRY TITLE ISSUED/FILED SERIAL NO. - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,412,100 United States Multiband Signal Processor October 25, 1983 - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,460,871 United States Multiband Cross-Coupled July 17, 1984 Compressor with Overshoot Protection Circuit - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,495,643 United States Audio Peak Limiter Using January 22, 1985 Hilbert - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,525,857 United States Crossover Network June 25, 1985 - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,674,122 United States Encoding for the FMX June 16, 1987 Compounding System - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,837,824 United States Stereophonic Image June 6, 1989 Widening Circuit - ------------------------------ ---------------------------- --------------------------- ---------------------------- - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,888,789 United States Adjustable Equalizer for December 19, 1989 Compensation for High Frequency Rollout - Typical AM Receivers - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,050,217 United States Dynamic Noise Reduction September 17, 1991 and Spectal Restoration System - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,168,526 United States Distortion Cancellation December 1, 1992 Circuit Fee Audio Peak Limiting - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,282,252 United States Audio Equalizer Providing January 25, 1994 Reciprocal Equalization Plus Indefinite Depth Notch - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,444,788 United States Audio Compressor August 22, 1995 Combining Feedback and Feedforwarding Sidechain Processing - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,574,791 United States Combined DeEsser and High November 12, 1996 Frequency Enhancer Using Single Pair of Level Detectors - ------------------------------ ---------------------------- --------------------------- ---------------------------- 5,737, 434 United States Multi-Band Audio April 7, 1998 Compressor with Look Ahead Clipper - ------------------------------ ---------------------------- --------------------------- ---------------------------- D398,289 United States Control Board September 15, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- D401,774 United States Stand September 1, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- D414,770 United States Processor October 5, 1999 - ------------------------------ ---------------------------- --------------------------- ---------------------------- 08/984,448 United States (application) - ------------------------------ ---------------------------- --------------------------- ---------------------------- 29/069,255 United States (application) - ------------------------------ ---------------------------- --------------------------- ----------------------------
CIRCUIT RESEARCH LABS, INC. - ------------------------------ ---------------------------- --------------------------- ---------------------------- PATENT NO./SERIAL NO. COUNTRY TITLE ISSUED/FILED - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,398,158 United States Dynamic Range Expander August 9, 1983; Assigned to Circuit Research Labs, Inc. September 27, 1985 - ------------------------------ ---------------------------- --------------------------- ---------------------------- 4,350,845 United States Reverberation Apparatus September 21, 1982; Assigned to Circuit Research Labs, Inc. September 27, 1985 - ------------------------------ ---------------------------- --------------------------- ----------------------------
TRADEMARKS AND TRADEMARK LICENSES
CRL SYSTEMS, INC. - ------------------------------ ---------------------------- --------------------------- ---------------------------- COUNTRY MARK REGISTRATION/SERIAL NO. REGISTERED/FILED - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States ORBAN 1,791,387 December 31, 1969 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Canada ORBAN 441364 March 31, 1995 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Chile ORBAN 541674 June 4, 1999 - ------------------------------ ---------------------------- --------------------------- ---------------------------- European Community ORBAN 166504 October 8, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States OPTIMOD 1,253,703 April 5, 1975 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Australia OPTIMOD 8506607 March 4, 1989 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Brazil OPTIMOD 814882846 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Canada OPTIMOD TMA 368016 April 20, 1990 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Chile OPTIMOD 541675 June 4, 1999 - ------------------------------ ---------------------------- --------------------------- ---------------------------- European Community OPTIMOD 166504 October 8, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- France OPTIMOD 1520234 March 21, 1989 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Germany OPTIMOD 1190774 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Hong Kong OPTIMOD 3037/97 May 1, 1997 - ------------------------------ ---------------------------- --------------------------- ---------------------------- India OPTIMOD 696613 January 1996 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Japan OPTIMOD 2429825 June 30, 1992 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Singapore OPTIMOD 1084/96 January 30, 1996 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Taiwan OPTIMOD 85008503 January 1996 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Thailand OPTIMOD 333792/Khor 66414 January 1997 - ------------------------------ ---------------------------- --------------------------- ---------------------------- - ------------------------------ ---------------------------- --------------------------- ---------------------------- United Kingdom OPTIMOD 1377339 March 14, 1989 - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States AUDICY 2,168,571 June 23, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Australia AUDICY 740988 February 19, 1998 - ------------------------------ ---------------------------- --------------------------- ---------------------------- European Community AUDICY 594804 - ------------------------------ ---------------------------- --------------------------- ---------------------------- Japan AUDICY Unknown - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States TIME FIT 2,000,400 September 10, 1996 - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States DSE 1,994,960 August 20, 1996 - ------------------------------ ---------------------------- --------------------------- ----------------------------
CIRCUIT RESEARCH LABS, INC. - ------------------------------ ---------------------------- --------------------------- ---------------------------- COUNTRY/FILING MARK REGISTRATION/ REGISTERED/FILED SERIAL NO. - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States MILLENNIUM 75-754856 Pending - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States DYNAFEX 1,670,137 July 1, 1982 - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States CRL Systems 1,342,151 August 5, 1977 - ------------------------------ ---------------------------- --------------------------- ---------------------------- United States CRL 1,300,233 August 5, 1977 - ------------------------------ ---------------------------- --------------------------- ----------------------------
SCHEDULE 7 VEHICLES None. ACKNOWLEDGMENT AND CONSENT* The undersigned hereby acknowledges receipt of a copy of the Guarantee and Collateral Agreement dated as of _______, 2000 (the "AGREEMENT"), made by the Grantors parties thereto for the benefit of Orban, Inc., as Lender. The undersigned agrees for the benefit of the Lender as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Lender hereunder promptly in writing of the occurrence of any of the events described in Section 5.7(a) of the Agreement. 3. The terms of Sections 6.3(c) and 6.7 of the Agreement shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 of the Agreement. [NAME OF ISSUER] By --------------------------------- Name: Title: Address for Notices: ------------------------------------- ------------------------------------- ------------------------------------- Fax: - ---------- * This consent is necessary only with respect to any Issuer which is not also a Grantor. This consent may be modified or eliminated with respect to any Issuer that is not controlled by a Grantor. Annex 1 to Guarantee and Collateral Agreement ASSUMPTION AGREEMENT, dated as of ________________, 2000, made by ______________________________, a ______________ (the "ADDITIONAL GRANTOR"), in favor of ORBAN, INC., a Delaware corporation, a party to the Credit Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. PRELIMINARY STATEMENTS A. CRL Systems, Inc., a Nevada corporation (the "BORROWER"), and the Lender have entered into a Credit Agreement, dated as of _______, 2000 (as amended, supplemented, restated or otherwise modified from time to time, the "CREDIT AGREEMENT"). B. In connection with the Credit Agreement, the Borrower and certain of its Affiliates (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of _______, 2000 (as amended, supplemented, restated or otherwise modified from time to time, the "GUARANTEE AND COLLATERAL AGREEMENT") in favor of the Lender. C. Section 6.10 of the Credit Agreement (in the case of Subsidiaries of the Borrower) or Section 8.14(b) of the Guarantee and Collateral Agreement (in the case of Subsidiaries of the Parent other than the Borrower and its Subsidiaries), as the case may be, requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement. The Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement. NOW, THEREFORE, IT IS AGREED: 1. GUARANTEE AND COLLATERAL AGREEMENT. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in the Schedules to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ Annex 1-A to Assumption Agreement SUPPLEMENT TO SCHEDULE 1 SUPPLEMENT TO SCHEDULE 2 SUPPLEMENT TO SCHEDULE 3 SUPPLEMENT TO SCHEDULE 4 SUPPLEMENT TO SCHEDULE 5 SUPPLEMENT TO SCHEDULE 6 SUPPLEMENT TO SCHEDULE 7 EX-4 6 a2073144zex-4.txt EXHIBIT 4 EXHIBIT 4 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k)(1) promulgated under the Securities Exchange Act of 1934, as amended, the undersigned hereby agrees to the joint filing with the other Reporting Person (as such term is defined in the Schedule 13D referred to below) on behalf of each of them of a statement on Schedule 13D (including amendments thereto) with respect to the common stock, par value $.10 per share, of Circuit Research Labs, Inc., an Arizona corporation, and that this Agreement may be included as an exhibit to such joint filing. IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of March 13, 2002. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: /s/ Frank Meredith ----------------------------------------------- Frank Meredith, Secretary HARMAN ACQUISITION CORP. By: /s/ Frank Meredith ----------------------------------------------- Frank Meredith, Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----