-----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, NQP0tAS7iH1ihSwJbTQUSwHJaCXqgXrsrqYGahJZmV9PwvkehLlNA+bcIvaIAB5l yiqb77fhtn/zzruRMbbHPw== 0000950124-97-005767.txt : 19971111 0000950124-97-005767.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950124-97-005767 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 19971024 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CODE ALARM INC CENTRAL INDEX KEY: 0000821509 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 382334695 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-16441 FILM NUMBER: 97711992 BUSINESS ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 BUSINESS PHONE: 2485839620 MAIL ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 8-K 1 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) October 24, 1997 -------------------- Code-Alarm, Inc. - ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Michigan - ------------------------------------------------------------------------------ (State of Other Jurisdiction of Incorporation) 016441 38-2334695 - ------------------------------------------------------------------------------ (Commission File Number) (IRS Employer Identification No.) 950 E. Whitcomb, Madison Heights, Michigan 48071 - ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) (248) 583-9620 - ------------------------------------------------------------------------------ (Registrant's Telephone Number, Including Area Code) - ------------------------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 1. Changes in Control of Registrant. (b) A change in control might occur at a later date as a consequence of the transactions described in Item 5 of this report. Item 5. Other Events. On October 27, 1997 Code-Alarm, Inc. ("Company") closed an equity private placement for $6,999,850 and refinanced its senior secured debt. The transactions are outlined below. A fuller description of the terms and conditions of the transactions and related transactions is set forth in the transaction documents filed herewith. EQUITY INVESTMENT On October 27, 1997, Code-Alarm, Inc. ("Company") sold to Pegasus Partners, L.P. ("PP") and Pegasus Related Partners, L.P. ("PRP"; PP and PRP are collectively referred to as 2 "Pegasus") in a private placement under the Securities Act of 1933, as amended (the "Securities Act"), 55,000 units (the "Units") for $6,999,850 ($127.27 per Unit). The Units were sold pursuant to a Unit Purchase Agreement (the "Purchase Agreement") filed herewith. Each Unit consists of one share of Series A-1 Preferred Stock and warrants ("Attached Warrants") to purchase Common Stock. PP purchased 15,275 Units, and PRP purchased 39,725 Units. The rights, preferences and privileges of the Series A Preferred Stock (consisting of Series A-1 Preferred Stock and Series A-2 Preferred Stock) are set forth on the Certificate of Designation (the "Series A Certificate") filed herewith, which Series A Certificate was approved by Company's Board of Directors at its meeting on October 21, 1997, pursuant to the authority given to the Board by Company's Articles of Incorporation, and, having been filed with the State of Michigan, constitutes an amendment to Company's Articles of Incorporation. For each Unit, the Attached Warrants (the form of which is filed herewith) entitle the holder to purchase 67.842746 shares of Common Stock. This number of shares may increase up to an aggregate of 72.2525247) if, at the time of exercise of the Attached Warrant, there are accrued and unpaid dividends on the Series A Preferred Stock forming part of the Unit and those dividends are payable at the enhanced rate as a consequence of a "Triggering Event" discussed below. The exercise price per share of each Attached Warrant is $1.8759559. The exercise price and number of shares into which Attached Warrants are exercisable are subject to antidilution protection as discussed below. If there is no repurchase of Units by Company, Pegasus could receive up to 3,731,351 shares of Common Stock upon exercise of the Attached Warrants (assuming no antidilution adjustment and there are no accrued and unpaid dividends on the Series A Preferred Stock at the time of any exercise of the Attached Warrant) or up to 3,973,889 shares of Common Stock upon such exercise (assuming no antidilution adjustment and exercise on the day before a dividend payment date with dividends accruing at the enhanced rate due to a "Triggering Event"). SERIES A PREFERRED STOCK SERIES. The Series A Certificate creates 400,000 shares of Series A Preferred Stock ("Series A Preferred"), which is divided into two series, Series A-1 Preferred Stock ("Series A-1 Preferred") and Series A-2 Preferred Stock ("Series A-2 Preferred"), with each such series consisting of 200,000 shares. The rights, preferences and privileges of the Series A-1 Preferred and the Series A-2 Preferred are identical except with respect to certain voting rights as discussed below. If Pegasus transfers the Series A-1 Preferred to any non-affiliate, the stock will convert to Series A-2 Preferred on a share for share basis. Series A-1 Preferred Stock may only be transferred as part of a Unit with Attached Warrants. DIVIDENDS. Series A Preferred will accrue dividends at a rate of 10% of stated value per year, payable semi-annually on April 15 and October 15 of each year. Stated value is $127.27 (the purchase price of a Unit). Dividends for any partial period will be pro rated. The dividend is payable at the option of Company in cash or in additional Units (consisting of Series A Preferred of the same series and an Attached Warrant), with the number of Units issuable equal to the amount of the dividend divided by the stated value of the Series A Preferred. If a dividend -2- 3 is not paid when due, dividends will also be calculated on the unpaid dividend. The dividend on the Series A Preferred has a preference over the dividends on any Common Stock or other junior stock. In addition, dividends on common or any other junior stock cannot be paid without the consent of the Series A-1 Preferred. If a "Triggering Event" (discussed below) occurs, dividends are payable at the rate of 13% of stated value per annum. LIQUIDATION. In the event of any bankruptcy, liquidation, dissolution or winding up of Company, each share of Series A Preferred has a liquidation preference equal to the greater of (i) its stated value plus accrued but unpaid dividends or (ii) if a Triggering Event has occurred because the amendment to Company's Articles of Incorporation increasing the number of shares of authorized common stock to 20 million has not become effective or if Company has failed to issue Common Stock upon exercise of the Attached Warrants, all cash and other dividends, distributions and other payments which are paid or payable to a holder of shares of Common Stock for which Attached Warrants held by the holder of the Series A Preferred are exercisable at that time, plus $.01. The Series A Preferred liquidation preference is senior to any distribution to the holders of Common Stock or other junior stock. VOTING. The holders of Series A-1 Preferred will have the right, voting together as a separate class, to elect two members of Company's Board of Directors, which is expanded from 7 to 9 members. When Pegasus and its affiliates no longer hold at least 25% of the 55,000 shares of Series A-1 Preferred originally issued to Pegasus (without taking into account any dividends paid in kind), the Series A-1 Preferred will no longer have the right to elect any directors, and the Board will be reduced to 7 members. So long as Pegasus and its affiliates hold at least 25% of the 55,000 shares of Series A-1 Preferred issued to Pegasus (without taking into account any dividends paid in kind), Company may not, without the approval of the holders of a majority of the Series A-1 Preferred voting together as a separate class: 1. amend, repeal or modify the Articles of Incorporation or Bylaws in a way that adversely affects the Series A Preferred; 2. authorize a Realization Event (a liquidation, reorganization, merger, sale or transfer of all or substantially all of Company's or any subsidiary's assets) or a purchase or acquisition by Company or any of its subsidiaries of any of their stock (except the repurchase of the Units, the Attached Warrants, the Shortfall Warrants (discussed below) and Litigation Warrants (discussed below) and the Common Stock issuable upon exercise of these warrants); 3. declare or pay or set aside for payments any dividend or distribution on Common Stock or any other junior stock or redeem or repurchase any Common Stock or other junior stock; -3- 4 4. issue new capital stock or rights to acquire capital stock other than pursuant to the: exercise of options under the 1987 stock option plan; issuance of warrants or Common Stock issuable upon their exercise under the new stock option plan discussed below; issuance of warrants to General Electric Capital Corporation ("GECC") and Common Stock upon exercise thereof; issuance of the Litigation Warrants discussed below; issuance of Common Stock upon exercise of the Attached Warrants, the Shortfall Warrants and the Litigation Warrants; issuance of Series A Preferred Stock as in kind dividends; issuance of Series B Preferred Stock; and the issuance of equity securities the proceeds of which are intended to be, and are immediately, used to redeem all outstanding shares of Series A Preferred and at least one-half of all outstanding Attached Warrants. 5. make investments in assets or equity of other companies if the investment exceeds 10% of the assets of Company and its subsidiaries as of the end of the previous fiscal year or the income of Company and its subsidiaries will change by more than 10% because of the acquisition; 6. incur debt for borrowed money (including lease obligations but not including trade debt) over an aggregate of $1 million; 7. amend the stock option plans or adopt new ones; 8. modify or enter into any employment agreement or other compensation arrangement with any officer or director of Company or any subsidiary; 9. create an executive or other committee of the Board of Directors of Company or any subsidiary; 10. change in any material respect the nature of the business of Company or any subsidiary; or 11. enter into any transaction with any affiliate of Company or any subsidiary. If a "Triggering Event" occurs, holders of Series A-1 Preferred have the right to vote on all matters requiring action by Company's stockholders, voting together as a single class with the holders of the Common Stock, with each such Series A-1 Preferred holder entitled to a number of votes equal to three votes multiplied by the number of shares of Common Stock which such holder would have received upon exercise of such holder's Attached Warrants. "Triggering Events" are (i) failure to redeem Series A Preferred Stock as required, or, if repurchase is not permitted, Company fails to fulfill its registration obligations (discussed below), (ii) failure to pay dividends on the Series A Preferred Stock, (iii) failure to obtain approval of the Series A Preferred Stock with respect to the transactions specified above, (iv) failure of shareholders to approve the amendment increasing the amount of authorized Common Stock to 20 million and to have such amendment become effective by May 31, 1998, (v) failure to issue Common Stock -4- 5 upon exercise of the Attached Warrants, (vi) breach of Company obligations under the Registration Rights Agreement (discussed below), and (vi) a material breach of certain obligations or certain representations of Company under the Purchase Agreement. REPURCHASE/REDEMPTION. At any time prior to October 19, 1998, provided an amendment to Company's Articles of Incorporation increasing the number of authorized shares of Common Stock to 20 million has become effective, Company has the right to purchase all (but not less than all) the Series A Preferred outstanding, one-half of the Attached Warrants not representing accrued and unpaid dividends and any Attached Warrants representing accrued and unpaid dividends at a price of 117.5% of the stated value of the shares of Series A Preferred less cash dividends previously paid. At any time after October 27, 1999, if Company has not exercised the repurchase rights discussed in the preceding paragraph, Company may repurchase all outstanding shares of Series A Preferred, all outstanding Attached Warrants which are part of Units and all outstanding Common Stock into which Attached Warrants have been exercised (other than Common Stock sold pursuant to registration under the Securities Act or sold pursuant to Rule 144 - "Nonpurchasable Stock") at a price equal to the greater of (i) the number of shares of Common Stock for which the Attached Warrants are then exercisable plus the number of shares of Common Stock which have been issued upon exercise of Attached Warrants multiplied by the current market value (based upon the previous 20 trading days) of the Common Stock or (ii) the amount necessary to yield for each Unit (other than Units which have been transformed into Nonpurchasable Stock) an annual return of 35% (including cash dividends previously paid). The right of Company to redeem Series A Preferred, Attached Warrants and Common Stock issued upon exercise of Attached Warrants may not be exercised until the earlier of (i) the date which is six months and one day following the issuance to Pegasus of Litigation Warrants, provided that on or before that date Pegasus is unconditionally released in full from any unused portion of the Litigation Guaranty, or (ii) such time as Pegasus is unconditionally released in full from the Litigation Guaranty (discussed below), provided no Litigation Warrants have been issued prior to such release. At any time after three years and six months following October 27, 1997, each holder of Series A Preferred may demand that Company redeem all (but not less than all) Series A Preferred and Attached Warrants held by that holder. The purchase price is the market price of the Common Stock for which such Attached Warrants are then exercisable. If a Realization Event (as defined above) occurs between the time of the demand for redemption and the redemption date, then the holder shall receive the higher of (i) the market price of the Common Stock or (ii) the amount equal to the cash which would have been received upon the occurrence of the Realization Event had such warrants been exercised immediately prior to the event. If Company is prohibited from making the repurchase by any agreements evidencing indebtedness for borrowed money or if repurchase would cause a default in such obligations or would violate applicable law, Company must use reasonable best efforts to remove the restrictions. If Company notifies the holder that, despite Company's best efforts Company cannot fund the -5- 6 repurchase, Company must, at the request of the holder, register the Common Stock for which the Attached Warrants which will not be repurchased may be exercised. If Company will be redeeming Series A-1 Preferred in an amount which would result in the loss of voting rights, but not all such Series A-1 Preferred is being redeemed, then the holder of the Series A-1 Preferred may require Company to redeem only such lesser number of shares of Series A-1 Preferred as will not result in a loss of voting rights. REMEDIES. Upon the occurrence of certain Triggering Events (see discussion above), certain remedies (in addition to those noted above) are afforded the holders of Series A Preferred. If an amendment to Company's Articles of Incorporation increasing the number of authorized shares of Common Stock to 20 million is not effective by May 31, 1998 and thereafter until it is so adopted and effective or if Company fails to issue Common Stock upon exercise of Attached Warrants, holders of Series A Preferred will be entitled to receive all dividends, distribution and other payments which would be paid or payable to a holder of the number of Common Shares for which the Attached Warrants held by such Series A Preferred holder are exercisable. If the amendment to the Articles as set forth in the preceding sentence is not effective by May 31, 1998 and until it is thereafter adopted, dividends on Series A Preferred to the extent permitted by law must be paid in cash. If a Triggering Event occurs, Company's right of first refusal with respect to certain transfers for value of Series A Preferred Stock and/or Units to third parties not affiliated or associated with Pegasus shall cease. TRANSFERS. Shares of Series A-1 Preferred Stock may only be transferred together with the same number of Attached Warrants. ATTACHED WARRANTS If Company exercises its rights to repurchase the Series A Preferred, the Attached Warrants not repurchased will have a term of seven years. If Company has not repurchased the Series A Preferred, the term of the Attached Warrants will not expire. If Company has not exercised its rights to redeem Series A Preferred, the exercise price of the Attached Warrants must be paid by delivery of Series A Preferred Stock with a stated value plus accrued and unpaid dividends equal to the exercise price. If, however, Company has exercised its rights to redeem Series A Preferred, then the exercise price is payable at the option of the holder in either cash or by a surrender of "in the money warrants." The number of shares of Common Stock into which Attached Warrants are exercisable and the exercise price are subject to adjustment, if a dividend is payable to the holders of Common Stock in Common Stock, if the Common Stock is subdivided or combined or if a dividend is paid on the Common Stock in cash, evidence of indebtedness, securities or rights to acquire securities. If additional shares of Common Stock or rights to acquire additional shares of Common Stock or securities convertible into Common Stock, other than specified permitted issuances, are issued for less than the greater of the then current exercise price or the then -6- 7 current market price of the Common Stock, then the exercise price and number of shares into which the Attached Warrants are exercisable shall be subject to weighted-average antidilution protection. If, at any time prior to the approval of an amendment to Company's Articles of Incorporation authorizing an increase in the number of authorized shares of Company Common Stock to 20 million, Company pays or makes any dividend or distribution on Common Stock which is not otherwise accounted for by the antidilution provisions of the Attached Warrants, then that dividend or distribution shall also be paid or made to the holders of the warrants as if the warrants had been exercised. Company is required to reserve from its authorized but unissued shares of Common Stock a sufficient number of shares of Common Stock to permit exercise in full of all Attached Warrants. Company has reserved 2,267,421 shares of Common Stock for exercise of Attached Warrants and Shortfall Warrants, but Company needs to authorize additional shares of Common Stock to permit exercise in full of these warrants. Thus, Company's Board of Directors has approved an amendment to Company's Articles of Incorporation for presentation at the next stockholders meeting increasing the number of authorized shares of Common Stock from 5 million to 20 million. As indicated above, Attached Warrants can only be transferred as part of Units with shares of Series A Preferred. If Company has repurchased Units prior to October 19, 1998, this restriction shall no longer apply. Attached Warrants are subject to repurchase at the option of the holder after three years and six months from October 27, 1997, as indicated above. SHORTFALL WARRANTS Pegasus and GECC have entered into a Limited Supplemental Guaranty (filed herewith) pursuant to which Pegasus guarantees up to $4 million of the indebtedness of Company and its subsidiaries under the Credit Agreement (other than that covered by the Litigation Guaranty discussed below). In exchange, Pegasus has received warrants to purchase 1 million shares of Common Stock (the "Shortfall Warrants," the form of which is filed herewith). PP is receiving Shortfall Warrants to purchase 277,727 shares of Common Stock and PRP is receiving Shortfall Warrants to purchase 722,273 shares of Common Stock, subject to antidilution protection. The Shortfall Warrants have a term of seven years and an exercise price of $1.8759559 per share. If Pegasus is fully and unconditionally released from the Limited Supplemental Guaranty, Company has a right to repurchase portions of the outstanding Shortfall Warrants as follows: within the first six months after October 27, 1997, 75% of outstanding Shortfall Warrants; within 6 to 9 months after October 27, 1997, 50% of outstanding Shortfall Warrants; and within 9 to 12 months after October 27, 1997, 25% of outstanding Shortfall Warrants. The purchase price is $.0001 per share of Common Stock into which the repurchased warrants are exercisable. The purchase period is restricted in the same manner that repurchase of Series A Preferred Stock is -7- 8 restricted during the first year as provided above; however, to the extent such restriction is in effect, the time to repurchase is extended to a date thirty days after the restriction lapses. If, as a consequence of the exercise of Shortfall Warrants, the repurchase cannot be accomplished, then Company shall have the right to repurchase a number of shares of Common Stock equal to the number of shares of Common Stock into which the Shortfall Warrants which would have been repurchased were exercised. The exercise price of the Shortfall Warrants is payable in cash or by surrender of in the money warrants. The Shortfall Warrants have the same antidilution protection as is outlined above with respect to the Attached Warrants. At any time after three years and six months following October 27, 1997, each holder of a Shortfall Warrant may demand that Company redeem all or a portion of the Shortfall Warrants held by that holder. The purchase price is the market price of the Common Stock for which such Shortfall Warrants are then exercisable. If a Realization Event (as defined above) has occurred between the time of the demand for redemption and the redemption date, then the holder shall receive the higher of (i) the market price of the Common Stock or (ii) the amount equal to the cash which would have been received upon the occurrence of the Realization Event had such warrants been exercised immediately prior to the event, less the exercise price payable with respect to the number of shares being redeemed. If Company is prohibited from making the repurchase by any agreements evidencing indebtedness for borrowed money or if repurchase would cause a default in such obligations or would violate applicable law, Company must use reasonable best efforts to remove the restrictions. If Company notifies the holder that, despite Company's best efforts, Company cannot fund the repurchase, Company must at the request of the holder register the Common Stock for which the Shortfall Warrants which will not be repurchased may be exercised. LITIGATION WARRANTS If, at the request of Company, Pegasus provides Company with financing (including, by way of illustration, a guaranty of Company's obligations, such financing being termed the "Litigation Guaranty") for a judgment, appeal bond or settlement in connection with the litigation pending in the United States District Court for the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive Technology Corporation, case number 87-CV-74022-DT (the "Patent Litigation"), as contemplated in the Limited Litigation Guaranty between Pegasus and GECC (filed herewith), then Company has agreed to issue Pegasus warrants to purchase Common Stock (the "Litigation Warrants," the form of which is filed herewith). For each $1 million financed, up to a maximum of $12 million, Company will issue to Pegasus Litigation Warrants which will increase Pegasus' aggregate ownership interest in the Company by 2%, on a fully diluted basis. The exercise price for each one percent is $164,731. The Litigation Warrants will expire seven years from October 27, 1997. If Litigation Warrants were issued for a guaranty of $12 million by Pegasus, the Litigation Warrants, together with the Attached Warrants and the Shortfall Warrants held by Pegasus, if exercised, would represent approximately 78% of the shares of Common Stock of Company on a fully diluted basis (assuming no additional Attached Warrants have been issued, all dividends on Series A Preferred are paid in cash, no changes have resulted by reason -8- 9 of the antidilution provisions of the warrants and no Attached Warrants or Shortfall Warrants have been repurchased). If Company repurchases all outstanding Units and the Common Stock for which Attached Warrants have previously been exercised pursuant to its rights of repurchase, then simultaneously therewith Company, at its option, has a right to repurchase 95% of the outstanding Litigation Warrants and 95% of the shares of Common Stock for which Litigation Warrants have been exercised (other than any such shares which have been sold to a person or entity that is not an associate or an affiliate of the initial holder). The purchase price is the number of shares of Common Stock into which the all of the Litigation Warrants (whether repurchased or not) are exercisable plus the number of shares of Common Stock for which Litigation Warrants have been exercised (whether repurchased or not, but not including shares sold to parties other than affiliates or associates), multiplied by the current market price of a share of Common Stock, less the exercise price of Litigation Warrants repurchased. The exercise price of Litigation Warrants is payable in cash or by surrender of in the money warrants. The Litigation Warrants have the same antidilution protection as is outlined above with respect to the Attached Warrants. At any time after three years and six months following October 27, 1997, each holder of Litigation Warrants may demand that Company redeem all or a portion of the Litigation Warrants held by that holder. The purchase price is the market price of the Common Stock for which such Litigation Warrants are then exercisable. If a Realization Event (as defined above) has occurred between the time of the demand for redemption and the redemption date, then the holder shall receive the higher of (i) the market price of the Common Stock or (ii) the amount equal to the cash which would have been received upon the occurrence of the Realization Event had such warrants been exercised immediately prior to the event, less the exercise price payable with respect to the number of shares being redeemed. If Company is prohibited from making the repurchase by any agreements evidencing indebtedness for borrowed money or if repurchase would cause a default in such obligations or would violate applicable law, Company must use reasonable best efforts to remove the restrictions. If Company notifies the holder that, despite Company's best efforts, Company cannot fund the repurchase, Company must at the request of the holder register the Common Stock for which the Shortfall Warrants which will not be repurchased may be exercised. PURCHASE AGREEMENT The Purchase Agreement contains a number of covenants requiring Company to take specified actions. Company is required to obtain term life insurance in the amount of $5 million on Rand Mueller, Company President. Company is required to seek shareholder approval by May 31, 1998 of an amendment to its Articles of Incorporation increasing the number of shares of its authorized Common Stock to 20 million. If Company issues any securities (other than specified permitted issuances) which do not result in adjustment of the Attached Warrants pursuant to their antidilution provisions, then Pegasus is given a preemptive right to -9- 10 purchase up to a portion of such securities which would maintain the percentage ownership in Company represented by Attached Warrants then held. The new securities will be sold to Pegasus at the price and on the terms on which Company is proposing to sell such securities to third parties. Until the earlier of six months and one day following the issuance of Litigation Warrants (provided that on or before that date Pegasus is unconditionally released in full from any unused portion of the Litigation Guaranty) or such time as Pegasus is unconditionally released from its Litigation Guaranty (provided no Litigation Warrants have been issued), Company shall not permit a Realization Event to occur. Pegasus is prohibited from selling or transferring Units, Attached Warrants, Shortfall Warrants or Litigation Warrants as provided in the Unit Purchase Agreement. If Company has not exercised its right to repurchase Units by October 19, 1998, and if any holder of Units desires to transfer for value any Units to a third party which is not an affiliate or associate of that holder, then Company or its designee shall have a right to purchase those Units on the same terms and conditions as the holder is offering to the third party. The conditions to closing of the equity financing by Pegasus included: 1. Execution of employment agreements or amendments to existing agreements for Messrs. Mueller and Camalo in forms acceptable to Pegasus (discussed below and filed herewith); 2. Adoption of a new non-qualified stock option plan for management providing options to purchase 1,317,178 shares of Common Stock. The Board adopted such a plan, the 1997 Stock Option Plan (filed herewith), and made grants thereunder (see discussion below). 3. Company's Board of Directors irrevocably exempt both (a) the transaction with Pegasus and (b) Pegasus, itself, and its affiliate from the application of Chapter 7A of the Michigan Business Corporation Act ("MBCA"). Section 7A precludes certain types of transactions, so-called business combinations, of a Michigan corporation with a ten percent shareholder unless an advisory statement from the corporation's board of directors and supermajority approval by the corporation's shareholders are first obtained. Pursuant to Section 782(1)(b) of MBCA, Company's Board of Directors adopted a resolution irrevocably providing that any business combination with Pegasus or its affiliates enacted after Pegasus becomes an interested shareholder is exempt from the requirements of Section 7A; 4. Company's Board of Directors amend Company's Bylaws to exempt Company from the application of Chapter 7B of the MBCA. Section 7B denies voting rights to shares of Michigan corporations that, when added to a person's preexisting shares, increase the person's voting power to one-fifth or more of the voting power of the corporation in the election of directors, unless the corporation's shareholders (excluding the interested shareholders) approve a -10- 11 resolution granting such rights. Company's Board of Directors amended the Bylaws to make Section 7A inapplicable to Company; 5. Adoption of an amendment to Company's Bylaws increasing the number of directors to permit the appointment of the two directors which the Series A Preferred has the right to elect. Company's Board of Directors adopted an amendment to the Bylaws which provides that the Board of Directors shall consist of seven members, plus the aggregate number of directors that the holders of each series of Preferred Stock are entitled to elect; 6. Company's Board of Directors adopt a resolution approving an amendment of the articles increasing the authorized Common Stock to 20 million shares. To protect against the possibility that the shareholders may not approve the amendment, warrant holders are given rights to receive dividends and distributions as if they were owners of Common Stock. In addition, Pegasus required that the Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder Trust and Rand W. Mueller agree to vote their shares of Common Stock in favor of this amendment (this agreement is filed herewith). 7. The Robyn L. Mueller Trust agrees (pursuant to an agreement filed herewith) not to sell or dispose of a number of shares in any 12 month period in excess of 20% of the number of shares of Company Common Stock beneficially held by it at the beginning of each such 12 month period. Rand W. Mueller agrees not to sell more than 20% of his shares of Company Common Stock for a five year period. These obligations terminate on the earlier of five years or when Pegasus and its successors and assigns no longer hold 25% of the 55,000 Units originally issued under the Purchase Agreement. 8. Grant of registration rights (see discussion below). SENIOR SECURED CREDIT FACILITY Company has replaced its senior secured debt facility with a new facility as set forth in (i) the Credit Agreement dated as of October 24, 1997 among Company as Borrower, certain of Company's subsidiaries as other "Credit Parties", GECC as Lender and Agent and other Lenders who may become parties thereto (the "Credit Agreement") filed herewith (including attached exhibits and annexes) and (ii) the Litigation L/C and Term Loan C Agreement dated as of October 24, 1997 between Company as Borrower, GECC as Lender and Agent (the "Litigation Agreement"), filed herewith (together with related collateral documents). Under the Credit Agreement and the Litigation Agreement, GECC is currently the only Lender, but GECC has the right to assign or sell participations in the facility. A Lender's participation must be at least $5 million of the total facility. The facility is composed of the following: (i) a revolving loan of up to $12 million (the "Revolving Credit"), (ii) a $1.5 million term loan ("Term Loan A"), (iii) a loan of up to $3 million to pay a final judgment in the current Patent Litigation ("Term Loan B"), (iv) in lieu -11- 12 of Term Loan B and pursuant to the Litigation Agreement, up to $12 million to procure a letter of credit to secure a supersedeas or appeal bond or similar obligation in order to appeal a judgment of the U.S. District Court in the Patent Litigation, provided that such judgment is not in excess of $12 million (the "Litigation L/C"), and (v) if the Litigation L/C is paid or alternatively if the Litigation L/C is not incurred or is terminated prior to its being drawn, a loan of up to $12 million to facilitate payment of a settlement or final judgment of the Patent Litigation ("Term Loan C"). The Shortfall Warrants are being issued as consideration for a guaranty by Pegasus of $4 million of the Revolving Credit. If the Litigation L/C is issued, the Litigation Warrants will be issued to Pegasus as consideration for its guaranty of the Litigation L/C and Term Loan C. Borrower is Company. Each U.S. subsidiary of Company, including Tessco Group, Inc., Anes, Inc, Chapman Security Systems, Inc. and Intercept Systems, Inc., is guarantying the obligations of Company under the facility. All assets of Company and its U.S. subsidiaries are being pledged to GECC on a combined basis to secure the facility. Company has also pledged the stock of its U.S. subsidiaries to GECC. The facility is also secured by a pledge of one share of Company's Series B Preferred Stock as discussed below. The first loans under the facility were drawn down on October 27, 1997. The term of the facility is 3 years, with the outstanding balance of all loans being due at that time. Term Loan A is amortized over three years in equal quarterly payments plus interest. Term Loan B, if issued, will be amortized over three years in equal quarterly installments plus interest. Term Loan C, if issued, will be payable in quarterly installments equal to the lesser of $250,000 or one-twelfth of its aggregate original principal amount. A condition to the issuance of Term Loan B is that if the judgment exceeds $3 million, Company shall have received the balance from net capital contributions or net proceeds from a subordinated loan. Interest may be based on the index rate or LIBOR. If based on the index rate, the rates are index plus 1.5% for the Revolving Credit, index plus 1.75% for the Term Loan A, and index plus 2% for Term Loan B and Term Loan C. The LIBOR rates are LIBOR plus 3.25% for the Revolving Credit, LIBOR plus 3.5% for the Term Loan B, and LIBOR plus 3.75% for Term Loan B and Term Loan C. The default interest rate is an additional 2%. -12- 13 The fees payable by Company in connection with the facility include a closing fee, an annual monitoring fee, a letter of credit fee (other than the Litigation L/C) of 2%, a Litigation L/C fee of 3%, and an unused facility fee of 0.4%. Mandatory prepayments include: (i) if Company issues stock or any debt securities, 100% of the net proceeds shall be used to prepay the obligations or collateralize letter of credit obligations or the Litigation L/C; (ii) if any asset is sold including stock of a subsidiary, the net proceeds (including payment of senior liens on the asset sold) shall be used to prepay the obligations; (iii) 100% of excess cash flow shall be applied to Term Loan B or Term Loan C if either is outstanding; (iv) if proceeds of any money judgment or other payment arising out of any litigation involving patents or intellectual property are received, then either (i) 50% of such proceeds shall be used to prepay the loans or cash collateralize the Litigation L/C (provided neither Term Loan B or Term Loan C is outstanding and the Litigation L/C shall not have been used) or (ii) 100% of such proceeds shall be used to prepay Term Loan B or Term Loan C or to collateralize the Litigation L/C. The Credit Agreement and Litigation Agreement contain representations, covenants (including financial covenants) and events of default. Any repurchase of Units, Attached Warrants, Shortfall Warrants or Litigation Warrants requires the consent of GECC. PEGASUS PURCHASE AND OTHER RIGHTS GECC has granted to Pegasus pursuant to the letter dated October 27, 1997 filed herewith, the right to purchase the facility if the loans are accelerated. The obligation to sell expires on the sixty-first day following notice of acceleration given to Pegasus by GECC. The purchase price is 100% of all obligations under the facility. In the Litigation Guaranty, the Lenders and Agent agreed not to waive or modify certain provisions of the documents evidencing the senior debt facility without the prior written consent of Pegasus. WARRANT PURCHASE AGREEMENT AND WARRANTS In connection with providing the facility, Company and GECC entered into a Warrant Purchase Agreement dated as of October 24, 1997, filed herewith. Pursuant to that agreement, Company sold to GECC in a private placement under the Securities Act warrants (the "GECC Warrants"), filed herewith. The GECC Warrants entitle the holder to purchase 131,718 shares of Common Stock at an exercise price of $1.8759559 per share. The number of shares of Common -13- 14 Stock into which the GECC Warrants are exercisable and the exercise price are subject to adjustment for dilutive events as described above for the Attached Warrants; however, the issuance of the Litigation Warrants is also a dilutive event. The GECC Warrants have a 7 year term, and their exercise price may be paid in cash or with in-the-money warrants. SERIES B PREFERRED STOCK PLEDGE As additional security for its loans, GECC required that Company create a series of preferred stock designated Series B Preferred Stock and cause one share of that stock to be pledged to GECC. As a consequence, Company's Board of Directors adopted a resolution, pursuant to the authority given to it in Company's Articles of Incorporation, approving a certificate of designation of Series B Preferred Stock (the "Series B Certificate"), which certificate has been filed with the State of Michigan, has become part of Company's Articles of Incorporation and is filed herewith. Only one share of Series B Preferred Stock is authorized. The share of Series B Preferred Stock is entitled to dividends at the rate of $1.00 per year, has a liquidation preference over Common Stock of $10 plus accrued but unpaid dividends, and is subject to repurchase by Company in an amount equal to its liquidation preference when all obligations under the Credit Agreement have been paid and all commitments under the Credit Agreement have been terminated. The Series B Preferred has the following voting rights: (i) if there is an event of default under the Credit Agreement and the obligations thereunder are accelerated, then the number of directors of Company shall be increased to one more than the number of directors then authorized and the Series B Preferred Stock shall be entitled to elect all these new directors; (ii) without the consent of the Series B Preferred Stock, Company shall not amend, repeal, modify or supplement any provision of its Articles of Incorporation, any certificate setting forth the rights, preferences and privileges of any capital stock or Bylaws, if such amendment, repeal, modification or supplement would adversely affect the powers, designations, preferences or other rights of the Series B Preferred Stock; and (iii) only such other voting rights as are required by law. On October 23, 1997, Company sold for $10.00 to Craig Camalo the share of Series B Preferred Stock. Company has a right to repurchase the share for $10.00, plus accrued and unpaid dividends after the Credit Agreement is terminated and all obligations thereunder have been paid in full. Mr. Camalo has pledged that share of Series B Preferred Stock to GECC pursuant to a Pledge Agreement filed herewith. REGISTRATION RIGHTS Company has entered into a Registration Rights Agreement with GECC and Pegasus, filed herewith, pursuant to which Pegasus and GECC will receive specified registration rights with respect to registrable securities. Pegasus will receive the right to require that Company on five occasions register shares of Common Stock and GECC will have one such right (at least 50,000 shares must be registered). There must be 6 months between such demand registrations. -14- 15 Company's Board of Directors has a right to postpone a registration for up to 60 days. In addition, Pegasus and GECC are granted the right to participate in any other registration of Common Stock which Company undertakes (other than a registration on form S-4 or S-8 or a registration filed in connection with a dividend reinvestment plan) for itself or for a person having demand registration rights, but subject to underwriter cutbacks. All expenses of registration (including one counsel for the registering holders), except brokerage fees and commissions, will be paid by Company. Company is prohibited from granting registration rights to any other person which are inconsistent with those being granted to Pegasus and GECC. Pegasus and GECC may transfer the registration rights with any transfer of the registrable securities. The registration rights expire when there are no more registrable securities. Registrable securities include (i) Common Stock issued upon exercise of the Attached Warrants, Shortfall Warrants, Litigation Warrants and GECC Warrants and (ii) Common Stock issued or issuable with respect to the Common Stock referred to in clause (i) upon any stock split, dividend, recapitalization or similar event, but excluding Common Stock sold in a public offering or sold in a transaction exempt from the registration requirements of the Securities Act such that all transfer restrictions and legends are removed. 1997 STOCK OPTION PLAN As noted above, Company's Board of Directors adopted on October 21, 1997 a non-qualified stock option plan filed herewith. The Board granted options as follows: options to purchase 790,306 shares of Common Stock to Rand Mueller, options to purchase 200,624 shares to Peter Stouffer, options to purchase 200,624 shares to Michael Schroeder, and options to purchase 125,624 shares to Craig Camalo. The options are exercisable at $1.88 per share, payable in cash or by surrender of in the money options. One-third of the options granted to each person vest on each of the third, fourth and fifth anniversaries from the date of grant; however, if a change of control as in the plan occurs, all options immediately vest. A condition to the exercise of the grants is an amendment to Company's Articles of Incorporation increasing the number of shares of Common Stock to 20 million. Options vest and are exercisable only if the fair market value of Company's Common Stock or its value in a change of control shall have reached or exceeded the price specified during the period of time specified, measured from the date of adoption of the plan: From Plan Adoption Price Up to 1 year $2 3/8 1 to 2 years $3 2 to 3 years $3 7/8 3 to 4 years $5 4 to 5 years $6 5/8 5 to 6 years $8 5/8 after 6 years $11 1/2 -15- 16 Options which are canceled or terminated cannot be reissued. AGREEMENTS WITH DIRECTORS AND MANAGEMENT KENNETH M. MUELLER - DIRECTOR Company entered into an amended agreement (filed herewith) dated October 1, 1997 with Kenneth M. Mueller, pursuant to which he will provide consulting services, including with respect to public relations and special projects. Mr. Mueller also agrees to continue to serve as a Director of Company. For such services, Company will pay Mr. Mueller $14,000 per year, which amount includes payment for his services as a Director. The agreement has a three year term, that automatically renews for one year periods if not terminated. RAND W. MUELLER - CHAIRMAN OF THE BOARD, DIRECTOR, CHIEF EXECUTIVE OFFICER AND PRESIDENT Rand W. Mueller's employment agreement was amended as of May 20, 1997 and as of October 15, 1997 (the amendments are filed herewith). His employment term was extended to May 31, 2001, and automatically continues for successive one year periods thereafter, unless at least 24 months prior to such termination Company gives notice that the employment will not be continued. Mr. Mueller's annual salary is $500,000 starting on October 1, 1997. In addition, Mr. Mueller will receive an annual incentive bonus equal to 5% of operating income after the first $5 million of Company operating income. PETER J. STOUFFER - DIRECTOR AND VICE PRESIDENT OF MANUFACTURING AND ENGINEERING Peter J. Stouffer and Company entered into an employment agreement as of May 20, 1997 (filed herewith), with employment term provisions the same as those in Rand W. Mueller's employment agreement described above. Mr. Stouffer is to serve as Vice President of Manufacturing and Engineering. The annual salary is $105,000. Company will pay Mr. Stouffer an annual bonus equal to 1% of the first $1 million of Company operating income, and 2% of all additional operating income. Mr. Stouffer will also be entitled to a bonus based on the increase in shareholder value (the price of Company Common Stock). Mr. Stouffer is subject to non-competition and confidentiality obligations during his employment and for two years after termination of employment. MICHAEL P. SCHROEDER - VICE PRESIDENT OF SALES AND MARKETING Michael P. Schroeder and Company entered into an employment agreement as of May 20, 1997 (filed herewith), with employment term provisions the same as those in Rand W. Mueller's employment agreement discussed above. Mr. Schroeder is to serve as Vice President of Sales and Marketing. His annual salary is $90,000. He will be entitled to the same bonus arrangements and subject to -16- 17 the same non-competition and confidentiality obligations as those is Mr. Stouffer's agreement discussed above. CRAIG S. CAMALO - VICE PRESIDENT OF FINANCE, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY Craig S. Camalo and Company entered into an employment agreement as of May 20, 1997, with employment term provisions the same as those in Rand W. Mueller's employment agreement discussed above. Mr. Camalo is to serve as Vice President of Finance and Chief Financial Officer. His annual salary is $100,000. He will be entitled to the same bonus arrangements as those in Mr. Stouffer's agreement discussed above. Mr. Camalo is subject to non-competition and confidentiality obligations during his employment and for six months after termination of employment. Item 7. Financial Statements and Exhibits. (c) Exhibits. 3.1.1 Certificate of Designation, Numbers, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock of Code-Alarm, Inc. ("Company"). 3.1.2 Certificate of Designation, Numbers, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock of Company. 3.2.1 Bylaws of Company, as amended. 10.40 Credit Agreement dated as of October 24, 1997 (the "Credit Agreement") among Company, General Electric Capital Corporation ("GECC"), in its capacity as a "Lender", and the other financial institutions which may from time to time become parties to the Credit Agreement (GECC, in such capacity, and such other financial institutions being sometimes hereinafter referred to collectively as the "Lenders" and individually as a "Lender"), and GECC, in its separate capacity as agent for the Lenders (the "Agent") with Exhibits and Annexes attached. 10.41 Security Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.42 Security Agreement dated as of October 24, 1997 executed by Tessco Group, Inc. ("Tessco"), in favor of the Agent and the Lenders (Credit Agreement). 10.43 Guaranty dated as of October 24, 1997 executed by Tessco in favor of Agent and the Lenders (Credit Agreement). 10.44 Pledge Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.45 Pledge Agreement dated as of October 24, 1997 executed by Craig S. Camalo in favor of the Agent and the Lenders (Credit Agreement). -17- 18 10.46 Patent Security Agreement dated October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.47 Contribution Indemnification and Subordination Agreement dated October 24, 1997 among the Credit Parties (Credit Agreement). 10.48 Litigation L/C and Term Loan C Agreement (the "Litigation Agreement") dated as of October 24, 1997 among Company, Agent and other financial institutions which may from time to time become parties to the Litigation Agreement as Term Lenders. 10.49 Security Agreement dated October 2, 1997 executed by the Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.50 Security Agreement dated October 24, 1997 executed by Tessco in favor of the Agent and the Term Lenders (Litigation Agreement). 10.51 Guaranty dated as of October 24, 1997 executed by Tessco in favor of the Agent and the Term Lenders (Litigation Agreement). 10.52 Pledge Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.53 Pledge Agreement dated as of October 24, 1997 executed by Craig S. Camalo in favor of the Agent and the Terms Lenders (Litigation Agreement). 10.54 Patent Security Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.55 Warrant Purchase Agreement dated as of October 24, 1997 executed by GECC and Company. 10.56 Warrant to Purchase Common Stock of Company issued to GECC and executed by Company. 10.57 Unit Purchase Agreement dated as of October 27, 1997 among Company, Pegasus Partners, L.P. ("PP"), Pegasus Related Partners, L.P. ("PRP"). 10.58 Letter granting PP and PRP the right to purchase accelerated obligations executed by GECC and acknowledged by Company. 10.59 Registration Rights Agreement dated as of October 27, 1997 among Company, PP, PRP and GECC. 10.60 Form of Attached Warrant to purchase Common Stock of Company. 10.61 Form of Shortfall Warrant to purchase Common Stock of Company. 10.62 Form of Litigation Warrant to purchase Common Stock of Company. 10.64 Limited Supplemental Guaranty dated as of October 24, 1997 by and among PP, PRP and GECC. 10.65 Limited Litigation Guaranty dated as of October 24, 1997 by and among PP, PRP and GECC. 10.66 Company's 1997 Stock Option Plan. 10.67 Letter Agreement dated as of October 27, 1997 among Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder Unitrust, Mr. Rand Mueller, PP, PRP and Company. 10.68 Amendment No.4 to Employment Agreement between Company and Rand W. Mueller dated May 20, 1997, and Amendment No. 5 to Employment Agreement between Company and Rand W. Mueller dated May 29, 1997. -18- 19 10.69 Employment Agreement dated May 20, 1997 between Company and Craig S. Camalo. 10.70 Employment Agreement dated May 20, 1997 between Company and Peter Stouffer. 10.71 Employment Agreement dated May 20, 1997 between Company and Michael Schroeder. 10.72 Letter Agreement dated October 1, 1997 between Company and Kenneth M. Mueller. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. CODE-ALARM, INC. ------------------------------ Date: November 10, 1997 By: /s/ RAND W. MUELLER --------------------------- RAND W. MUELLER President -19- 20 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1.1 Certificate of Designation, Numbers, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock of Code-Alarm, Inc. ("Company"). 3.1.2 Certificate of Designation, Numbers, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock of Company. 3.2.1 Bylaws of Company, as amended. 10.40 Credit Agreement dated as of October 24, 1997 (the "Credit Agreement") among Company, General Electric Capital Corporation ("GECC"), in its capacity as a "Lender", and the other financial institutions which may from time to time become parties to the Credit Agreement (GECC, in such capacity, and such other financial institutions being sometimes hereinafter referred to collectively as the "Lenders" and individually as a "Lender"), and GECC, in its separate capacity as agent for the Lenders (the "Agent") with Exhibits and Annexes attached. 10.41 Security Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.42 Security Agreement dated as of October 24, 1997 executed by Tessco Group, Inc. ("Tessco"), in favor of the Agent and the Lenders (Credit Agreement). 10.43 Guaranty dated as of October 24, 1997 executed by Tessco in favor of Agent and the Lenders (Credit Agreement). 10.44 Pledge Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.45 Pledge Agreement dated as of October 24, 1997 executed by Craig S. Camalo in favor of the Agent and the Lenders (Credit Agreement). 10.46 Patent Security Agreement dated October 24, 1997 executed by Company in favor of the Agent and the Lenders (Credit Agreement). 10.47 Contribution Indemnification and Subordination Agreement dated October 24, 1997 among the Credit Parties (Credit Agreement). 10.48 Litigation L/C and Term Loan C Agreement (the "Litigation Agreement") dated as of October 24, 1997 among Company, Agent and other financial institutions which may from time to time become parties to the Litigation Agreement as Term Lenders. 10.49 Security Agreement dated October 2, 1997 executed by the Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.50 Security Agreement dated October 24, 1997 executed by Tessco in favor of the Agent and the Term Lenders (Litigation Agreement). 10.51 Guaranty dated as of October 24, 1997 executed by Tessco in favor of the Agent and the Term Lenders (Litigation Agreement). 10.52 Pledge Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.53 Pledge Agreement dated as of October 24, 1997 executed by Craig S. Camalo in favor of the Agent and the Terms Lenders (Litigation Agreement). 10.54 Patent Security Agreement dated as of October 24, 1997 executed by Company in favor of the Agent and the Term Lenders (Litigation Agreement). 10.55 Warrant Purchase Agreement dated as of October 24, 1997 executed by GECC and Company. 10.56 Warrant to Purchase Common Stock of Company issued to GECC and executed by Company. 10.57 Unit Purchase Agreement dated as of October 27, 1997 among Company, Pegasus Partners, L.P. ("PP"), Pegasus Related Partners, L.P. ("PRP"). 10.58 Letter granting PP and PRP the right to purchase accelerated obligations executed by GECC and acknowledged by Company. 10.59 Registration Rights Agreement dated as of October 27, 1997 among Company, PP, PRP and GECC. 10.60 Form of Attached Warrant to purchase Common Stock of Company. 10.61 Form of Shortfall Warrant to purchase Common Stock of Company. 10.62 Form of Litigation Warrant to purchase Common Stock of Company. 10.64 Limited Supplemental Guaranty dated as of October 24, 1997 by and among PP, PRP and GECC. 10.65 Limited Litigation Guaranty dated as of October 24, 1997 by and among PP, PRP and GECC. 10.66 Company's 1997 Stock Option Plan. 10.67 Letter Agreement dated as of October 27, 1997 among Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder Unitrust, Mr. Rand Mueller, PP, PRP and Company. 10.68 Amendment No.4 to Employment Agreement between Company and Rand W. Mueller dated May 20, 1997, and Amendment No. 5 to Employment Agreement between Company and Rand W. Mueller dated May 29, 1997. 10.69 Employment Agreement dated May 20, 1997 between Company and Craig S. Camalo. 10.70 Employment Agreement dated May 20, 1997 between Company and Peter Stouffer. 10.71 Employment Agreement dated May 20, 1997 between Company and Michael Schroeder. 10.72 Letter Agreement dated October 1, 1997 between Company and Kenneth M. Mueller. EX-3.1.1 2 EXHIBIT 3.1.1 1 EXHIBIT 3.1.1 CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER RIGHTS OF SERIES A PREFERRED STOCK OF CODE ALARM INC. Code Alarm Inc. (the "Corporation"), a corporation organized and existing under the Michigan Business Corporation Act, hereby certifies that, pursuant to the provisions of Section 302 of the Michigan Business Corporation Act, its Board of Directors, at a meeting duly held on October 21, 1997, adopted the following resolution: WHEREAS, the Board of Directors of the Corporation is authorized by the Restated Articles of Incorporation to issue up to 500,000 shares of preferred stock in one or more series and, in connection with the creation of any series, to fix by the resolutions providing for the issuance of shares the powers, designations, preferences and relative, participating, optional or other rights of the series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to such authority, to authorize and fix the terms and provisions of one series, consisting of two sub-series, of preferred stock and the number of shares constituting such series and sub-series; NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a series of preferred stock on the terms and with the provisions herein set forth on Annex A attached to this resolution. /s/ Rand Mueller -------------------------- Name: Rand Mueller Title: President ATTEST: /s/ Craig S. Camalo - ------------------------- Name: Craig S. Camalo Title: Secretary 2 ANNEX A SERIES A PREFERRED STOCK The powers, designations, preferences and relative, participating, optional or other rights of the Series A Preferred Stock of Code Alarm Inc. (the "Corporation") are as follows: 1. DESIGNATION AND AMOUNT. This series of preferred stock shall be designated as "Series A Preferred Stock." The Series A Preferred Stock shall be issuable in two sub-series, which shall be designated as "Series A-1 Preferred Stock" and "Series A-2 Preferred Stock" and which shall be the same in all respects except as otherwise specified below. The Series A Preferred Stock shall have no par value per share. The number of authorized shares constituting this series shall be 400,000 shares, 200,000 of which shall be Series A-1 Preferred Stock and 200,000 of which shall be Series A-2 Preferred Stock. Shares of the Series A Preferred Stock shall have a stated value of $127.27 per share (the "Stated Value"). 2. DIVIDENDS. (a) Right to Receive Dividends. Holders of the Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors of the Corporation (the "Board of Directors"), to the extent permitted by the Michigan Business Corporation Act, cumulative dividends at the rate, in the form, at the times and in the manner set forth in this Section 2. Such dividends shall accrue on any given share from the day of issuance of such share and shall accrue from day to day at the rate specified in Section 2(c) below whether or not earned or declared. (b) Form of Dividend. Except as provided in Section 10(c), any dividend payment made with respect to the Series A Preferred Stock may be made, at the sole discretion of the Board of Directors, in cash out of funds legally available for such purpose or by issuing the number of units ("Units") consisting of one share of Series A Preferred Stock (of the same sub-series as those held by the holder entitled to the dividend) and one warrant (together with other warrants in substantially the same form issued to holders of Series A Preferred Stock, a form of which is available for inspection at the Corporation, the "Attached Warrants") to purchase such number of shares of the Corporation's common stock, no par value (the "Common Stock") for which the other Attached Warrants held by such holder are exercisable at such time, in the form attached as Exhibit B-1 to the Unit Purchase Agreement dated as of the date of initial issuance of shares of Series A Preferred Stock (the "Issuance Date"), among the Corporation, Pegasus Partners, L.P. and Pegasus Related Partners, L.P., a copy of which is available for inspection at the Corporation (the "Unit Purchase Agreement"), equal to the amount of the dividend divided by the Stated Value. Any such dividend payment may be made, in the sole discretion of the Board of Directors, partially in cash and partially in Units determined in accordance with the preceding formula; provided, that, in the event that any such dividend payment is made partially 3 in cash and partially in Units, each holder of Series A Preferred Stock shall receive a ratable amount of cash and Units that is proportionate to the amount of Series A Preferred Stock held by such holder on which such dividend is paid. All shares of Series A Preferred Stock and Attached Warrants comprising Units issued as a dividend shall be fully paid and nonassessable. (c) Dividend Rate. The dividend rate on the Series A Preferred Stock shall be 10% per annum of the Stated Value per share plus all accrued and unpaid dividends as of the most recent Dividend Payment Date (as defined below) (after giving effect to payments made on such date); provided, that, upon the occurrence and during the continuance of any Triggering Event (as defined in Section 7 hereof), the dividend rate on the Series A Preferred Stock shall be 13% per annum of the Stated Value per share plus all accrued and unpaid dividends as of the most recent Dividend Payment Date (as defined below) (after giving effect to payments made on such date) (such rate, as applicable, the "Dividend Rate"). (d) Payment of Dividends. Dividends shall be payable semi-annually in arrears, when and as declared by the Board of Directors, on April 15 and October 15 of each year, commencing April 15, 1998 (each such semiannual payment date, a "Dividend Payment Date"), except that if any such date is a Saturday, Sunday or legal holiday then such dividend shall be payable on the first immediately succeeding calendar day which is not a Saturday, Sunday or legal holiday. Dividends shall accrue on each share of Series A Preferred Stock from the date of issuance of such share and, after payment of a dividend as required hereunder, from and after each such Dividend Payment Date based on the number of days elapsed and a 365-day year. The dividend payable on the first Dividend Payment Date with respect to any share of Series A Preferred Stock shall be the pro rata portion of the Dividend Rate based upon the number of days from and including the Issuance Date, up to and including such first Dividend Payment Date and a 365-day year. Each dividend shall be paid to the holders of record of shares of the Series A Preferred Stock as they appear on the books of the Corporation on such record date, which record date shall be not more than 45 days nor fewer than 10 days preceding the respective Dividend Payment Date, as shall be fixed by the Board of Directors. Any dividend payable on any Dividend Payment Date to any holder of record of shares of Series A Preferred Stock shall be reduced by the amount of any dividend payments made to such holder pursuant to Section 8(b) hereof during the six-month period preceding such Dividend Payment Date. (e) Dividend Preference. Dividends on the Series A Preferred Stock shall be payable before any dividends or distributions or other payments shall be paid or set aside for payment upon the common stock, no par value, of the Corporation (the "Common Stock") or any other stock ranking on liquidation or as to dividends or distributions junior to the Series A Preferred Stock (any such stock, together with the Common Stock, being referred to hereinafter as "Junior Stock"), other than a dividend, distribution or payment paid solely in shares of Common Stock or other Junior Stock that is not Redeemable Stock (as defined below). If at any time dividends on the outstanding Series A Preferred Stock at the rate set forth herein shall not have been paid or declared and set apart for payment with respect to all preceding and current periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, before any dividend, distribution or payment shall be declared or paid upon or set apart for the 2 4 shares of any other class or series of Junior Stock or Parity Securities (as defined below), other than a dividend, distribution or payment paid solely in shares of Common Stock or other Junior Stock that is not Redeemable Stock. The term "Redeemable Stock" shall mean any equity security that by its terms or otherwise is required to be redeemed for cash at any time or is redeemable for cash at the option of the holder thereof at any time. If there shall be outstanding shares of any Parity Securities, no full dividends shall be declared or paid or set apart for payment on any such Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum or additional shares of Series A Preferred Stock as permitted hereunder sufficient for the payment thereof set apart for such payment on the Series A Preferred Stock for all dividend periods terminating on or prior to the date of payment of such dividends; provided that in no event shall any dividends be declared or paid in cash on Parity Securities unless dividends in cash of not less than a ratable amount are declared and paid on Series A Preferred Stock. The term "Parity Securities" shall mean any class or series of capital stock which is entitled to share ratably with the Series A Preferred Stock in the payment of dividends, including accumulations, if any, and, in the event that the amounts payable thereon on liquidation are not paid in full, are entitled to share ratably with the Series A Preferred Stock in any distribution of assets; provided that Parity Securities shall not include any shares of Series A Preferred Stock issued as dividends pursuant to this Section 2. If dividends on the Series A Preferred Stock and on any other series of Parity Securities are in arrears, in making any dividend payment on account of such arrears, the Corporation shall make payments ratably (and ratably as to cash, in-kind or other payments) upon all outstanding shares of the Series A Preferred Stock and shares of such other Parity Securities in proportion to the respective amounts of dividends in arrears on the Series A Preferred Stock and on such other series of Parity Securities to the date of such dividend payment. Notwithstanding any other provision of this Section 2, the Corporation may pay scheduled and accrued dividends on its Series B Preferred Stock, pursuant to the terms of the Series B Certificate of Designation (as hereinafter defined). 3. LIQUIDATION PREFERENCE. In the event of any bankruptcy, liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, each holder of Series A Preferred Stock at the time thereof shall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of the Corporation to the holders of the Common Stock or other Junior Stock by reason of their ownership of such stock, an amount per share of Series A Preferred Stock equal to the greater of (x) the Stated Value plus any accrued and unpaid dividends to the date of liquidation or (y) subject to the applicability of Section 8(b), the amount per share determined in accordance with such Section 8(b) plus $.01. If the assets and funds legally available for distribution among the holders of Series A Preferred Stock shall be insufficient to permit the payment to the holders of the full aforesaid preferential amount, then the assets and funds shall be distributed ratably among holders of Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock owned by each holder. If the assets and funds of the Corporation available for distribution to stockholders upon any bankruptcy, liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to permit the payment to holders 3 5 of the full aforesaid preferential amount and amounts payable to holders of outstanding Parity Securities, the holders of Series A Preferred Stock and the holders of such other Parity Securities shall share ratably (and ratably as to cash, in-kind or other distributions) in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. Notwithstanding any other provision of this Section 3, the Corporation may redeem or repurchase shares of Series B Preferred Stock pursuant to the terms of the Series B Certificate of Designation. 4. VOTING RIGHTS. In addition to any voting rights provided elsewhere herein or in the Corporation's Restated Articles of Incorporation, as it may be amended or restated from time to time (the "Articles of Incorporation"), and any voting rights provided by law, the holders of shares of Series A-1 Preferred Stock shall have the following voting rights: (a) Election of Directors. (i) Subject to the terms hereof, the holders of the Series A-1 Preferred Stock, voting as a single class in accordance with Section 4(d), shall have the right, at any time on or after the day after the Issuance Date, to elect two directors (in addition to the directors elected by holders of Common Stock or any other capital stock of the Corporation). (ii) Any director elected by the holders of shares of Series A-1 Preferred Stock shall be referred to herein as a "Series A-1 Preferred Director." Subject to Section 4(a)(v), the initial terms of the two directors to be appointed pursuant to Section 4(a)(i) will commence upon their election by the Series A-1 Preferred Stock and shall expire at the 2000 annual meeting of stockholders of the Corporation. Upon expiration of the initial terms of such Series A-1 Preferred Directors, so long as the Series A-1 Preferred Stock is outstanding, the holders of the Series A-1 Preferred Stock shall have the right, subject to Section 4(a)(v), to elect two Series A-1 Preferred Directors to replace such directors in the same manner described above in Section 4(a)(i). Subject to Section 4(a)(v), a Series A-1 Preferred Director so elected shall hold office for a term expiring at the annual meeting of stockholders in the third year following the election of such director. Notwithstanding the foregoing, but subject to Section 4(a)(v), a Series A-1 Preferred Director elected under Section 4(a)(i) shall serve until such Series A-1 Preferred Director's successor is duly elected and qualified or until such director's earlier removal as provided in Section 4(a)(iii) or death or resignation and, in the event a vacancy 4 6 occurs, a replacement Series A-1 Preferred Director shall be selected as provided in Section 4(a)(i). (iii) A Series A-1 Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of a majority of the outstanding shares of Series A-1 Preferred Stock, voting together as a single class. (iv) The Corporation shall at all times reserve and keep available a sufficient number of vacant seats on the Board of Directors solely for the purpose of enabling the holders of the Series A-1 Preferred Stock to designate Series A-1 Preferred Directors as provided in this Section 4(a). (v) The right of the holders of Series A-1 Preferred Stock to elect two directors pursuant to this Section 4(a) shall terminate at such time as the initial holder of Series A-1 Preferred Stock and its affiliates (as such term is defined in Section 776(1) of the Michigan Business Corporation Act) no longer hold at least 25% of the initially issued number of shares of Series A-1 Preferred Stock (without regard to in-kind dividends paid thereon) and at such time the term of any Series A-1 Preferred Director shall immediately terminate. (b) Certain Corporate Actions. So long as the initial holder of Series A-1 Preferred Stock and its affiliates (as such term is defined in Section 776(1) of the Michigan Business Corporation Act) collectively hold at least 25% of the initially issued number of shares of Series A-1 Preferred Stock (without regard to in-kind dividends paid thereon), the Corporation shall not, and shall not permit any of its subsidiaries to, without first obtaining the affirmative vote or written consent of the holders of a majority of the shares of Series A-1 Preferred Stock, voting as a single class in accordance with Section 4(d): (A) amend, repeal, modify or supplement any provision of the Restated Articles of Incorporation (including any certificate of designation forming a part thereof), the Bylaws of the Corporation, as in effect on the Issuance Date, or any successor articles of incorporation or bylaws or this Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock (this "Certificate of Designation"), if such amendment, repeal, modification or supplement in any way adversely affects the powers, designations, preferences or other rights of the Series A Preferred Stock, including, without limitation, to increase the size of the Board of Directors to more than nine (9) members (except to the extent the holders of Series B Preferred Stock have rights to elect directors in accordance with the terms of the Certificate of Designation, Number, Powers, Preferences and Relative Participating, Optional and Other Rights of Series B Preferred Stock, as in effect on the Issuance Date (the "Series B Certificate of Designation"); (B) authorize or effect, in a single transaction or through a series of related transactions, (1) a liquidation, winding up or dissolution of the 5 7 Corporation or adoption of any plan for the same; (2) any reorganization of the capital of the Corporation or any of its subsidiaries, reclassification of the capital stock of the Corporation or any of its subsidiaries, consolidation or merger by the Corporation or any of its subsidiaries with or into another corporation or other entity (other than a merger of any of the Corporation's wholly-owned subsidiaries with or into the Corporation, where the Corporation is the surviving corporation), or sale, transfer or other disposal of all or substantially all of the property, assets or business of the Corporation or any of its subsidiaries except to the Corporation (each, a "Realization Event"); or (3) any direct or indirect purchase or other acquisition by the Corporation or any of its subsidiaries of any capital stock (other than repurchase of the Units, the Series A Preferred Stock, the Attached Warrants and Common Stock issued upon exercise thereof, pursuant to the terms hereof and of the Unit Purchase Agreement, repurchase of the Shortfall Warrants (as defined in the Unit Purchase Agreement), the Litigation Warrants (as defined in the Unit Purchase Agreement) and Common Stock issued upon exercise of the Shortfall Warrants or the Litigation Warrants, pursuant to the terms of the Shortfall Warrants or Litigation Warrants, as the case may be, and redemption of the shares of Series B Preferred Stock of the Corporation, pursuant to the Series B Certificate of Designation); (C) declare or pay or set aside for payment any dividend or distribution or other payment (other than a dividend or distribution paid solely in shares of Common Stock or other Junior Stock that is not Redeemable Stock or a scheduled and accrued dividend on the Series B Preferred Stock pursuant to the terms of the Series B Certificate of Designation) upon the Common Stock or upon any other Junior Stock, nor redeem, purchase or otherwise acquire any Common Stock or other Junior Stock for any consideration (or pay or make available any moneys, whether by means of a sinking fund or otherwise, for the redemption of or other distribution or payment with respect to any shares of any Common Stock or other Junior Stock), except by conversion or exchange of Common Stock or other Junior Stock for such stock that is not Redeemable Stock; (D) authorize or permit the Corporation or any subsidiary of the Corporation to issue any capital stock or any options, warrants or other rights exchangeable or exercisable therefor, other than (i) shares of Series A Preferred Stock and Attached Warrants on the Issuance Date or in payment of dividends as provided in Section 2 above, (ii) pursuant to the exercise of options issued under the Corporation's 1987 Stock Option Plan, (iii) pursuant to the grant and exercise of options under the Corporation's 1997 Stock Option Plan (the "1997 Stock Option Plan"), as described in Section 3.01(n) of the Unit Purchase Agreement, provided that the Charter Amendment (as defined in the Unit Purchase Agreement) has (1) been approved and adopted by the Corporation's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, (iv) the issuance of shares of Series A-2 Preferred Stock in accordance with this Certificate of Designation, (v) the issuance of Common Stock upon exercise of Attached Warrants, (vi) the issuance to General Electric Capital Corporation on the Issuance Date of warrants to purchase Common Stock and the issuance of Common Stock upon the exercise of such warrants, 6 8 (vii) the issuance to Craig Camalo on the Issuance Date of one share of Series B Preferred Stock, (viii) the issuance of Shortfall Warrants and Litigation Warrants and the issuance of Common Stock upon exercise of any Shortfall Warrants or Litigation Warrants, (ix) the issuance of equity securities, the proceeds of which are intended to be and are immediately used to redeem all of the outstanding shares of Series A Preferred Stock and at least one-half of all of the outstanding Attached Warrants, and (x) in payment of dividends or distributions payable solely in shares of Common Stock or other Junior Stock that is not Redeemable Stock, to the extent permitted in Section 4(b)(C); (E) authorize or permit the purchase by the Corporation or any subsidiary of assets or of equity or other interests in any other entity in one or a series of transactions if: (i) the Corporation's and its subsidiaries' investments in such assets or equity exceed 10 percent of the total assets of the Corporation and its subsidiaries consolidated as of the end of the most recently completed fiscal year; or (ii) the Corporation's and its subsidiaries' income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles as a result of the purchase of such assets or equity exceeds 10 percent of such income of the Corporation and its subsidiaries consolidated for the most recently completed fiscal year. (F) incur, or allow any subsidiary to incur, indebtedness for borrowed money (including, without limitation, any capitalized lease obligations, accounts receivable financing or other asset-backed financing), any guarantee or other similar contingent obligation or any lease financing (whether a capitalized lease, operating lease, pursuant to a sale leaseback arrangement or otherwise) other than (i) incurrence after the initial issuance date of the Series A-1 Preferred Stock of additional indebtedness not exceeding $1,000,000 in the aggregate at any one time outstanding (other than any indebtedness owing to General Electric Capital Corporation and the other lenders pursuant to the Credit Agreement dated as of the Issuance Date (as in effect on such date) among the Corporation, Tessco Group, Inc., General Electric Capital Corporation and the other credit parties and lenders signatory thereto), (ii) the incurrence of indebtedness, the proceeds of which are intended to be and are immediately used to redeem all of the outstanding shares of Series A Preferred Stock and at least one-half of all of the outstanding Attached Warrants, (iii) the guarantee by Tessco Group, Inc. of certain obligations of the Corporation to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. pursuant to a guarantee dated as of the Issuance Date and (iv) any indebtedness, guarantee or similar contingent obligation relating to the Litigation Guarantee (as defined in the Unit Purchase Agreement); (G) modify or enter into, or allow any subsidiary to modify or enter into, any employment agreement, non-competition agreement, bonus or stock 7 9 issuance arrangements or other compensation (including, without limitation, fringe benefit) arrangements with any officer or director of the Corporation or any subsidiary or any person performing functions similar to that of an officer or director; (H) amend, supplement, restate, revise, waive or otherwise modify (a) the Corporation's 1987 Stock Option Plan, as in effect on the Issuance Date or (b) the 1997 Stock Option Plan or reallocate the options issued under the 1997 Stock Option Plan; (I) create or adopt any stock option plan, stock appreciation rights plan, bonus plan or similar plan (other than the 1997 Stock Option Plan) that is not in existence as of the Issuance Date; (J) create an executive or other committee of the Board of Directors of the Corporation or any subsidiary or adopt rules governing the election of members of such committee; (K) change in any material respect the nature of the business of the Corporation and its subsidiaries taken as a whole; (L) enter into any transaction, or any agreement or understanding with any affiliate of the Corporation or any subsidiary thereof, other than a wholly-owned subsidiary of the Corporation; or (M) agree to do any of the foregoing. (c) Additional Voting Rights. Upon the occurrence and during the continuance of any Triggering Event (as defined in Section 7), the holders of Series A-1 Preferred Stock shall have the additional voting rights set forth in Section 8(d). (d) Means of Voting. On all matters on which the holders of Series A-1 Preferred Stock are entitled to vote pursuant to Section 4(a) and 4(b), each holder of Series A-1 Preferred Stock shall be entitled to one vote for each share held by such holder. The rights of the holders of Series A-1 Preferred Stock under this Section 4 may be exercised (i) with respect to the election of the Series A-1 Preferred Directors pursuant to Section 4(a), at a meeting of the holders of the Series A-1 Preferred Stock or by written consents executed by the holders entitled to vote therefor and delivered to the Secretary or Assistant Secretary of the Corporation; (ii) at any meeting of stockholders of the Corporation for the election of directors; (iii) at a meeting of the holders of shares of such Series A-1 Preferred Stock, called for the purpose by the Corporation or by the holders of record of 25% or more of the Series A-1 Preferred Stock, pursuant to requests delivered in writing to the Secretary or Assistant Secretary of the Corporation; (iv) by written consent signed by the holders of the requisite percentage of the then outstanding shares, delivered to the Secretary or Assistant Secretary of the Corporation; or (v) with respect to the voting rights referred to in Section 4(c), at any meeting of the stockholders of 8 10 the Corporation or by written consent signed by the holders of the requisite percentage of the then outstanding shares of Common Stock (and Series A-1 Preferred Stock), delivered to the Secretary or Assistant Secretary of the Corporation. Except to the extent otherwise provided herein or to the extent that holders of 75% of the Series A-1 Preferred Stock decide otherwise, any meeting of the holders of Series A-1 Preferred Stock shall be conducted in accordance with the provisions of the By-Laws of the Corporation applicable to meetings of stockholders. In the event of a conflict or inconsistency between the By-Laws of the Corporation and any term of this Certificate of Designation, including, but not limited to this Section 4, the terms of this Certificate of Designation shall prevail. (e) Voting Rights of Series A-2 Preferred Stock. Holders of shares of Series A-2 Preferred Stock shall not be entitled to any voting rights, except as expressly set forth herein or as otherwise required by law. 5. OPTIONAL REDEMPTION. (a) Redemption During Year One. At any time prior to the first anniversary of the Issuance Date, provided that the Charter Amendment has (1) been approved and adopted by the Corporation's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, and subject to Section 5(f), the Corporation, at its sole option, may redeem all, but not less than all, of the outstanding shares of Series A Preferred Stock and, concurrently therewith, repurchase all of the outstanding Interim Dividend Warrants (as defined in the Unit Purchase Agreement), one-half of the outstanding Attached Warrants which are not Interim Dividend Warrants and a number of shares of Common Stock equivalent to one-half of the number of shares of Common Stock for which Attached Warrants have theretofore been exercised, for an aggregate redemption price consisting of cash in an amount equal to one hundred seventeen and one-half percent (117.5%) of the aggregate Stated Value of such shares of Series A Preferred Stock less any cash dividends previously paid thereon. (b) Redemption After Year Two. At any time after the second anniversary of the Issuance Date, provided that the Corporation has not theretofore exercised its rights pursuant to Section 5(a), and subject to Section 5(f), the Corporation, at its sole option, may redeem all, but not less than all, of the outstanding shares of Series A Preferred Stock and, concurrently therewith, repurchase all of the outstanding Attached Warrants which are part of Units and the Common Stock for which Attached Warrants have theretofore been exercised (other than shares of Common Stock which have been registered and sold under an effective registration statement pursuant to the Securities Act, or sold pursuant to Rule 144 promulgated thereunder ("Non-Repurchasable Stock")), for an aggregate redemption price equal to the greater of (i) an amount determined by multiplying (x) the sum of (1) the number of shares of Common Stock for which the Attached Warrants are then exercisable and (2) the number of shares for which the Attached Warrants have theretofore been exercised (other than shares of Non-Repurchasable Stock) by (y) the Current Market Price per share of Common Stock determined as of the date of redemption and (ii) an amount sufficient to yield each Unit (other than Units which have been transformed 9 11 into Non-Repurchasable Stock) a 35% annual rate of return from the date of its original issuance through the date of redemption, after giving effect to any cash dividends actually paid to the holder or any prior holder of such Unit. For purposes hereof, "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the 20 consecutive Trading Days (as hereinafter defined) immediately preceding such date. The daily market price for each such Trading Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the last reported sale price as officially quoted on any such exchange, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, the last reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the Nasdaq Stock Market, the last reported sale price on the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or if such sale price is not available on such date, the average of the closing bid and asked prices on such date as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or (v) if there is no such organization or agency, as furnished by any member of the National Association of Securities Dealers, Inc., or any successor corporation thereto (the "NASD") selected mutually by the holders of a majority of the Units and the Corporation or, if they cannot agree upon such selection, by a member selected by two such members of the NASD, one of which shall be selected by such holders and one of which shall be selected by the Corporation. For purposes hereof, "Trading Day" shall mean (i) any day on which stock is traded on the principal stock exchange on which the Common Stock is listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not then traded on the Nasdaq Stock Market, any day on which stock is traded in the over-the counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices). (c) Notice of Redemption. Notice of redemption pursuant to Section 5(a) or (b) shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date to such holder's address as the same appears on the books of the Corporation. Each such notice shall state: (i) the redemption date; (ii) the number of shares of Series A Preferred Stock to be redeemed and the number of Attached Warrants and shares of Common Stock to be repurchased; (iii) the formula for determination of the redemption price; (iv) the place or places where certificates for such shares of Series A Preferred Stock and Attached Warrants, and/or for such shares of Common Stock are to be surrendered for payment of the redemption price; and (v) that dividends on the shares of Series A Preferred Stock to be redeemed will cease to accrue on the redemption date. 10 12 (d) Cessation of Dividends on Shares of Series A Preferred Stock Redeemed; Shares No Longer Outstanding. Notice having been mailed as stated in subsection (c) above, from and after the close of business on the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price), dividends on the shares of Series A Preferred Stock redeemed shall cease to accrue, and the shares of Series A Preferred Stock redeemed and the Attached Warrants and shares of Common Stock repurchased shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares of Series A Preferred Stock and Attached Warrants comprising Units, and/or shares of Common Stock so redeemed or repurchased (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state), such Attached Warrants and/or shares shall be redeemed or repurchased by the Corporation at the redemption price aforesaid. (e) Status of Redeemed Shares of Series A Preferred Stock. Any shares of Series A Preferred Stock which have been redeemed shall be retired and thereafter have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors or a duly authorized committee thereof. (f) Limitation on Corporation's Right to Redeem. Notwithstanding anything to the contrary contained herein, the Corporation shall not be entitled to redeem shares of Series A Preferred Stock or repurchase Attached Warrants and/or shares of Common Stock until the earlier of (i) the date which is six months and one day following the most recent issuance to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of the Litigation Warrants in accordance with Section 5.04 of the Unit Purchase Agreement, provided that on or before such date, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from any unused portion of the Litigation Guarantee or (ii) such time as Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from the Litigation Guarantee (as defined in the Unit Purchase Agreement), provided that no Litigation Warrants have been issued prior to such release. 6. MANDATORY REDEMPTION. (a) Obligation to Redeem. (i) At any time after the date which is three years and six months after the Issuance Date, any holder of shares of Series A Preferred Stock, at its election, may, by notice to the Corporation (the "Put Notice"), demand redemption of all, but not less than all, of such holder's shares of Series A Preferred Stock and repurchase of all, but not less than all, of such holder's Attached Warrants. Subject to the provisions of Section 6(b), the Corporation shall, on the date (not less than 30 days after the date of the Put Notice) designated in such Put Notice, redeem or repurchase from the holder all (or such lesser portion permitted to be repurchased in accordance with Section 6(a)(iii)) of such holder's shares of Series A Preferred Stock and Attached Warrants for an amount determined by multiplying (x) the number of shares 11 13 of Common Stock for which such Attached Warrants are then exercisable by (y) the Current Market Price per share of Common Stock determined as of the date of the Put Notice. (ii) Notwithstanding the provisions of Section 6(a)(i), if, at any time during the period between the date on which a holder of shares of Series A Preferred Stock shall have delivered a Put Notice and the date of redemption by the Corporation pursuant thereto, a Realization Event shall occur and the consideration received or receivable by stockholders in connection with such Realization Event shall consist solely of cash, then such holder shall (whether or not such holder shall have previously surrendered its shares of Series A Preferred Stock for redemption by the Corporation pursuant to this Section 6) be entitled to receive, on the date of such redemption, the higher of (x) the amount payable to such holder as determined pursuant to Section 6(a)(i) and (y) an amount equal to the amount of cash such holder would have received upon the occurrence of such Realization Event had such holder's Attached Warrants been exercised for Common Stock immediately prior thereto. (iii) The Corporation shall not be obligated under Section 6(a)(i) to redeem shares of Series A Preferred Stock and repurchase Attached Warrants if the Corporation is prohibited from doing so under any agreement or instrument evidencing the Corporation's or any of its subsidiaries' indebtedness for borrowed money, and such prohibition has not been waived, or if and to the extent such a redemption and repurchase (x) would cause an event of default to exist by reason of such redemption and repurchase, which event of default has not been waived, with respect to any such agreement or instrument or would violate any provision of any such agreement or instrument, or (y) would be in violation of applicable law ("Restrictions"), in any such case as determined by an opinion of counsel to the Corporation, reasonably acceptable to the holder; provided, however, that the Corporation shall use its reasonable best efforts to have any such Restriction either waived or terminated (including, without limitation, by obtaining refinancing for any such indebtedness on reasonable terms). In the event that, following receipt of a Put Notice, the Corporation will not redeem shares of Series A Preferred Stock and repurchase Attached Warrants requested to be so redeemed and repurchased in accordance with Section 6(a)(i) because of the existence of any Restriction, the Corporation shall, within twenty (20) days after receipt of the Put Notice, so notify the holder in writing (the "Restriction Notice"), setting forth the number of shares of Series A Preferred Stock and Attached Warrants which will not be so redeemed and repurchased and the Restrictions which apply, and deliver to the holder a copy of the opinion referred to in the prior sentence. In addition, in such event, the Corporation shall, upon the request of the holder, use its best efforts to register the shares of Common Stock for which the Attached Warrants which will not be repurchased may be exercised, in accordance with the terms of the Registration Rights Agreement (as hereinafter defined). In addition, if, in such event, the Corporation will be redeeming a number of shares of Series A-1 Preferred Stock which will result in the holders of Series A-1 Preferred Stock losing their voting and other rights pursuant to Section 4 hereof, the holder may, by written notice to the Corporation within five (5) days after receipt of the Restriction Notice, require that the Corporation redeem only such lesser number of shares of Series A-1 Preferred Stock (and repurchase only those Attached Warrants which are part of Units containing such shares of Series A-1 Preferred Stock) which will result in such holders retaining such rights. 12 14 (b) Payment of Redemption Price. The redemption price for any redemption pursuant to this Section 6 shall be determined pursuant to Section 6(a) and shall be payable in cash. On the date of any redemption of shares of Series A Preferred Stock and repurchase of Attached Warrants pursuant to this Section 6, the holder thereof shall surrender for redemption or repurchase certificate(s) for the number of shares of Series A Preferred Stock being redeemed and warrant(s) for the number of Attached Warrants being repurchased, without any representation or warranty (other than that the holder has good and marketable title thereto, free and clear of liens, encumbrances and restrictions of any kind), together with an instrument of transfer reasonably acceptable to the Corporation, against payment therefor of the redemption price by, at the option of the holder, (i) wire transfer to an account in a bank located in the United States designated by the holder for such purpose or (ii) a certified or official bank check payable to the order of the holder. If less than all of the holder's shares of Series A Preferred Stock or Attached Warrants represented by a single certificate or warrant are being redeemed or repurchased, the Corporation shall cancel such certificate or warrant, as the case may be, and issue in the name of, and deliver to, the holder a new certificate or warrant, as the case may be, for the portion not being redeemed or repurchased. 7. TRIGGERING EVENTS. Any of the following actions or events shall constitute a "Triggering Event" for purposes hereof: (a) Failure to Redeem. The Corporation shall (i) fail to redeem the Series A Preferred Stock in accordance with Section 6 or, if a Restriction exists and a holder requests registration of shares of Common stock issuable upon exercise of such holder's Attached Warrants, fail to cause such a registration statement covering such shares to become effective in accordance with the terms of the Registration Rights Agreement, dated as of the Issuance Date, as amended, among the Corporation, Pegasus Partners, L.P., Pegasus Related Partners, L.P. and General Electric Capital Corporation, a copy of which is available for inspection at the Corporation (the "Registration Rights Agreement"), or (ii) fail, on more than one occasion, to redeem any Series A Preferred Stock called for redemption in accordance with Section 5. (b) Failure to Pay Dividends. The Corporation shall fail to pay any dividend on any Series A Preferred Stock on any Dividend Payment Date in accordance with Section 2 for any reason, including but not limited to, that such payment is prohibited by applicable law or the Board of Directors elect not to pay such dividend, or shall otherwise violate any term of Section 2 and such failure shall not be cured within a period of 30 days after such Dividend Payment Date or violation (which cure shall be effected in a manner ensuring the holders the same yield as if such violation had not occurred). 13 15 (c) Failure of Voting Rights. The Corporation shall enter into any transaction or take any action required to be approved by holders of Series A Preferred Stock without obtaining the requisite approval of the holders of the Series A Preferred Stock. (d) Failure of Charter Amendment Effectiveness. The Charter Amendment shall not have (1) been approved and adopted by the Corporation's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, by May 31, 1998, and thereafter, for so long as such amendment shall not have been approved and adopted by such stockholders, been filed with such department and become effective. (e) Failure to Issue Common Stock. The Corporation shall fail for any reason to issue Common Stock required to be issued by the Corporation upon the due exercise of Attached Warrants or shall fail for any reason to comply with Section 7 thereof. (f) Registration Rights Agreement. The Corporation shall fail in any material respect to comply with the Registration Rights Agreement, other than as described in Section 7(a), and such failure shall continue for a period of 30 days after notice from any such holder. (g) Unit Purchase Agreement. The Corporation shall fail to comply with Sections 4.16 (Brokers), 5.03 (Shareholder Approvals), 5.04 (Issuance of Litigation Warrants), 5.05 (Insurance), 5.06 (Preemptive Rights), 9.01 (Indemnification) or 9.05 (Expenses) of the Unit Purchase Agreement and such failure shall continue for a period of 30 days after notice from the Purchasers (as defined in the Unit Purchase Agreement) or the representations made under Sections 4.01 (Organization) (first sentence only), 4.02 (Capitalization), 4.03 (Authorization, etc.) or 4.04(a) (Consents and Approvals) of the Unit Purchase Agreement shall prove to have been incorrect or misleading in any material respect when made pursuant thereto or any other material representation made under the Unit Purchase Agreement shall prove to have been incorrect or misleading in any substantial material respect when made. 8. REMEDIES. (a) Upon the occurrence and during the continuance of any Triggering Event, the Dividend Rate on all outstanding Series A Preferred Stock shall be increased as provided in Section 2 without any action on the part of any holder of the Series A Preferred Stock or the Corporation. (b) In the event that a Triggering Event described in Section 7(d) or 7(e) shall occur and be continuing, each holder of Series A Preferred Stock shall be entitled to receive all cash and other dividends, distributions and other payments which would be paid or payable to a holder of a number of shares of Common Stock for which the Attached Warrants held by such holder are exercisable at such time (without regard to the number of shares of Common Stock which are authorized or reserved for issuance at such time). 14 16 (c) In the event that a Triggering Event described in Section 7(d) shall occur, and be continuing, all dividends on the Series A Preferred Stock shall be paid in cash and not Units, to the extent but only to the extent, that such cash payments are permitted under any applicable indenture or credit agreement to which the Corporation is a party and by law. (d) Upon the occurrence and during the continuance of any Triggering Event (other than a Triggering Event described in Section 7(g) arising as a result of the Corporation's failure to comply with Section 4.16, 5.05, 9.01 or 9.05 of the Unit Purchase Agreement), the holders of Series A Preferred Stock shall have the right to vote on all matters requiring action of the stockholders of the Corporation, voting together as a single class with the holders of Common Stock. Each holder of Series A Preferred Stock shall be entitled to a number of votes equivalent to three votes multiplied by the number of shares of Common Stock which such holder would have received upon exercise of such holder's Attached Warrants on the voting record date (assuming for purposes of the calculation that such Attached Warrants were exercised on such date and a sufficient number of shares of Common Stock were available for issuance upon such exercise). (e) Upon the occurrence of any Triggering Event, the provisions contained in Section 9 of this Certificate of Designation and in Section 8.03 of the Unit Purchase Agreement shall terminate and be of no further force and effect. (f) The Corporation stipulates that the remedies at law of each holder of Series A Preferred Stock in the event of any Triggering Event or threatened Triggering Event or otherwise or other failure in the performance of or compliance with any of the terms hereof are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise without requiring any holder to post a bond or other security except to the extent required by applicable law. (g) Any holder of Series A Preferred Stock shall be entitled to recover from the Corporation the reasonable attorneys' fees and expenses incurred by such holder in connection with any Triggering Event or enforcement by such holder of any obligation of the Corporation hereunder. (h) No failure or delay on the part of any holder of Series A Preferred Stock in exercising any right, power or remedy hereunder or under applicable law or otherwise shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder or thereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or otherwise. 15 17 9. RIGHT OF FIRST REFUSAL Certain transfers of the Series A Preferred Stock shall be subject to a right of first refusal in accordance with the terms of Section 8.03 of the Unit Purchase Agreement. 10. TRANSFER OF SHARES OF SERIES A-1 PREFERRED STOCK. Shares of Series A-1 Preferred Stock may only be transferred together with the same number of Attached Warrants. Upon transfer by the initial holder or any of its affiliates (as such term is defined in Section 776(1) of the Michigan Business Corporation Act) of any shares of Series A-1 Preferred Stock (other than a transfer to any affiliate of the initial holder), such shares of Series A-1 Preferred Stock shall automatically be converted into shares of Series A-2 Preferred Stock, on a one-for-one basis. 16 EX-3.1.2 3 EXHIBIT 3.1.2 1 EXHIBIT 3.1.2 CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCE AND RELATIVE, PARTICIPATING, OPTIONAL, AND OTHER RIGHTS OF SERIES B PREFERRED STOCK OF CODE-ALARM, INC. Code-Alarm Inc. (the "Corporation"), a corporation organized and existing under the Michigan Business Corporation Act, hereby certifies that, pursuant to the provisions of Section 302 of the Michigan Business Corporation Act, its Board of Directors, at a meeting duly held on October 21, 1997, adopted the following resolution: WHEREAS, the Board of Directors of the Corporation is authorized by the Restated Articles of Incorporation to issue up to 500,000 shares of preferred stock in one or more classes or series and, in connection with the creation of any class or series, to fix by the resolutions providing for the issuance of shares the powers, designations, preferences and relative, participating, optional or other rights of the class or series and the qualifications, limitations or restrictions thereof; and WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to such authority, to authorize and fix the terms and provisions of a series of preferred stock and the number of shares constituting the series. NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a series of preferred stock on the terms and with the provisions herein set forth on Annex A attached to this resolution. /s/ Rand Mueller ------------------------------------ Name: Rand Mueller Title: President ATTEST: /s/ Craig S. Camalo Name: Craig S. Camalo Title: Vice President & CFO 2 Annex A SERIES B PREFERRED STOCK The powers, designations, preferences and relative, participating, optional or other rights of the Series B Preferred Stock of Code-Alarm Inc. (the "Corporation") are as follows: 1. DESIGNATION AND AMOUNT. This series of preferred stock shall be designated as "Series B Preferred Stock" and shall have no par value per share. The number of authorized shares constituting this series shall be one share. 2. DIVIDENDS. (1) Right to Receive Dividends. The holders of Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, to the extent permitted by the Michigan Business Corporation Act, cumulative dividends in preference to any dividend on the Common Stock but not in preference to any dividend on any other class or series of stock of the Corporation at the rate of $1.00 per share per annum, payable in arrears, on December 31 of each year, commencing with December 31, 1998. The dividend for a period which is less than or more than a year shall be pro rated based upon the number of days. Any dividend not paid shall accrue and be payable when and if declared by the Board of directors or upon redemption or repurchase of the Series B Preferred Stock or the liquidation of the Corporation. 3. LIQUIDATION. In the event of any bankruptcy, liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, but not in preference to any distribution of any surplus funds of the Corporation to the holders of any other class or series of stock of the Corporation, an amount equal to (i) Ten Dollars ($10.00) per share plus (ii) all accrued but unpaid dividends on such share (the "Liquidation Preference"). 4. VOTING RIGHTS. The holder of the Series B Preferred Stock shall have the following voting rights: (1) Election of Directors. If (i) there is an Event of Default under the Credit Agreement dated as of October 24, 1997, among the Corporation, as Borrower, and the other Credit Parties identified 3 therein, General Electric Capital Corporation, as Agent and Lender (as it may be amended, supplemented or modified, the "Credit Agreement"), and (ii) Agent accelerates payment of the Obligations (as defined in the Credit Agreement), then the number of authorized directors shall be increased by an amount equal to one plus the then number of directors (e.g., if before the Event of Default, the Bylaws authorize 9 directors, the number shall be increased to 19), and the holder of the Series B Preferred Stock shall be entitled to designate from time to time (without the necessity of a meeting of shareholders) the persons to fill the directorships thus created. If the Event of Default is cured or waived and if acceleration is thereafter rescinded, the number of authorized directors shall be decreased by the amount previously increased as provided in this section and the term of any director so elected shall immediately terminate. If the Board of Directors of the Corporation has been divided into two or three classes with terms of each class expiring at a different annual meeting, then the terms of the directors which the Series B Preferred Stock can elect pursuant to this Section 4(a) shall likewise be divided into classes, with the number of directors in each class being as nearly equal as possible and with the terms of the first class expiring at the first annual meeting following their election, the terms of the second class expiring at the second annual meeting following their election and, if applicable, the terms of the third class expiring at the third annual meeting following their election. At each annual meeting after such classification, a number of directors equal to the number of the class whose term expires at the time of the meeting shall be elected to hold office until the second succeeding annual meeting if there are two classes or until the third succeeding annual meeting if there are three classes; however, the terms of each director elected by the Series B Preferred Stock shall terminate as provided in this Section 4(a). (2) Certain Corporate Actions. So long as the Series B Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote or written consent of the holder of the Series B Preferred Stock amend, repeal, modify or supplement any provision of the Restated Articles of Incorporation, any certificate setting forth the rights, preferences and privileges of any series of capital stock pursuant to the authority of the Board of Directors to authorize such series, the By-laws of the Corporation, as in effect on October 15, 1997, or any successor bylaws or this Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series B Preferred Stock (the "Certificate of Designation"), if such amendment, repeal, modification or supplement in any way adversely affects the powers, designations, preferences, or other rights of the Series B Preferred Stock. (3) Other Matters. Except as provided in subsections (a) and (b) of this Section 4 or as required by law, the holder of Series B Preferred Stock shall have no right to vote on any matter presented to the stockholders of the Corporation. 5. REPURCHASE. -2- 4 Upon payment in full of the Obligations and termination of the Commitments (as such terms are defined in the Credit Agreement referred to in Section 4), the Corporation shall be entitled to repurchase each share of Series B Preferred Stock then outstanding for an amount equal to its Liquidation Preference, upon giving written notice of not less than five days to the holder thereof. -3- EX-3.2.1 4 EXHIBIT 3.2.1 1 EXHIBIT 3.2.1 Amended as of March 22, 1991 CODE-ALARM, INC. BYLAWS ARTICLE I Shareholders Section 1. Date and Time of Meetings. The annual meeting of the Shareholders of the Corporation shall be held on the third Tuesday in May in each year (or if said day be a legal holiday, then on the next succeeding day not a holiday) at 10:00 a.m., for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting. If the annual meeting is not held on the day designated therefor, the Board of Directors shall cause the annual meeting to be held as soon thereafter as convenient. Special meetings of the Shareholders may be called by the Chairman of the Board, the Vice Chairman of the Board, the President, the Secretary or an Assistant Secretary at the direction of the Board of Directors. Section 2. Place of Meetings. Meetings of the Shareholders of the Corporation shall be held at its registered office in the State of Michigan or at such other place within or without the State of Michigan as from time to time may be determined by the Board of Directors. Section 3. Notice of Meetings. Written notice of the time, place and purposes of each meeting of the Shareholders shall be given not less than ten (10) nor more than sixty (60) days before the meeting either personally or by mail to each Shareholder of record. No notice of adjourned meetings need be given if the time and place to which the meeting is adjourned are announced at the meeting and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting, unless the Board of Directors fixes a new record date for the adjourned meeting. Meetings may be held without notice if all Shareholders are present in person or by proxy or if those not present submit a signed waiver, either before or after the holding thereof. Section 4. Quorum. The holders of record of a majority of the shares of stock of the Corporation entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for that meeting, except as otherwise provided 2 by law or by the Articles of Incorporation of the Corporation. The Shareholders present in person or by proxy at such meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. Whether or not a quorum is present, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time. When the holders of a class or series of shares are entitled to vote separately on an item of business, this section applies in determining the presence of a quorum of such class or series for transaction of the item of business. Section 5. Conduct of Meetings. Meetings of the Shareholders shall be presided over by a Chairman of the meeting who shall be the Chairman of the Board of Directors or, if he is not present, by the Vice Chairman or, if there be no such officers or if neither is present, by the President or, if he is not present, by a Vice President or, if none of the Vice Presidents is present or there is no such officer, by a Chairman to be chosen at the meeting. The Secretary or an Assistant Secretary of the Corporation or, in their absence, a person chosen at the meeting shall act as Secretary of the meeting. Section 6. Business to be Transacted. At any annual or special meeting of the Shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before the meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly requested to be brought before the meeting by a Shareholder. For business to be properly requested to be brought before the meeting by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a Shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days prior to the meeting; provided, however, that in the event that the date of a special meeting is not publicly announced by the Corporation by mail, press release or otherwise more than 90 days prior to the meeting, notice by the Shareholder to be timely must be delivered to the Secretary of the Corporation not later than the close of business on the seventh day following the day on which such announcement of the date of the meeting was communicated to Shareholders. A Shareholder's notice to the Secretary shall set forth as to each matter the Shareholder proposes to bring before the meeting (1) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (2) the -2- 3 name and address, as they appear on the Corporation's books, of the Shareholder proposing such business, (3) the class and number of shares of the Corporation which are beneficially owned by the Shareholder, and (4) any material interest of the Shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Article I, Section 6. The Chairman of the meeting shall determine and declare to the meeting, if the facts warrant, that business was not properly brought before the meeting and in accordance with the provisions of this Article I, Section 6, and if the Chairman should so determine, the Chairman shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted. Advance notice of Shareholder nominations for the election of Directors shall be given in the manner provided above for business to be properly requested to be brought before the meeting by a Shareholder. Section 7. Participation by Conference Telephone. The Chairman of the meeting may allow a Shareholder to participate in a meeting by a conference telephone or similar communications equipment by which all persons participating in the meeting may hear each other if all participants are advised of the communications equipment and the names of the participants in the conference are divulged to all participants. Such participation shall constitute presence in person at the meeting. Section 8. Voting. Each holder of each outstanding share entitled to vote at the meeting is entitled to one (1) vote on each matter submitted to a vote. Directors shall be elected by a plurality of the votes cast at the election, and all other questions shall be decided by a majority of the votes cast, unless otherwise provided in these Bylaws or the Articles of Incorporation. Section 9. Control Share Acquisitions. At any meeting of the shareholders at which the voting rights to be accorded the shares acquired or to be acquired in a control share acquisition is one of the items of business to be transacted at the meeting, it shall be the last item of business transacted at the meeting. Prior to being accorded voting rights, control shares acquired in a control share acquisition may not be voted at any meeting of shareholders or with respect to any item of business to be transacted at the meeting at which the voting rights to be accorded to such shares is considered. Control shares acquired in a control share acquisition, with respect to which no acquiring person statement has been filed with the Corporation, may, at any time during the period ending 60 days after the last acquisition of control shares or the power to direct the exercise of voting power of control shares -3- 4 by the acquiring person, be redeemed by the Corporation at the fair value of the shares. After an acquiring person statement has been filed and after the meeting at which the voting rights of the control shares acquired in a control acquisition are submitted to the shareholders, the shares may be redeemed by the Corporation at the fair value of the shares unless the shares are accorded full voting rights by the shareholders as provided in section 798 of the Michigan Business Corporation Act. The Board of Directors of the Corporation may authorize any redemption provided for in this Article I, Section 9 and may establish and amend the procedures for any redemption provided for in this Article I, Section 9. For the purposes of this section, terms defined in the Michigan Business Corporation Act shall have the meanings set forth therein. Section 10. Record Date. The Board of Directors may fix in advance a date as the record date for the determination of the Shareholders entitled to notice of, and to vote at, a meeting of Shareholders or an adjournment thereof, or to express consent or to dissent from a proposal without a meeting, or for the purpose of determining Shareholders entitled to receive payment of any dividend or allotment of a right or for the purpose of any other action. Such date shall be not more than sixty (60) nor less than ten (10) days before the date of any meeting of Shareholders nor more than sixty (60) days before any other action. If a record date is not fixed by the Board of Directors, the record date for determination of the Shareholders entitled to notice of or to vote at a meeting of the Shareholders shall be the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held, but the record date for determining the Shareholders for any other purpose shall be the close of business on the day on which the resolution of the Board of Directors relating to such other purpose is adopted. When a determination of the Shareholders of record entitled to notice of or to vote at a meeting of the Shareholders has been made as provided in this Section, the determination applies to any adjournment of the meeting, unless the Board of Directors fixes a new record date under this Section for the adjourned meeting. Section 11. Inspectors of Election. Whenever any Shareholder present in person or by proxy at a meeting of the Shareholders shall request the appointment of inspectors, the Chairman of the meeting shall appoint one or more inspectors, who need not be Shareholders. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine challenges and -4- 5 questions arising in connection with the right to vote, count and tabulate votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote. On request of the Chairman of the meeting or a Shareholder entitled to vote thereat, the inspectors shall make and execute a written report to the Chairman of the meeting of any of the facts found by them and matters determined by them. The report is prima facie evidence of the facts stated and of the vote as certified by the inspectors. Section 12. Action by Written Consent. Any action required or permitted to be taken at an annual or special meeting of Shareholders may be taken without a meeting without prior notice and without a vote if a consent in writing, setting forth the action so taken, is signed by all of the Shareholders entitled to vote thereon. ARTICLE II Directors Section 1. Number and Term of Office. The property, business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, to consist of seven (7) Directors. The Directors shall hold office until their successors shall be elected or until their resignation or removal. Section 2. Classes of the Board. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of Directors constituting the whole Board permits, with the term of office of one class expiring each year. Simultaneously with the adoption of these Bylaws, Directors of Class I have been elected to hold office for a term expiring at the next succeeding annual meeting of Shareholders, and Directors of Class II have been elected to hold office for a term expiring at the second succeeding annual meeting of Shareholders, and Directors of Class III have been elected to hold office for a term expiring at the third succeeding annual meeting of Shareholders. At each annual meeting of Shareholders, the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of Shareholders. Section 3. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times or intervals and at such places within or without the State of Michigan as may from time to time be determined by resolution of -5- 6 the Board of Directors, which resolution may authorize the Chairman of the Board, the Vice Chairman of the Board, the President or the Secretary to fix the specific date and place of each of such regular meetings, in which case notice of the time and place of such regular meetings shall be given in the manner hereinafter provided with respect to special meetings of the Board of Directors. A regular meeting of the Board of Directors may be held without notice immediately after the annual meeting of the Shareholders at the same place as such meeting is held. Section 4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place upon the call of the Chairman of the Board, the Vice Chairman of the Board, the President, the Secretary or an Assistant Secretary. Oral, electronic or written notice of the time and place of all special meetings of the Board of Directors shall be given to each Director not less than two (2) days before the meeting, but no notice of adjourned meetings need be given. Meetings may be held at any time without notice if all the Directors are present or if those not present submit a signed waiver of notice of the time and place of such meeting, either before or after the holding thereof. Section 5. Quorum. A majority of the Directors then in office shall constitute a quorum for the transaction of business and the action of a majority of the Directors present at a meeting at which a quorum is present constitutes the action of the Board of Directors, except as action by a majority of the Directors then in office may be required specifically by other sections of these Bylaws or the Articles of Incorporation. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. Section 6. Participation by Conference Telephone. A Director may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person at the meeting. Section 7. Action by Unanimous Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if, either before or after the action is taken, all of the Directors consent thereto in writing. The written consents shall be filed with the minutes of the proceedings of the Board of Directors. Section 8. Resignation, Removal and Vacancies. A Director may resign by written notice to the Corporation. The -6- 7 resignation shall be effective upon its receipt by the Corporation or a subsequent time as set forth in the notice of resignation. A Director or the entire Board of Directors may be removed, with or without cause, by vote of the holders of a majority of shares entitled to vote at an election of Directors, at a meeting of Shareholders. Whenever any vacancy shall have occurred in the Board of Directors by reason of death, resignation, removal, increase in the number of Directors or otherwise, a majority of the Directors then in office may fill such vacancy at any meeting, and the person so elected shall be a Director until his successor is elected by the Shareholders. Section 9. General Powers as to Negotiable Paper. The Board of Directors shall, from time to time, prescribe the manner of making, signature or endorsement of checks, drafts, notes, acceptances, bills of exchange, obligations and other negotiable paper or other instruments for the payment of money and designate the officer or officers, agent or agents, who shall from time to time be authorized to make, sign or endorse the same on behalf of the Corporation. Section 10. Powers as to Other Documents. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any conveyance or other instrument in the name of the Corporation, and such authority may be general or confined to specific instances. When the execution of any contract, conveyance, or other instrument has been authorized without specification of the officers authorized to execute, the same may be executed on behalf of the Corporation by the Chairman of the Board, the Vice Chairman of the Board, the President or any Vice President, and the corporate seal may be thereto affixed and attested by the Secretary, an Assistant Secretary or the Treasurer. Section 11. Compensation. The Directors may receive such reasonable compensation, if any, for their services as may from time to time be fixed by resolution of a majority of the Board of Directors then in office. ARTICLE III Officers Section 1. Election or Appointment. The Board of Directors at its first meeting after the annual meeting of Shareholders in each year shall elect or appoint a President, a Secretary and a Treasurer of the Corporation. The Board of Directors at that time or from time to time may elect or appoint a Chairman of the Board, a Vice Chairman of the Board, one or -7- 8 more Vice Presidents, Assistant Secretaries and Assistant Treasurers. The same person may hold any two or more offices, but an officer shall not execute, acknowledge or verify any instrument in more than one capacity if required by law to be executed, acknowledged or verified by two or more officers. The Board of Directors also may appoint such other officers and agents as it may deem necessary for the transaction of the business of the Corporation. Section 2. Term of Office. The term of office of all officers shall commence upon their election or appointment and shall continue until their respective successors are elected or appointed or until their resignation or removal. Any officer may be removed from office at any meeting of the Board of Directors, with or without cause, by the affirmative vote of a majority of the Directors then in office. An officer may resign by written notice to the Corporation. The resignation shall be effective upon its receipt by the Corporation or at a subsequent time specified in the notice of resignation. The Board of Directors shall have power to fill any vacancies in any offices occurring for whatever reason. Section 3. Compensation. The officers of the Corporation shall receive such reasonable compensation for their services as may be fixed from time to time by resolution of the Board of Directors, provided that the compensation of any officer who is also a Director shall be fixed by resolution of a majority of the Board of Directors then in office. Section 4. The Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Shareholders and of the Board of Directors. He shall have such other powers and duties as may from time to time be prescribed by the Board of Directors. Section 5. The Vice Chairman of the Board. The Vice Chairman of the Board, in the absence of the Chairman of the Board, shall preside at all meetings of the Shareholders and of the Board of Directors. He shall have such other powers and duties as may from time to time be prescribed by the Board of Directors. Section 6. The President. The President shall be the chief executive officer of the Corporation and shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President, in the absence of the Chairman of the Board or Vice Chairman of the Board, or, if there be no such officer, shall preside at all meetings of the Shareholders and of the Board of Directors. The -8- 9 President shall execute all authorized conveyances, contracts, or other obligations in the name of the Corporation except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. All shares of stock, other than treasury shares, standing in the name of the Corporation may be voted by the President in accordance with the directions of the Board of Directors or, lacking such direction, in such manner as the President shall deem appropriate. The President shall perform such other duties as the Board of Directors shall prescribe. Section 7. Vice Presidents. The Vice Presidents in the order designated by the Board of Directors or, lacking such a designation, by the President shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties as the Board of Directors or the President shall prescribe. Section 8. The Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the Shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the Shareholders and any meetings of the Board of Directors for which notice may be required, and shall perform such other duties as may be prescribed by the Board of Directors or by the President, under whose supervision the Secretary shall act. The Secretary shall execute, when directed by the President, all authorized conveyances, contracts or other obligations in the name of the Corporation except as otherwise directed by the Board of Directors. Section 9. Assistant Secretaries. The Assistant Secretaries (in the order designated by the Board of Directors or, lacking such designation, by the President), in the absence of the Secretary shall perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors or the President shall prescribe. Section 10. The Treasurer. The Treasurer shall have custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and Board of Directors, at the regular meetings -9- 10 of the Board of Directors, or whenever they may require it, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office and for the restoration to the Corporation (in case of death, resignation, or removal from office) of all books, papers, vouchers, money and other property of whatever kind in the possession or control of the Treasurer belonging to the Corporation. Section 11. Assistant Treasurers. The Assistant Treasurers (in the order designated by the Board of Directors or, lacking such designation, by the President), in the absence of the Treasurer shall perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe. ARTICLE IV Committees of the Board Section 1. Audit Committee. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors then in office, may designate two or more of their number to constitute an Audit Committee. Upon appointment, the Audit Committee is authorized and directed to: (a) recommend to the Board a firm of independent accountants to conduct an annual examination of the financial statements of this Corporation and its subsidiaries; (b) confer with such independent accountants and with the appropriate officers of this Corporation as to the scope of the examination to be conducted; (c) review with such independent accountants their reports on this Corporation's operating results and financial position and such other matters as such independent accountants bring to the attention of such Committee; (d) review with management the fees charged by such independent accountants, including all special services for the previous year and approve the projected fees for the current year's audit; and -10- 11 (e) make such recommendations as such Committee deems appropriate. Section 2. Compensation Committee. The Board of Directors, by re solution adopted by a majority of the whole Board of Directors then in office, may designate two or more of their number to constitute a Compensation Committee. Upon appointment, the Compensation Committee is authorized and directed to: (a) fix, from time to time, the salaries, benefits and other remuneration, if any, of the officers of this Corporation; (b) review and recommend to the Board the compensation to be paid to Directors; (c) exercise all of the discretionary powers of the Board of Directors under all employment agreements between this Corporation and officers of the Corporation; (d) grant stock options, stock appreciation rights and exercise all of the discretionary powers under any stock option plans adopted by the Corporation; and (e) delegate to the President or any Vice President the authority to fix salaries and other remuneration, if any, of the Assistant Secretaries, Assistant Treasurers and other officers of the Corporation. Section 3. Other Committees. The Board of Directors, by resolution, may designate one or more of their number to constitute any other committee, who shall have only such powers as are expressly granted to them in such resolution. Section 4. Procedure. All committees, and each member thereof, shall serve at the pleasure of the Board of Directors. The Board of Directors shall have the power at any time to increase or decrease the number of members of any such committee, to fill vacancies thereon, to change any member thereof, and to change the functions or terminate the existence thereof. The Board of Directors may designate one or more directors as alternate members of a committee, who may replace an absent or disqualified member at a meeting of the committee. In the absence or disqualification of a member of a committee, the members thereof present at a meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the -11- 12 meeting in place of such an absent or disqualified member. If the Board of Directors shall not have designated a Chairman for any committee, the committee shall elect from its membership a Chairman. All such committees shall elect a Secretary who need not be a member of the committee who shall keep minutes of all meetings of the committee, which shall be submitted to the succeeding meeting of the Board of Directors for approval. Regular or special meetings of any such committee may be held in like manner as provided in these Bylaws for regular or special meetings of the Board of Directors, and a majority of any such committee shall constitute a quorum at any such meeting. Section 5. Committee Action Without Meeting. If and when the members of any committee shall severally or collectively consent in writing to any action authorized to be taken by such committee, either before or after the action is taken, such action shall be as valid committee action as if it had been authorized at a meeting of the committee and the written consents shall be filed with the minutes of the proceedings of such committee. ARTICLE V Issue, Transfer and Records of Stock Section 1. Form, Signature and Registration. The interest of each Shareholder in the Corporation shall be evidenced by a certificate or certificates, certifying the number and class of shares represented thereby, in such form as the Board of Directors may, from time to time, prescribe in accordance with the laws of the State of Michigan. The certificates of stock of the Corporation shall be signed by or in the name of the Corporation by the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof and countersigned and registered in such manner, if any, as the Board of Directors may by resolution prescribe; and to this end the Board of Directors may, from time to time, appoint such Transfer Agents and Registrars of stock of any class within or without of the State of Michigan as to it may seem expedient; provided that, where such certificate is countersigned by such Transfer Agent or registered by such Registrar other than the Corporation itself or its employee, the signatures of the Chairman of the Board, the Vice Chairman of the Board, the President, a Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary may be facsimiles. In case any officer or officers, who shall have signed, or whose facsimile signature or signatures shall have -12- 13 been used on any certificate or certificates, shall cease to be such officer or officers, whether because of death, resignation, or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued by the Corporation and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. Section 2. Transfer. Shares of stock of the Corporation may be transferred on the books of the Corporation in the manner prescribed by the laws of the State of Michigan by the holder thereof in person or by his duly authorized attorney upon surrender for cancellation of certificates for the same number of shares of the same class with an assignment and power of attorney duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and such proof of the authenticity of the signature as the Corporation or its agents may reasonably require, and also accompanied by sufficient funds (or appropriate documentary stamps) for payment of any applicable transfer taxes that may be imposed by federal, state or local governments. Section 3. Stock Ledger and Inspection Thereof. The original or duplicate stock ledger, or the stock transfer books, or a list containing the names and addresses of all persons who are Shareholders of the Corporation, alphabetically arranged within each class and series, and the number, class and series of shares of stock held by them respectively, with indication of the dates when they respectively became holders of record thereof, shall be kept at all times at the registered office of the Corporation in the State of Michigan or at the office of its transfer agent within or without the State of Michigan. A complete list of Shareholders entitled to vote at a Shareholders meeting, certified by the Secretary, an Assistant Secretary or other officer or agent of the Corporation having charge of the stock transfer books for shares of the Corporation, shall be produced and shall be subject to inspection at the time and place where said meeting is to be held for the duration of such meeting. A person who is a Shareholder of record of the Corporation, upon at least 10 days' written demand, may examine for any proper purpose in person or by agent or attorney, during usual business hours, such record of Shareholders and make extracts therefrom at the places where such records are kept. Section 4. Stolen, Lost or Destroyed Certificates. The Corporation shall issue a new certificate in place of the original certificate for shares or fractional shares of capital -13- 14 stock of the Corporation claimed by the owner of such certificate to have been lost, destroyed or wrongfully taken if the owner so requests before the Corporation has notice that the certificate has been acquired by a bona fide purchaser, and if the owner files with the Corporation a sufficient indemnity bond indemnifying the Corporation and its Transfer Agents and Registrars, if any, in form satisfactory to said Board of Directors and such Transfer Agents and Registrars, and if the owner satisfies any other reasonable requirements imposed by the Board of Directors and its Transfer Agents and Registrars, if any. If after the issue of the new certificate a bona fide purchaser of the original certificate presents it for registration of transfer, the Corporation is obligated to register the transfer unless registration would result in overissue, in which event the Corporation's liability is governed by Section 8104 of Act No. 174 of the Michigan Public Acts of 1962, which is known as the Uniform Commercial Code. In addition to any rights on the indemnity bond furnished by the owner, the Corporation may recover the new certificate from the person to whom it was issued or any person taking under such person except a bona fide purchaser. ARTICLE VI Miscellaneous Section 1. Indemnification. The Corporation shall, to the fullest extent now or hereafter permitted by law, indemnify any Director or officer of the Corporation (and, to the extent provided in a resolution of the Board of Directors or by contract, may indemnify any employee or agent of the Corporation) who was or is a party to or threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, including an action by or in the right of the Corporation, by reason of the fact that such person is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against expenses including attorneys' fees (which expenses may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as provided by law), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The indemnification provided for herein shall continue as to a person who has ceased to be a Director or officer of the Corporation and, to the extent provided in a resolution of the Board of Directors or in any con- -14- 15 tract between the Corporation and such person, may continue as to a person who has ceased to be an employee or agent of the Corporation. Any indemnification of a person who was entitled to indemnification after such person ceased to be a Director, officer, employee or agent of the Corporation shall inure to the benefit of the heirs, executors and administrators of such person. The Corporation shall bear the burden of proving that indemnification is not proper under the circumstances. A determination by the Corporation of the propriety of indemnification shall not create a presumption or defense that indemnification is not proper under the circumstances. Section 2. Bylaws not Exclusive. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which any person may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding office, except to the extent that such indemnification may be contrary to law. The indemnification provided by this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 3. Fiscal Year. The fiscal year of the Corporation shall end on the last day of December or on such other date as shall be fixed from time to time by the Board of Directors. Section 4. Notices. Any notice or communication required or permitted to be given by mail, except as required by law, may be mailed by registered, certified or other first class mail to the person to whom it is directed at the address designated by the person for that purpose or, if none is designated, at the last known address of the person. Any notice or communication given to a Shareholder shall be directed to the Shareholder's address as it appears on the stock books of the Corporation unless the Shareholder shall have filed with the Secretary a written request that notices be mailed to some other address, in which case it may be mailed to the address designated in such request. Any notice or communication given to the Corporation or the Board of Directors shall be directed to the resident agent of the Corporation at the registered office of the Corporation. The notice or communication shall be deemed to have been given when deposited, with postage thereon prepaid, in a post office or official depository under the exclusive care and custody of the United States Postal Service. Section 5. Amendments. These Bylaws may be altered or repealed or new Bylaws may be adopted in lieu thereof by -15- 16 either the affirmative vote of a majority of (i) the votes cast by the holders of shares entitled to vote thereon and present or represented at any annual or special meeting of the Shareholders or (ii) a majority of the Directors then in office at any regular or special meeting of the Board. -16- 17 Amendments to Corporation's Bylaws as of October 21, 1997 Article II, Section 1 of the Corporation's Bylaws be revised to read in its entirety as follows: Number and Term of Office. The property, business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, to consist of seven (7) Directors plus the aggregate number of directors that the holders of each series of Preferred Stock voting separately by series are entitled to elect pursuant to the Corporation's Articles of Incorporation, as amended from time to time. The following is hereby added to ARTICLE VI of the Corporation's Bylaws: Section 6. Control Share Acquisitions. Pursuant to Section 794 of the Michigan Business Corporation Act of 1972, as amended (the "Act"), the Corporation elects not to be governed by Chapter 7B of the Act, being Sections 790 to 799 of the Act, and hence Chapter 7B of the Act will not apply to control share acquisitions (as defined in that Chapter) of shares of the Corporation. EX-10.40 5 EXHIBIT 10.40 1 EXHIBIT 10.40 EXECUTION COPY CREDIT AGREEMENT Dated as of October 24, 1997 among CODE-ALARM, INC., as Borrower, THE OTHER CREDIT PARTIES SIGNATORY HERETO, as Credit Parties, THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, as Lenders, and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender 2 TABLE OF CONTENTS
Page 1. AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.3 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.5 Interest and Applicable Margins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.6 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.7 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.8 Cash Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.9 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.10 Receipt of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.11 Application and Allocation of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.12 Loan Account and Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.14 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.16 Capital Adequacy; Increased Costs; Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.17 Single Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.1 Conditions to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.2 Further Conditions to Term Loan B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.3 Further Conditions to Incurrence of Litigation L/C Obligations . . . . . . . . . . . . . . . . . . . . . 27 2.4 Further Conditions to Each Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.1 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.2 Executive Offices; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.3 Corporate Power, Authorization, Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . 30 3.4 Financial Statements and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.5 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.6 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.7 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness . . . . . . . . . . . . . . . 33 3.9 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.10 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.13 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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Page 3.14 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.15 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.16 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.19 Deposit and Disbursement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.20 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.21 Customer and Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.22 Agreements and Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.23 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.24 Series A Preferred Stock Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.25 Series B Preferred Stock Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.1 Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.2 Communication with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.1 Maintenance of Existence and Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.4 Insurance; Damage to or Destruction of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.5 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.6 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.8 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters . . . . . . . . . . . . . . . . . . . . . 43 5.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.11 OEM Contracts and Accreditations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.12 Tessco Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.1 Mergers, Subsidiaries, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.2 Investments; Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.3 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.4 Employee Loans and Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.5 Capital Structure and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.6 Guaranteed Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.8 Sale of Stock and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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Page 6.10 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.11 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.12 Sale-Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.13 Cancellation of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.14 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.15 Change of Corporate Name or Location; Change of Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 49 6.16 No Impairment of Intercompany Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.17 No Speculative Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.18 Changes Relating to Preferred Stock and Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . 50 7. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.2 Survival of Obligations Upon Termination of Financing Arrangements . . . . . . . . . . . . . . . . . . . 50 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.3 Waivers by Credit Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.1 Assignment and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.2 Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.3 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9.4 GE Capital and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.5 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 9.8 Setoff and Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert . . . . . . . . . . . . . . . . 60 10. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 10.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.1 Complete Agreement; Modification of Agreement and Pegasus Litigation Guaranty . . . . . . . . . . . . . 63 11.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 11.4 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 11.5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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Page 11.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 11.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 11.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 11.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 11.11 Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 11.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 11.14 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 11.15 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 11.16 Advice of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 11.17 No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
iv 6 INDEX OF APPENDICES Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance Exhibit 1.1(a)(ii) - Form of Revolving Note Exhibit 1.1(b) - Form of Term A Note Exhibit 1.1(c)(i) - Form of Term B Note Exhibit 1.1(c)(ii) - Form of Notice of Term Loan B Advance Exhibit 1.1(d) - Form of Notice of Term Loan C Advance Exhibit 1.1(e) - Form of Swing Line Note Exhibit 1.5(e) - Form of Notice of Conversion/Continuation Exhibit 4.1(b - Form of Borrowing Base Certificate Exhibit 9.1(a) - Form of Assignment Agreement Schedule 1.1 - Responsible Individual Schedule 1.4 - Sources and Uses; Funds Flow Memorandum Schedule 3.2 - Executive Offices; FEIN Schedule 3.4(A) - Financial Statements Schedule 3.4(B) - Pro Forma Schedule 3.4(C) - Projections Schedule 3.4(D) - Fair Salable Balance Sheet Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Labor Matters Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.11 - Tax Matters Schedule 3.12 - ERISA Plans Schedule 3.13 - Litigation Schedule 3.15 - Intellectual Property Schedule 3.17 - Hazardous Materials Schedule 3.18 - Insurance Schedule 3.19 - Deposit and Disbursement Accounts Schedule 3.20 - Government Contracts Schedule 3.21 - Customer and Trade Relations Schedule 3.22 - Material Agreements Schedule 5.1 - Trade Names Schedule 6.2 - Investments Schedule 6.3 - Indebtedness Schedule 6.4 - Transactions with Affiliates Schedule 6.7 - Existing Liens Annex A (Recitals) - Definitions Annex B (Section 1.2) - Letters of Credit ----------- Annex C (Section 1.8) - Cash Management System ----------- Annex D (Section 2.1(a)) - List of Closing Documents --------------
7 Annex E (Section 4.1(a)) - Financial Statements and Projections -- Reporting -------------- Annex F (Section 4.1(b)) - Collateral Reports -------------- Annex G (Section 6.10) - Financial Covenants ------------ Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information -------------- Annex I (Section 11.10) - Notice Addresses -------------
ii 8 CREDIT AGREEMENT, dated as of October 24, 1997 among Code-Alarm, Inc., a Michigan corporation (a "Borrower"); THE OTHER CREDIT PARTIES SIGNATORY HERETO; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders, and the other Lenders signatory hereto from time to time. RECITALS WHEREAS, Borrower desires that Lenders extend revolving letter of credit and term credit facilities to Borrower of up to Twenty-Five Million Five Hundred Thousand Dollars ($25,500,000.00) in the aggregate for the purpose of (a) refinancing certain indebtedness of Borrower, (b) providing working capital financing for Borrower, (c) providing funds to satisfy, or letters of credit to secure the issuance of a supersedeas or appeal bond or similar obligation with, a certain potentially adverse judgment or judgments which may be entered against one or more Credit Parties in certain pending litigation, and (d) providing funds for other general corporate purposes of Borrower; and for these purposes, Lenders are willing to make certain loans and other extensions of credit to Borrower of up to such amount upon the terms and conditions set forth herein; and WHEREAS, Borrower desires to secure all of its obligations under the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, security interests in and liens upon all of its existing and after-acquired personal and real property; and WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, "Appendices") hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1 Credit Facilities. (a) Revolving Credit Facility. (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available from time to time until the Commitment Termination Date its Pro Rata Share of revolving credit advances (other than revolving credit advances made under Section 1.1(e)) (each, a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan of each Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment. The obligations of each Revolving Lender hereunder shall be 9 several and not joint. The aggregate amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (A) the Maximum Amount and (B) the Borrowing Base, in each case less the sum of the Letter of Credit Obligations and the Swing Line Loan outstanding at such time ("Borrowing Availability"). Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(a). Each Revolving Credit Advance shall be made on notice by Borrower to the representative of Agent identified on Schedule 1.1 at the address specified thereon. Those notices must be given no later than (1) 11:00 a.m. (Chicago time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2) 11:00 a.m. (Chicago time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving Credit Advance") must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i), and shall include the information required in such Exhibit and such other information as may be required by Agent. If Borrower desires to have the Revolving Credit Advances bear interest by reference to a LIBOR Rate, Borrower must comply with Section 1.5(e). (ii) Borrower shall execute and deliver to each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving Lender. Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively, the "Revolving Notes"). Each Revolving Note shall represent the obligation of Borrower to pay the amount of each Revolving Lender's Revolving Loan Commitment or, if less, the applicable Revolving Lender's Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to Borrower together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the aggregate Revolving Loan and all other non- contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date. (iii) At the request of Borrower, in its discretion Agent may (but shall have absolutely no obligation to), make Revolving Credit Advances to Borrower on behalf of Revolving Lenders in amounts which cause the outstanding balance of the aggregate Revolving Loan to exceed the Borrowing Base (less the Swing Line Loan) (such excess Revolving Credit Advances are herein referred to collectively as "Overadvances"), and no such event or occurrence shall cause or constitute a waiver by Agent or Lenders of any Default or Event of Default that may result therefrom or of Agent's, Swing Line Lender's or Revolving Lenders' right to refuse to make any further Overadvances, Swing Line Advances or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the case may be, at any time that an Overadvance exists or would result therefrom. In addition, Overadvances may be made even if the applicable conditions to lending set forth in Section 2 have not been met. All Overadvances shall constitute Index Rate Loans, shall bear interest at the Default Rate and shall be payable on demand. Except as otherwise provided in Section 1.11(b), the authority of Agent to make Overadvances is limited to an aggregate amount not to exceed $1,000,000 at any time, shall not cause the aggregate Revolving Loan to exceed the Maximum Amount, and may be revoked prospectively by a 2 10 written notice to Agent signed by Revolving Lenders holding fifty percent (50%) or more of the Revolving Loan Commitments. (b) Term Loan A. (i) Subject to the terms and conditions hereof, each Term Lender agrees to make a term loan on the Closing Date to Borrower in the original principal amount of its Term Loan A Commitment (collectively, the "Term Loan A"). The obligations of each Term Lender hereunder shall be several and not joint. Each such Term Loan shall be evidenced by promissory notes substantially in the form of Exhibit 1.1(b) (each a "Term A Note" and collectively the "Term A Notes"), and Borrower shall execute and deliver a Term A Note to each applicable Term Lender. Each Term A Note shall represent the obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan A, together with interest thereon as prescribed in Section 1.5. (ii) Borrower shall pay the principal amount of the Term Loan A in twelve (12) equal, consecutive quarterly installments of $125,000 each, on the first day of January, April, July and October of each year, commencing on January 1, 1998. (iii) Notwithstanding the foregoing clause (ii), the aggregate outstanding principal balance of the Term Loan A shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (iv) Each payment of principal with respect to the Term Loan A shall be paid to Agent for the ratable benefit of each Term Lender making a Term Loan A, ratably in proportion to each such Term Lender's respective Term Loan A Commitment. (c) Term Loan B. (i) Subject to the terms and conditions hereof, each Term Lender agrees to make a term loan on the Term Loan B Funding Date to Borrower (the "Term Loan B") in the original principal amount of its Term Loan B Commitment. The obligations of each Term Lender hereunder shall be several and not joint. Each Term Loan B shall be evidenced by promissory notes substantially in the form of Exhibit 1.1(c)(i) (each a "Term B Note" and collectively the "Term B Notes"), and Borrower shall execute and deliver a Term B Note to the applicable Term Lender on the Closing Date in an amount equal to such Term Lender's Term B Commitment. Each Term B Note shall represent the obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan B, together with interest thereon as prescribed in Section 1.5. The Term Loan B shall be made on notice by Borrower to the representative of Agent identified on Schedule 1.1 at the address specified thereon. Such notice (a "Notice of Term Loan B Advance") must be given no later than 11:00 a.m. (Chicago time) on the date which is three (3) Business Days prior to the Term Loan B Funding Date whether such Term Loan B shall be an Index Rate Loan or a LIBOR Loan and shall be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(c)(i), and shall include the information required in such Exhibit and such other information as may be required by Agent. 3 11 (ii) Borrower shall pay the aggregate principal amount of the Term Loan B in equal, consecutive quarterly installments equal to one-twelfth (1/12) of the aggregate original principal amount of such Loan on the first day of January, April, July and October of each year, commencing on the first of such dates occurring after the Term Loan B Funding Date (unless the first of such dates is less than forty-five (45) days following the Term Loan B Funding Date, in which case such installments shall commence on the second of such dates occurring after the Term Loan B Funding Date). (iii) Notwithstanding the foregoing clause (ii), the aggregate outstanding principal balance of the Term Loan B, shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (iv) Each payment of principal with respect to the Term Loan B shall be paid to Agent for the ratable benefit of each Term Lender making a Term Loan B ratably in proportion to each such Term Lender's respective Term Loan B Commitment. (d) Reimbursement of Litigation L/C Obligations; Term Loan C. (i) The issuance of the Litigation L/C, the advancing of Term Loan C and terms of repayment of the Litigation L/C Obligations, Term Loan C and the other Litigation Obligations shall be governed by and construed in accordance with the Litigation L/C Agreement, pursuant to which Agent and term Lender may either cause the issuance of the Litigation L/C or directly advance "Term Loan C" (as defined below) pursuant to the Term Loan C Commitments. Each of the Credit Parties acknowledges and agrees that, notwithstanding anything contained herein to the contrary, Borrower's Litigation L/C Obligations shall arise, and shall be deemed to arise, immediately upon Borrower's execution of the Litigation L/C Agreement. (ii) If Agent and Term Lenders shall have incurred Litigation L/C Obligations, then, upon payment by the L/C Issuer under the Litigation L/C, and regardless of whether an Event of Default or Default shall then exist and notwithstanding the failure of Borrower to satisfy any of the conditions set forth in Section 2.4, each Term Lender shall fund its Pro Rata Share of such payment to Agent pursuant to Annex B hereof and the Litigation L/C Agreement and in accordance with their respective Term Loan C Commitments, and, upon such payments, Borrower's Obligations to reimburse Agent for the Litigation L/C Obligations shall thereafter be payable directly to such Term Lenders pursuant to the terms of the Litigation L/C Agreement and Annex B (which Obligations to the Term Lenders shall thereafter constitute "Term Loan C" hereunder and thereunder), which Term Loan C shall be an Index Rate Loan. Borrower's request for Agent's and Term Lenders' incurrence of Litigation L/C Obligations shall be made on notice by Borrower to Agent two (2) Business Days prior to incurrence pursuant to Annex B. Notwithstanding anything herein to the contrary, such recharacterization of Borrower's Litigation L/C Obligations hereunder shall occur solely for purposes of references herein, in the Litigation L/C Agreement and in the other Loan Documents, to such Obligations and shall not be construed to constitute a refinancing, repayment or novation of any such Obligations. All liens and security interests in the Collateral which are granted to Agent under the Litigation Collateral Documents 4 12 to secure the Litigation L/C Obligations shall continue to secure Borrower's Obligations with respect to Term Loan C as so recharacterized. The obligations of the Term Lenders to pay to Agent their respective Pro Rata Shares of payments under the Litigation L/C hereunder shall be several and not joint. (iii) If Agent shall not have incurred Litigation L/C Obligations or shall have terminated the Litigation L/C prior to its being drawn, Borrower may request Term Lenders to directly advance Term Loan C pursuant to this subparagraph. Subject to the terms and conditions hereof (including, without limitation, the conditions set forth in Sections 2.1, 2.3(II) and 2.4), each Term Lender agrees to make a Term Loan C on the Term Loan C Funding Date to Borrower in the original principal amount of its Term Loan C Commitment. The obligations of each Term Lender hereunder shall be several and not joint. If the Term Loan C is advanced under this subparagraph, it shall be made on notice by Borrower to the representative of Agent identified on Schedule 1.1 at the address specified thereon. Such notice (a "Notice of Term Loan C Advance") must be given no later than 11:00 a.m. (Chicago time) on the date which is three (3) Business Days prior to the Term Loan C Funding Date whether such Term Loan C shall be an Index Rate Loan or a LIBOR Loan and shall be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(d), and shall include the information required in such Exhibit and such other information as may be required by Agent. (iv) Each Term Loan C shall be evidenced by a promissory note substantially in the form of Exhibit A to the Litigation L/C Agreement (each a "Term C Note" and collectively the "Term C Notes"), and Borrower shall execute and deliver its Term C Note to each Term Lender on the Closing Date as provided in the Litigation L/C Agreement in an amount equal to such Term Lender's Term Loan C Commitment. Each Term C Note, following the applicable Term Lender's payment to Agent of its Pro Rata Share of payment under the Litigation L/C, shall represent the Obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan C, together with interest thereon as prescribed in Section 1.5. (v) As provided in the Litigation L/C Agreement, Borrower shall pay the aggregate principal amount of the Term Loan C in equal, consecutive quarterly installments equal to the lesser of $250,000 and one-twelfth (1/12) of the aggregate original principal amount of such Loan, on the first day of January, April, July and October of each year, commencing on the first of such dates occurring after the date on which the L/C Issuer make payment under the Litigation L/C (unless the first of such dates is less than forty-five (45) days following the date of such payment by the L/C Issuer, in which case such installments shall commence on the second of such dates occurring after the date of such payment). (vi) Notwithstanding the foregoing clause (ii) and as provided in the Litigation L/C Agreement, the aggregate outstanding principal balance of the Term Loan C, shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. 5 13 (vii) As provided in the Litigation L/C Agreement, each payment of principal with respect to the Term Loan C shall be paid to Agent for the ratable benefit of each Term Lender making a Term Loan C ratably in proportion to each such Term Lender's respective Term Loan C Commitment. (e) Swing Line Facility. (i) Agent shall notify the Swing Line Lender upon Agent's receipt of any Notice of Revolving Credit Advance. Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date revolving credit advances (other than revolving credit advances made under Section 1.1(a)) (each, a "Swing Line Advance") in accordance with any such notice. The aggregate amount of Swing Line Advances outstanding shall not exceed the lesser of (A) the Swing Line Commitment and (B) the Borrowing Base less the outstanding balance of the Revolving Loan at such time ("Swing Line Availability"). Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(e). Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered to Agent by Borrower in accordance with Section 1.1(a). Those notices must be given no later than 11:00 a.m. (Chicago time) on the Business Day of the proposed Swing Line Advance. Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrower shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand therefor by Agent. (ii) Borrower shall execute and deliver to the Swing Line Lender a promissory note with respect to the Swing Line Commitment. Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(e) (each a "Swing Line Note" and, collectively, the "Swing Line Notes"). The Swing Line Note shall represent the obligation of Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to Borrower together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the Swing Line Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full. (iii) Refunding of Swing Line Loans. The Swing Line Lender, at any time and from time to time in its sole and absolute discretion, may on behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an amount equal to such Revolving Lender's Pro Rata Share of the principal amount of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding on the date such notice is given. Unless any of the events described in Sections 8.1(h) or 8.1(i) shall have occurred (in which event the procedures of Section 1.1(e)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line 6 14 Lender, prior to 2:00 p.m. (Chicago time), in immediately available funds on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan of Borrower. (iv) Participation in Swing Line Loans. If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(e)(iii), one of the events described in Sections 8.1(h) or 8.1(i) shall have occurred, then, subject to the provisions of Section 1.1(e)(v) below, each Revolving Lender will, on the date such Revolving Credit Advance was to have been made for the benefit of Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan to Borrower in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Revolving Lender will promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. (v) Revolving Lenders' Obligations Unconditional. Each Revolving Lender's obligation to make Revolving Credit Advances in accordance with Section 1.1(e)(iii) and to purchase participating interests in accordance with Section 1.1(e)(iv) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Revolving Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1(e)(iii) or 1.1(e)(iv), as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter. (f) Reliance on Notices. Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation, Notice of Term Loan B Advance, requests for the incurrence of Letter of Obligations or Litigation L/C Obligations under Annex B and the Litigation L/C Agreement, or similar notice believed by Agent to be genuine. Agent may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. 1.2 Letters of Credit. Subject to and in accordance with the terms and conditions contained herein and in Annex B or the Litigation L/C Agreement, as applicable, Borrower shall have the right to request, and Lenders agree to incur, or purchase participations in, Letter of Credit Obligations and Litigation L/C Obligations. 7 15 1.3 Prepayments. (a) Voluntary Prepayments. Borrower may at any time on at least five (5) days' prior written notice by Borrower to Agent (i) voluntarily prepay all or part of the Term Loans and/or (ii) voluntarily prepay all or part of the Revolving Loan and permanently reduce (but not terminate) the Revolving Loan Commitment; provided that (A) any such prepayments or reductions shall be in a minimum amount of $250,000 and integral multiples of $100,000 in excess of such amount and (B) the Revolving Loan Commitment shall not be reduced to an amount less than the greater of (x) $4,000,000 and (y) the L/C Sublimit. In addition, Borrower may at any time on at least ten (10) days' prior written notice by Borrower to Agent terminate the Revolving Loan Commitment; provided that upon such termination, all Loans and other Obligations shall be immediately due and payable in full. Any such voluntary prepayment and any such reduction or termination of the Revolving Loan Commitment must be accompanied by the payment of the fee required by Section 1.9(c), if any, plus the payment of any LIBOR funding breakage costs in accordance with Section 1.13(b). Upon any such reduction or termination of the Revolving Loan Commitment, Borrower's right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances, shall simultaneously be permanently reduced or terminated, as the case may be; provided that a permanent reduction of the Revolving Loan Commitment shall not require a corresponding pro rata reduction in the L/C Sublimit (as defined in Annex B). Each notice of partial prepayment shall designate the Loans or other Obligations to which such prepayment is to be applied, provided that any partial prepayments of any Term Loan made by or on behalf of Borrower shall be applied to prepay the scheduled installments of such Term Loan in inverse order of their respective maturities. (b) Mandatory Prepayments. (i) If at any time the outstanding balance of the aggregate Revolving Loan exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing Base, less, in each case, the aggregate outstanding Swing Line Loan at such time, Borrower shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess. If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the extent of such remaining excess. Notwithstanding the foregoing, any Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid on demand. (ii) Immediately upon receipt by any Credit Party of proceeds of any asset disposition (including condemnation proceeds, other than asset dispositions with respect to which no prepayments are required under Section 6.8, and excluding proceeds of casualty insurance and proceeds of other claims for damage and destruction) or any sale of Stock of any Subsidiary of any Credit Party, Borrower shall prepay the Obligations in an amount equal to all such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrower in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts 8 16 payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. Any such prepayment shall be applied in accordance with Section 1.3(c). (iii) If Borrower issues Stock or any debt securities (other than Stock or debt securities issued pursuant to Section 2.2 and applied to the payment of the portion of the Net Litigation Liability which exceeds $3,000,000), then, not later than the Business Day following the date of receipt of the proceeds thereof, Borrower shall prepay the Obligations (or cash collateralize the Letter of Credit Obligations or Litigation L/C Obligations) in an aggregate amount equal to all such proceeds, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith. Any such prepayment (or cash collateralization) shall be applied in accordance with Section 1.3(c). (iv) Borrower shall prepay the outstanding principal balance of the Term Loan B or Term Loan C (whichever is outstanding), or provide cash collateral with respect to the Litigation L/C Obligations, on the earlier of the date which is ten (10) days after (A) the date on which Borrower's annual audited Financial Statements for the immediately preceding Fiscal Year are delivered pursuant to Annex E or (B) the date on which such annual audited Financial Statements were required to be delivered pursuant to Annex E, in an amount equal to Excess Cash Flow for the immediately preceding Fiscal Year. Any prepayments (or cash collateralization) paid pursuant to this clause (iv) shall be applied in accordance with Section 1.3(c). Each such prepayment (or cash collateralization) shall be accompanied by a certificate signed by Borrower's chief financial officer certifying the manner in which Excess Cash Flow and the resulting prepayment were calculated, which certificate shall be in form and substance satisfactory to Agent. (v) Immediately upon receipt by any Credit Party of proceeds of any money judgment or other payment ordered by a court of law or other Governmental Authority arising out of any litigation or other proceedings involving patents or other intellectual property (including, without limitation, with respect to the California Award), (i) Borrower shall prepay the Loans or cash collateralize the Litigation L/C in an amount equal to fifty percent (50%) of all such proceeds if, at the time of such prepayment or cash collateralization, neither the Term Loan B or the Term Loan C shall have been advanced by the Term Lenders and the Litigation L/C shall not have been issued, or the Term Loan B shall have been previously repaid in full, or the Term Loan C shall have been previously repaid in full or (ii) Borrower shall prepay the Term Loan B or Term Loan C (whichever is outstanding) or provide cash collateral with respect to the Litigation L/C Obligations, in an amount equal to all of such proceeds if, at the time of such prepayment, any principal portion of the Term Loan B or Term Loan C shall remain outstanding or the Litigation L/C shall be outstanding. If any prepayment or cash collateralization under clause (ii) above results in a prepayment in full of the Term Loan B or Term Loan C, or full cash collateralization of the Litigation L/C Obligations and the aggregate of such proceeds exceeds the amount of such prepayment or cash collateralization, then the Borrower shall further prepay the Loans or cash collateralize the Letter of Credit Obligations in an amount equal to fifty 9 17 percent (50%) of such excess proceeds as a prepayment or cash collateralization under clause (i) above. All such prepayments shall be applied in accordance with Section 1.3(c). (c) Application of Certain Mandatory Prepayments. Subject to the provisions of Section 1.3(d): (i) All prepayments and cash collateral payments made by Borrower pursuant to Sections 1.3(b)(ii), 1.3(b)(iii), or 1.3(b)(v)(i), or the second sentence of Section 1.3(b)(v), shall be applied as follows: first, to Fees and reimbursable expenses of Agent then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on the Term Loan B or Term Loan C, if any; third, to prepay the scheduled installments of the Term Loan B or Term Loan C, if any, in inverse order of maturity, until such Loan shall have been prepaid in full or to any Litigation L/C Obligations to provide cash collateral therefor in the manner set forth in Annex B and the Litigation L/C Agreement, until all such Litigation L/C Obligations have been fully cash collateralized in the manner set forth in Annex B and the Litigation L/C Agreement; fourth, to interest then due and payable on the Term Loan A; fifth, to prepay the scheduled installments of the Term Loan A in inverse order of maturity, until such Loan shall have been prepaid in full (or, in the case of an application of the proceeds of the California Award pursuant to Section 1.3(b)(v), not to exceed an amount equal to $750,000 minus the aggregate amount of principal of the Term Loan A therefore repaid by Borrower); sixth, to interest then due and payable on the Swing Line Loan; seventh, to the principal balance of the outstanding Swing Line Loan until the same shall have been repaid in full; eighth, to interest then due and payable on Revolving Credit Advances; ninth, to the principal balance of outstanding Revolving Credit Advances until the same shall have been paid in full; and tenth, to any Letter of Credit Obligations to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex B; it being understood and agreed that neither the Revolving Loan Commitment nor the Swing Line Commitment shall be permanently reduced by the amount of any such prepayments; and (ii) Any prepayments and cash collateral payments made by Borrower pursuant to Section 1.3(b)(iv) or 1.3(b)(v)(ii) above shall be applied to prepay the scheduled installments of the Term Loan B or Term Loan C (whichever is outstanding) in inverse order of maturity, until such Loan shall have been prepaid in full, or to its Litigation L/C Obligations to provide cash collateral therefor in the manner set forth in Annex B and the Litigation L/C Agreement, until all such Litigation L/C Obligations have been fully cash collateralized in the manner set forth in Annex B and the Litigation L/C Agreement. (iii) All cash collateral paid pursuant to this Section 1.3 shall be held by Agent in an interest bearing account subject to such agreements and documents as may be reasonably acceptable to Agent. 10 18 (d) Application of Prepayments from Insurance and Damage Claim Proceeds. Prepayments from insurance proceeds in accordance with Section 5.4(c) and from proceeds of other claims for damage and destruction shall be applied as follows: insurance proceeds and proceeds of other claims for damage and destruction from casualties or losses to cash or Inventory shall be applied first, to the Swing Line Loans and second to the Revolving Credit Advances; insurance proceeds and proceeds of other claims for damage and destruction from casualties or losses to Equipment, Fixtures and Real Estate shall be applied to the Term Loans and Litigation L/C Obligations (first to Borrower's Term Loan B, Term Loan C or Litigation L/C Obligations (as cash collateral), if any, and then to its Term Loan A). Neither the Revolving Loan Commitment nor the Swing Line Loan Commitment shall be permanently reduced by the amount of any such prepayments. If the insurance proceeds and proceeds of other claims for damage and destruction received exceed the outstanding principal balances of the Loans, if the insurance proceeds and proceeds of other claims for damage and destruction do not specifically relate to cash, Inventory, Equipment, Fixtures or Real Estate, or if the precise amount of insurance proceeds and proceeds of other claims for damage and destruction allocable to Inventory as compared to Equipment, Fixtures and Real Estate is not otherwise determined, the allocation and application of those proceeds shall be determined by Agent, subject to the approval of Requisite Lenders. (e) Nothing in this Section 1.3 shall be construed to constitute Agent's or any Lender's consent to any transaction referred to in Section 1.3(b)(ii) and 1.3(b)(iii) above which is not permitted by other provisions of this Agreement or the other Loan Documents. 1.4 Use of Proceeds. Borrower shall utilize the proceeds of the Revolving Loan and the Swing Line Advances solely for the financing of Borrower's ordinary working capital and general corporate needs, including capital expenditures (to the extent not prohibited by this Agreement), but excluding the payment of any judgments relating to the DEI Litigation, and the proceeds of the Term Loan A and the Revolving Loans and Swing Line Advances made on the Closing Date, for the Refinancing or for the financing of Borrower's ordinary working capital and general corporate needs (including capital expenditures not prohibited by this Agreement), but excluding the payment of any judgments relating to the DEI Litigation; provided, however, that Borrower may utilize proceeds of Revolving Loans to pay judgments relating to the DEI Litigation in an amount not to exceed the aggregate amount of proceeds of the California Award which has been applied to the Revolving Loan pursuant to Section 1.3(b)(v) if, after giving effect to any such payment, the Net Borrowing Availability minus the Letter of Credit Obligations exceeds $500,000. Borrower shall utilize the proceeds of the Term Loan B solely for the payment of the Final Judgment and shall utilize the Litigation L/C solely to obtain and secure a supersedeas bond issued to prevent the creation, enforcement and execution of any judicial lien with respect to the Lower Court Judgment in connection with an appeal of such judgment. Disclosure Schedule (1.4) contains a description of Borrower's sources and uses of funds as of the Closing Date, including Loans and Letter of Credit Obligations to be made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. 11 19 1.5 Interest and Applicable Margins. (a) Borrower shall pay interest to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the aggregate Revolving Credit Advances outstanding from time to time; (ii) with respect to the Term Loans, the Index Rate plus the Applicable Term Loan Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Term Loan LIBOR Margin per annum; and (iii) with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum. (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (c) All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. The Index Rate shall be determined each day based upon the Index Rate as in effect each day. Each determination by Agent of an interest rate hereunder shall be conclusive, absent manifest error. (d) At the election of Agent (or upon the written request of Requisite Lenders) confirmed by written notice from Agent to Borrower, and so long as any Default or Event of Default shall have occurred and be continuing, the interest rates applicable to the Loans and the Letter of Credit Fees shall be increased by two percentage points (2%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder ("Default Rate"), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. Interest and Letter of Credit Fees at the Default Rate shall accrue from the date of such notice until such Default or Event of Default is cured or waived, or the Agent (upon written authorization therefor from the Requisite Lenders) notifies Borrower that the Default Rate no longer applies, and shall be payable upon demand. (e) So long as no Default or Event of Default shall have occurred and be continuing, and subject to the additional conditions precedent set forth in Section 2.4, Borrower shall have the option to (i) request that any Revolving Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon 12 20 the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall commence on the last day of the LIBOR Period of the Loan to be continued. Any Loan to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount. Any such election must be made by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no election is received with respect to a LIBOR Loan by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing or if the additional conditions precedent set forth in Section 2.4 shall not have been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a "Notice of Conversion/Continuation") in the form of Exhibit 1.5(e). (f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (e) above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(f), a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. 13 21 1.6 Eligible Accounts. Based on the most recent Borrowing Base Certificate delivered by Borrower to Agent and on other information available to Agent, Agent shall in its reasonable credit judgment determine which Accounts of Borrower and Tessco shall be "Eligible Accounts" for purposes of this Agreement; provided, however, and notwithstanding anything in this section or this Agreement to the contrary, no Accounts of Tessco shall constitute Eligible Accounts from and after the earlier of June 30, 1998 and the completion of the Tessco Liquidation. In determining whether a particular Account of Borrower or Tessco constitutes an Eligible Account, Agent shall not include any such Account to which any of the exclusionary criteria set forth below applies. Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any such criteria, to establish new criteria and to adjust advance rates with respect to Eligible Accounts, in its reasonable credit judgment, subject to the approval of Supermajority Revolving Lenders in the case of adjustments or new criteria or changes in advance rates which have the effect of making more credit available. Unless Agent shall have otherwise agreed in writing, Eligible Accounts shall not include any Account of Borrower or Tessco: (a) which does not arise from the sale of goods or the performance of services by Borrower or Tessco in the ordinary course of its business; (b) upon which (i) Borrower's or Tessco's right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) Borrower or Tessco is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process; (c) to the extent any defense, counterclaim, setoff or dispute is asserted as to such Account or if the Account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the Account Debtor's obligation to pay that invoice is subject to Borrower's or Tessco's completion of further performance under such contract; (d) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the applicable Account Debtor; (e) with respect to which an invoice or other electronic communication (with respect to which, in the case of an electronic communication, tangible evidence of the existence and terms of such Account can be reproduced by Borrower or Tessco), in any case acceptable to Agent in form and substance, has not been sent to the applicable Account Debtor; (f) that (i) is not owned by Borrower or Tessco or (ii) is subject to any right, claim, security interest or other interest of any other Person, other than Liens in favor of Agent, on behalf of itself and Lenders; 14 22 (g) that arises from a sale to any Credit Party or any Affiliate of any Credit Party, or to any director, officer, other employee of any Credit Party or any Affiliate of any Credit Party, or to any other entity which has any common officer or director with any Credit Party; (h) that is the obligation of an Account Debtor that is the United States government or a political subdivision thereof, or any state or municipality or department, agency or instrumentality thereof unless Agent, in its sole discretion, has agreed to the contrary in writing and Borrower or Tessco, if necessary or desirable, has complied with the Federal Assignment of Claims Act of 1940, and any amendments thereto, or any applicable state statute or municipal ordinance of similar purpose and effect, with respect to such obligation; (i) that is the obligation of an Account Debtor located in a foreign country other than Canada (excluding the provinces of Quebec, Newfoundland, Nova Scotia and Prince Edward Island) unless payment thereof is assured by a letter of credit or bankers' acceptance satisfactory to Agent as to form, amount and issuer; (j) to the extent Borrower or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to Borrower or any Subsidiary thereof, but only to the extent of the potential offset; (k) that arises with respect to goods which are delivered on a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor is or may be conditional; (l) that is in default; provided, that, without limiting the generality of the foregoing, an Account shall be deemed in default upon the occurrence of any of the following: (i) it is not paid within the earlier of: sixty (60) days following its due date or ninety (90) days following its original invoice date net of credit balances, unless assured by a letter of credit satisfactory to Agent as to form, amount and issuer; (ii) if any Account Debtor obligated upon such Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due; or (iii) if any petition is filed by or against any Account Debtor obligated upon such Account under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors; 15 23 (m) which is the obligation of an Account Debtor if fifty percent (50%) or more of the dollar amount of all Accounts in excess of $2,500 and owing by that Account Debtor to Borrower and Tessco are ineligible under the other criteria set forth in this Section 1.6; (n) to the extent the Dollar amount of such Account, when aggregated with the Dollar amount of all other Accounts owing by that Account Debtor (other than Ford Motor Company, General Motors Corporation, Chrysler Corporation, Mitsubishi Motor Sales of America, Inc., Volkswagen of America, Inc., and Subaru of America, Inc.) to Borrower and Tessco, exceeds ten percent (10%) of the aggregate gross amount of all Accounts; (o) as to which Agent's interest, on behalf of itself and Lenders, therein is not a first priority perfected security interest; (p) as to which any of the representations or warranties pertaining to Accounts set forth in this Agreement or the Security Agreement is untrue; (q) to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper; (r) which is payable in any currency other than Dollars; (s) to the extent Borrower or Tessco has received payments with respect to such Account, the goods sold with respect to such Account have not been delivered or such Account remains indicated on Borrower's or Tessco's most recent trial balance delivered to Agent pursuant to Annex F hereto; (t) to the extent such Account may be offset by warranty expenses with respect to the goods sold and giving rise to such Account; or (u) which is unacceptable to Agent in its reasonable credit judgment. 1.7 Eligible Inventory. Based on the most recent Borrowing Base Certificate delivered by Borrower to Agent and on other information available to Agent, Agent shall in its reasonable credit judgment determine which Inventory of Borrower and Tessco shall be "Eligible Inventory" for purposes of this Agreement; provided, however, that, notwithstanding anything in this section or this Agreement to the contrary, no Inventory of Tessco shall constitute Eligible Inventory from and after the earlier of June 30, 1998 and the completion of the Tessco Liquidation. In determining whether any particular Inventory of Borrower or Tessco constitutes Eligible Inventory, Agent shall not include any such Inventory to which any of the exclusionary criteria set forth below applies. Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any such criteria, to establish new criteria and to adjust advance rates with respect to Eligible Inventory, in its reasonable credit judgment, subject to the approval of Supermajority Revolving Lenders in the case of adjustments or new criteria or changes in 16 24 advance rates which have the effect of making more credit available. Unless Agent shall have otherwise agreed in writing, Eligible Inventory shall not include any Inventory of Borrower or Tessco: (a) that is not owned by Borrower or Tessco free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure Borrower's or Tessco's performance with respect to that Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders; (b) (i) that is located at a premises at which Borrower maintains Inventory having an aggregate book value of less than $100,000 or (ii) that is located on premises which are not owned and operated by Borrower or Tessco, or stored with a bailee, warehouseman or similar Person, or located on premises that are leased to Borrower or Tessco, or located on premises which are owned by Borrower or Tessco and subject to a Lien securing Indebtedness of Borrower or Tessco, unless in any such case under this clause (b)(ii), (x) a satisfactory bailee letter, landlord waiver or mortgagee's waiver has been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect thereto; (c) that is placed on consignment or is in transit (other than Inventory which is in transit for not more than ten (10) days from Tessco to Borrower or Borrower to Tessco in the ordinary course of business or in connection with the Tessco Liquidation); (d) that is covered by a negotiable document of title, unless such document has been delivered to Agent; (e) that in Agent's reasonable determination, is excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale; (f) that consists of display items or packing, labels, inserts or shipping materials, manufacturing supplies, work-in-process Inventory or replacement parts; (g) that consists of goods which have been returned by the buyer; (h) that is not of a type held for sale in the ordinary course of Borrower's or Tessco's business; (i) as to which Agent's Lien, on behalf of itself and Lenders, therein is not a first priority perfected Lien; (j) as to which any of the representations or warranties pertaining to Inventory set forth in this Agreement or the Security Agreement is untrue; 17 25 (k) to the extent that it consists of any costs associated with "freight-in" charges; (l) to the extent that it consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available; (m) to the extent that it is not covered by casualty insurance acceptable to Agent; (n) to the extent that it is physically counted annually or quarterly and carried forward on the perpetual inventory as constant until the next physical count; or (o) to the extent reserves are established with respect to it for variances resulting from physical inventory counts or standard cost adjustments. (p) that is otherwise unacceptable to Agent in its reasonable credit judgment. 1.8 Cash Management Systems. On or prior to the Closing Date, Borrower will establish and will maintain until the Termination Date, the cash management systems described on Annex C (the "Cash Management Systems"). 1.9 Fees. (a) Borrower shall pay to GE Capital, individually, the Fees specified in that certain fee letter of even date herewith between Borrower and GE Capital (the "GE Capital Fee Letter"), at the times specified for payment therein. (b) As additional compensation for the Revolving Lenders, Borrower agrees to pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, a fee for Borrower's non-use of available funds in an amount equal to two-fifths of one percent (0.40%) per annum (calculated on the basis of a 360 day year for actual days elapsed) of the difference between (x) the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balances of the aggregate Revolving Loan and the Swing Line Loan outstanding during the period for which such fee is due. (c) If, prior to the second anniversary of the Closing Date, the Revolving Loan Commitment is reduced or terminated, whether voluntarily or involuntarily and whether before or after acceleration of the Obligations, Borrower shall pay to Agent, for the benefit of Lenders as liquidated damages and compensation for the costs of being prepared to make funds available hereunder an amount equal to two percent (2.00%) of the amount of the reduction of the Revolving Loan Commitment ; provided, however, that (i) if Borrower requests Agent and Lenders to consent to permitting Borrower to voluntarily redeem the Series A Preferred Stock pursuant to the terms and conditions of the Series A Preferred Stock Documents and Agent and Lenders refuse to consent thereto, and Borrower terminates the Commitments and repays the 18 26 Obligations in their entirety within ninety (90) days of such refusal, the amount payable under this section shall be one percent (1.00%) of the amount of the Revolving Loan Commitment immediately prior to such termination and repayment and (ii) if Borrower shall have notified the Agent in writing that it objects to the assignee of any assignment effected under Section 9.1 within ten (10) days of such assignment and Borrower terminates the Commitments and repays the Obligations in their entirety within ninety (90) days of such notification, no amount shall be payable under this section. 1.10 Receipt of Payments. Borrower shall make each payment under this Agreement not later than 2:00 p.m. (New York time) on the day when due in immediately available funds in Dollars to the Collection Account. For purposes of computing interest and Fees and determining Borrowing Availability or Net Borrowing Availability as of any date, all payments shall be deemed received on the day of receipt of immediately available funds therefor in the Collection Account prior to 2:00 p.m. (New York time). Payments received after 2:00 p.m. (New York time) on any Business Day shall be deemed to have been received on the following Business Day. 1.11 Application and Allocation of Payments. (a) So long as no Event of Default shall have occurred and be continuing, (i) payments consisting of proceeds of Accounts received in the ordinary course of business shall be applied to the Swing Line Loan and the Revolving Loan; (ii) payments matching specific scheduled payments then due shall be applied to those scheduled payments; (iii) voluntary prepayments shall be applied as determined by Borrower, subject to the provisions of Section 1.3(a); and (iv) mandatory prepayments shall be applied as set forth in Section 1.3. As to each other payment, and as to all payments made when an Event of Default shall have occurred and be continuing or following the Commitment Termination Date, Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of Borrower, and Borrower hereby irrevocably agrees that Agent shall have the continuing exclusive right to apply, reverse and reapply any and all such payments against the Obligations of Borrower as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan Account or any other books and records. In the absence of a specific determination by Agent with respect thereto, payments shall be applied to amounts then due and payable in the following order: (1) to Fees and Agent's expenses reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on the other Loans, ratably in proportion to the interest accrued as to each Loan; (5) to principal payments on the other Loans and to provide cash collateral for Letter of Credit Obligations and Litigation L/C Obligations in the manner described in Annex B and the Litigation L/C Agreement, ratably to the aggregate, combined principal balance of the other Loans and outstanding Letter of Credit Obligations and Litigation L/C Obligations; and (6) to all other Obligations including expenses of Lenders to the extent reimbursable under Section 11.3. (b) Agent is authorized to, and at its sole election may, charge to the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges, 19 27 costs (including insurance premiums in accordance with Section 5.4(a)) and interest and principal, other than principal of the Revolving Loan, owing by Borrower under this Agreement or any of the other Loan Documents if and to the extent Borrower fails to promptly pay any such amounts as and when due, even if such charges would cause the balance of the aggregate Revolving Loan and the Swing Line Loan to exceed Borrowing Availability. At Agent's option and to the extent permitted by law, any charges so made shall constitute part of the Revolving Loan hereunder. 1.12 Loan Account and Accounting. Agent shall maintain a loan account (the "Loan Account") on its books to record: (a) all Advances and the Term Loans, (b) all payments made by Borrower, and (c) all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Agent's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent's most recent printout or other written statement, shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account as to Borrower. Unless Borrower notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. 1.13 Indemnity. (a) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and hold harmless each of Agent, Lenders and their respective Affiliates, and each such Person's respective officers, directors, employees, attorneys, agents and representatives (each, an "Indemnified Person"), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such Credit Party shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that Indemnified Person's gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, 20 28 ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. 21 29 (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) Borrower shall default in making any borrowing of, conversion into or continuation of LIBOR Loans after Borrower has given notice requesting the same in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower has given a notice thereof in accordance herewith, Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide Borrower with its written calculation of all amounts payable pursuant to this Section 1.13(b), and such calculation shall be binding on the parties hereto unless Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. 1.14 Access. Each Credit Party which is a party hereto shall, during normal business hours, from time to time: (a) provide Agent and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Credit Party and to the Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party's books and records, (c) permit Agent, and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Accounts, Inventory and other Collateral of any Credit Party, (d) make available to Agent and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records which Agent may request, and (e) deliver any document or instrument necessary for Agent, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for such Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Credit Party. If a Default or Event of Default shall have occurred and be continuing, each such Credit Party shall provide such access and make such deliveries to Agent and to each Lender at all times and without advance notice. If no Default or Event of Default shall have occurred and be continuing, each such Credit Party shall provide such access and make such deliveries to Agent upon three (3) Business Days' prior notice and not more frequently than once during any twelve month period. Borrower shall pay Agent, within thirty 22 30 (30) days of Agent's demand therefor, an amount equal to $600 per person, per day, plus all of Agent's out-of-pocket expenses, for each on-site inspection by Agent pursuant to this section, provided that such payments to Agent shall not exceed $15,000 for any on-site inspection occurring prior to the occurrence of a Default or Event of Default. Furthermore, so long as any Event of Default shall have occurred and be continuing, Borrower shall provide Agent and each Lender with access to their suppliers and customers. Representatives of other Lenders may accompany Agent's representatives on regularly scheduled audits at no charge to Borrower. 1.15 Taxes. (a) Any and all payments by Borrower hereunder or under the Notes shall be made, in accordance with this Section 1.15, free and clear of and without deduction for any and all present or future Taxes. If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Notes, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.15) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof. (b) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.15) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted, unless the payment of such Taxes by Agent or such Lender was made with gross negligence or willful misconduct by Agent or such Lender. Agent or such Lender shall use its best efforts to give Borrower as much advance notice of each such payment of Taxes in excess of $2,500 under this subsection as is reasonably possible under the circumstances. (c) Each Lender organized under the laws of a jurisdiction outside the United States (a "Foreign Lender") as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender's entitlement to such exemption (a "Certificate of Exemption"). Any foreign Person that seeks to become a Lender under this Agreement shall provide a Certificate of Exemption to Representative and Agent prior to becoming a Lender hereunder. No foreign Person may become a Lender hereunder if such Person is unable to deliver a Certificate of Exemption. 23 31 1.16 Capital Adequacy; Increased Costs; Illegality. (a) If any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law) from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan or incurring any Letter of Credit Obligations or Litigation L/C Obligations, then Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower and to Agent by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.16(b). (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender's opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing by Borrower to such Lender, together with interest accrued thereon, unless Borrower, within five (5) Business 24 32 Days after the delivery of such notice and demand, converts all such Loans into a Loan bearing interest based on the Index Rate. 1.17 Single Loan. Except with respect to the Litigation Obligations, all Loans to Borrower and all of the other Obligations of Borrower arising under this Agreement and the other Loan Documents (other than the Litigation Collateral Documents) shall constitute one general obligation of Borrower secured, until the Termination Date, by all of the Collateral pursuant to the Collateral Documents other than the Litigation Collateral Documents. The Litigation Obligations shall constitute a single, but separate, general obligation of Borrower secured, until the Termination Date, by all of the Collateral pursuant to the Litigation Collateral Documents. 2. CONDITIONS PRECEDENT 2.1 Conditions to the Initial Loans. No Lender shall be obligated to make or incur its initial Loans or Letter of Credit Obligations or Litigation L/C Obligations hereunder on or after the Closing Date, unless and until the following conditions have been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Lenders: (a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Borrower, Agent and Lenders; and Agent shall have received such documents, instruments, agreements and legal opinions as Agent shall request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the Closing Checklist attached hereto as Annex D, each in form and substance satisfactory to Agent. (b) Repayment of Prior Lender Obligations; Satisfaction of Outstanding L/Cs. (i) Agent shall have received a fully executed original of a pay-off letter satisfactory to Agent confirming that all of the Prior Lender Obligations will be repaid in full from the proceeds of the Term Loan A and the initial Revolving Credit Advance and all Liens upon any of the property of Borrower or any of its Subsidiaries in favor of Prior Lender shall be terminated by Prior Lender immediately upon such payment; and (ii) all letters of credit issued or guaranteed by Prior Lender shall have been cash collateralized, supported by a guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B, or terminated, as mutually agreed upon by Agent, Borrower and Prior Lender. (c) Approvals. Agent shall have received (i) satisfactory evidence that the Credit Parties have obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the Related Transactions or 25 33 (ii) an officer's certificate in form and substance satisfactory to Agent affirming that no such consents or approvals are required. (d) Opening Availability. The Eligible Accounts and Eligible Inventory of Borrower and Tessco supporting the initial Revolving Credit Advance and the initial Letter of Credit Obligations incurred and the amount of the Reserves to be established on the Closing Date shall be sufficient in value, as determined by Agent, to provide Borrower, with Net Borrowing Availability of at least $1,000,000, after giving effect to the initial Revolving Credit Advance made to Borrower, the incurrence of any initial Letter of Credit Obligations, the payment of all fees and expenses incurred or owing by Borrower to Agent and Lenders and to the purchasers of the Series A Preferred Stock as of the Closing Date, and the consummation of the Related Transactions (on a pro forma basis, with trade payables being paid currently, and expenses and liabilities being paid in the ordinary course of business and without acceleration of sales). (e) Payment of Fees. Borrower shall have paid the Fees required to be paid on the Closing Date in the respective amounts specified in Section 1.9 (including the Fees specified in the GE Capital Fee Letter), and shall have reimbursed Agent for all fees, costs and expenses of closing presented as of the Closing Date. (f) Capital Structure: Other Indebtedness. The capital structure of each Credit Party and the terms and conditions of all Indebtedness of each Credit Party shall be acceptable to Agent in its sole discretion. Without limiting the foregoing, the aggregate consolidated Indebtedness, together with all other consolidated liabilities of Borrower (other than trade payables), shall not exceed $10,000,000 as of the Closing Date after giving effect to the consummation of all of the Related Transactions. (g) Consummation of Related Transactions. Agent shall have received fully executed copies of the Series A Preferred Stock Documents, the Series B Preferred Stock Documents, and each of the other Related Transactions Documents, each of which shall be in form and substance satisfactory to Agent and its counsel. The Related Transactions shall have been consummated in accordance with the terms of the Related Transactions Documents and Borrower shall have received $6,999,850 of cash proceeds (before deduction of expenses) from the issuance of the Series A Preferred Stock, which proceeds shall be accounted for as a contribution to Borrower's equity capital. (h) Pegasus Guaranties. Each of the Litigation Guaranty and the Supplemental Guaranty shall have been duly executed and delivered to Agent and Agent shall have received all documents, instruments, certificates and opinions as may be required by the terms thereof or as Agent shall otherwise require with respect thereto. 2.2 Further Conditions to Term Loan B. No Lender shall be obligated to fund its Term Loan B, unless and until the following conditions shall have been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Lenders: 26 34 (a) Entry of Final Judgment. The Final Judgment shall have been entered or established by settlement agreement and Agent shall have received satisfactory evidence of (i) such entry or settlement, (ii) the amount of Borrower's and each other Credit Party's liability with respect thereto, (iii) the amount and timing of any proceeds of insurance, indemnification or contribution expected to be received by Borrower and each of the other Credit Parties with respect thereto and (iv) the aggregate amount of accrued and unpaid expenses (including, without limitation, legal fees) incurred by the Credit Parties with respect to the DEI Litigation as of the Term Loan B Funding Date. (b) Additional Equity or Subordinated Debt. If the aggregate amount of the Final Judgment, minus the amount of any proceeds of insurance, indemnification or contribution actually received by the Credit Parties with respect thereto on or prior to the Term Loan B Funding Date plus the amount determined pursuant to clause (iv) of Section 2.2(a) (provided, however, that such amount shall not be added to Net Litigation Liability to the extent that, as the date of determination of Net Litigation Liability hereunder, the Net Borrowing Base Availability minus the Letter of Credit Obligations and minus such amount, exceeds $500,000) (the "Net Litigation Liability"), exceeds $3,000,000, Borrower shall have received, or will simultaneously receive, additional net capital contributions or net proceeds of Subordinated Debt, or a combination thereof, in an aggregate amount at least equal to such excess, and shall have applied, or will simultaneously apply, such contributions and proceeds to the payment in part of the Net Litigation Liability. Agent shall have received, or will simultaneously receive, satisfactory evidence of the application of such contributions and proceeds to the Net Litigation Liability. The structure of, and documentation governing, such additional net capital contributions and Subordinated Debt shall be in form and substance acceptable in all respects to Agent and the Requisite Lenders, and the identity of the Credit Parties or other obligors and issuers with respect to the securities issued in exchange for such capital contributions and for such Subordinated Debt shall be selected only with the written approval of Agent and the Requisite Lenders. Without limiting the foregoing, (i) any such Subordinated Debt shall not exceed $1,000,000 in aggregate principal, shall be unsecured, no principal or interest with respect thereto shall be required to be paid in cash to the holders of such Subordinated Debt on or prior to its maturity date, and its maturity date shall be no earlier than the July 24, 2003 and (ii) any such equity securities shall not require dividends to be paid in cash or mandatory redemptions to be made prior to July 24, 2003. (c) Timing of Request for Advance. Each of the other conditions described in this Section 2.2 shall have been satisfied, and Borrower shall have delivered the Notice of Term Loan B Advance, on or prior to the earlier of (i) the ninth (9th) day following the entry settlement of the Final Judgment and (ii) December 31, 1998. (d) Minimum Availability. The Net Borrowing Availability minus the Letter of Credit Obligations shall be not less than $500,000. 27 35 (e) Term Loan C Not Outstanding. No Litigation L/C Obligations nor any Obligations with respect to Term Loan C shall be outstanding. If the Litigation L/C shall have been theretofore issued, it shall have been theretofore terminated or expired. 2.3 Further Conditions to Incurrence of Litigation L/C Obligations. The Agent and Term Lenders shall not be obligated to incur Litigation L/C Obligations or cause the Litigation L/C to be issued or renewed, extended or modified, or directly advance the Term Loan C pursuant to Section 1.1(c) of the Litigation L/C Agreement, unless and until the following conditions shall have been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Lenders: (I) In the case of a request to incur Litigation L/C Obligations in connection with the issuance of the Litigation L/C pursuant to the Litigation L/C Agreement: (a) Entry of Lower Court Judgment. The Lower Court Judgment shall have been entered and Agent shall have received satisfactory evidence (i) of such entry, (ii) of the amount of Borrower's and each other Credit Party's liability with respect thereto, (iii) of the aggregate amount of accrued and unpaid expenses (including, without limitation, legal fees) incurred by the Credit Parties with respect to the DEI Litigation as of the proposed Litigation L/C Issuance Date, (iv) that the sum of the amounts described in clauses (ii) and (iii) of this subparagraph is less than or equal to $12,000,000 (provided, however, the amount determined pursuant to clause (iii) shall not be included in such addition to the extent that, as the date of determination hereof, the Net Borrowing Base Availability minus the Letter of Credit Obligations and minus such amount, exceeds $500,000), (v) that, notwithstanding anything contained in Section 2.3(I)(a)(iv) to the contrary, the Litigation L/C, shall be in a face amount which is less than or equal to $12,000,000, (vi) that the Litigation L/C shall be sufficient in amount and in such terms and conditions as to permit Borrower to obtain and secure a supersedeas or appeal bond or similar obligation pursuant to Federal Rule of Civil Procedure 62(d) or otherwise which will have the effect of enjoining or preventing the creation, attachment, perfection, enforcement, levy, execution and foreclosure of any judicial or judgment lien which could otherwise arise with respect to the Lower Court Judgment under applicable law and procedure pending Borrower's appeal of such Lower Court Judgment; provided, however, that any such supersedeas or appeal bond or similar obligation shall not dissolve, or have the effect of dissolving, any judicial or judgment lien in connection with the Lower Court Judgment under applicable law and procedure (the "Bond"), (vii) that the form of the Bond shall be reasonably satisfactory to Agent, (viii) that, prior to the expiration of ten (10) days after the entry of the Lower Court Judgment, the Bond shall have been approved by the Lower Court and shall be in full force and effect, (ix) that, upon the issuance and posting of the Litigation L/C and upon the approval of the Bond by the Lower Court and the issuance of the Bond, no such judicial lien or judgment shall have in fact been created, attached or perfected under applicable law and procedure, and (x) that, upon the issuance and posting of the Litigation L/C and Bond, Borrower will have taken all actions as are necessary to timely and properly appeal the Lower Court Judgment. 28 36 (b) Pegasus Litigation Guaranty. The Pegasus Litigation Guaranty shall be effective in accordance with its terms, and shall be valid and enforceable severally against the Pegasus Funds in an amount not less than the proposed aggregate face amount of the Litigation L/C and neither Pegasus Fund shall be in default or breach of any term or condition of the Pegasus Litigation Guaranty. (c) Timing of Request for Advance. Each of the other conditions described in this Section 2.3(I) shall have been satisfied, and Borrower shall have requested that the Litigation L/C and Bond be issued, and the Litigation L/C and Bond will be issued, on or prior to the earlier of (i) the ninth (9th) day following the entry of the Lower Court Judgment and (ii) December 31, 1998. (d) Minimum Availability. The Net Borrowing Availability minus the Letter of Credit Obligations shall be not less than $500,000. (e) Term Loan B Note Outstanding. No Obligations with respect to Term Loan B shall be outstanding. (II) In the case of a request to advance the Term Loan C pursuant to Section 1.1(c) of the Litigation L/C Agreement: (a) Entry of Final Judgment. The Final Judgment shall have been entered or established by settlement agreement and Agent shall have received satisfactory evidence of (i) such entry or settlement, (ii) the amount of the Net Litigation Liability and (iii) the Net Litigation Liability shall be less than or equal to $12,000,000. (b) Pegasus Litigation Guaranty. The Pegasus Litigation Guaranty shall be effective in accordance with its terms, and shall be valid and enforceable severally against the Pegasus Funds in an amount not less than the requested principal amount of the Term Loan C and neither Pegasus Fund shall be in default or breach of any term or condition of the Pegasus Litigation Guaranty. (c) Timing of Request for Advance. Each of the other conditions described in this Section 2.3(II) shall have been satisfied, and Borrower shall have delivered the Notice of Term Loan C Advance, on or prior to the earlier of (i) the ninth (9th) day following the entry or settlement of the Final Judgment and (ii) December 31, 1998. (d) Minimum Availability. The Net Borrowing Availability minus the Letter of Credit Obligations shall be not less than $500,000. (e) Term Loan B and Litigation L/C Not Outstanding. No Litigation L/C Obligations nor any Obligations with respect to Term Loan B shall be outstanding. If the 29 37 Litigation L/C shall have been theretofore issued, it shall have been theretofore terminated or expired. 2.4 Further Conditions to Each Loan. Except as otherwise expressly provided herein, no Lender shall be obligated to fund any Loan (other than its Pro Rata Share of payments under the Litigation L/C as the Term Loan C under Section 1.1(b) of the Litigation L/C Agreement), convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation or Litigation L/C Obligations (whether initially or by renewal, extension or other modification), if, as of the date thereof: (a) Any representation or warranty by any Credit Party contained herein or in any of the other Loan Documents shall be untrue or incorrect as of such date, except to the extent that such representation or warranty expressly relates to an earlier date, or if the proceeds of the requested Loan or use of the requested Letter of Credit is inconsistent with the provisions of Section 1.4; or (b) Any event or circumstance having a Material Adverse Effect shall have occurred since the date hereof; or (c) (i) Any Event of Default shall have occurred and be continuing or would result after giving effect to such Loan (or the incurrence of such Letter of Credit Obligations or Litigation L/C Obligations), or (ii) a Default shall have occurred and be continuing or would result after giving effect to such Loan, and Agent or Requisite Revolving Lenders shall have determined, in its or their sole and absolute discretion, not to make such Loan or incur such Letter of Credit Obligations or Litigation L/C Obligations so long as that Default is continuing; or (d) After giving effect to such Advance (or the incurrence of such Letter of Credit Obligations), the outstanding principal amount of the aggregate Revolving Loan would exceed the lesser of the Borrowing Base and the Maximum Amount, less, in each case, the then outstanding principal amount of the Swing Line Loan; or (e) After giving effect to such Swing Line Advance, the outstanding principal amount of the Swing Line Loan would exceed Swing Line Availability. The request and acceptance by Borrower of the proceeds of any Loan, the incurrence of any Letter of Credit Obligations or Litigation L/C Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to constitute, as of the date of such request, acceptance, conversion or continuation, (i) a representation and warranty by Borrower that the conditions in this Section 2.4 have been satisfied (and that the conditions set forth in Section 2.2 have been satisfied in the case of a request for the Term Loan B, that the conditions set forth in Section 2.3(I) have been satisfied in the case of a request for the incurrence of the Litigation L/C Obligations, and that the conditions set forth in Section 2.3(II) 30 38 have been satisfied in the case of a request for a direct advance of Term Loan C) and (ii) a reaffirmation by Borrower of the granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents or Litigation Collateral Documents, as the case may be. 3. REPRESENTATIONS AND WARRANTIES To induce Lenders to make the Loans and to incur Letter of Credit Obligations and Litigation L/C Obligations, the Credit Parties executing this Agreement, jointly and severally, make the following representations and warranties to Agent and each Lender with respect to all Credit Parties, each and all of which shall survive the execution and delivery of this Agreement. 3.1 Corporate Existence; Compliance with Law. Each Credit Party (excluding, except in the case of clause (f) below, each of Borrower's Subsidiaries which are organized under the laws of jurisdictions outside of the United States) (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (e) is in compliance with its charter and by-laws; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.2 Executive Offices; FEIN. As of the Closing Date, the current location of each Credit Party's chief executive office and principal place of business is set forth in Disclosure Schedule (3.2), and, except as set forth in such schedule, none of such locations have changed within the twelve (12) months preceding the Closing Date. In addition, Disclosure Schedule (3.2) lists the federal employer identification number of each Credit Party. 3.3 Corporate Power, Authorization, Enforceable Obligations. The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party and the creation of all Liens provided for therein, the execution, delivery and performance by each Credit Party of the other Related Transaction Documents to which it is a party, and their consummation of each Related Transaction pursuant thereto: (a) are within such Person's corporate power; (b) have been duly authorized by all necessary or proper corporate and shareholder action; (c) do not contravene any provision of such Person's charter or bylaws; (d) do 31 39 not violate any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(c), all of which will have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered by each Credit Party thereto and each such Loan Document shall then constitute a legal, valid and binding obligation of such Credit Party enforceable against it in accordance with its terms. 3.4 Financial Statements and Projections. Except for the Projections and the Fair Salable Balance Sheet, all Financial Statements concerning Borrower and its Subsidiaries which are referenced below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended. (a) The following Financial Statements attached hereto as Disclosure Schedule (3.4(A)) have been delivered on the date hereof: (i) The audited consolidated balance sheets at December 31, 1996 and 1995 and the related statements of income and cash flows of Borrower and its Subsidiaries for the Fiscal Years then ended, certified by Deloitte & Touche LLP. (ii) The unaudited balance sheet(s) at March 31, 1997, April 30, 1997, May 31, 1997, June 30, 1997, July 31, 1997 and August 31, 1997 and the related statement(s) of income and cash flows of Borrower and its Subsidiaries for the Fiscal Quarter then ended in the case of the March 31, 1997 statements, and the months then ended in the case of the April 30, 1997, May 31, 1997, June 30, 1997, July 31, 1997 and August 31, 1997 statements. (b) Pro Forma. The Pro Forma delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(B)) was prepared by Borrower giving pro forma effect to the Related Transactions, was based on the unaudited consolidated and consolidating balance sheets of Borrower and its Subsidiaries dated August 31, 1997 and was prepared in accordance with GAAP, with only such adjustments thereto as would be required in accordance with GAAP. 32 40 (c) Projections. The Projections delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(C)) have been prepared by Borrower in light of the past operations of its and its Subsidiaries' businesses, but including future payments of known contingent liabilities reflected on the Fair Salable Balance Sheet, and reflect projections for the twelve (12) months ending December 31, 1997 and December 31, 1998 on a month by month basis and for the fiscal years ending December 31, 1998, 1999 and 2000 on an annual basis. The Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of current conditions and current facts known to Borrower and, as of the Closing Date, reflect Borrower's good faith and reasonable estimates of the future financial performance of Borrower and its Subsidiaries and of the other information projected therein for the period set forth therein. (d) Fair Salable Balance Sheet. The Fair Salable Balance Sheet delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(D)) was prepared by Borrower on the same basis as the Pro Forma, except that Borrower's assets are set forth therein at their fair salable values on a going concern basis and the liabilities set forth therein include all contingent liabilities of Borrower and its Subsidiaries stated at the reasonably estimated present values thereof. 3.5 Material Adverse Effect. Between December 31, 1996 and the Closing Date, (a) no Credit Party has incurred any obligations, contingent or non-contingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Pro Forma and which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon any Credit Party's assets and no law or regulation applicable to any Credit Party has been adopted which has had or could reasonably be expected to have a Material Adverse Effect, and (c) no Credit Party is in default and to the best of Borrower's knowledge no third party is in default under any material contract, lease or other agreement or instrument, which alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Between December 31, 1996 and the Closing Date no event has occurred, which alone or together with other events, could reasonably be expected to have a Material Adverse Effect. 3.6 Ownership of Property; Liens. As of the Closing Date, the real estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all of the real property owned, leased, subleased, or occupied by any Credit Party. Each Credit Party owns good and marketable fee simple title to all of its owned real estate, and valid and marketable leasehold interests in all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of all such leases or a summary of terms thereof satisfactory to Agent have been delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate with respect to which any Credit Party is a lessor, sublessor or assignor as of the Closing Date. Each Credit Party also has good and marketable title to, or valid leasehold interests in, all of its personal properties and assets. As of the Closing Date, none of the properties and assets of any Credit Party is subject to any Liens 33 41 other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Credit Party that may result in any Liens (including Liens arising under Environmental Laws) other than Permitted Encumbrances. Each Credit Party has received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Credit Party's right, title and interest in and to all such Real Estate and other properties and assets. Disclosure Schedule (3.6) also describes any purchase options, rights of first refusal or other similar contractual rights pertaining to any Real Estate. As of the Closing Date, no portion of any Credit Party's Real Estate has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. As of the Closing Date, all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect. 3.7 Labor Matters. As of the Closing Date (a) no strikes or other material labor disputes against any Credit Party are pending or, to any Credit Party's knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matter; (c) all payments due from any Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement or any employment agreement (and true and complete copies of any agreements described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no organizing activity involving any Credit Party pending or, to any Credit Party's knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Credit Party's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Credit Party has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are no complaints or charges against any Credit Party pending or, to the knowledge of any Credit Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Credit Party of any individual. 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Credit Party (other than Borrower) is owned by each of the Persons and in the amounts set forth on Disclosure Schedule (3.8). As of the Closing Date, after giving effect to the Related Transactions, the names of each Person which owns of record five percent (5.00%) or more (on a fully-diluted basis) of the outstanding shares of any class of Stock issued by Code Alarm, and the aggregate amounts of such Stock owned by such Persons, is set forth on Disclosure Schedule (3.8). Except 34 42 as set forth in Disclosure Schedule (3.8), as of the Closing Date, after giving effect to the Related Transactions, there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Credit Party may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Indebtedness and all known and probable contingent liabilities of each Credit Party as of the Closing Date (after giving effect to the Related Transactions) are described in Section 6.3 (including Disclosure Schedule (6.3)). 3.9 Government Regulation. No Credit Party is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940 as amended. No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the Letter of Credit Obligations or Litigation L/C Obligations on behalf of Borrower, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 3.10 Margin Regulations. No Credit Party is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulation U or G of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action which might cause any Loan Document to violate any regulation of the Federal Reserve Board. 3.11 Taxes. All tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by any Credit Party have been filed with the appropriate Governmental Authority and all Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts being contested in accordance with Section 5.2(b). Proper and accurate amounts have been withheld by each Credit Party from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years for which any Credit Party's 35 43 tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule (3.11), no Credit Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party's knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect. 3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form 5500 for each such Plan, have been delivered to Agent. Each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Except as set forth in Disclosure Schedule (3.12), each Plan is in compliance with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of the IRC, in connection with any Plan, which would subject any Credit Party to a material tax on prohibited transactions imposed by Section 4975 of the IRC. (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan with Unfunded Pension Liabilities has been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor's Corporation or the equivalent by another nationally recognized rating agency. 3.13 No Litigation. No action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any Governmental Authority or before any arbitrator or panel of arbitrators 36 44 (collectively, "Litigation"), (a) which challenges any Credit Party's right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which could reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure 37 45 Schedule (3.13), as of the Closing Date there is no Litigation pending or threatened which seeks damages in excess of $100,000 or injunctive relief or alleges criminal misconduct of any Credit Party. 3.14 Brokers. No broker or finder acting on behalf of any Credit Party brought about the obtaining, making or closing of the Loans or the Related Transactions, and no Credit Party has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 3.15 Intellectual Property. Except as set forth on Disclosure Schedule (3.15), (a) as of the Closing Date, each Credit Party owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it, and each Patent, Trademark, Copyright and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule (3.15) hereto and (b) each Credit Party conducts its business and affairs without infringement of or interference with any Intellectual Property of any other Person. Notwithstanding the foregoing, none of the matters set forth in Disclosure Schedule (3.15) could reasonably be expected to have a Material Adverse Effect. 3.16 Full Disclosure. No information contained in this Agreement, any of the other Loan Documents, any Projections, Financial Statements or Collateral Reports or other reports from time to time delivered hereunder or any written statement furnished by or on behalf of any Credit Party to Agent or any Lender pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances with respect to the Collateral. 3.17 Environmental Matters. (a) Except as set forth in Disclosure Schedule (3.17), as of the Closing Date: (i) the Real Estate is free of contamination from any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such Real Estate and which would not result in Environmental Liabilities of the Credit Parties which could reasonably be expected to exceed $50,000; (ii) no Credit Party has caused or suffered to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate the cleanup of which could reasonably be expected to exceed $50,000; (iii) the Credit Parties are and have been in compliance with all Environmental Laws, except for such noncompliance which would not result in Environmental Liabilities of the Credit Parties which could reasonably be expected to exceed $50,000; (iv) the Credit Parties have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in 38 46 Environmental Liabilities of the Credit Parties which could reasonably be expected to exceed $50,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) no Credit Party is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Credit Party which could reasonably be expected to exceed $50,000, and no Credit Party has authorized any current or former tenant of the Real Estate to engage in any such operations; (vi) there is no Litigation arising under or related to any Environmental Laws, Environmental Permits or Hazardous Material which seeks damages, penalties, fines, costs or expenses in excess of $50,000 or injunctive relief, or which alleges criminal misconduct by any Credit Party; (vii) no notice has been received by any Credit Party identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of the Credit Parties (other than from customary business operations), there are no facts, circumstances or conditions that may result in any Credit Party being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (viii) the Credit Parties have provided to Agent copies of all existing written environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities of the Credit Parties, in each case relating to any Credit Party. (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has not ever been, in control of any of the Real Estate or any Credit Party's affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Credit Party's conduct with respect to the ownership, operation or management of any of its Real Estate or compliance with Environmental Laws or Environmental Permits. 3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as a summary of the terms of each such policy. 3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all banks and other financial institutions at which any Credit Party maintains deposits and/or other accounts as of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. 3.20 Government Contracts. Except as set forth in Disclosure Schedule (3.20), as of the Closing Date, no Credit Party is a party to any contract or agreement with any Governmental Authority and no Credit Party's Accounts are subject to the Federal Assignment of Claims Act, as amended (31 U.S.C. Section 3727) or any similar state or local law. 3.21 Customer and Trade Relations. Except as disclosed on Disclosure Schedule (3.21), as of the Closing Date, there exists no actual or, to the knowledge of any Credit Party, threatened termination or cancellation of, or any material adverse modification or change 39 47 in: (a) the business relationship of any Credit Party with any customer or group of customers whose purchases during the preceding twelve (12) months caused them to be ranked among the ten largest customers of such Credit Party; or (b) the business relationship of any Credit Party with any supplier material to its operations. 3.22 Agreements and Other Documents. As of the Closing Date, each Credit Party has provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries) of all of the following agreements or documents to which any it is subject and each of which is listed on Disclosure Schedule (3.22): (a) supply agreements and purchase agreements not terminable by such Credit Party within sixty (60) days following written notice issued by such Credit Party and involving transactions in excess of $1,000,000 per annum; (b) OEM contracts and similar agreements with customers pursuant to which revenues have been generated (or are reasonably expected to be generated) in excess of $1,000,000 per annum, together with schedules describing, and other evidence of, all accreditations awarded to Borrower or any other Credit Parties by any of such customers, or any insurance industry group or similar organization, with respect to any products or services sold or provided by Borrower or such other Credit Parties pursuant to such OEM contracts and similar agreements; (c) any lease of Equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $500,000 per annum; (d) licenses and permits held by the Credit Parties, the absence of which could be reasonably likely to have a Material Adverse Effect; (e) instruments or documents evidencing Indebtedness (other than leases of Equipment) of such Credit Party and any security interest granted by such Credit Party with respect thereto; and (f) instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of such Credit Party. 3.23 Solvency. After giving effect to (a) the Loans and Letter of Credit Obligations to be made or extended on the Closing Date or such other date as Loans, Letter of Credit Obligations and Litigation L/C Obligations requested hereunder are made or extended and the execution and delivery of the Loan Documents, (b) the disbursement and application of the proceeds of such Loans pursuant to the instructions of Borrower, (c) the issuance of the Series A Preferred Stock, the Series B Preferred Stock, the Refinancing and the consummation of the other Related Transactions and (d) the payment and accrual of all transaction costs in connection with the foregoing, the Credit Parties, taken as a whole, are Solvent. 3.24 Series A Preferred Stock Issuance. As of the Closing Date, Borrower have delivered to Agent a complete and correct copy of the Series A Preferred Stock Documents (including all schedules, exhibits, amendments, supplements, modifications, assignments and all other documents delivered pursuant thereto or in connection therewith). As of the Closing Date the Series A Preferred Stock and the "Attached Warrants" and "Shortfall Warrants" (as such terms are defined in the Series A Preferred Stock Documents) have been issued pursuant to the Series A Preferred Stock Documents and not less than $6,999,850 in cash proceeds (before deduction of expenses) from such issuance have been received by Borrower. Borrower acknowledge that Agent and each Lender are entering into this Agreement and are extending the 40 48 Commitments in reliance upon the issuance of the Series A Preferred Stock and such Series A Warrants pursuant to the Series A Preferred Stock Documents, the receipt by Borrower of all of the proceeds of such issuance, and this Section 3.24. 3.25 Series B Preferred Stock Issuance. As of the Closing Date, Borrower has delivered to Agent a complete and correct copy of the Series B Preferred Stock Documents (including all schedules, exhibits, amendments, supplements, modifications, assignments and all other documents delivered pursuant thereto or in connection therewith). As of the Closing Date the Series B Preferred Stock has been issued pursuant to the Series B Preferred Stock Documents to the Series B Pledgor, all of the outstanding shares of such Series B Preferred Stock have been pledged by the Series B Pledgor to Agent, for itself and Lenders, as security for the Obligations, pursuant to a Pledge Agreement, and the certificate of designation with respect to the Series B Preferred Stock shall have been duly approved by Borrower and filed with the Department of Consumer and Industry Services of the State of Michigan. Borrower acknowledges that Agent and each Lender are entering into this Agreement and are extending the Commitments in reliance upon the issuance of the Series B Preferred Stock pursuant to the Series B Preferred Stock Documents, the pledge of such Series B Preferred Stock to Agent, and this Section 3.25. 4. FINANCIAL STATEMENTS AND INFORMATION 4.1 Reports and Notices. (a) Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent and/or Lenders, as required, the Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner set forth in Annex E. (b) Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent and/or Lenders, as required, the various Collateral Reports (including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the times, to the Persons and in the manner set forth in Annex F. 4.2 Communication with Accountants. Following the occurrence and continuation of a Default or Event of Default, each Credit Party executing this Agreement authorizes Agent and each Lender, to communicate directly with its independent certified public accountants, including, without limitation, Deloitte & Touche LLP, and authorizes and shall instruct those accountants and advisors to disclose and make available to Agent and each Lender any and all Financial Statements and other supporting financial documents, schedules and information relating to any Credit Party (including copies of any issued management letters) with respect to the business, financial condition and other affairs of any Credit Party. 41 49 5. AFFIRMATIVE COVENANTS Each Credit Party executing this Credit Agreement jointly and severally agrees as to all Credit Parties that from and after the date hereof and until the Termination Date: 5.1 Maintenance of Existence and Conduct of Business. Each Credit Party shall, except as otherwise permitted by Section 6.1: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (d) transact business only in such corporate and trade names as are set forth in Disclosure Schedule (5.1). 5.2 Payment of Obligations. (a) Subject to Section 5.2(b), each Credit Party shall pay and discharge or cause to be paid and discharged promptly all Charges payable by it, including Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees. (b) Each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges or claims described in Section 5.2(a); provided, that (i) adequate reserves with respect to such contest are maintained on the books of such Credit Party, in accordance with GAAP, (ii) such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or enforcement of such Charges or claims or any Lien in respect thereof, (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest, (iv) no Lien shall be imposed to secure payment of such Charges or claims other than Permitted Encumbrances, (v) such Credit Party shall promptly pay or discharge such contested Charges or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met, and (vi) Agent has not advised Borrower in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or result in a Material Adverse Effect. 5.3 Books and Records. Each Credit Party shall keep adequate books and records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements attached as Disclosure Schedule (3.4(A)). 42 50 5.4 Insurance; Damage to or Destruction of Collateral. (a) The Credit Parties shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule (3.18) or substantially similar replacement policies, in any case in form and with insurers acceptable to Agent. If any Credit Party at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which Agent deems advisable. Agent shall have no obligation to obtain insurance for any Credit Party or pay any premiums therefor. By doing so, Agent shall not be deemed to have waived any Default or Event of Default arising from any Credit Party's failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including attorneys' fees, court costs and other charges related thereto, shall be payable by Borrower to Agent within thirty (30) days of demand therefor and shall be additional Obligations hereunder secured by the Collateral. (b) Agent reserves the right at any time upon any change in any Credit Party's risk profile (including any change in the product mix maintained by any Credit Party or any laws affecting the potential liability of such Credit Party) to require additional forms and limits of insurance to, in Agent's reasonable opinion, adequately protect both Agent's and Lender's interests in all or any portion of the Collateral and to ensure that each Credit Party is protected by insurance in amounts and with coverage customary for its industry; provided, however, that, in the event of any such change, the Credit Parties shall obtain such additional forms and limits not later than thirty (30) days following Agent's written request therefor. If requested by Agent, each Credit Party shall deliver to Agent from time to time a report of a reputable insurance broker, satisfactory to Agent, with respect to its insurance policies. (c) Borrower shall deliver to Agent, in form and substance satisfactory to Agent, endorsements to (i) all "All Risk" and business interruption insurance naming Agent, on behalf of itself and Lenders, as loss payee, and (ii) all general liability and other liability policies naming Agent, on behalf of itself and Lenders, as additional insured. Borrower irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent), so long as any Default or Event of Default shall have occurred and be continuing or the anticipated insurance proceeds exceed $150,000, as Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such "All Risk" policies of insurance, endorsing the name of Borrower on any check or other item of payment for the proceeds of such "All Risk" policies of insurance and for making all determinations and decisions with respect to such "All Risk" policies of insurance. Agent shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of- attorney. Borrower shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the amount of $150,000 or more, whether or not covered by insurance. After deducting from such proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent may, at its option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(d), or permit or require the applicable Borrower to use such money, or any part thereof, to replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner 43 51 with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds would not reasonably be expected to have a Material Adverse Effect and such insurance proceeds do not exceed $150,000 in the aggregate, Agent shall permit Borrower to replace, restore, repair or rebuild the property; provided that if Borrower shall not have completed or entered into binding agreements to complete such replacement, restoration, repair or rebuilding within 180 days of such casualty, Agent may apply such insurance proceeds to the Obligations in accordance with Section 1.3(d). All insurance proceeds which are to be made available to Borrower to replace, repair, restore or rebuild the Collateral shall be applied by Agent to reduce the outstanding principal balance of the Revolving Loan (which application shall not result in a permanent reduction of the Revolving Loan Commitment) and upon such application, Agent shall establish a Reserve against the Borrowing Base in an amount equal to the amount of such proceeds so applied (except in the case of proceeds of Inventory). Thereafter, such funds shall be made available to that Borrower to provide funds to replace, repair, restore or rebuild the Collateral as follows: (i) Borrower shall request a Revolving Credit Advance be made to Borrower in the amount requested to be released; (ii) so long as the conditions set forth in Section 2.4 have been met, Revolving Lenders shall make such Revolving Credit Advance; and (iii) the Reserve established with respect to such insurance proceeds shall be reduced by the amount of such Revolving Credit Advance. To the extent not used to replace, repair, restore or rebuild the Collateral, such insurance proceeds shall be applied in accordance with Section 1.3(d). 5.5 Compliance with Laws. Each Credit Party shall comply with all federal, state, local and foreign laws and regulations applicable to it, including those relating to the Communications Act of 1934, as amended, licensing, ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.6 Supplemental Disclosure. From time to time as may be requested by Agent (which request will not be made more frequently than once each year absent the occurrence and continuance of a Default or an Event of Default), the Credit Parties shall supplement each Disclosure Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedule or as an exception to such representation or which is necessary to correct any information in such Disclosure Schedule or representation which has been rendered materially inaccurate thereby (and, in the case of any supplements to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement to any such Disclosure Schedule or representation shall be or be deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein, except as consented to by Agent and Requisite Lenders in writing; and (b) no supplement shall be required as to representations and warranties that relate solely to the Closing Date. 44 52 5.7 Intellectual Property. Each Credit Party will conduct its business and affairs without infringement of or interference with any Intellectual Property of any other Person. 5.8 Environmental Matters. Each Credit Party shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance which could not reasonably be expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions which are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate; (c) notify Agent promptly after such Credit Party becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate which is reasonably likely to result in Environmental Liabilities of the Credit Parties in excess of $75,000; and (d) promptly forward to Agent a copy of any order, notice, request for information or any communication or report received by such Credit Party in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities of the Credit Parties in excess of $75,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter. If Agent at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Credit Party or any Environmental Liability of the Credit Parties arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, which, in each case, could reasonably be expected to have a Material Adverse Effect, then each Credit Party shall, upon Agent's written request (i) cause the performance of such environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrower's expense, as Agent may from time to time request, which shall be conducted by reputable environmental consulting firms acceptable to Agent and shall be in form and substance acceptable to Agent, and (ii) permit Agent or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Agent deems appropriate, including subsurface sampling of soil and groundwater. Borrower shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder. 5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters. Each Credit Party shall use its best efforts to obtain a landlord's agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property or mortgagee of owned property or with respect to any warehouse, processor or converter facility or other location where Collateral is located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Inventory or Collateral at that location, and shall otherwise be satisfactory in form and substance to Agent. With respect to such locations or warehouse space leased or owned as of the Closing Date, if 45 53 Agent has not received a landlord or mortgagee agreement or bailee letter as of the Closing Date and until such time as such agreement or waiver shall be later delivered, Borrower's or Tessco's Eligible Inventory at that location shall, in Agent's discretion, be excluded from the Borrowing Base or be subject to such Reserves as may be established by Agent in its reasonable credit judgment. After the Closing Date, no real property or warehouse space shall be leased or acquired by any Credit Party and no Inventory shall be shipped to a processor or converter under arrangements established after the Closing Date, unless and until a satisfactory landlord or mortgagee agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location; provided that Borrower may hold Inventory at newly established locations without such agreements or letters with Agent's prior approval and subject to such Reserves as are established at Agent's discretion. Each Credit Party shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located. 5.10 Further Assurances. Each Credit Party executing this Agreement agrees that it shall and shall cause each other Credit Party to, at such Credit Party's expense and upon request of Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Agent to carry out more effectually the provisions and purposes of this Agreement or any other Loan Document. 5.11 OEM Contracts and Accreditations. Each Credit Party executing and delivering this Agreement shall substantially comply with each OEM Contract to which it is a party. Each Credit Party shall exert its best efforts to cause the renewal of each such OEM Contract and each OEM Accreditation upon its expiration, on such terms and are not less favorable to the Credit Parties as those governing the OEM Contract or OEM Accreditation subject to such expiration. 5.12 Tessco Liquidation. Borrower shall promptly notify Agent of all material developments relating to the Tessco Liquidation, and promptly provide Agent with complete copies of any and all documents, instruments, agreements governing such transaction. Borrower shall promptly provide to Agent all Collateral Documents, Litigation Collateral Documents, UCC financing statements and UCC financing statement amendments, and other documents, agreements, and instruments, as may be reasonably requested by Agent to evidence the continuation of Agent's liens and security interests in the property subject to such transaction with the same priority as such liens and security interests had immediately prior to such transaction, together with such additional operational, financial and legal information as Agent may reasonably request in connection with such transaction. Borrower agrees to complete the Tessco Liquidation on or before June 30, 1998. 46 54 6. NEGATIVE COVENANTS Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties that, without the prior written consent of Agent and the Requisite Lenders, from and after the date hereof until the Termination Date: 6.1 Mergers, Subsidiaries, Etc. No Credit Party shall directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire, any Person, other than (i) the Tessco Liquidation (provided, that no Default or Event of Default exists and is continuing at the time of such Tessco Liquidation, or would result therefrom and such transaction shall be effected in compliance with all applicable laws) and (ii) the merger of wholly-owned Subsidiaries into Borrower or other wholly-owned Subsidiaries. 6.2 Investments; Loans and Advances. Except as set forth on Disclosure Schedule (6.2) otherwise expressly permitted by this Section 6, no Credit Party shall make or permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except (a) that Borrower may hold investments comprised of notes payable, or stock or other securities issued by Account Debtors to Borrower pursuant to negotiated agreements with respect to settlement of such Account Debtor's Accounts in the ordinary course of business, so long as the aggregate amount of such Accounts so settled by Borrower does not exceed $100,000; (b) that each Credit Party may maintain its existing investments in its Subsidiaries as of the Closing Date; (c) investments in the form of loans, permitted under Section 6.4(b) and intercompany advances and investments permitted under Section 6.3, and (d) for other investments not exceeding $50,000 in the aggregate at any time outstanding. 6.3 Indebtedness. (a) No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except (without duplication) (i) Indebtedness secured by purchase money security interests permitted in clause (c) of Section 6.7, (ii) the Loans and the other Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (v) existing Indebtedness described in Disclosure Schedule (6.3) to Persons which are not Affiliates and refinancings thereof or amendments or modifications thereto which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and conditions no less favorable to any Credit Party, Agent or any Lender, as determined by Agent, than the terms of the Indebtedness being refinanced, amended or modified, (vi) Subordinated Debt satisfying the conditions described in Section 2.2(b) and provided that the proceeds thereof are used solely to satisfy that portion of the Net Litigation Liability which exceeds $3,000,000, (vii) Borrower may assume the Indebtedness of Tessco upon the consummation of the Tessco Liquidation in compliance with Section 6.1, and (viii) Indebtedness of Tessco owing to Borrower existing on the Closing Date as described in Disclosure Schedule (6.3), and additional Indebtedness in connection with the 47 55 ongoing business between Tessco and Borrower and in connection with the Tessco Liquidation consisting of intercompany loans and advances made after the Closing Date by Borrower to Tessco or Tessco to Borrower, provided that (A) Borrower and Tessco shall have executed and delivered to each other, on the Closing Date, a demand note (the "Intercompany Note") to evidence all such intercompany Indebtedness owing at any time to one another (including all existing intercompany Indebtedness owing on the Closing Date), which Intercompany Note shall be in form and substance satisfactory to Agent and shall be pledged and delivered to Agent pursuant to the Collateral Agreements executed by Borrower and Tessco and as additional collateral security for the Obligations (including the Litigation Obligations); (B) Borrower and Tessco shall record all intercompany transactions on its books and records in a manner satisfactory to Agent; (C) the obligations of Borrower and Tessco under such Intercompany Note shall be subordinated to the Obligations of Borrower hereunder and the obligations of Tessco under its Loan Documents in a manner satisfactory to Agent; (D) at the time any such intercompany loan or advance is made by Borrower to Tessco or Tessco to Borrower, and after giving effect thereto, Borrower shall be Solvent; (E) no Default or Event of Default would occur and be continuing after giving effect to any such proposed intercompany loan; and (F) in the case of any intercompany Indebtedness arising as a result of Borrower making a loan or advance, Borrower shall have Net Borrowing Availability of not less than $500,000 after giving effect to such intercompany loan. (b) No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness, other than (i) the Obligations, (ii) Indebtedness secured by a Permitted Encumbrance if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance with Sections 6.8(b) or (c), (iii) intercompany Indebtedness permitted under Section 6.3 and (iv) other Indebtedness (excluding Subordinated Debt) not in excess of $500,000. 6.4 Employee Loans and Affiliate Transactions. (a) Except as otherwise expressly permitted in this Section 6.4 with respect to Affiliates, no Credit Party shall enter into or be a party to any transaction with any other Credit Party or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of such Credit Party's business and upon fair and reasonable terms that are no less favorable to such Credit Party than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Credit Party; provided, however, that nothing in this Section shall prohibit the consummation of the Tessco Liquidation in compliance with Section 6.1 or the sale of goods for value of Borrower to Tessco and Tessco to Borrower. In addition, if any such transaction or series of related transactions other than as part of the Tessco Liquidation involves payments in excess of $100,000, the terms of these transactions must be disclosed in advance to Agent and Lenders. All such transactions existing as of the date hereof are described on Disclosure Schedule (6.4). 48 56 (b) No Credit Party shall enter into any lending or borrowing transaction with any employees of any Credit Party after the Closing Date, except (i) loans to their respective employees on an arm's-length basis in the ordinary course of business consistent with past practices for travel expenses, relocation costs and similar purposes and (ii) stock option financing up to a maximum of $25,000 to any employee and up to a maximum of $100,000 in the aggregate at any one time outstanding. 6.5 Capital Structure and Business. No Credit Party shall: (a) make any changes in any of its business objectives, purposes or operations which could in any way adversely affect the repayment of the Loans or any of the other Obligations or could have or result in a Material Adverse Effect; (b) make any change in its capital structure as described on Disclosure Schedule (3.8), including the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock, except that (i) Borrower may make a Qualified Public Offering of its Common Stock so long as (A) the proceeds thereof are applied in prepayment of the Obligations as required by Section 1.3(b)(ii), and (B) no Change of Control occurs after giving effect thereto, (ii) Borrower may issue additional shares of its capital stock, pursuant to an exercise of the GECC Warrants, (iii) Borrower may issue capital stock and Subordinated Debt to the extent necessary to satisfy the portion of Net Litigation Liability, if any, which exceeds $3,000,000 as provided in Section 2.2(b), (iv) Borrower may increase the number of authorized shares of its Common Stock, (v) Borrower may issue the Management Options and, upon their exercise, issue shares of its capital stock in accordance with their terms, (vi) Borrower and Tessco may effect the Tessco Liquidation and mergers of Subsidiaries in compliance with Section 6.1, (vii) Borrower may issue additional shares of its capital stock upon the exercise of Series A Warrants, and payment-in-kind dividends, in accordance with the terms and conditions of the Series A Preferred Stock Documents, and (viii) Borrower may issue the "Litigation Warrants" in accordance with the terms and conditions of the Series A Preferred Stock Documents; (c) amend its charter (including any certificate of designation with respect to preferred stock) or bylaws in a manner which would adversely affect Agent or Lenders or such Credit Party's duty or ability to repay the Obligations other than, in the case of Borrower, to increase the number of authorized shares of its Common Stock; or (d) engage in any business other than the businesses currently engaged in by it or businesses reasonably related thereto. 6.6 Guaranteed Indebtedness. No Credit Party shall create, incur, assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for deposit to the general account of any Credit Party, (b) Guaranteed Indebtedness 49 57 with respect to the Obligations and (c) for Guaranteed Indebtedness incurred for the benefit of any other Credit Party if the primary obligation is expressly permitted by this Agreement. 6.7 Liens. No Credit Party shall create, incur, assume or permit to exist any Lien on or with respect to its Accounts or any of its other properties or assets (whether now owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in existence on the date hereof and summarized on Disclosure Schedule (6.7); (c) Liens created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures acquired by any Credit Party in the ordinary course of business, involving the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations of not more than $100,000 outstanding at any one time for all such Liens (provided that such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets); and (d) other Liens securing Indebtedness not exceeding $100,000 in the aggregate at any time outstanding, so long as such Liens do not attach to any Accounts or Inventory. In addition, no Credit Party shall become a party to any agreement, note, indenture or instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of Agent, on behalf of itself and Lenders, as additional collateral for the Obligations, except operating leases, Capital Leases or Licenses which prohibit Liens upon the assets that are subject thereto. 6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets, including its capital Stock or the capital Stock of any of its Subsidiaries (whether in a public or a private offering, except as permitted under Section 6.5(b)) or otherwise or any of their Accounts, other than (a) the sale of Inventory in the ordinary course of business, (b) the sale, transfer, conveyance or other disposition of Equipment, Fixtures or Real Estate that are obsolete or no longer used or useful in such Credit Party's business and having a value not exceeding $50,000 in any single transaction or $100,000 in the aggregate in any Fiscal Year, and (c) the sale, transfer, conveyance or other disposition of other Equipment and Fixtures having a value not exceeding $50,000 in any single transaction or $100,000 in the aggregate in any Fiscal Year; provided, however, if any sale, transfer, conveyance or other disposition under clause (b) or (c) above involves property having a value in excess of $25,000 for any single transaction, or if all such sales, transfers, conveyances and other dispositions under clause (b) or (c) involve property having an aggregate value in excess of $50,000 for any Fiscal Year, then Borrower shall make prepayments of the Obligations in accordance with Section 1.3(b)(ii) in amounts equal to all of the proceeds of such sales, transfers, conveyances or other dispositions. With respect to any disposition of assets or other properties permitted pursuant to clause (b) and clause (c) above, Agent agrees on reasonable prior written notice to release its Lien on such assets or other properties in order to permit the applicable Credit Party to effect such disposition and shall execute and deliver to Borrower, at Borrower's expense, appropriate UCC-3 termination statements and other releases as reasonably requested by Borrower. 50 58 6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur an event which could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA. 6.10 Financial Covenants. Borrower shall not breach or fail to comply with any of the Financial Covenants (the "Financial Covenants") set forth in Annex G. 6.11 Hazardous Materials. No Credit Party shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities of the Credit Parties under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations or impacts which could not reasonably be expected to have a Material Adverse Effect. 6.12 Sale-Leasebacks. No Credit Party shall engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets. 6.13 Cancellation of Indebtedness. No Credit Party shall cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm's-length basis and (except with respect to the California Award) in the ordinary course of its business consistent with past practices. 6.14 Restricted Payments. No Credit Party shall make any Restricted Payment, except (a) intercompany loans and advances between Borrower and Tessco permitted by Section 6.3 above, (b) dividends and distributions by Subsidiaries of Borrower paid to Borrower, (c) employee loans permitted under Section 6.4(b) above, (d) payments of scheduled and accrued dividends (and not any liquidating dividends or any redemption or repurchase payments) to holders of Series A Preferred Stock pursuant to the terms and conditions of the Series A Preferred Stock Documents, (e) cash payments for fractional shares upon the exercise of GECC Warrants or Series A Warrants and (f) scheduled payments of interest on Subordinated Debt permitted under Section 6.3, provided that (i) no Default or Event of Default shall have occurred and be continuing or would result after giving effect to each payment pursuant to clauses (d) and (f) above, and (ii) Borrower shall have Net Borrowing Availability of at least $1,000,000 after giving effect to each payment pursuant to clauses (d) and (f) above. 6.15 Change of Corporate Name or Location; Change of Fiscal Year. No Credit Party shall (a) change its corporate name, or (b) change its chief executive office, principal place of business, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral, in any case without at least thirty (30) days prior written notice to Agent and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been 51 59 completed or taken, and provided that any such new location shall be in the continental United States. Without limiting the foregoing, no Credit Party shall change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of Section 9-402(7) of the Code or any other then applicable provision of the Code except upon prior written notice to Agent and Lenders and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken. No Credit Party shall change its Fiscal Year. 6.16 No Impairment of Intercompany Transfers. No Credit Party shall directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) which could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of Borrower to Borrower or between such Subsidiaries. 6.17 No Speculative Transactions. No Credit Party shall engage in any transaction involving commodity options, futures contracts or similar transactions, except solely to hedge against fluctuations in the prices of commodities owned or purchased by it and the values of foreign currencies receivable or payable by it and interest swaps, caps or collars. 6.18 Changes Relating to Preferred Stock and Subordinated Debt. No Credit Party shall change or amend the terms of any of the Series A Preferred Stock Documents, the Series B Preferred Stock Documents or any Subordinated Debt (or any indenture or agreement in connection therewith). 7. TERM 7.1 Termination. The financing arrangements contemplated hereby shall be in effect until the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date. 7.2 Survival of Obligations Upon Termination of Financing Arrangements. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Credit Parties or the rights of Agent and Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Credit Parties, and all rights of Agent and each Lender, all 52 60 as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided however, that in all events the provisions of Section 11, the payment obligations under Sections 1.13, 1.15 and 1.16, and the indemnities contained in the Loan Documents shall survive the Termination Date. 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 8.1 Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (a) Borrower (i) fails to make any payment of principal of, or interest on, or Fees owing in respect of, the Loans or any of the other Obligations when due and payable, or (ii) fails to pay or reimburse Agent or Lenders for any expense reimbursable hereunder or under any other Loan Document within ten (10) days following the date such payment is due hereunder or thereunder. (b) Any Credit Party shall fail or neglect to perform, keep or observe any of the provisions of Sections 1.4, 1.8, 5.4 or 6, or any of the provisions set forth in Annexes C, F or G, respectively. (c) Borrower shall fail or neglect to perform, keep or observe any of the provisions of Section 4 or any provisions set forth in Annex E, and the same shall remain unremedied for three (3) Business Days or more. (d) Any Credit Party shall fail or neglect to perform, keep or observe any other provision of this Agreement or of any of the other Loan Documents (other than any provision embodied in or covered by any other clause of this Section 8.1) and the same shall remain unremedied for twenty-five (25) days or more. (e) A default or breach shall occur under any other agreement, document or instrument to which any Credit Party is a party which is not cured within any applicable grace period, and such default or breach (i) involves the failure to make any payment when due in respect of any Indebtedness (other than the Obligations) of any Credit Party having an aggregate outstanding principal balance in excess of $250,000 in the aggregate, or (ii) causes, or permits any holder of such Indebtedness or a trustee to cause, such Indebtedness, or any portion thereof in excess of $250,000 in the aggregate, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, regardless of whether such default is waived, or such right is exercised, by such holder or trustee. (f) Any information contained in any Borrowing Base Certificate is untrue or incorrect in any material respect, or any representation or warranty herein or in any Loan Document or in any written statement, report, financial statement or certificate (other than a 53 61 Borrowing Base Certificate) made or delivered to Agent or any Lender by any Credit Party is untrue or incorrect in any material respect as of the date when made or deemed made. (g) Assets of any Credit Party with a fair market value of $25,000 or more shall be seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of any Credit Party and such condition continues for thirty (30) days or more. (h) A case or proceeding shall have been commenced against the Series B Pledgor, either Pegasus Fund or any Credit Party seeking a decree or order in respect of such Person (i) under Title 11 of the United States Code, as now constituted or hereafter amended or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any such Person or of any substantial part of any such Person's assets, or (iii) ordering the winding-up or liquidation of the affairs of any such Person, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or such court shall enter a decree or order granting the relief sought in such case or proceeding.1 (i) The Series B Pledgor, either Pegasus Fund or any Credit Party (i) shall file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) shall fail to contest in a timely and appropriate manner or shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any such Person or of any substantial part of any such Person's assets, (iii) shall make an assignment for the benefit of creditors, (iv) shall take any corporate action in furtherance of any of the foregoing; or (v) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due. (j) A final judgment or judgments for the payment of money in excess of $250,000 in the aggregate at any time outstanding shall be rendered against any Credit Party (excluding the Lower Court Judgment or the Final Judgment, but including any other judgment with respect to the DEI Litigation) and the same shall not, within thirty (30) days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay. (k) The Lower Court Judgment, Final Judgment and/or any other judgment with respect to the DEI Litigation shall have been entered or determined and the sum of the amount of Borrower's and each Credit Parties' liability with respect thereto and the aggregate amount of accrued and unpaid expenses (including, without limitation, legal fees) incurred by the __________________________________ 1Confirm that no default exists at closing with respect to foreign subsidiaries. 54 62 Credit Parties with respect to the DEI Litigation as of the date of such entry or determination, exceeds $12,000,000 (provided, however, that such sum shall not include such expenses to the extent that, as of any date of determination hereof, the Net Borrowing Base Availability minus the Letter of Credit Obligations and minus such expenses exceeds $500,000); or the Lower Court Judgment shall have been entered and the conditions described in Section 2.3(I) shall have not been satisfied by the time specified in Section 2.3(I)(c) or, as of such time, either the Bond shall not have been approved by the Lower Court or issued as contemplated by Section 2.3 or the conditions precedent to the issuance of the Litigation L/C shall not have been otherwise satisfied; or the Final Judgment shall have been entered or otherwise determined and the conditions described in Section 2.2 shall have not been satisfied by the time specified in Section 2.2(c) or, as of such time, the conditions precedent to the making of Term Loan B shall not have been otherwise satisfied and the conditions described in Section 2.3(II) shall have not been satisfied by the time specified in Section 2.3(II)(c) or, as of such time, the conditions precedent to the making of Term Loan C directly shall not have been otherwise satisfied; or any Lien (including, without limitation, any judicial or judgment lien) securing, arising as a result of or otherwise relating to the Lower Court Judgment, the Final Judgment or any other judgment or claim against any of the Credit Parties with respect to the DEI Litigation shall have been created, attached or perfected under applicable law and procedure. (l) Any material provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or the Series B Pledgor, either Pegasus Fund or any Credit Party shall challenge the enforceability of, or revoke or attempt to revoke, any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any security interest created under any Loan Document shall cease to be a valid and perfected first priority security interest or Lien (except as otherwise permitted herein or therein) in any of the Collateral or Litigation Collateral purported to be covered thereby. (m) Any Change of Control shall occur. (n) Any event shall occur, whether or not insured or insurable, as a result of which revenue-producing activities cease or are substantially curtailed at any facility of Borrower or any of its Subsidiaries generating more than 10% of Borrower's consolidated revenues for the Fiscal Year preceding such event and such cessation or curtailment continues for more than thirty (30) days; provided, however, that no Event of Default shall exist under this clause (m) solely as a result of the physical relocation of Tessco's Georgetown, Texas location to one or more of Borrower's facility locations in connection with the Tessco Liquidation. 8.2 Remedies. (a) If any Event of Default shall have occurred and be continuing, Agent may (and at the written request of the Requisite Revolving Lenders shall), without notice, suspend this facility with respect to further Advances and/or the incurrence of further Letter of Credit Obligations or Litigation L/C Obligations whereupon any further 55 63 Advances and Letter of Credit Obligations or Litigation L/C Obligations shall be made or extended in Agent's sole discretion (or in the sole discretion of the Requisite Revolving Lenders, if such suspension occurred at their direction) so long as such Event of Default is continuing. If any Event of Default shall have occurred and be continuing, Agent may (and at the written request of Requisite Lenders shall), without notice except as otherwise expressly provided herein, increase the rate of interest applicable to the Loans and the Letter of Credit Fees to the Default Rate. (b) If any Event of Default shall have occurred and be continuing, Agent may (and at the written request of the Requisite Lenders shall), without notice, (i) terminate this facility with respect to further Advances or the incurrence of further Letter of Credit Obligations or Litigation L/C Obligations; (ii) declare all or any portion of the Obligations, including all or any portion of any Loan, to be thereupon due and payable, and require that the Letter of Credit Obligations and Litigation L/C Obligations be cash collateralized as provided in Annex B or the Litigation L/C Agreement, all without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrower and each other Credit Party; and (iii) exercise any rights and remedies provided to Agent under the Loan Documents and/or at law or equity, including all remedies provided under the Code; provided, however, that upon the occurrence of an Event of Default specified in Sections 8.1, (h) or (i), all of the Obligations, including the aggregate Revolving Loan, shall become immediately due and payable without declaration, notice or demand by any Person, and the Commitments shall be thereupon terminated. 8.3 Waivers by Credit Parties. Except as otherwise provided for in this Agreement or by applicable law, each Credit Party waives: (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which any Credit Party may in any way be liable, and hereby ratifies and confirms whatever Agent may do in this regard, (b) all rights to notice and a hearing prior to Agent's taking possession or control of, or to Agent's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling and exemption laws. 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT 9.1 Assignment and Participations. (a) The Credit Parties signatory hereto consent to any Lender's assignment of, and/or sale of participations in, at any time or times, the Loan Documents, Loans, Letter of Credit Obligations, Litigation L/C Obligations and any Commitment or of any portion thereof or interest therein, including any Lender's rights, title, interests, remedies, powers or duties thereunder, whether evidenced by a writing or not. Any assignment by a Lender shall (i) require the consent of Agent (which shall not be unreasonably 56 64 withheld or delayed) and the execution of an assignment agreement (an "Assignment Agreement") substantially in the form attached hereto as Exhibit 9.1(a) and otherwise in form and substance satisfactory to, and acknowledged by, Agent; (ii) be conditioned on such assignee Lender representing to the assigning Lender and Agent that it is purchasing the applicable Loans to be assigned to it for its own account, for investment purposes and not with a view to the distribution thereof; (iii) if a partial assignment, be in an amount at least equal to $5,000,000 and, after giving effect to any such partial assignment, the assigning Lender shall have retained Commitments in an amount at least equal to $5,000,000; and (iv) include a payment to Agent by such assigning Lender of an assignment fee of $3,500. In the case of an assignment by a Lender under this Section 9.1, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder. The assigning Lender shall be relieved of its obligations hereunder with respect to its Commitments or assigned portion thereof from and after the date of such assignment. Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender". In all instances, each Lender's liability to make Loans hereunder shall be several and not joint and shall be limited to such Lender's Pro Rata Share of the applicable Commitment. In the event Agent or any Lender assigns or otherwise transfers all or any part of a Note, Agent or any such Lender shall so notify Borrower and Borrower shall, upon the request of Agent or such Lender, execute new Notes in exchange for the Notes being assigned. Notwithstanding the foregoing provisions of this Section 9.1(a), any Lender may at any time pledge or assign all or any portion of such Lender's rights under this Agreement and the other Loan Documents to a Federal Reserve Bank; provided, however, that no such pledge or assignment shall release such Lender from such Lender's obligations hereunder or under any other Loan Document. (b) Any participation by a Lender of all or any part of its Commitments shall be in an amount at least equal to $5,000,000, and with the understanding that all amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation, and that the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except actions directly affecting (i) any reduction in the principal amount of, or interest rate or Fees payable with respect to, any Loan in which such holder participates, (ii) any extension of the scheduled amortization of the principal amount of any Loan in which such holder participates or the final maturity date thereof, and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement, the Collateral Documents or the other Loan Documents). Solely for purposes of Sections 1.13, 1.15, 1.16 and 9.8, Borrower acknowledges and agrees that a participation shall give rise to a direct obligation of Borrower to the participant and the participant shall be considered to be a "Lender". Except as set forth in the preceding sentence neither Borrower nor any Credit Party shall have any obligation or duty to any participant. Neither Agent nor any Lender (other than the Lender selling a participation) shall have any duty to any participant and may continue to deal solely with the Lender selling a participation as if no such sale had occurred. 57 65 (c) Except as expressly provided in this Section 9.1, no Lender shall, as between Borrower and that Lender, or Agent and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans, the Notes or other Obligations owed to such Lender. (d) Each Credit Party executing this Agreement shall assist any Lender permitted to sell assignments or participations under this Section 9.1 as reasonably required to enable the assigning or selling Lender to effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and, if requested by Agent, the preparation of informational materials for, and the participation of management in meetings with, potential assignees or participants. Each Credit Party executing this Agreement shall certify the correctness, completeness and accuracy of all descriptions of the Credit Parties and their affairs contained in any selling materials provided by them and all other information provided by them and included in such materials, except that any Projections delivered by Borrower shall only be certified by Borrower as having been prepared by Borrower in compliance with the representations contained in Section 3.4(c). (e) A Lender may furnish any information concerning Borrower in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). Each Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 11.8. (f) So long as no Event of Default shall have occurred and be continuing, no Lender shall assign or sell participations in any portion of its Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.16(a), increased costs under Section 1.16(b), an inability to fund LIBOR Loans under Section 1.16(c), or withholding taxes in accordance with Section 1.16(d). 9.2 Appointment of Agent. GE Capital is hereby appointed to act on behalf of all Lenders as Agent under this Agreement and the other Loan Documents. The provisions of this Section 9.2 are solely for the benefit of Agent and Lenders and no Credit Party nor any other Person shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, and, notwithstanding the use of the term "Agent", Agent shall act solely as an independent contractor and contractual representative of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency, trust or other fiduciary with or for any Lender, Credit Party or any other Person. Agent shall have no duties or responsibilities except for those expressly set forth in this Agreement and the other Loan Documents. The duties of Agent shall be mechanical and administrative in nature and Agent shall not have, or be deemed to have, by reason of this Agreement, any other Loan Document or otherwise a fiduciary relationship in respect of any Lender. Neither Agent nor any of its Affiliates nor any of their respective officers, directors, employees, agents, attorneys or representatives shall be liable to 58 66 any Lender for any action taken or omitted to be taken by it hereunder or under any other Loan Document, or in connection herewith or therewith, except for damages solely caused by its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. If Agent shall request instructions from Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, then Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as the case may be, and Agent shall not incur liability to any Person by reason of so refraining. Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Loan Document (a) if such action would, in the opinion of Agent, be contrary to law or the terms of this Agreement or any other Loan Document, (b) if such action would, in the opinion of Agent, expose Agent to Environmental Liabilities or (c) if Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable. 9.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Loan Documents, except for damages caused by its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. Without limitation of the generality of the foregoing, Agent: (a) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Agent; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Credit Party or to inspect the Collateral (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto or the perfection, priority, enforceability or unavoidability of any of the Liens securing the Obligations; and (f) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing 59 67 (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. 60 68 9.4 GE Capital and Affiliates. With respect to its Commitments hereunder, GE Capital shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include GE Capital in its individual capacity. GE Capital and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any of their Affiliates and any Person who may do business with or own securities of any Credit Party or any such Affiliate, all as if GE Capital were not Agent and without any duty to account therefor to Lenders. GE Capital and its Affiliates may accept fees and other consideration from any Credit Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. GE Capital has also received warrants from Borrower and is an investor in each of the Pegasus Funds. Each Lender acknowledges the potential conflict of interest between GE Capital as a Lender holding disproportionate interests in the Loans, GE Capital as a stockholder or warrant holder of Borrower, GE Capital as an investor in each of the Pegasus Funds and GE Capital as Agent. 9.5 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on the Financial Statements referred to in Section 3.4(a) and such other documents and information as it has deemed appropriate, made its own credit and financial analysis of the Credit Parties and its own decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Each Lender acknowledges the potential conflict of interest of each other Lender as a result of Lenders holding disproportionate interests in the Loans, and expressly consents to, and waives any claim based upon, such conflict of interest. 9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by the Credit Parties and without limiting the obligations of the Credit Parties hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent in connection therewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's gross negligence or wilful misconduct as finally determined by a court of competent jurisdiction. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and 61 69 each other Loan Document, to the extent that Agent is not reimbursed for such expenses by the Credit Parties. 9.7 Successor Agent. Agent may resign at any time by giving not less than thirty (30) days' prior written notice thereof to Lenders and Borrower. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after the resigning Agent's giving notice of resignation, then the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $300,000,000. If no successor Agent has been appointed pursuant to the foregoing, by the 30th day after the date such notice of resignation was given by the resigning Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above. Any successor Agent appointed by Requisite Lenders hereunder shall be subject to the approval of Borrower, such approval not to be unreasonably withheld or delayed; provided that such approval shall not be required if a Default or an Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder by a successor Agent or the effective date of the resigning Agent's resignation, the resigning Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Agent shall continue. After any resigning Agent's resignation hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Agent may be removed at the written direction of the holders (other than Agent) of two-thirds or more of the Commitments (excluding Agent's Commitment); provided that in so doing, such Lenders shall be deemed to have waived and released any and all claims they may have against Agent. 9.8 Setoff and Sharing of Payments. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender and each holder of any Note is hereby authorized at any time or from time to time, without notice to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all balances held by it at any of its offices for the account of any Credit Party (regardless of whether such balances are then due to such Credit Party) and any other properties or assets any time held or owing by that Lender or that holder to or for the credit or for the account of the Credit Parties against and on account of any of the Obligations which are not paid when due. Any Lender or holder of any Note exercising a right to set off or 62 70 otherwise receiving any payment on account of the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders shall sell) such participations in each such other Lender's or holder's Pro Rata Share of the Obligations as would be necessary to cause such Lender to share the amount so set off or otherwise received with each other Lender or holder in accordance with their respective Pro Rata Shares. Each Lender's obligation under this Section 9.8 shall be in addition to and not limitation of its obligations to purchase a participation in an amount equal to its Pro Rata Share of the Swing Line Loans under Section 1.1. Each Credit Party agrees, to the fullest extent permitted by law, that (a) any Lender or holder may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such amount so set off to other Lenders and holders and (b) any Lender or holders so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of the Loans and the other Obligations in the amount of such participation. Notwithstanding the foregoing, if all or any portion of the set-off amount or payment otherwise received is thereafter recovered from the Lender that has exercised the right of set-off, the purchase of participations by that Lender shall be rescinded and the purchase price restored without interest. 9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert. (a) Advances; Payments. (i) Revolving Lenders shall refund or participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(e). Agent shall notify Revolving Lenders, promptly after receipt of a Notice of Revolving Credit Advance and in any event prior to 1:00 p.m. (New York time) on the date such Notice of Revolving Advance is received, by telecopy, telephone or other similar form of transmission. Each Revolving Lender shall make the amount of such Lender's Pro Rata Share of each Revolving Credit Advance available to Agent in same day funds by wire transfer to Agent's account as set forth in Annex H not later than 3:00 p.m. (New York time) on the requested funding date, in the case of an Index Rate Loan and not later than 11:00 a.m. (New York time) on the requested funding date in the case of a LIBOR Loan. After receipt of such wire transfers (or, in the Agent's sole discretion, before receipt of such wire transfers), subject to the terms hereof, Agent shall make the requested Revolving Credit Advance to the Borrower. All payments by each Revolving Lender shall be made without setoff, counterclaim or deduction of any kind. (ii) Agent shall notify Term Lenders promptly after receipt of a Notice of Term Loan B Advance or promptly upon its receipt of notice of a payment by the L/C Issuer under the Litigation L/C, and in any event prior to 1:00 p.m. (New York time) on the date a Notice of Term Loan B Advance is received or, in the case of a notice of payment under the Litigation L/C prior to 1:00 p.m. on the Business Day next following the date of Agent's receipt of such notice. Any such notification to Term Lenders shall be by telecopy, telephone or other similar form of transmission. Each Term Lender shall make the amount of such Lender's Pro Rata Share of the Term Loan B or payment under the Litigation L/C available to Agent in same day funds by wire 63 71 transfer to Agent's account as set forth in Annex H not later than 3:00 p.m. (New York time) on the Term Loan B Funding Date in the case of Term Loan B if requested as an Index Rate Loan, not later than 11:00 a.m. (New York time) on the Term Loan B Funding Date in the case of Term Loan B if requested as a LIBOR Loan or, not later than 3:00 p.m. (New York time) on the Business Day next following the date of Agent's receipt of notice of such payment in the case of a payment with respect to the Litigation L/C. In the case of Term Loan B, after receipt of such wire transfers (or, in Agent's sole discretion, before receipt of such wire transfers), subject to the terms hereof, Agent shall make the Term Loan B available to Borrower. All payments by each Term Lender shall be made without setoff, counterclaim or deduction of any kind. (iii) On the second (2nd) Business Day of each calendar week or more frequently as aggregate cumulative payments in excess of $2,000,000 are received with respect to the Loans (other than the Swing Line Loan) (each, a "Settlement Date"), Agent will advise each Lender by telephone, or telecopy of the amount of such Lender's Pro Rata Share of principal, interest and Fees paid for the benefit of Lenders with respect to each applicable Loan. Provided that such Lender has made all payments required to be made by it and has purchased all participations required to be purchased by it under this Agreement and the other Loan Documents as of such Settlement Date, Agent will pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees paid by Borrower since the previous Settlement Date for the benefit of that Lender on the Loans held by it. Such payments shall be made by wire transfer to such Lender's account (as specified by such Lender in Annex H or the applicable Assignment Agreement) not later than 1:00 p.m. (Chicago time) on the next Business Day following each Settlement Date. (b) Availability of Lender's Pro Rata Share. Agent may assume that each Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance available to Agent on each funding date and that each Term Lender will make its Pro Rata Share of Term Loan B on the Term Loan B Funding Date. If such Pro Rata Share is not, in fact, paid to Agent by such Lender when due, Agent will be entitled to recover such amount on demand from such Lender without set-off, counterclaim or deduction of any kind. If any Lender fails to pay the amount of such Pro Rata Share of any Revolving Credit Advance, or if any Term Lender fails to pay the amount of its Pro Rata Share of any payment under the Litigation L/C when due, forthwith upon Agent's demand, Agent shall promptly notify Borrower and Borrower shall immediately repay such amount to Agent. Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by such Lender hereunder. To the extent that Agent advances funds to Borrower on behalf of any Lender and is not reimbursed therefor on the same Business Day as such Advance is made, Agent shall be entitled to retain for its account all interest accrued on such Advance until reimbursed by the applicable Lender. 64 72 (c) Return of Payments. (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without set-off, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan Document, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind. (d) Non-Funding Lenders. The failure of any Lender (such Lender, a "Non-Funding Lender") to make any Revolving Credit Advance, to purchase any participation in any Swing Line Loan to be made or purchased by it on the date specified therefor, to make its Term Loan B, or to pay its Pro Rata Share of any payment under the Litigation L/C, shall not relieve any other Lender (each such other Lender, an "Other Lender") of its obligations to make such Advance, purchase such participation on such date, make such Term Loan B or to make such payment with respect to the Litigation L/C payment, but neither any Other Lender nor Agent shall be responsible for the failure of any Non- Funding Lender to make an Advance to be made, or to purchase a participation to be purchased, by such Non-Funding Lender, and no Non-Funding Lender shall have any obligation to Agent or any Other Lender for the failure by such Non-Funding Lender. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender", a "Revolving Lender" or a "Term Lender" (or be included in the calculation of "Requisite Lenders", "Requisite Revolving Lenders" or "Supermajority Revolving Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. (e) Dissemination of Information. Agent will use reasonable efforts to provide Lenders with any notice of Default or Event of Default received by Agent from, or delivered by Agent to, any Credit Party, with notice of any Event of Default of which Agent has actually become aware and with notice of any action taken by Agent following any Event of Default; provided, however, that Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable solely to Agent's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. Lenders acknowledge that Borrower is required to provide Financial Statements and Collateral Reports to Lenders in accordance with Annexes E and F hereto and agree that Agent shall have no duty to provide the same to Lenders. 65 73 (f) Actions in Concert. Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or the Notes (including exercising any rights of set-off) without first obtaining the prior written consent of Agent or Requisite Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Notes shall be taken in concert and at the direction or with the consent of Agent. 10. SUCCESSORS AND ASSIGNS 10.1 Successors and Assigns. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of each Credit Party, Agent, Lenders and their respective successors and assigns (including, in the case of any Credit Party, a debtor-in-possession on behalf of such Credit Party), except as otherwise provided herein or therein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Loan Documents without the prior express written consent of Agent and Requisite Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by any Credit Party without the prior express written consent of Agent and Requisite Lenders shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Credit Party, Agent and Lenders with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or any of the other Loan Documents. 11. MISCELLANEOUS 11.1 Complete Agreement; Modification of Agreement and Pegasus Litigation Guaranty. (a) The Loan Documents constitute the complete agreement between the parties with respect to the subject matter thereof and may not be modified, altered or amended except as set forth in Section 11.2 below. Any letter of interest, commitment letter, and/or fee letter (other than the GE Capital Fee Letter) and/or confidentiality agreement between any Credit Party and Agent or any Lender or any of their respective affiliates, predating this Agreement and relating to a financing of substantially similar form, purpose or effect shall be superseded by this Agreement. (b) Without Borrower's prior written consent, Agent shall not enter into any written amendment to the Litigation Guaranty which expands or modifies the deliveries required pursuant to Section 3 hereof. 11.2 Amendments and Waivers. (a) Except for actions expressly permitted to be taken by Agent, no amendment, modification, termination or waiver of any provision of this Agreement or any of the Notes, or any consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Agent and 66 74 Borrower, and by Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable. Except as set forth in clauses (b) and (c) below, all such amendments, modifications, terminations or waivers requiring the consent of any Lenders shall require the written consent of Requisite Lenders. (b) No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement which increases the percentage advance rates set forth in the definition of the Borrowing Base, or which makes less restrictive the nondiscretionary criteria for exclusion from Eligible Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, shall be effective unless the same shall be in writing and signed by Agent, Supermajority Revolving Lenders and Borrower. No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement which waives compliance with the conditions precedent set forth in Section 2.2 to the making of any Loan or the incurrence of any Letter of Credit Obligations shall be effective unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrower. Notwithstanding anything contained in this Agreement to the contrary, no waiver or consent with respect to any Default (if in connection therewith Agent or Requisite Revolving Lenders, as the case may be, have exercised its or their right to suspend the making or incurrence of further Advances or Letter of Credit Obligations pursuant to Section 8.2(a)) or any Event of Default shall be effective for purposes of the conditions precedent to the making of Loans or the incurrence of Letter of Credit Obligations set forth in Section 2.2 unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrower. (c) No amendment, modification, termination or waiver shall, unless in writing and signed by Agent and each Lender directly affected thereby, do any of the following: (i) increase the principal amount of any Lender's Commitment (which action shall be deemed to directly affect all Lenders); (ii) reduce the principal of, rate of interest on or Fees payable with respect to any Loan or Letter of Credit Obligations of any affected Lender; (iii) extend any scheduled payment date or final maturity date of the principal amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any payment of interest or Fees as to any affected Lender; (v) release any Guaranty or, except as otherwise permitted herein or in the other Loan Documents, permit any Credit Party to sell or otherwise dispose of any Collateral with a value exceeding $5,000,000 in the aggregate (which action shall be deemed to directly affect all Lenders); (vi) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for Lenders or any of them to take any action hereunder; and (vii) amend or waive this Section 11.2 or the definitions of the terms "Requisite Lenders", "Requisite Revolving Lenders" or "Supermajority Revolving Lenders" insofar as such definitions affect the substance of this Section 11.2. Furthermore, no amendment, modification, termination or waiver affecting the rights or duties of Agent under this Agreement or any other Loan Document shall be effective unless in writing and signed by Agent, in addition to Lenders required hereinabove to take such action. Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for 67 75 Agent to take additional Collateral pursuant to any Loan Document. No amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the holder of that Note. No notice to or demand on any Credit Party in any case shall entitle such Credit Party or any other Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.2 shall be binding upon each holder of the Notes at the time outstanding and each future holder of the Notes. (d) If, in connection with any proposed amendment, modification, waiver or termination (a "Proposed Change"): (i) requiring the consent of all affected Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described this clause (i) and in clauses (ii), (iii) and (iv) below being referred to as a "Non-Consenting Lender"), or (ii) requiring the consent of Supermajority Revolving Lenders, the consent of Requisite Revolving Lenders is obtained, but the consent of Supermajority Revolving Lenders is not obtained, or (iii) requiring the consent of Requisite Revolving Lenders, the consent of Revolving Lenders holding 51% or more of the aggregate Revolving Loan Commitments is obtained, but the consent of Requisite Revolving Lenders is not obtained, or (iv) requiring the consent of Requisite Lenders, the consent of Lenders holding 51% or more of the aggregate Commitments is obtained, but the consent of Requisite Lenders is not obtained, then, so long as Agent is not a Non-Consenting Lender, at Borrower's request, Agent or a Person acceptable to Agent shall have the right with Agent's consent and in Agent's sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon Agent's request, sell and assign to Agent or such Person, all of the Commitments of such Non-Consenting Lender for an amount equal to the principal balance of all Loans held by the Non-Consenting Lender and all accrued interest and Fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement. (e) Upon indefeasible payment in full in cash and performance of all of the Obligations (other than indemnification Obligations under Section 1.13), termination of the Commitments and a release of all claims against Agent and Lenders, and so long as no suits, actions proceedings, or claims are pending or threatened against any Indemnified Person 68 76 asserting any damages, losses or liabilities that are Indemnified Liabilities, Agent shall deliver to Borrower termination statements, mortgage releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations. 11.3 Fees and Expenses. Borrower shall reimburse Agent for all reasonable out-of-pocket expenses incurred in connection with the preparation of the Loan Documents (including the reasonable fees and expenses of all of its special loan counsel, advisors, consultants and auditors retained in connection with the Loan Documents and the Related Transactions and advice in connection therewith). Borrower shall reimburse Agent (and, with respect to clauses (c) and (d) below, all Lenders) for all reasonable fees, costs and expenses, including the fees, costs and expenses of counsel or other advisors (including environmental and management consultants and appraisers) for advice, assistance, or other representation in connection with: (a) the forwarding to Borrower or any other Person on behalf of Borrower by Agent of the proceeds of the Loans; (b) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or Related Transactions Documents or advice in connection with the administration of the Loans made pursuant hereto or its rights hereunder or thereunder; (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreement to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Agent by virtue of the Loan Documents; including any such litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided that in the case of reimbursement of counsel for Lenders other than Agent, such reimbursement shall be limited to one counsel for all such Lenders and, provided, further, that Borrower shall not be obligated hereunder to reimburse the Agent or the Lenders to the extent the amount otherwise to be reimbursed hereunder resulted from the Agent's or such Lenders' gross negligence or willful misconduct. (d) any attempt to enforce any remedies of Agent against any or all of the Credit Parties or any other Person that may be obligated to Agent or any Lender by virtue of any of the Loan Documents; including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided that in the case of reimbursement of counsel for Lenders other than Agent, such reimbursement shall be limited to one counsel for all such Lenders; 69 77 (e) any work-out or restructuring of the Loans during the pendency of one or more Events of Default; (f) efforts to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their respective affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral; including all reasonable attorneys' and other professional and service providers' fees arising from such services, including those in connection with any appellate proceedings; and all reasonable expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section 11.3 shall be payable by Borrower to Agent, within thirty (30) days of demand therefor. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or telecopy charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services. 11.4 No Waiver. Agent's or any Lender's failure, at any time or times, to require strict performance by the Credit Parties of any provision of this Agreement and any of the other Loan Documents shall not waive, affect or diminish any right of Agent or such Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver of an Event of Default shall not suspend, waive or affect any other Event of Default whether the same is prior or subsequent thereto and whether the same or of a different type. Subject to the provisions of Section 11.2, none of the undertakings, agreements, warranties, covenants and representations of any Credit Party contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by any Credit Party shall be deemed to have been suspended or waived by Agent or any Lender, unless such waiver or suspension is by an instrument in writing signed by an officer of or other authorized employee of Agent and the applicable required Lenders, and directed to Borrower specifying such suspension or waiver. 11.5 Remedies. Agent's and Lenders' rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including the other Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. 11.6 Severability. Wherever possible, each provision of this Agreement and the other Loan Documents shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, 70 78 without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.7 Conflict of Terms. Except as otherwise provided in this Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.8 Confidentiality. Agent and each Lender agree to use commercially reasonable efforts (equivalent to the efforts Agent or such Lender applies to maintaining the confidentiality of its own confidential information) to maintain as confidential all confidential information provided to them by the Credit Parties and designated as confidential for a period of two (2) years following receipt thereof, except that Agent and any Lender may disclose such information (a) to Persons employed or engaged by Agent or such Lender in evaluating, approving, structuring or administering the Loans and the Commitments; (b) to any bona fide assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 11.8 (and any such bona fide assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any Governmental Authority or reasonably believed by Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, in the opinion of Agent's or such Lender's counsel, required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any Litigation to which Agent or such Lender is a party; or (f) which ceases to be confidential through no fault of Agent or such Lender; provided, however, that such Lender shall use its best efforts to give Borrower as much advance notice of the proposed disclosure as is reasonably possible under the circumstances. 11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY 71 79 APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 11.10 Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated on Annex I or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower or Agent) designated on Annex I to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 72 80 11.11 Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 11.12 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 11.14 Press Releases. Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of GE Capital or its affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GE Capital before issuing such press release or other public disclosure. Each Credit Party consents to the publication by Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. 11.15 Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower for liquidation or reorganization, should Borrower become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer," "fraudulent conveyance," 73 81 or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 11.16 Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.13, with its counsel. 11.17 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. * * * * 74 82 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. CODE-ALARM, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender Revolving Loan Commitment (including a Swing Line Commitment By: /s/ Timothy S. Van Kirk of $1,200,000): -------------------------------- $12,000,000 Name: Timothy S. Van Kirk -------------------------- Title: Duly Authorized Signatory ------------------------- Term Loan A Commitment: $1,500,000 Term Loan B Commitment: $3,000,000 Term Loan C Commitment: $12,000,000 75 83 The following Persons are signatories to this Agreement in their capacity as Credit Parties and not as borrowers. TESSCO GROUP, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- CHAPMAN SECURITY SYSTEMS, INC. By: /s/ Rand Mueller ------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- INTERCEPT SYSTEMS, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- ANES, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- 76 84 EXHIBIT 1.1(a)(i) TO CREDIT AGREEMENT FORM OF NOTICE OF REVOLVING CREDIT ADVANCE Reference is made to that certain Credit Agreement dated as of October 24, 1997 by and among Code-Alarm, Inc. (the "Borrower"), the other Persons signatory thereto as Credit Parties, General Electric Capital Corporation ("Agent") and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used herein without definition are so used as defined in the Credit Agreement. The undersigned hereby certifies that all of the conditions set forth in Section 2.4 ("Further Conditions to Each Loan") of the Credit Agreement have been satisfied as of the date hereof, and will remain satisfied on the date of the requested Revolving Credit Advance, before and after giving effect thereto and the application of the proceeds therefrom. Borrower represents and warrants that the conditions in Section 2.4 have been satisfied and hereby reaffirms the granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. 85 Previously Faxed: Yes No (Circle One) __________________________________________________________________________________________________________________________ Company Name: Date: / / Certificate Number: __________________________________________________________________________________________________________________________ 1. ACCOUNTS RECEIVABLE (Line 5 of previous Notice of Revolving Credit Advance $__________________ dated_____/_____/_____) 2. Additions to Accounts Receivable since last Notice of Revolving Credit Advance (A) New sales dated _____/_____/_____ to _____/_____/_____ $_________________ (B) Other additions (Explain: ) $_________________ (C) TOTAL ADDITIONS $_________________ 3. Reductions to Accounts Receivable since last BBC (A) Cash collections dated _____/_____/_____ to _____/_____/_____ $_________________ (B) Discounts issued since last Notice of Revolving Credit Advance $_________________ (C) Credit memos issued since last Notice of Revolving Credit Advance $_________________ (D) Other reductions/additions since last Notice of Revolving Credit Advance $_________________ (E) TOTAL REDUCTIONS $_________________ 4. Other adjustments to Accounts Receivable (Explain:_______________________________________) $_________________ 5. NEW ACCOUNTS RECEIVABLE BALANCE (Total of Lines 1, 2C, 3E, and 4) $_________________ 6. Total ineligible Accounts Receivable (Line 2 of Borrowing Base Certificate dated ______/_____/_____) $_________________ 7. Eligible Accounts Receivable (Line 5 minus Line 6) $_________________ 8. Eligible Accounts Receivable Availability (85% of Line 7) $_________________ 9. Eligible Inventory Availability (Line 10 of Borrowing Base Certificate dated _____/_____/_____) $_________________ 10. Supplemental Amount $4,000,000 11. Reserves against availability (including Rent Reserve and reserve for NBD indemnities) $_________________ 12. Tessco Liquidation Reserve (including the total liabilities and contingent liabilities (to the extent known and probable) of Tessco, as provided by Borrower on the attached Schedule A hereto, other than Tessco's intercompany liabilities owing to Borrower and Tessco's obligations to Agent and Lenders under the Loan Documents), plus an amount equal to two months' rental obligations with respect to all existing operating leases of Tessco. $_________________ 13. Total Borrowing Availability (The lesser of (i) the total of Lines 8, 9 and 10 minus the sum of Lines 11 and 12, or (ii) the Maximum amount of $12,000,000) $_________________ 14. BEGINNING REVOLVING CREDIT LOAN BALANCE (Line 17 of previous Notice of Revolving Credit Advance dated _____/_____/_____) $_________________ 15. Plus Revolving Credit Advance requested, including any Swing Line Advances $_________________ 16. Less TOTAL cash collections against Revolving Credit Loan since last Notice of Revolving Credit Advance (A) Date ____________ Amt. $___________ (C) Date ___________ Amt. $__________ (B) Date ____________ Amt. $___________ (C) Date ___________ Amt. $__________ (E) TOTAL CASH REMITTED $_________________ 17. New Revolving Credit Loan Balance (Line 14 plus Line 15 minus Line 16E) $_________________ 18. Letter of Credit Obligations $_________________ 19. NET BORROWING AVAILABILITY (Line 13 minus the total of Line 17 plus Line 18) $_________________
-2- 86 IN WITNESS WHEREOF, Borrower has caused this Notice of Revolving Credit Advance to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: _________________________ Title: ______________________ -3- 87 SCHEDULE A TESSCO LIQUIDATION RESERVE Item 12 on the Notice of Revolving Credit Advance [To be provided by Borrower] -4- 88 A:\478139.WPD November 5,1997 (2:25pm) -5- 89 EXHIBIT 1.1(a)(ii) TO CREDIT AGREEMENT FORM OF REVOLVING NOTE Chicago, Illinois $12,000,000 October 24, 1997 FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION ("Lender"), at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders ("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago, Illinois 60603, or at such other place as Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of TWELVE MILLION DOLLARS AND NO CENTS ($12,000,000) or, if less, the aggregate unpaid amount of all Revolving Credit Advances made to the undersigned under the "Credit Agreement" (as hereinafter defined). All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. This Revolving Note is one of the Revolving Notes issued pursuant to that certain Credit Agreement dated as of October 24, 1997 by and among Borrower, the other Persons named therein as Credit Parties, Agent, Lender and the other Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), evidences the Revolving Credit Advances made to Borrower, and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the Loan Documents other than Litigation Collateral Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which such Revolving Credit Advances are made and are to be repaid. The date and amount of each Revolving Credit Advance made by Lenders to Borrower, the rates of interest applicable thereto and each payment made on account of the principal thereof, shall be recorded by Agent on its books; provided that the failure of Agent to make any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or this Revolving Note in respect of the Revolving Credit Advances made by Lender to Borrower. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement, the terms of which are hereby incorporated herein by reference. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. 90 If any payment on this Revolving Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (except as otherwise provided in the Credit Agreement) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Revolving Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Revolving Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. Except as provided in the Credit Agreement, this Revolving Note may not be assigned by Lender to any Person. THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. CODE-ALARM, INC. By:__________________________ Name:___________________ Title:____________________ 91 EXHIBIT 1.1(b) TO CREDIT AGREEMENT FORM OF TERM A NOTE Chicago, Illinois $1,500,000 October 24, 1997 FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION ("Lender") at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders ("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago, Illinois 60603, or at such other place as Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS ($1,500,000). All capitalized terms used but not otherwise defined herein have the meanings given to them in the "Credit Agreement" (as hereinafter defined) or in Annex A thereto. This Term A Note is one of the Term A Notes issued pursuant to that certain Credit Agreement dated as of October 24, 1997 by and among Borrower, the other Persons named therein as Credit Parties, Agent, Lender and the other Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), evidences the Lender's Term Loan A, and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the Loan Documents other than Litigation Collateral Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which such Term Loan A is made and is to be repaid. The principal balance of such Term Loan A, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Agent on its books; provided that the failure of Agent to make any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or this Term A Note. Borrower shall pay the principal amount of the Term Loan A evidenced hereby in twelve (12) equal, consecutive quarterly installments of $125,000 each, on the first day of January, April, July and October of each year, commencing on January 1, 1998. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this Term A Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day 92 (except as otherwise provided in the Credit Agreement) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Term A Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Term A Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. Except as provided in the Credit Agreement, this Term A Note may not be assigned by Lender to any Person. THIS TERM A NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. CODE-ALARM, INC. By:_____________________________ Name:______________________ Title:_____________________ 93 EXHIBIT 1.1(c)(i) TO CREDIT AGREEMENT FORM OF TERM B NOTE Chicago, Illinois $3,000,000 October 24, 1997 FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION ("Lender") at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders ("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago, Illinois 60603, or at such other place as Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of THREE MILLION DOLLARS AND NO CENTS ($3,000,000) or such lesser amount as may have been advanced as Term Loan B to the undersigned under the "Credit Agreement" (as hereinafter defined). All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. This Term B Note is one of the Term B Notes issued pursuant to that certain Credit Agreement dated as of October 24, 1997 by and among Borrower, the other Persons named therein as Credit Parties, Agent, Lender and the other Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), evidences Lender's Term Loan B, and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the Loan Documents other than Litigation Collateral Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which such Term Loan B is made and is to be repaid. The principal balance of such Term Loan B, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Agent on its books; provided that the failure of Agent to make any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or this Term B Note. Borrower shall pay the aggregate amount of the Term Loan B evidenced hereby in equal, consecutive quarterly installments equal to one- twelfth (1/12) of the aggregate original principal amount of such Loan on the first day of January, April, July and October of each year, commencing, subject to the terms of the Credit Agreement, on the first of such dates occurring after the Term Loan B Funding Date. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are 94 specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this Term B Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (except as otherwise provided in the Credit Agreement) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Term Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Term B Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. Except as provided in the Credit Agreement, this Term B Note may not be assigned by Lender to any Person. THIS TERM B NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. CODE-ALARM, INC. By:___________________________ Name:____________________ Title:___________________ 95 EXHIBIT 1.1(c)(ii) TO CREDIT AGREEMENT FORM OF NOTICE OF TERM LOAN B ADVANCE Reference is made to that certain Credit Agreement dated as of October 24, 1997 by and among Code-Alarm, Inc. ("Borrower"), the other Persons signatory thereto as Credit Parties, General Electric Capital Corporation as agent ("Agent") and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used herein without definition are so used as defined in the Credit Agreement. Borrower hereby gives irrevocable notice, pursuant to Section 1.1(c)(i) of the Credit Agreement, of its request on behalf of the Borrower for a Term Loan B Advance to be made on [ DATE ] in the aggregate amount of $[___________] to be made on [____________, ____] as [an Index Rate Loan] [as a LIBOR Loan having LIBOR Period of [_____] month(s)]. Borrower hereby represents and warrants that all of the conditions contained in Sections 2.2 and 2.4 of the Credit Agreement have been satisfied on and as of the date hereof, and will continue to be satisfied on and as of the date of the Term Loan B Advance(s) requested hereby, before and after giving effect thereto and to the application of the proceeds therefrom. Borrower hereby represents and warrants that the conditions set forth in Section 2.2 pertaining to a request for the Term Loan B Advance and the further conditions in Section 2.4 have been satisfied and hereby reaffirms its granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. IN WITNESS WHEREOF, Borrower has caused this Notice of Term Loan B Advance to be executed and delivered by its duly authorized officer as of the date first set forth above. 96 CODE-ALARM, INC. By: _________________________________ Title: ______________________________ -2- 97 EXHIBIT 1.1(d) TO CREDIT AGREEMENT FORM OF NOTICE OF TERM LOAN C ADVANCE Reference is made to that certain Credit Agreement dated as of October 24, 1997 by and among Code-Alarm, Inc. ("Borrower"), the other Persons signatory thereto as Credit Parties, General Electric Capital Corporation as agent ("Agent") and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used herein without definition are so used as defined in the Credit Agreement. Borrower hereby gives irrevocable notice, pursuant to Section 1.1(d)(iii) of the Credit Agreement, of its request on behalf of the Borrower for a Term Loan C Advance to be made on [ DATE ] in the aggregate amount of $[___________] to be made on [____________, ____] as [an Index Rate Loan] [as a LIBOR Loan having LIBOR Period of [_____] month(s)]. Borrower hereby represents and warrants that all of the conditions contained in Sections 2.3(II) and 2.4 of the Credit Agreement have been satisfied on and as of the date hereof, and will continue to be satisfied on and as of the date that the Term Loan C Advance(s) is requested hereby, before and after giving effect thereto and to the application of the proceeds therefrom. Borrower hereby represents and warrants that the conditions set forth in Section 2.3 (II) pertaining to a request for the Term Loan C Advance, and the further conditions in Section 2.4 have been satisfied and hereby reaffirms its granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Litigation Collateral Documents. 98 IN WITNESS WHEREOF, Borrower has caused this Notice of Term Loan C Advance to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: _______________________ Title: ____________________ -2- 99 EXHIBIT 1.1(e) TO CREDIT AGREEMENT FORM OF SWING LINE NOTE Chicago, Illinois $1,200,000 October 24, 1997 FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Swing Line Lender") at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent (in such capacity, the "Agent") at the Agent's address at 10 South LaSalle Street, Suite 2800, Chicago, Illinois 60603, or at such other place as Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS AND NO CENTS ($1,200,000) or, if less, the aggregate unpaid amount of all Swing Line Advances made to the undersigned under the "Credit Agreement" (as hereinafter defined). All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. This Swing Line Note is issued pursuant to that certain Credit Agreement dated as of October 24, 1997 by and among Borrower, the other Persons named therein as Credit Parties, Agent, Swing Line Lender and the other Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), evidences the Swing Line Lenders' Swing Line Advances made to Borrower, and is entitled to the benefit and security of the Credit Agreement, the Security Agreement and all of the Loan Documents other than Litigation Collateral Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which such Swing Line Advances are made and are to be repaid. The date and amount of each Swing Line Advance made by Swing Line Lender to Borrower, the rate of interest applicable thereto and each payment made on account of the principal thereof, shall be recorded by Agent on its books; provided that the failure of Agent to make any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or this Swing Line Note in respect of the Swing Line Advances made by Swing Line Lender to Borrower. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Credit Agreement, the terms of which are hereby incorporated herein by reference. Interest thereon shall be paid until such principal amount is 100 paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. If any payment on this Swing Line Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Swing Line Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Swing Line Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. Except as provided in the Credit Agreement, this Swing Line Note may not be assigned by Lender to any Person. THIS SWING LINE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. CODE-ALARM, INC. By:___________________________ Name:____________________ Title:___________________ 101 EXHIBIT 1.5(E) TO CREDIT AGREEMENT FORM OF NOTICE OF CONVERSION/CONTINUATION Reference is made to that certain Credit Agreement dated as of October 24, 1997 by and among Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), the other Persons signatory thereto as Credit Parties, General Electric Capital Corporation ("Agent") and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits or schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used herein without definition are so used as defined in the Credit Agreement. Borrower hereby gives irrevocable notice, pursuant to Section 1.5(e) of the Credit Agreement, of its request to: (a) on DATE convert $________ of the aggregate outstanding principal amount of the _______ Loan, bearing interest at the ________ Rate, into a(n) ________ Loan [and, in the case of a LIBOR Loan, having a LIBOR Period of _____ month(s)]; [(b) on DATE continue $________of the aggregate outstanding principal amount of the _______ Loan, bearing interest at the LIBOR Rate, as a LIBOR Loan having a LIBOR Period of _____ month(s)]. Borrower hereby represents and warrants that all of the conditions contained in Section 2.4 of the Credit Agreement have been satisfied on and as of the date hereof, and will continue to be satisfied on and as of the date of the conversion/continuation requested hereby, before and after giving effect thereto. Borrower hereby represents and warrants that the conditions set forth in Section 2.4 have been satisfied and hereby reaffirms its granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. 102 IN WITNESS WHEREOF, Borrower has caused this Notice of Conversion/Continuation be executed and delivered on its by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: -------------------------------- Title: ----------------------------- -2- 103 EXHIBIT 4.1(b) TO CREDIT AGREEMENT FORM OF BORROWING BASE CERTIFICATE Reference is made to that certain Credit Agreement dated as of October 24, 1997 by and among Code-Alarm, Inc. ("Borrower"), the other Persons signatory thereto as Credit Parties, General Electric Capital Corporation ("Agent") and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Capitalized terms used herein without definition are so used as defined in the Credit Agreement. The undersigned certifies that (a) all of the foregoing information regarding Eligible Accounts is true and correct on the date hereof and relates solely to Eligible Accounts within the meaning given such term in the Credit Agreement, and (b) all of the foregoing information regarding Eligible Inventory is true and correct on the date hereof and relates solely to Eligible Inventory within the meaning given such term in the Credit Agreement. 104 Company Name: Code-Alarm, Inc. Date:_________________ B.B.C.#________ 1. Period end accounts receivable as of :______________________ $______________ 2. Ineligible Accounts as of :________________________ Accounts from sales/services not in ordinary course (as defined in Section 1.6(a)) $______________ Contingent or judicially unenforceable accounts (as defined in Section 1.6(b)) $______________ Defense, counterclaim, setoff or dispute applies (as defined in Section 1.6(c)) $______________ Invalid Account (as defined in Section 1.6(d)) $______________ Invoice not sent to Account Debtor (as defined in Section 1.6(e)) $______________ Accounts not owned (as defined in Section 1.6(f)) $______________ Intercompany accounts (as defined in Section 1.6(g)) $______________ United States government Account (as defined in Section 1.6(h)) $______________ Prepaid Credit Balance over ninety (90) days (as defined in Section 1.6(i)) $______________ Foreign accounts (as defined in Section 1.6(i)) $______________ Contra accounts (as defined in Section 1.6(j)) $______________ Consignment (as defined in Section 1.6(k)) $______________ Accounts in default (as defined in Section 1.6(l)) $______________ 50% Cross aging exclusion (as defined in Section 1.6(m)) $______________ Accounts exceeding 10% of all Eligible Accounts (excluding entities named in Section 1.6(n)) $______________ Restricted Accounts (as defined in Section 1.6(o)) $______________ Representations and Warranties untrue (as defined in Section 1.6(p)) $______________ Evidenced by judgment, Instrument, or Chattel Paper (as defined in Section 1.6(q)) $______________ Payable in currency other than Dollars (as defined in Section 1.6(r)) $______________ Payment conditional on delivery (as defined in Section 1.6(s)) $______________ Warranty (as defined in Section 1.6(t)) $______________ Other (as specified in Section 1.6 or otherwise): ________________________________ $______________
105 TOTAL INELIGIBLES $______________ 3. Eligible Accounts (Line 1 minus Line 2) $______________ 4. Eligible Accounts advance rate 85% 5. Eligible Accounts availability (Line 3 multiplied by Line 4) $______________ _______________________________________________________________________________________ 6. Inventory as of :____________________ $______________ 7. Ineligible Inventory as of : ___________________ Not owned by Borrower/Tessco (as defined in Section 1.7(a)) $______________ On premises not owned/operated by Borrower/Tessco (as defined in Section 1.7(b)) $______________ Locations less than $100,000 (as defined in Section 1.7(b)) $______________ Inventory on Consignment or In Transit (as defined in Section 1.7(c)) $______________ Negotiable titles (as defined in Section 1.7(d)) $______________ Excess Inventory Reserve (as defined in Section 1.7(e)) $______________ Work-in-process (as defined in Section 1.7(f)) $______________ Low Value items (as defined in Section 1.7(f)) $______________ Returned goods (as defined in Section 1.7(g)) $______________ Not held for sale in ordinary course of business (as defined in Section 1.7(h)) $______________ Restricted (as defined in Section 1.7(i)) $______________ Representations and Warranties untrue (as defined in Section 1.7(j)) $______________ "Freight-in" costs or charges (as defined in Section 1.7(k)) $______________ Hazardous Materials or licensed sales (as defined in Section 1.7(l)) $______________ Unacceptably insured (as defined in Section 1.7(m)) $______________ Components not tracked (as defined in Section 1.7(n)) $______________ Valuation Reserve (as defined in Section 1.7(o)) $______________ Other (as specified in Section 1.7 or otherwise): ________________________________ $______________
106 TOTAL INELIGIBLES $______________ 8. Eligible Inventory (Line 6 minus Line 7) $______________ 9. Eligible Inventory advance rate 25% 10. Eligible Inventory availability (Line 8 multiplied by Line 9) $______________ _______________________________________________________________________________________________________ 11. Supplemental Amount $4,000,000 _______________________________________________________________________________________________________ 12. Reserves against availability (including Rent Reserve and reserve for NBD indemnities) $______________ 13. Tessco Liquidation Reserve (including the total liabilities and contingent liabilities (to the extent known and probable) of Tessco, as provided by Borrower on the attached Schedule A hereto, other than Tessco's intercompany liabilities owing to Borrower and Tessco's obligations to Agent and Lenders under the Loan Documents), plus an amount equal to two months' rental obligations with respect to all existing operating leases of Tessco. $______________ _______________________________________________________________________________________________________ 14. Borrowing Availability (the lesser of (i) the total of lines 5, 10 and 11 minus the sum of lines 12 and 13, or (ii) the Maximum Amount of $12,000,000) $______________ 15. Revolving Credit Loan Balance $______________ 16. Letter of Credit Obligations $______________ 17. Net Borrowing Availability (Line 14 minus the total of Lines 15 and 16) $______________
107 IN WITNESS WHEREOF, the undersigned has executed and delivered this Borrowing Base Certificate as of the date first set forth above. CODE-ALARM, INC. By: ______________________ Title: ___________________ 108 SCHEDULE A TESSCO LIQUIDATION RESERVE Item 12 on the Form of Borrowing Base Certificate [To be provided by Borrower] 109 EXHIBIT 9.1(a) ASSIGNMENT AGREEMENT This Assignment Agreement (this "Agreement") is made as of ___________ __, ____ by and between __________________________________ ("Assignor Lender") and ________________________ ("Assignee Lender") and acknowledged and consented to by GENERAL ELECTRIC CAPITAL CORPORATION, as agent ("Agent"). All capitalized terms used in this Agreement and not otherwise defined herein will have the respective meanings set forth in the Credit Agreement as hereinafter defined. RECITALS: WHEREAS, Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), the Persons signatory thereto as Credit Parties, Agent, Assignor Lender and other Persons signatory thereto from time to time as Lenders have entered into that certain Credit Agreement dated as of October 24, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "Basic Credit Agreement") pursuant to which Assignor Lender has agreed to make certain Loans to, and incur certain Letter of Credit Obligations for, Borrower; WHEREAS, Borrower, Agent, Assignor Term Lender and the Persons signatory thereto from time to time as Term Lenders have entered into that certain Litigation L/C and Term Loan C Agreement dated as of October 24, 1997 (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "L/C Credit Agreement") pursuant to which Assignor Lender has agreed to incur Litigation L/C Obligations and certain other Litigation Obligations including the obligations constituting Term Loan C for Borrower; WHEREAS, Assignor Lender desires to assign to Assignee Lender [all/a portion] of its interest in the Loans (as described below), the Letter of Credit Obligations, L/C Litigation Obligations and the Collateral and to delegate to Assignee Lender [all/a portion] of its Commitments and other duties with respect to such Loans, Letter of Credit Obligations, L/C Litigation Obligations and Collateral; WHEREAS, Assignee Lender desires to become a Lender under the Basic Credit Agreement and the L/C Credit Agreement (collectively, the "Credit Agreement") and to accept such assignment and delegation from Assignor Lender; and WHEREAS, Assignee Lender desires to appoint Agent to serve as agent for Assignee Lender under the Credit Agreement. 110 NOW, THEREFORE, in consideration of the premises and the agreements, provisions, and covenants herein contained, Assignor Lender and Assignee Lender agree as follows: 1. ASSIGNMENT, DELEGATION, AND ACCEPTANCE 1.1 Assignment. Assignor Lender hereby transfers and assigns to Assignee Lender, without recourse and without representations or warranties of any kind [all/such percentage] of Assignor Lender's right, title, and interest in [the Revolving Loan ], [the Swing Line Loan], [Term Loan A], [Term Loan B], [Term Loan ], [the Loans], [Letter of Credit Obligations], [Litigation L/C Obligations], Loan Documents and Collateral as will result in Assignee Lender having as of the Effective Date (as hereinafter defined) a Pro Rata Share thereof, as follows:
Assignee Lender's Loans Principal Amount Pro Rata Share Revolving Loan $____________ ____% Swing Line Loan $____________ ____% Term Loan A $____________ ____% Term Loan B $____________ ____% Term Loan C $____________ ____% Letter of Credit Obligations $____________ ____% Litigation L/C Obligations $____________ ____% Capital Expenditure Loan $____________ ____%
1.2 Delegation. Assignor Lender hereby irrevocably assigns and delegates to Assignee Lender [all/a portion] of its Commitments and its other duties and obligations as a Lender under the Loan Documents equivalent to [100%/___%] of Assignor Lender's Revolving Loan Commitment (such percentage representing a commitment of $ ___________), [100%/___%] of Assignor Lender's Term Loan Commitment (such percentage representing a commitment of $ ______), and [100%/____%] of Assignor Lender's Capital Expenditure Loan Commitment (such percentage representing a commitment of $ ___________)]. 1.3 Acceptance by Assignee Lender. By its execution of this Agreement, Assignee Lender irrevocably purchases, assumes and accepts such assignment and delegation and agrees to be a Lender with respect to the delegated interest under the Loan Documents and to be bound by the terms and conditions thereof. By its execution of this Agreement, Assignor Lender agrees, to the extent provided herein, to relinquish its rights and be released from its obligations and duties under the Credit Agreement. 1.4 Effective Date. Such assignment and delegation by Assignor Lender and acceptance by Assignee Lender will be effective and Assignee Lender will become a Lender under the Loan Documents as of [the date of this Agreement] ("Effective Date") and upon 2 111 payment of the Assigned Amount and the Assignment Fee (as each term is defined below). [Interest and Fees accrued prior to the Effective Date are for the account of Assignor Lender.] 2. INITIAL PAYMENT AND DELIVERY OF NOTES 2.1 Payment of the Assigned Amount. Assignee Lender will pay to Assignor Lender, in immediately available funds, not later than 12:00 noon (New York time) on the Effective Date, an amount equal to its Pro Rata Share of the then outstanding principal amount of the Loans as set forth above in Section 1.1 (but not contingent Letter of Credit Obligations or Litigation L/C Obligations) [together with accrued interest, fees and other amounts as set forth on Schedule 2.1] (the "Assigned Amount"). 2.2 Payment of Assignment Fee. [Assignor Lender and/or Assignee Lender] will pay to Agent, for its own account in immediately available funds, not later than 12:00 noon (New York time) on the Effective Date, the assignment fee in the amount of $3,500 (the "Assignment Fee") as required pursuant to Section 9.1(a) of the Credit Agreement. 2.3 Execution and Delivery of Notes. Following payment of the Assigned Amount and the Assignment Fee, Assignor Lender will deliver to Agent the Notes previously delivered to Assignor Lender for redelivery to Borrower and Agent will obtain from Borrower for delivery to [Assignor Lender and] Assignee Lender, new executed Notes evidencing Assignee Lender's [and Assignor Lender's respective] Pro Rata Share[s] in the Loans after giving effect to the assignment described in Section 1. Each new Note will be issued in the aggregate maximum principal amount of the [applicable] Commitment [of the Lender to whom such Note is issued] OR [the Assignee Lender]. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1 Assignee Lender's Representations, Warranties and Covenants. Assignee Lender hereby represents, warrants, and covenants the following to Assignor Lender and Agent: (a) This Agreement is a legal, valid, and binding agreement of Assignee Lender, enforceable according to its terms; (b) The execution and performance by Assignee Lender of its duties and obligations under this Agreement and the Loan Documents will not require any registration with, notice to, or consent or approval by any Governmental Authority; (c) Assignee Lender is familiar with transactions of the kind and scope reflected in the Loan Documents and in this Agreement; 3 112 (d) Assignee Lender has made its own independent investigation and appraisal of the financial condition and affairs of each Credit Party, has conducted its own evaluation of the Loans and Letter of Credit Obligations, the Loan Documents and each Credit Party's creditworthiness, has made its decision to become a Lender to Borrower under the Credit Agreement independently and without reliance upon Assignor Lender or Agent, and will continue to do so; (e) Assignee Lender is entering into this Agreement in the ordinary course of its business, and is acquiring its interest in the Loans and Letter of Credit Obligations for its own account and not with a view to or for sale in connection with any subsequent distribution; provided, however, that at all times the distribution of Assignee Lender's property shall, subject to the terms of the Credit Agreement, be and remain within its control; (f) No future assignment or participation granted by Assignee Lender pursuant to Section 9.1 of the Credit Agreement will require Assignor Lender, Agent, or Borrower to file any registration statement with the Securities and Exchange Commission or to apply to qualify under the blue sky laws of any state; (g) Assignee Lender has no loans to, written or oral agreements with, or equity or other ownership interest in any Credit Party; (h) Assignee Lender will not enter into any written or oral agreement with, or acquire any equity or other ownership interest in, any Credit Party without the prior written consent of Agent; and (i) As of the Effective Date, Assignee Lender (i) is entitled to receive payments of principal and interest in respect of the Obligations without deduction for or on account of any taxes imposed by the United States of America or any political subdivision thereof [, (ii) is not subject to capital adequacy or similar requirements under Section 1.16(a) of the Credit Agreement, (iii) does not require the payment of any increased costs under Section 1.16(b) of the Credit Agreement, and (iv) is not unable to fund LIBOR Loans under Section 1.16(c) of the Credit Agreement, ] and Assignee Lender will indemnify Agent from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, or expenses that result from Assignee Lender's failure to fulfill its obligations under the terms of Section 1.15(c) of the Credit Agreement [or from any other inaccuracy in the foregoing]. 3.2 Assignor Lender's Representations, Warranties and Covenants. Assignor Lender hereby represents, warrants and covenants the following to Assignee Lender: (a) Assignor Lender is the legal and beneficial owner of the Assigned Amount; (b) This Agreement is a legal, valid and binding agreement of Assignor Lender, enforceable according to its terms; 4 113 (c) The execution and performance by Assignor Lender of its duties and obligations under this Agreement and the Loan Documents will not require any registration with, notice to or consent or approval by any Governmental Authority; (d) Assignor Lender has full power and authority, and has taken all action necessary to execute and deliver this Agreement and to fulfill the obligations hereunder and to consummate the transactions contemplated hereby; (e) Assignor Lender is the legal and beneficial owner of the interests being assigned hereby, free and clear of any adverse claim, lien, encumbrance, security interest, restriction on transfer, purchase option, call or similar right of a third party; and (f) This Assignment by Assignor Lender to Assignee Lender complies, in all material respects, with the terms of the Loan Documents. 4. LIMITATIONS OF LIABILITY Neither Assignor Lender (except as provided in Section 3.2) nor Agent makes any representations or warranties of any kind, nor assumes any responsibility or liability whatsoever, with regard to (a) the Loan Documents or any other document or instrument furnished pursuant thereto or the Loans, Letter of Credit Obligations or other Obligations, (b) the creation, validity, genuineness, enforceability, sufficiency, value or collectibility of any of them, (c) the amount, value or existence of the Collateral, (d) the perfection or priority of any Lien upon the Collateral, or (e) the financial condition of any Credit Party or other obligor or the performance or observance by any Credit Party of its obligations under any of the Loan Documents. Neither Assignor Lender nor Agent has or will have any duty, either initially or on a continuing basis, to make any investigation, evaluation, appraisal of, or any responsibility or liability with respect to the accuracy or completeness of, any information provided to Assignee Lender which has been provided to Assignor Lender or Agent by any Credit Party. Nothing in this Agreement or in the Loan Documents shall impose upon the Assignor Lender or Agent any fiduciary relationship in respect of the Assignee Lender. 5. FAILURE TO ENFORCE No failure or delay on the part of Agent or Assignor Lender in the exercise of any power, right, or privilege hereunder or under any Loan Document will impair such power, right, or privilege or be construed to be a waiver of any default or acquiescence therein. No single or partial exercise of any such power, right, or privilege will preclude further exercise thereof or of any other right, power, or privilege. All rights and remedies existing under this Agreement are cumulative with, and not exclusive of, any rights or remedies otherwise available. 6. NOTICES 5 114 Unless otherwise specifically provided herein, any notice or other communication required or permitted to be given will be in writing and addressed to the respective party as set forth below its signature hereunder, or to such other address as the party may designate in writing to the other. 7. AMENDMENTS AND WAIVERS No amendment, modification, termination, or waiver of any provision of this Agreement will be effective without the written concurrence of Assignor Lender, Agent and Assignee Lender. 8. SEVERABILITY Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. In the event any provision of this Agreement is or is held to be invalid, illegal, or unenforceable under applicable law, such provision will be ineffective only to the extent of such invalidity, illegality, or unenforceability, without invalidating the remainder of such provision or the remaining provisions of the Agreement. In addition, in the event any provision of or obligation under this Agreement is or is held to be invalid, illegal, or unenforceable in any jurisdiction, the validity, legality, and enforceability of the remaining provisions or obligations in any other jurisdictions will not in any way be affected or impaired thereby. 9. SECTION TITLES Section and Subsection titles in this Agreement are included for convenience of reference only, do not constitute a part of this Agreement for any other purpose, and have no substantive effect. 10. SUCCESSORS AND ASSIGNS This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 11. APPLICABLE LAW THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. 12. COUNTERPARTS 6 115 This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, will be deemed an original and all of which shall together constitute one and the same instrument. [signature page follows] 7 116 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. Assignee Lender Assignor Lender ______________________________ _______________________________ By: __________________________ By:____________________________ Title:________________________ Title:_________________________ Notice Address Notice Address Account Information: Account Information: Acknowledged and Consented to: GENERAL ELECTRIC CAPITAL CORPORATION as Agent By: ____________________________________ Its Duly Authorized Signatory 117 SCHEDULE 2.1 ASSIGNOR LENDER'S LOANS
Principal Amount Revolving Loan $ ------------ Term Loan A $ ------------ Term Loan B $ ------------ [Term Loan C $ ] ------------ [Capital Expenditure Loan] $ ------------ Subtotal $ ============ Accrued Interest $ ------------ Unused Line Fee $ ------------ Other + or - $ ------------ Total $
============ All determined as of the Effective Date 9 118 ANNEX A (RECITALS) TO CREDIT AGREEMENT DEFINITIONS Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings and all section references in the following definitions shall refer to Sections of the Agreement: "Account Debtor" shall mean any Person who may become obligated to any Credit Party under, with respect to, or on account of, an Account. "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party and, in any event, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to any Credit Party, whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations which may be characterized as an account or contract right under the Code), (b) all of each Credit Party's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (c) all of each Credit Party's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to any Credit Party, under all purchase orders and contracts for the sale of goods or the performance of services or both by such Credit Party or in connection with any other transaction (whether or not yet earned by performance on the part of such Credit Party) now or hereafter in existence, including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Advance" shall mean any Revolving Credit Advance or Swing Line Advance, as the context may require. "Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power in the election of directors of such Persons, (b) each Person that controls, is controlled by or is under common control with such Person, (c) each of such Person's officers, directors, joint venturers and partners and (d) in the case of Borrower, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of Borrower. For the purposes of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the 119 direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the term "Affiliate" shall specifically exclude Agent and each Lender. "Agent" shall mean GE Capital or its successor appointed pursuant to Section 9.7. "Agreement" shall mean the Credit Agreement by and among Borrower, the other Credit Parties named therein, GE Capital, as Agent and Lender and the other Lenders signatory from time to time to the Agreement. "Appendices" shall have the meaning assigned to it in the recitals to the Agreement. "Applicable Revolver Index Margin" shall mean one and one-half of one percent (1.50%) per annum. "Applicable Revolver LIBOR Margin" shall mean three and one-quarter of one percent (3.25%) per annum. "Applicable Term Loan Index Margin" shall mean (a) in the case of the Term Loan A, one and three-quarters of one percent (1.75%) per annum and (b) in the case of the Term Loan B and Term Loan C, two percent (2.00%) per annum. "Applicable Term Loan LIBOR Margin" shall mean (a) in the case of the Term Loan A, three and one-half of one percent (3.50%) per annum and (b) in the case of the Term Loan B and Term Loan C, three and three-quarters of one percent (3.75%) per annum. "Assignment Agreement" shall have the meaning assigned to it in Section 9.1(a). "Bond" shall have the meaning assigned to it in Section 2.3(I). "Borrower Accounts" shall have the meaning assigned to it in Annex C. "Borrower" shall have the meaning assigned thereto in the recitals to the Agreement. "Borrowing Availability" shall have the meaning assigned to it in Section 1.1(a)(i). "Borrowing Base" shall mean, as of any date of determination by Agent, from time to time, an amount equal to the sum at such time of the following, minus the Tessco Liquidation Reserve then in effect: A-2 120 (a) eighty-five percent (85%) of Borrower's and Tessco's Eligible Accounts, less any Reserves established by Agent at such time; (b) twenty-five percent (25%) of the book value of Borrower's and Tessco's Eligible Inventory valued on a first-in, first-out basis (at the lower of cost or market), less any Reserves established by Agent at such time; and (c) the Supplemental Amount. "Borrowing Base Certificate" shall mean a certificate to be executed and delivered from time to time by Borrower in the form attached to the Agreement as Exhibit 4.1(b). "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Illinois or New York and in reference to LIBOR Loans shall mean any such day that is also a LIBOR Business Day. "California Award" shall mean any judgment, settlement or other award payable to any Credit Party in connection with the litigation pending with the United States District Court for the Southern District of California known as Directed Electronics, Inc. v. Code-Alarm, Inc., case number 95-0513(CGA), or any appeal thereof. "Capital Expenditures" shall mean, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person. "Capital Lease Obligation" shall mean, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease. "Cash Management Systems" shall have the meaning assigned to it in Section 1.8. "Change of Control" means (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended), other than either of the Pegasus Funds, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 20% or more (computed on a fully diluted basis) of the issued and outstanding A-3 121 shares of capital Stock of Borrower having the right to vote for the election of directors of Borrower under ordinary circumstances; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Borrower (together with any new directors whose election by the board of directors of Borrower or whose nomination for election by the stockholders of Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office, (c) Borrower shall cease to own and control all of the economic and voting rights associated with all of the outstanding capital Stock of Tessco (other than as a result of the Tessco Liquidation, if consummated in compliance with Section 6.1) or any of its other Subsidiaries, (d) Rand W. Mueller shall cease to hold the office of, or cease to perform the duties substantially to the same degree as currently being performed of, President and Chief Executive Officer of Borrower (provided, however, that no such event shall constitute an Event of Default as a result of Mr. Mueller's death, disability or termination for cause if Mr. Mueller is thereafter replaced within forty-five (45) days with an officer acceptable to the Requisite Lenders), or (e) Rand W. Mueller, his wife and trusts with respect to which he or his wife are sole beneficiaries or trustees shall cease to own, collectively, less than 400,000, 320,000 and 250,000 shares of Common Stock of Borrower on the first, second and third anniversaries, respectfully, of the date of this Agreement. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to, but in any event in favor of or owed to a Governmental Authority, (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any Credit Party, (d) any Credit Party's ownership or use of any properties or other assets, or (e) any other aspect of any Credit Party's business. "Chattel Paper" shall mean any "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located. "Closing Checklist" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex D. "Closing Date" shall mean October 24, 1997. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Illinois; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Agent's or any Lender's security interest in any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the A-4 122 term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Security Agreements, the Pledge Agreements, the Mortgages and the other Collateral Documents and Litigation Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Agent, on behalf of itself and Lenders, to secure the Obligations or Litigation Obligations or a Credit Party's guaranty obligations with respect to the Obligations or Litigation Obligations. "Collateral Documents" shall mean the Security Agreements, the Pledge Agreements, the Guaranties, the Litigation Guaranty, the Supplemental Guaranty, the Mortgages, the Patent Security Agreements, the Trademark Security Agreements, the Copyright Security Agreements and all similar agreements entered into, guaranteeing payment of, or granting a Lien upon property as security for payment of, the Obligations or a Credit Party's guaranty obligations with respect to the Obligations. "Collateral Reports" shall mean the reports with respect to the Collateral referred to in Annex F. "Collection Account" shall mean that certain account of Agent, account number 502-328-54 in the name of Agent at Bankers Trust Company in New York, New York. "Commitment Termination Date" shall mean the earliest of (a) October 24, 2000, (b) the date of termination of Lenders' obligations to make Advances and/or incur Letter of Credit Obligations and/or Litigation L/C Obligations or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible prepayment in full by Borrower of the Loans and the cancellation and return (or stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit Obligations and Litigation L/C Obligations pursuant to Annex B, and the permanent reduction of the Revolving Loan Commitment and the Swing Line Commitment to zero dollars ($0), in accordance with the provisions of Section 1.3(a). "Commitments" shall mean (a) as to any Lender, the aggregate of such Lender's Revolving Loan Commitment (including without duplication the Swing Line Lender's Swing Line Commitment) and Term Loan Commitment as set forth on the signature page to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments (including without duplication the Swing Line Lender's Swing Line Commitment) and Term Loan Commitments, which aggregate maximum commitment shall be Twenty-Five Million Five Hundred Thousand A-5 123 Dollars ($25,500,000.00) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Compliance Certificate" shall have the meaning assigned to it in Annex E. "Concentration Accounts" shall have the meaning assigned to it in Annex C. "Contracts" shall mean all "contracts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Credit Party may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Control Letter" means a letter agreement between Agent and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Credit Party, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Credit Party, (iii) a futures commission merchant or clearing house with respect to commodity accounts and commodity contracts held by any Credit Party, whereby, among other things, the issuer, securities intermediary or futures commission merchant disclaims any security interest in the applicable financial assets, acknowledges the Lien of Agent, on behalf of itself and Lenders, on such financial assets, and agrees to follow the instructions or entitlement orders of Agent without further consent by the affected Credit Party. "Copyright License" shall mean any and all rights now owned or hereafter acquired by any Credit Party under any written agreement granting any right to use any Copyright or Copyright registration. "Copyright Security Agreements" shall mean, collectively, each Copyright Security Agreement executed by a Credit Party in favor of Agent, on behalf of itself and Lenders, with respect to Copyrights, as security for the obligations or for such Credit Party's guaranty obligations with respect to the Obligations. "Copyrights" shall mean all of the following now owned or hereafter acquired by any Credit Party: (a) all copyrights and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof. "Credit Parties" shall mean Borrower and each of its Subsidiaries. A-6 124 "DEI Litigation" shall mean the litigation currently pending with the United States District Court for the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive Technologies Corporation and Directed Electronics, Inc., case number 87-CV-74022-DT, and all appeals with respect thereto. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall have the meaning assigned to it in Section 1.5(d). "Disbursement Accounts" shall have the meaning assigned to it on Annex C. "Disclosure Schedules" shall mean the Schedules prepared by Borrower and denominated as Disclosure Schedules 1.4 through 6.7 in the Index to the Agreement. "Documents" shall mean any "documents," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located. "Dollars" or "$" shall mean lawful currency of the United States of America. "EBITDA" shall mean, with respect to any Person for any fiscal period, an amount equal to (a) consolidated net income before stock dividends of such Person for such period, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by such Person (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), and (v) any other non-cash gains which have been added in determining consolidated net income, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense (other than preferred stock dividends), (iii) the amount of non-cash charges (including depreciation and amortization) for such period, (iv) amortized debt discount for such period, and (v) the amount of any deduction to consolidated net income as the result of any grant to any members of the management of such Person of any Stock, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication. For purposes of this definition, and notwithstanding the foregoing, the following items shall be excluded in determining consolidated net income of a Person: (1) the income (or deficit) of any other Person accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person or any of such Person's Subsidiaries; (2) the income (or deficit) of any other Person (other than a Subsidiary) in which such Person has an ownership interest, except to the extent any such income has actually been received by such Person in the form of cash dividends or distributions; (3) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of A-7 125 dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (4) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (5) any write-up of any asset; (6) any net gain from the collection of the proceeds of life insurance policies; (7) any net gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of such Person, (8) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, (9) any deferred credit representing the excess of equity in any Subsidiary of such Person at the date of acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary (10) any ordinary or extraordinary gain realized after the Closing Date as a result of any judgment entered with respect to the litigation relating to any potential California Award, and (11) any ordinary or extraordinary loss incurred after the Closing Date of up to $12,000,000 in respect of the DEI Litigation. "Eligible Accounts" shall have the meaning assigned to it in Section 1.6 of the Agreement. "Eligible Inventory" shall have the meaning assigned to it in Section 1.7 of the Agreement. "Environmental Laws" shall mean all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section Section 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. Section Section 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section Section 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. Section Section 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. Section Section 2601 et seq.); the Clean Air Act (42 U.S.C. Section Section 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. Section Section 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. Section Section 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Section Section 300(f) et seq.), and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities" shall mean, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), A-8 126 fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, about, in, under, or migrating from or to any real or personal property of that Person. "Environmental Permits" shall mean all permits, licenses, authorizations, certificates, approvals, registrations or other written documents required by any Governmental Authority under any Environmental Laws. "Equipment" shall mean all "equipment," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located and, in any event, including all such Credit Party's machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment (other than software constituting part of the Accounts), and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, all whether now owned or hereafter acquired, and wherever situated, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to any Credit Party, any trade or business (whether or not incorporated) which, together with such Credit Party, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to any Credit Party or any ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other A-9 127 event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status. "ESOP" shall mean a Plan which is intended to satisfy the requirements of Section 4975(e)(7) of the IRC. "Event of Default" shall have the meaning assigned to it in Section 8.1. "Excess Cash Flow" shall mean, without duplication, with respect to any Fiscal Year of Borrower and its Subsidiaries, consolidated net income plus (a) depreciation, amortization and other non cash charges and Interest Expense to the extent deducted in determining consolidated net income, minus (c) Capital Expenditures during such Fiscal Year (excluding the portion thereof which is financed other than with the proceeds of Loans hereunder and excluding any Capital Expenditures in such Fiscal Year to the extent in excess of the amount permitted to be made in such Fiscal Year pursuant to clause (a) of Annex G), minus (d) Interest Expense paid or accrued (excluding any original issue discount, interest paid in kind or amortized debt discount, to the extent included in determining Interest Expense) and scheduled principal payments paid or payable in respect of Funded Debt, plus or minus (as the case may be), (e) extraordinary gains or losses which are cash items not included in the calculation of net income, minus (f) mandatory prepayments paid in cash pursuant to Section 1.3 other than mandatory prepayments made pursuant to Sections 1.3(b)(i), 1.3(b)(iv) or 1.3(d), minus voluntary prepayments paid in cash pursuant to Section 1.3 to the extent such prepayments are applied to any Term Loan installments in the inverse order of their maturities, and plus (g) taxes deducted in determining consolidated net income to the extent not paid for in cash. Notwithstanding the foregoing, losses with respect to the DEI Litigation shall not reduce Excess Cash Flow for any period. "Fair Salable Balance Sheet" shall mean a balance sheet of Borrower prepared in accordance with Section 3.4(d). "Federal Funds Rate" shall mean, for any day, a floating rate equal to the weighted average of the rates on overnight Federal funds transactions among members of the Federal Reserve System, as determined by Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto. "Fees" shall mean any and all fees payable to Agent or any Lender pursuant to the Agreement or any of the other Loan Documents. A-10 128 "Final Judgment" shall mean (a) an order, judgment, ruling or other decree (or any revision, modification or amendment thereto) issued and entered by the Lower Court in or relating to the DEI Litigation or by any other Federal court or state court as may have jurisdiction over any proceeding in connection with the DEI Litigation, which order, judgment, ruling or other decree has not been reversed, vacated, stayed, modified or amended and as to which (i) no appeal, petition for review, reargument, rehearing, reconsideration or certiorari has been taken and is pending and the time for filing of such appeal, petition for review, reargument, rehearing, reconsideration or certiorari has expired, or (ii) such appeal or petition has been heard and dismissed, denied or otherwise resolved and the time to further appeal or petition has expired with no further appeal or petition pending; or (b) a settlement agreement, stipulation or other agreement entered into which has the effect of any aforesaid order, judgment, ruling or other decree with like finality. "Financial Statements" shall mean the consolidated and consolidating income statements, statements of cash flows and balance sheets of Borrower delivered in accordance with Section 3.4 of the Agreement and Annex E to the Agreement. "Fiscal Month" shall mean any of the monthly accounting periods of Borrower. "Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower, ending on March 31, June 30, September 30 and December 31 of each year. "Fiscal Year" shall mean any of the annual accounting periods of Borrower ending on December 31 of each year. "Fixed Charge Coverage Ratio" shall mean, with respect to any Person for any fiscal period, the ratio of (i) EBITDA, minus Capital Expenditures, minus current federal tax expenses paid or accrued to (ii) scheduled payments of principal (excluding mandatory and voluntary prepayments) with respect to Indebtedness during such period, plus Interest Expense for such period. "Fixtures" shall mean any "fixtures" as such term is defined in the Code, now owned or hereafter acquired by any Credit Party. "Funded Debt" shall mean, with respect to any Person, all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and which by its terms matures more than one year from, or is directly or indirectly renewable or extendible at such Person's option under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including Capital Lease Obligations, current maturities of long-term debt, revolving credit and short-term debt extendible beyond one year at the option of the debtor, and also including, in the case of Borrower, the Obligations. A-11 129 "Funding Accounts" shall have the meaning assigned in Annex C. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the Closing Date, consistently applied as such term is further defined in Annex G to the Agreement. "GE Capital Fee Letter" shall mean that certain letter, dated as of October 24, 1997, between GE Capital and Borrower with respect to certain Fees to be paid from time to time by Borrower to GE Capital. "GECC Warrant Documents" shall mean, collectively, the GECC Warrants, the GECC Warrant Purchase Agreement and that certain Registration Rights Agreement dated as of October 24, 1997 among Borrower and certain holders of equity securities issued by Borrower. "GECC Warrants" shall mean that certain Warrant To Purchase Common Stock of Code-Alarm, Inc. issued by Borrower on October 24, 1997 to GECC for the purchase of 131,718 initial shares of Borrower's Common Stock, no par value, for an initial exercise price of approximately $1.88 per share, and each warrant issued in substitution thereof pursuant to the terms thereof. "GECC Warrant Purchase Agreement" shall mean that certain Warrant Purchase Agreement of even date herewith between Borrower and GECC with respect to the GECC Warrant. "General Intangibles" shall mean any "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, and, in any event, including all right, title and interest which such Credit Party may now or hereafter have in or under any Contract, all customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights , all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Credit Party or any computer bureau or service company from time to time acting for such Credit Party. A-12 130 "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. A-13 131 "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is made and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof. "Guaranties" shall mean, collectively, each Guaranty executed by a Credit Party in favor of Agent and Lenders, in respect of the Obligations. "Hazardous Material" shall mean any substance, material or waste which is regulated by or forms the basis of liability under any Environmental Laws, including any material or substance which is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance (except for radioactive substances occurring as a result of natural conditions). "Indebtedness" of any Person shall mean without duplication (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business other than those that are overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement A-14 132 or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations. "Indemnified Liabilities" shall have the meaning assigned to it in Section 1.13. "Index Rate" shall mean, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "PRIME RATE" or "base rate on corporate loans posted by at least 75% of the nations 30 largest banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. "Index Rate Loan" shall mean a Loan or portion thereof bearing interest by reference to the Index Rate. "Instruments" shall mean any "instrument," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean any and all Licenses, Patents, Copyrights, Trademarks, trade secrets and customer lists. "Intercompany Note" shall have the meaning assigned to it in Section 6.3. "Interest Expense" shall mean, with respect to any Person for any fiscal period, interest expense (whether cash or non-cash) of such Person determined in accordance with GAAP which is paid or accrued during the relevant period ended on such date, including, in any event, interest expense with respect to any Funded Debt of such Person, together with all cash dividends paid or accrued during such period with respect to any capital stock of such Person (including, without limitation, with respect to Borrower, its Series A Preferred Stock). "Interest Payment Date" means (a) as to any Index Rate Loan, the first Business Day of each month to occur while such Loan is outstanding, (b) as to any LIBOR Loan, the last day of the applicable LIBOR Period; provided that in the case of any LIBOR Period greater than A-15 133 three months in duration, interest shall be payable at three-month intervals and on the last day of such LIBOR Period; and provided further that, in addition to the foregoing, each of (x) the date upon which all of the Commitments have been terminated and the Loans have been paid in full and (y) the Commitment Termination Date shall be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued under the Agreement. "Inventory" shall mean any "inventory," as such term is defined in the Code, now or hereafter owned or acquired by any Credit Party, wherever located, and in any event including inventory, merchandise, goods and other personal property which are held by or on behalf of any Credit Party for sale or lease or are furnished or are to be furnished under a contract of service, or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Credit Party's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "Investment Property" shall have the meaning ascribed thereto in Section 9-115 of the Code in those jurisdictions in which such definition has been adopted and shall include (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Credit Party, including the rights of any Credit Party to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all commodity contracts held by any Credit Party; and (iv) all commodity accounts held by any Credit Party. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "L/C Issuer" shall have the meaning assigned to such term in Annex B. "L/C Sublimit" shall have the meaning assigned to such term in Annex B. "Lenders" shall mean GE Capital, the other Lenders named on the signature page of the Agreement, and, if any such Lender shall decide to assign all or any portion of the Obligations, such term shall include such assignee. "Letter of Credit Fee" has the meaning ascribed thereto in Annex B. "Letter of Credit Obligations" shall mean all outstanding obligations incurred by Agent and Lenders at the request of Borrower, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of a reimbursement agreement or guaranty by Agent with respect to any Letter of Credit other than the Litigation L/C. The amount of such A-16 134 Letter of Credit Obligations shall equal the maximum amount which may be payable by Agent or Lenders thereupon or pursuant thereto. "Letters of Credit" shall mean commercial or standby letters of credit (including, without limitation, the Litigation L/C), issued for the account of Borrower by any L/C Issuer, and bankers' acceptances issued by Borrower, for which Agent and Lenders have incurred Letter of Credit Obligations or Litigation L/C Obligations. "Letter of Credit Cash Collateral Account" has the meaning ascribed in Annex B. "LIBOR Business Day" shall mean a Business Day on which banks in the city of London are generally open for interbank or foreign exchange transactions. "LIBOR Loan" shall mean a Loan or any portion thereof bearing interest by reference to the LIBOR Rate. "LIBOR Period" shall mean, with respect to any LIBOR Loan, each period commencing on a LIBOR Business Day selected by Borrower pursuant to the Agreement and ending one, two, three or six months thereafter, as selected by Borrower's irrevocable notice to Agent as set forth in Section 1.5(e); provided that the foregoing provision relating to LIBOR Periods is subject to the following: (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month in which event such LIBOR Period shall end on the immediately preceding LIBOR Business Day; (b) any LIBOR Period that would otherwise extend beyond the Commitment Termination Date shall end two (2) LIBOR Business Days prior to such date; (c) any LIBOR Period pertaining to a LIBOR Loan that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month; (d) Borrower shall select LIBOR Periods so as not to require a payment or prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and (e) Borrower shall select LIBOR Periods so that there shall be no more than five (5) separate LIBOR Loans in existence at any one time. A-17 135 "LIBOR Rate" shall mean for each LIBOR Period, a rate of interest determined by Agent equal to: (a) the offered rate for deposits in United States Dollars for the applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the second full LIBOR Business Day next preceding the first day of each LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) LIBOR Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board which are required to be maintained by a member bank of the Federal Reserve System (such rate to be adjusted to the nearest one sixteenth of one percent (1/16th of 1%) or, if there is not a nearest one sixteenth of one percent (1/16th of 1%), to the next highest one sixteenth of one percent (1/16th of 1%). If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to Agent and Borrower. "License" shall mean any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Credit Party. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, collateral assignment, deposit arrangement, lien, charge with respect to specific property, claim with respect to specific property, security interest, easement or encumbrance, or preference, priority with respect to specific property or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction other than a financing statement filed solely with respect to a lessor's interest in property owned by such lessor). "Litigation" shall have the meaning assigned to it in Section 3.13. "Litigation Collateral Documents" shall mean, collectively, all Collateral Documents pursuant to which any Litigation Obligations are secured or guaranteed. A-18 136 "Litigation Guaranty" shall mean that certain Limited Litigation Guaranty of even date herewith executed and delivered by the Pegasus Funds in favor of Agent and Lenders. "Litigation L/C" shall mean a standby letter of credit issued for the account of Borrower by the L/C Issuer to secure the Bond and with respect to which Agent and Lenders have incurred Litigation L/C Obligations. "Litigation L/C Agreement" shall mean that certain Litigation L/C and Term Loan C Agreement of even date herewith among Borrower, Agent and the Term Lenders pursuant to which the Agent and the Term Lender have agreed, subject to certain terms and conditions, to incur the Litigation L/C Obligations, advance Term Loan C and incur other Litigation Obligations and each of the parties thereto have agreed to the terms of repayment thereof. "Litigation L/C Cash Collateral Account" has the meaning ascribed thereto in Annex B. "Litigation L/C Issuance Date" shall mean a Business Day on or after which the conditions set forth in Sections 2.1, 2.3(I) and 2.4 shall have been satisfied and on which Borrower has requested the L/C Issuer to issue the Litigation L/C pursuant to the terms and conditions of Annex B and the Litigation L/C Agreement. "Litigation L/C Obligations" shall mean all outstanding obligations incurred by Agent and Lenders, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of a reimbursement agreement, guaranty or similar accommodation by Agent with respect to the Litigation L/C. The amount of such Litigation L/C Obligations shall equal the maximum amount which may be payable by Agent or Lenders thereupon or pursuant thereto. "Litigation Obligations" shall mean, collectively, the Litigation L/C Obligations, the outstanding principal balance of, and accrued interest on, Term Loan C, all Fees and expenses with respect to the Litigation L/C, and all other Obligations with respect to the Litigation L/C, the Litigation L/C Obligations or Term Loan C. "Loan Account" shall have the meaning assigned to it in Section 1.12. "Loan Documents" shall mean the Agreement, the Notes, the Collateral Documents, the GECC Warrant Documents and all other agreements, instruments, documents and certificates identified in the Closing Checklist executed and delivered to, or in favor of, Agent and/or Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Credit Party, or any employee of any Credit Party, and delivered to Agent or any Lender in connection with the Agreement or the transactions contemplated hereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all A-19 137 appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Agreement as the same may be in effect at any and all times such reference becomes operative. "Loans" shall mean the Revolving Loan, the Swing Line Loan and the Term Loan. "Lower Court" shall mean the United States District Court for the Eastern District of Michigan. "Lower Court Judgment" shall mean a judgment or other award entered against Borrower (and, possibly, other Credit Parties) by the United States District Court for the Eastern District of Michigan with respect to the DEI Litigation (excluding any partial judgment or award until such time as a complete judgment or award has been entered by such court with respect to all matters at issue in the DEI Litigation). "Management Options" shall mean, collectively, the stock options from time to time issued by Borrower pursuant to the Code- Alarm, Inc. 1987 Stock Option Plan dated as of May 29, 1987, as amended by Amendment No. 1 thereto dated as of March 16, 1990, and Amendment No. 2 thereto dated as of March 27, 1992, and the Code-Alarm, Inc. 1997 Stock Option Plan dated as of October 24, 1997. "Margin Stock" shall have the meaning assigned to it in Section 3.10. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of any Credit Party, (b) Borrower's ability to pay any of the Loans or any of the other Obligations in accordance with the terms of the Agreement, or any Credit Party's ability to perform its obligations under the terms of any Loan Document to which it is a party, (c) the Collateral or Agent's Liens, on behalf of itself and Lenders, on the Collateral or the priority of such Liens, or (d) Agent's or any Lender's rights and remedies under the Agreement and the other Loan Documents. Without limiting the foregoing, any event or occurrence which results or could reasonably be expected to result in costs or liabilities in excess of $250,000 shall, for purposes of this Agreement and the other Loan Documents, be deemed to have a Material Adverse Effect. Notwithstanding the foregoing, the DEI Litigation shall not be deemed to have had, or reasonably be expected to have, a Material Adverse Effect unless (i) the sum of (A) the amount of the Lower Court Judgment, the Final Judgment or any other judgment with respect to the DEI Litigation plus (B) the aggregate amount of accrued and unpaid expenses (including, without limitation, legal fees) incurred by the Credit Parties with respect to the DEI Litigation as of the time of the entry or other determination of such judgment, exceeds $12,000,000 (provided, however, the amount determined pursuant to clause (B) shall not be included in such sum to the extent that, as the date of determination hereof, the Net Borrowing Base Availability minus the Letter of Credit Obligations and minus such amount, exceeds $500,000), (ii) the Lower Court Judgment is reasonably expected to be A-20 138 entered and the conditions described in Section 2.3(I) shall not have been satisfied, or could reasonably be expected to be unsatisfied, by the time specified in Section 2.3(I)(c), or the Bond or the Litigation L/C is otherwise reasonably expected not to be issued or (iii) the Final Judgment is reasonably expected to be entered and the conditions described in Section 2.2 shall not have been satisfied, or could reasonably be expected to be unsatisfied, by the time specified in Section 2.2(c), or Term Loan B is otherwise reasonably expected not to be made. "Maximum Amount" shall mean, at any particular time, an amount equal to the Revolving Loan Commitment of all Lenders. "Mortgaged Properties" shall have the meaning assigned to it in Annex D. "Mortgages" shall mean, collectively, each mortgage, deed of trust, leasehold mortgage, leasehold deeds of trust, collateral assignment of leases or other real estate security document executed by a Credit Party in favor of Agent, on behalf of itself and Lenders, with respect to the Mortgaged Properties, as security for the Obligations or for such Credit Party's guaranty obligations with respect to the Obligations. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Borrowing Availability" shall mean as of any date of determination, the lesser of (a) the Maximum Amount and (b) the Borrowing Base, less the sum of the aggregate Revolving Loan and Swing Line Loan then outstanding. "Net Litigation Liability" shall have the meaning assigned to it in Section 2.2. "Net Worth" shall mean, with respect to any Person as of any date of determination, and without duplication, the book value of the total gross assets of such Person, minus (a) reserves applicable thereto, and minus (b) all of such Person's liabilities on a consolidated basis (including accrued and deferred income taxes), all as determined in accordance with GAAP, excluding the effects of losses incurred after the Closing Date of up to $12,000,000 in respect of the DEI Litigation, and the effects of charge-offs or writedowns of up to $3,500,000 related to the Tessco Liquidation (all such charge-offs or writedowns to occur by December 31, 1997). "Notes" shall mean the Revolving Notes, the Swing Line Notes and the Term Notes, collectively. "Notice of Conversion/Continuation" shall have the meaning assigned to it in Section 1.5(e). A-21 139 "Notice of Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a). "Notice of Term Loan B Advance" shall have the meaning assigned to it in Section 1.1(c)(i). "Notice of Term Loan C Advance" shall have the meaning assigned to it in Section 1.1(d)(iii). "Obligations" shall mean all loans, advances, debts, liabilities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by any Credit Party to Agent or any Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Agreement or any of the other Loan Documents. This term includes all principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of any Credit Party, whether or not allowed in such proceeding), Fees, Charges, Letter of Credit Obligations, Litigation L/C Obligations, expenses, attorneys' fees and any other sum chargeable to any Credit Party under the Agreement or any of the other Loan Documents. "OEM Accreditations" shall mean, collectively, the accreditations and similar awards granted or afforded to Borrower or any other Credit Party by one or more customers party to an OEM Contract with respect to any products or services sold or provided by Borrower or any other Credit Parties to such customers pursuant to such OEM Contracts, including, without limitation, the accreditations described on Disclosure Schedule (3.22). "OEM Contracts" shall mean, collectively, the agreements to which one or more Credit Parties is party, together with their related purchase orders, renewals, exhibits and schedules, of the type described in Section 3.22, including, without limitation, those listed on Disclosure Schedule (3.22), in any case pursuant to which revenues have been generated (or are reasonably expected to be generated) by the Credit Parties in excess of $1,000,000 per annum. "Overadvance" shall have the meaning assigned to it in Section 1.1(a)(iii). "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Credit Party granting any right with respect to any invention on which a Patent is in existence. "Patent Security Agreements" shall mean, collectively, each Patent Security Agreement executed by a Credit Party in favor of Agent, on behalf of itself and Lenders, with respect to Patents and Patent Licenses, as security for the Obligations or for such Credit Party's guaranty obligation with respect to the Obligations. A-22 140 "Patents" shall mean all of the following in which any Credit Party now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pegasus Funds" shall mean, collectively, Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus Related Partners, L.P., a Delaware limited partnership. "Permitted Encumbrances" shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental Charges not yet due and payable; (b) pledges or deposits of money securing obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) pledges or deposits of money made in the ordinary course of business securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Credit Party is a party as lessee; (d) deposits of money securing statutory obligations of any Credit Party; (e) inchoate and unperfected workers', mechanics' or similar liens arising in the ordinary course of business, so long as such Liens attach only to Equipment, Fixtures and/or Real Estate; (f) carriers', warehousemen's, suppliers' or other similar possessory liens arising in the ordinary course of business and securing liabilities in an outstanding aggregate amount not in excess of $25,000 at any time, so long as such Liens attach only to Inventory; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (h) any attachment or judgment lien not constituting an Event of Default under Section 8.1(j); (i) zoning restrictions, easements, licenses, or other restrictions on the use of any Real Estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such Real Estate; (j) presently existing or hereinafter created Liens in favor of Agent, on behalf of Lenders; and (k) Liens expressly permitted under clauses (b) and (c) of Section 6.7 of the Agreement. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which any Credit Party maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Credit Party. A-23 141 "Pledge Agreements" shall mean, collectively, each Pledge Agreement, executed by a Credit Party in favor of Agent, on behalf of itself and Lenders, with respect to Stock or investment property, as security for the Obligations or for such Credit Party's guaranty obligations with respect to the Obligations. "Prior Lender" shall mean NBD Bank. "Prior Lender Obligations" shall mean all loans, letter of credit obligations, fees, expense reimbursement obligations, indemnification obligations, and other obligations of payment or performance, whether liquidated or contingent, and whether or not due and payable, owing by any of the Credit Parties to the Prior Lender or any participant or assignee of the Prior Lender, other than unsecured obligations to such parties with respect to unknown reimbursement or indemnification obligations and ongoing fees, expenses and other obligations arising from the continuation of portions of the Cash Management System with the Prior Lender. "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit Party from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Credit Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Credit Party against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Credit Party against third parties with respect to any litigation or dispute concerning any of the Collateral, and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, upon disposition or otherwise. "Pro Forma" means the unaudited consolidated and consolidating balance sheet of Borrower and its Subsidiaries delivered pursuant to Section 3.4 after giving pro forma effect to the Related Transactions. "Projections" means Borrower's forecasted consolidated: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, in each case prepared in a manner consistent with the historical Financial Statements of the Borrower, together with appropriate supporting details and a statement of underlying assumptions. "Pro Rata Share" shall mean with respect to all matters relating to any Lender (a) with respect to the Revolving Loan or the Swing Line Loan, the percentage obtained by dividing (i) the Revolving Loan Commitment, including the Swing Line Commitment of that Lender by (ii) the aggregate Revolving Loan Commitments, including the Swing Line Commitment of all Lenders, and (b) with respect to the Term Loans, the percentage obtained by dividing (i) the A-24 142 Term Loan Commitments of that Lender by (ii) the aggregate Term Loan Commitments of all Lenders, as any such percentages may be adjusted by assignments permitted pursuant to Section 9.1. "Qualified Plan" shall mean a Plan which is intended to be tax-qualified under Section 401(a) of the IRC. "Qualified Public Offering" shall mean a firm underwritten public offering of common stock registered under the Securities Act of 1933, as amended, by a nationally recognized investment banking firm, and after giving effect to which the issuer shall be or remain qualified for listing on the NASDAQ National Market, the American Stock Exchange or the New York Stock Exchange. "Real Estate" shall have the meaning assigned to it in Section 3.6. "Refinancing" shall mean the repayment in full by Borrower of the Prior Lender Obligations on the Closing Date and the replacement, termination or securing of any letter of credit obligations constituting Prior Lender Obligations pursuant to Section 2.1(b) on the Closing Date. "Refunded Swing Line Loan" shall have the meaning assigned to it in Section 1.1(e)(iii). "Related Transactions" means the initial borrowing under the Revolving Loan and borrowing of the Term Loan A on the Closing Date, the issuance of the GECC Warrants, the Refinancing, the issuance of the Series A Preferred Stock and the "Attached Warrants" and "Shortfall Warrants" (as defined in the Series A Preferred Stock Documents), the issuance of the Series B Preferred Stock, the payment of all fees, costs and expenses associated with all of the foregoing, and the execution and delivery of all of the Related Transactions Documents. "Related Transactions Documents" shall mean the Loan Documents, the Series A Preferred Stock Documents, the Series B Preferred Stock Documents, and the agreements and documents evidencing and governing the terms of the Refinancing. "Release" shall mean any release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property. "Requisite Lenders" shall mean (a) Lenders having more than sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if the Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate A-25 143 outstanding amount of all Loans (with the Swing Line Loan being attributed to the Lender making such loan), Letter of Credit Obligations and Litigation L/C Obligations. "Requisite Revolving Lenders" shall mean (a) Lenders having more than sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding amount of the Revolving Loan (with the Swing Line Loan being attributed to the Lender making such Loan) and Letter of Credit Obligations. "Reserves" shall mean, with respect to the Borrowing Base (a) reserves established by Agent from time to time against Borrower's and/or Tessco's Eligible Inventory pursuant to Section 5.9, (b) reserves established pursuant to Section 5.4(c), and (c) such other reserves against Borrower's and/or Tessco's Eligible Accounts or Eligible Inventory of Borrower or Tessco which Agent may, in its reasonable credit judgment, establish from time to time. Without limiting the generality of the foregoing, reasonable Reserves established to ensure the payment of accrued Interest Expenses or Indebtedness, Reserves for product warranty liabilities and expenses, and Reserves for physical Inventory test counts, shall be deemed to be a reasonable exercise of Agent's credit judgment. "Restricted Payment" shall mean (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of a Person's Stock (other than common stock dividends and, in the case of the Series A Preferred Stock, non-cash, payment-in-kind dividends), (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, put, call, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase, put, call or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Stock of such Person now or hereafter outstanding; (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of such Person's Stock or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; (f) any payment, loan, contribution, or other transfer of funds or other property to any stockholder of such Person; and (g) any payment of management fees (or other fees of a similar nature) by such Person to any stockholder of such Person or their Affiliates. "Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare plan" as defined in Section 3(2) of ERISA, that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. A-26 144 "Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a)(i). "Revolving Lenders" shall mean, as of any date of determination, Lenders having a Revolving Loan Commitment. "Revolving Loan" shall mean as the context may require, at any time, the sum of (i) the aggregate amount of outstanding Revolving Credit Advances plus (ii) the aggregate Letter of Credit Obligations. "Revolving Loan Commitment" shall mean (a) as to any Lender, the aggregate commitment of such Lender to make Revolving Credit Advances (including without duplication Swing Line Advances) and/or incur Letter of Credit Obligations as set forth in the signature page to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Credit Advances (including without duplication Swing Line Advances) and/or incur Letter of Credit Obligations, which aggregate commitment shall be Twelve Million Dollars ($12,000,000.00) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Revolving Note" shall have the meaning assigned to it in Section 1.1(a)(ii). "Security Agreements" shall mean, collectively, each Security Agreement executed by a Credit Party in favor of Agent, on behalf of itself and Lenders, as security for the Obligations or for such Credit Party's guaranty obligations with respect to the Obligations. "Series A Preferred Stock" shall mean Borrower's Series A Preferred Stock, $0.01 par value, and Series A-2 Preferred Stock, $0.01 par value. "Series A Preferred Stock Documents" shall mean, collectively, (a) that certain Unit Purchase Agreement dated as of October 24, 1997 among Borrower and the Pegasus Funds, (b) that certain Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock of Code-Alarm, Inc. adopted by Borrower's board of directors as of October 24, 1997, (c) that certain Registration Rights Agreement dated as of October 24, 1997 among Borrower and certain holders of equity securities issued by Borrower and (d) the Series A Warrants. "Series A Warrants" shall mean, collectively, the "Attached Warrants", "Shortfall Warrants" and "Litigation Warrants", as each of such terms is defined in the Series A Preferred Stock Documents. "Series B Pledgor" shall mean Mr. Craig S. Camalo. A-27 145 "Series B Preferred Stock" shall mean Borrower's Series B Preferred Stock, no par value. "Series B Preferred Stock Documents" shall mean (a) that certain Subscription Agreement for Code-Alarm Inc. Series B Preferred Stock of even date herewith between the Series B Pledgor and Borrower and (b) that certain Certificate of Designation, Number, Powers, Preference and Relative, Participating, Optional, and Other Rights of Series B Preferred Stock of Code-Alarm, Inc. "Solvent" shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person on a going concern basis is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probably liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan liabilities) at any time shall be computed as the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Stock" shall mean all shares, options, warrants, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Subordinated Debt" shall mean any Indebtedness of any Credit Party subordinated to the Obligations in a manner and form satisfactory to Agent and Lenders in their sole discretion, as to right and time of payment and as to any other rights and remedies thereunder, including, without limitation, any Subordinated Debt issued by Borrower for the purposes described in Section 2.2(b). "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of fifty percent A-28 146 (50%) or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. "Supermajority Revolving Lenders" shall mean (a) Lenders having eighty percent (80%) or more of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been terminated, eighty percent (80%) or more of the aggregate outstanding amount of the Revolving Loan (with the Swing Line Loan being attributed to the Lender making such Loan) and Letter of Credit Obligations. "Supplemental Amount" shall mean $4,000,000, provided that the Supplemental Guaranty is valid, binding and enforceable, and otherwise the "Supplemental Amount" shall equal zero.. "Supplemental Guaranty" shall mean that certain Limited Supplemental Guaranty of even date herewith executed and delivered by the Pegasus Funds. "Swing Line Advance" has the meaning assigned to it in Section 1.1(e)(i). "Swing Line Availability" has the meaning assigned to it in Section 1.1(e)(i). "Swing Line Commitment" shall mean, as to the Swing Line Lender, the commitment of the Swing Line Lender to make Swing Line Loans as set forth on the signature page to the Agreement, which commitment constitutes a subfacility of the Revolving Loan Commitment of the Swing Line Lender. "Swing Line Lender" shall mean GE Capital. "Swing Line Loan" shall mean, as the context may require, at any time, the aggregate amount of outstanding Swing Line Advances. "Swing Line Note" has the meaning assigned to it in Section 1.1(e)(ii). "Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Agent or a Lender by the jurisdictions under the laws of which Agent and Lenders are organized or in which they otherwise conduct operations, or any political subdivision thereof. "Term A Note" shall have the meaning assigned to it in Section 1.1(b)(i). "Term B Note" shall have the meaning assigned to it in Section 1.1(c)(i). A-29 147 "Term C Note" shall have the meaning assigned to it in Section 1.1(d). "Term Lenders" shall mean those Lenders having Term Loan Commitments. "Term Loan A" shall have the meaning assigned to it in Section 1.1(b)(i). "Term Loan A Commitment" shall mean (a) as to any Lender, the commitment of such Lender to make its Pro Rata Share of the Term Loan A as set forth on the signature page to the Agreement or in the most recent Assignment Agreement executed by such Lender, and (b) as to all such Lenders, the aggregate commitment of all Lenders to make the Term Loan A, which aggregate commitment shall be One Million Five Hundred Thousand Dollars ($1,500,000) on the Closing Date. "Term Loan B" shall have the meaning assigned to it in Section 1.1(c)(i). "Term Loan B Commitment" shall mean (a) as to any Lender, the commitment of such Lender to make its Pro Rata Share of the Term Loan B as set forth in the signature page to the Agreement or in the most recent Assignment Agreement executed by such Lender, and (b) as to all such Lenders, the aggregate commitment of all Lenders to make the Term Loan B, which aggregate commitment shall be Three Million Dollars ($3,000,000.00) on the Closing Date. "Term Loan B Funding Date" shall mean a Business Day on or after which the conditions set forth in Sections 2.1, 2.2 and 2.4 shall have been satisfied and on which the Term Lenders have been requested to fund the Term Loan B pursuant to Section 1.1(c)(i). "Term Loan C" shall have the meaning assigned to it in Section 1.1(d). "Term Loan C Commitment" shall mean (a) as to any Lender, the commitment of such Lender to make its Pro Rata Share of the Term Loan C as set forth in the signature pages to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all such Lenders, the aggregate commitment of all Lenders to make the Term Loan C, which aggregate commitment shall be Twelve Million Dollars ($12,000,000) on the Closing Date. "Term Loan C Funding Date" shall mean a Business Day on or after which the conditions set forth in Sections 2.1, 2.3(II) and 2.4 shall have been satisfied and on which the Term Lenders have been requested to fund the Term Loan C pursuant to Section 1.1(c) of the Litigation L/C Agreement. "Term Loan Commitment" shall mean, collectively, the Term Loan A Commitment, the Term Loan B Commitment and the Term Loan C Commitment. A-30 148 "Term Loan(s)" shall mean the Term Loan A, the Term Loan B, the Term Loan C, any portion or component of the Term Loan A, Term Loan B or Term Loan C, or the Term Loan A, the Term Loan B and the Term Loan C, collectively, in each case as the context requires. "Term Note" shall mean, collectively, the Term A Note, the Term B Note and the Term C Note, or any one of such instruments. "Termination Date" shall mean the date on which the Loans have been indefeasibly repaid in full and all other Obligations under the Agreement and the other Loan Documents have been completely discharged and Letter of Credit Obligations and Litigation L/C Obligations have been cash collateralized, cancelled or backed by stand-by letters of credit in accordance with Annex B, and Borrower shall have no further right to borrow any monies or obtain additional financial accommodations under the Agreement or the Litigation L/C Agreement. "Tessco" means Tessco Group, Inc., a Michigan corporation. "Tessco Liquidation" shall mean the merger of Tessco with and into Borrower, or the liquidation or dissolution of Tessco such that the assets and liabilities of Tessco immediately prior to such liquidation or dissolution are assigned to and assumed by Borrower upon the consummation of such liquidation or dissolution. "Tessco Liquidation Reserve" shall mean, as of any date of determination, the total liabilities and contingent liabilities (to the extent known and probable) of Tessco, other than Tessco's intercompany liabilities owing to Borrower and Tessco's obligations to Agent and Lenders under the Loan Documents, plus an amount equal to two months' rental obligations with respect to all existing operating leases of Tessco. "Title IV Plan" shall mean an employee pension benefit plan, as defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is covered by Title IV of ERISA, and which any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Credit Party granting any right to use any Trademark. "Trademark Security Agreements" shall mean, collectively, each Trademark Security Agreement executed by a Credit Party in favor of Agent, on behalf of Lenders, with respect to Trademarks and Trademark Licenses, as security for the Obligations or for such Credit Party's guaranty obligations with respect to the Obligations. "Trademarks" shall mean all of the following now owned or hereafter acquired by any Credit Party: (a) all trademarks, trade names, corporate names, business names, trade styles, A-31 149 service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Credit Party or any ERISA Affiliate as a result of such transaction. All other undefined terms contained in any of the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of Illinois to the extent the same are used or defined therein. Unless otherwise specified, references in the Agreement or any of the Appendices to a Section, subsection or clause refer to such Section, subsection or clause as contained in the Agreement. The words "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in the Agreement or any such Annex, Exhibit or Schedule. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in any Loan Document refers to the knowledge (or an analogous phrase) of any Credit Party, such words are intended to signify that the chief financial officer or chief executive officer of such Credit Party has actual knowledge or awareness of a particular fact or circumstance or that either such officer, if it had exercised reasonable diligence, would have known or been aware of such fact or circumstance. A-32 150 * * * * A-33 151 ANNEX B (SECTION 1.2) TO CREDIT AGREEMENT LETTERS OF CREDIT (a) Issuance. Subject to the terms and conditions of the Agreement and the Litigation L/C Agreement, Agent and Revolving Lenders agree to incur (or in the case of the Litigation L/C, the Term Lenders agree to incur), from time to time prior to the Commitment Termination Date, upon the request of Borrower, Letter of Credit Obligations and Litigation L/C Obligations by causing Letters of Credit to be issued (by a bank or other legally authorized Person selected by or acceptable to Agent in its sole discretion (each, an "L/C Issuer")) for Borrower's account and guaranteed by Agent; provided, however, that if the L/C Issuer is a Revolving Lender, then such Letters of Credit (other than the Litigation L/C) shall not be guaranteed by Agent but rather each Revolving Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be deemed to have purchased) risk participations in all such Letters of Credit issued with the written consent of Agent, as more fully described in paragraph (b)(ii) below; and, provided, further, that if the L/C Issuer is a Term Lender, then the Litigation L/C shall not be guaranteed by Agent but rather each Term Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be deemed to have purchased) risk participations in the Litigation L/C, as more fully described in paragraph (b)(ii) below. The aggregate amount of all such Letter of Credit Obligations shall not at any time exceed the least of (i) One Million Dollars ($1,000,000.00) (the "L/C Sublimit"), and (ii) the Maximum Amount less the aggregate outstanding principal balance of the Revolving Credit Advances and the Swing Line Loan, and (iii) the Borrowing Base less the aggregate outstanding principal balance of the Revolving Credit Advances and the Swing Line Loan. The aggregate amount of all Litigation L/C Obligations shall not at any time exceed the least of (i) $12,000,000, (ii) the amount necessary to obtain and secure the Bond and (iii) the aggregate maximum amount of Litigation L/C Obligations which are guaranteed pursuant to the terms and conditions of the Litigation Guaranty. No such Letter of Credit shall have an expiry date which is more than one year following the date of issuance thereof, and neither Agent nor any Lenders shall be under any obligation to incur Letter of Credit Obligations in respect of, or purchase risk participations in, any Letter of Credit having an expiry date which is later than the Commitment Termination Date. (b) Advances Automatic; Participations. (i) In the event that Agent or any Revolving Lender shall make any payment on or pursuant to any Letter of Credit Obligation, such payment shall then be deemed automatically to constitute a Revolving Credit Advance to the applicable Borrower under Section 1.1(a) of the Agreement regardless of whether a Default or Event of Default shall have occurred and be continuing and notwithstanding Borrower's failure to satisfy the conditions precedent set forth in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata Share thereof in accordance with the Agreement. The failure of any Revolving Lender to make available to Agent for Agent's own account its Pro Rata Share of any such Revolving Credit Advance or payment by Agent under or in respect of a Letter of 152 Credit (other than the Litigation L/C) shall not relieve any other Revolving Lender of its obligation hereunder to make available to Agent its Pro Rata Share thereof, but no Revolving Lender shall be responsible for the failure of any other Revolving Lender to make available such other Revolving Lender's Pro Rata Share of any such payment. (ii) In the event that Agent or any Term Lender shall make payments on or pursuant to the Litigation L/C Obligations, such payments shall then be deemed automatically to constitute all or part of the Term Loan C to Borrower pursuant to Section 1.1(d)(ii) of the Agreement and pursuant to the Litigation L/C Agreement regardless of whether a Default or Event of Default shall have occurred and be continuing and notwithstanding Borrower's failure to satisfy any of the conditions precedent set forth in Section 2.4, and each Term Lender shall be obligated to pay its Pro Rata Share thereof to the Agent in accordance with the Agreement. The failure of any Term Lender to make available to Agent for Agent's own account its Pro Rata Share of any such payment by Agent under or in respect of the Litigation L/C shall not relieve any other Term Lender of its obligation hereunder to make available to Agent its Pro Rata Share thereof, but no Term Lender shall be responsible for the failure of any other Term Lender to make available such other Term Lender's Pro Rata Share of any such payment. (iii) If it shall be illegal or unlawful for Borrower to incur Revolving Credit Advances as contemplated by paragraph (b)(i) above because of an Event of Default described in Section 8.1(h) or (i) or otherwise or if it shall be illegal or unlawful for any Revolving Lender to be deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, or if the L/C Issuer is a Revolving Lender, then (i) immediately and without further action whatsoever, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation equal to such Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit Obligations in respect of all Letters of Credit then outstanding and (ii) thereafter, immediately upon issuance of any Letter of Credit, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation in such Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit Obligations with respect to such Letter of Credit on the date of such issuance. Each Revolving Lender shall fund its participation in all payments or disbursements made under the Letters of Credit in the same manner as provided in the Agreement with respect to Revolving Credit Advances. (iv) If it shall be illegal or unlawful for Borrower to incur the Term Loan C as contemplated by paragraph (b)(ii) above because of an Event of Default described in Section 8.1(h) or (i) or otherwise or if it shall be illegal or unlawful for any Term Lender to be deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, or if the L/C Issuer is a Term Lender, then immediately and without further action whatsoever, each Term Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation equal to such Term B-2 153 Lender's Pro Rata Share (based on the Term Loan C Commitments) of the Litigation L/C Obligations. Each Term Lender shall fund its participation in all payments or disbursements made under the Litigation L/C as provided in the Agreement. (c) Cash Collateral. If Borrower is required to provide cash collateral for any Letter of Credit Obligations or Litigation L/C Obligations pursuant to the Agreement prior to the Commitment Termination Date, Borrower will pay to Agent for the benefit of the applicable Lenders cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an amount equal to 105% of the maximum amount then available to be drawn under each applicable Letter of Credit outstanding for the benefit of Borrower. Any and all such funds or Cash Equivalents securing or otherwise relating to any Letter of Credit Obligations shall be held by Agent in a cash collateral account (the "Letter of Credit Cash Collateral Account") maintained at a bank or financial institution acceptable to Agent. Any and all such funds or Cash Equivalents securing or otherwise relating to the Litigation L/C Obligations shall be held by Agent in a cash collateral account (the "Litigation L/C Cash Collateral Account") maintained at a bank or financial institution acceptable to Agent. The Letter of Credit Cash Collateral Account and the Litigation L/C Cash Collateral Account shall collectively be referred to as the "Cash Collateral Accounts." The Cash Collateral Accounts shall be in the name of Borrower and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent. Borrower hereby pledges and grants to Agent, on behalf of Lenders, a security interest in all such funds and Cash Equivalents held in the Cash Collateral Accounts from time to time and all proceeds thereof, as security for the payment of all amounts due in respect of the Letter of Credit Obligations, Litigation L/C Obligations and other Obligations, whether or not then due. The Agreement, including this Annex B, shall constitute a security agreement under applicable law. The funds, Cash Equivalents and proceeds of, in or relating to the Litigation L/C Cash Collateral Account shall at all times be segregated from, and shall not at any time be commingled or deposited with, the funds, Cash Equivalents and proceeds of, in or relating to the Letter of Credit Cash Collateral Account, and the Borrower hereby agrees and acknowledges to take all necessary and appropriate actions to effect such segregation and to prevent any such commingling. If any Letter of Credit Obligations or Litigation L/C Obligations, whether or not then due and payable, shall for any reason be outstanding on the Commitment Termination Date, Borrower shall either (i) provide cash collateral therefor in the manner described above, or (ii) cause all such Letters of Credit and guaranties thereof to be canceled and returned, or (iii) deliver a stand-by letter (or letters) of credit in guaranty of such Letter of Credit Obligations and Litigation L/C Obligations, which stand-by letter (or letters) of credit shall be of like tenor and duration as, and in an amount equal to 105% of the aggregate maximum amount then available to be drawn under, the Letters of Credit to which such outstanding Letter of Credit Obligations or Litigation L/C Obligations relate and shall be issued by a Person, and shall be subject to such terms and conditions, as are be satisfactory to Agent in its sole discretion. B-3 154 From time to time after funds are deposited in the Cash Collateral Accounts by Borrower, whether before or after the Commitment Termination Date, Agent may apply such funds or Cash Equivalents then held in the Cash Collateral Accounts to the payment of any amounts, in such order as Agent may elect, as shall be or shall become due and payable by Borrower to Lenders with respect to such Letter of Credit Obligations and Litigation L/C Obligations of Borrower and, upon the satisfaction in full of all Letter of Credit Obligations and Litigation L/C Obligations, to any other Obligations then due and payable. Neither Borrower nor any Person claiming on behalf of or through Borrower shall have any right to withdraw any of the funds or Cash Equivalents held in the Cash Collateral Accounts, except that upon the termination of all Letter of Credit Obligations and Litigation L/C Obligations and the payment of all amounts payable by Borrower to Lenders in respect thereof, any funds remaining in the Cash Collateral Accounts shall be applied to other Obligations when due and owing and upon payment in full of such Obligations, any remaining amount shall be paid to Borrower or as otherwise required by law. (d) Fees and Expenses. Borrower agrees to pay to Agent for the benefit of Revolving Lenders and Term Lenders, as applicable, as compensation to such Lenders for Letter of Credit Obligations and Litigation L/C Obligations incurred hereunder, (x) all costs and expenses incurred by Agent or any Lender on account of such Letter of Credit Obligations and Litigation L/C Obligations, and (y) for each month during which any Letter of Credit Obligation or Litigation L/C Obligations shall remain outstanding, a fee (the "Letter of Credit Fee") in an amount equal to (i) in the case of Letters of Credit other than the Litigation L/C, two percent (2.00%) per annum multiplied by the maximum amount available from time to time to be drawn under the applicable Letter of Credit and (ii) in the case of the Litigation L/C, three percent (3.00%) per annum multiplied by the maximum amount available from time to time to be drawn under the Litigation L/C. Such fee shall be paid to Agent for the benefit of the applicable Lenders in arrears, on the first day of each month. In addition, Borrower shall pay to any L/C Issuer, on demand, such fees (including all per annum fees), charges and expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the application and related documentation under which such Letter of Credit is issued. (e) Request for Incurrence of Letter of Credit Obligations or Litigation L/C Obligations. Borrower shall give Agent at least two (2) Business Days prior written notice requesting the incurrence of any Letter of Credit Obligation or Litigation L/C Obligations, specifying the date such Letter of Credit Obligation or Litigation L/C Obligations is to be incurred, identifying the beneficiary to which such Letter of Credit Obligation or Litigation L/C Obligations relates and describing the nature of the transactions proposed to be supported thereby. The notice shall be accompanied by the form of the Letter of Credit (which shall be acceptable to the L/C Issuer) to be guarantied and shall include (i) a representation and warranty by Borrower that all of the conditions set forth in Sections 2.1, 2.3(II) and 2.4 of the Credit Agreement have been satisfied and (ii) a reaffirmation by Borrower of the granting and B-4 155 continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Litigation Collateral Documents. Notwithstanding anything contained herein to the contrary, Letter of Credit applications by Borrower and approvals by Agent may be made and transmitted pursuant to electronic codes and security measures mutually agreed upon and established by and among Borrower, Agent and the L/C Issuer. (f) Obligation Absolute. The obligation of Borrower to reimburse Agent, Revolving Lenders and Term Lenders, as applicable, for payments made with respect to any Letter of Credit Obligation or Litigation L/C Obligation shall be absolute, unconditional and irrevocable, without necessity of presentment, demand, protest or other formalities, and the obligations of each such Lender to make payments to Agent with respect to Letters of Credit shall be unconditional and irrevocable. Such obligations of Borrower and Lenders shall be paid strictly in accordance with the terms hereof under all circumstances including the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit, the Litigation Guaranty, the Agreement or the other Loan Documents or any other agreement; (ii) the existence of any claim, set-off, defense or other right which Borrower or any of their respective Affiliates or any Lender may at any time have against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such transferee may be acting), Agent, any Lender, or any other Person, whether in connection with the Agreement, the Letter of Credit, the transactions contemplated herein or therein or any unrelated transaction (including any underlying transaction between Borrower or any of their respective Affiliates and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Agent (except as otherwise expressly provided in paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or guaranty thereof against presentation of a demand, draft or certificate or other document which does not strictly comply with the terms of such Letter of Credit or such guaranty; (v) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vi) the fact that a Default or an Event of Default shall have occurred and be continuing. B-5 156 (g) Indemnification; Nature of Lenders' Duties. (i) In addition to amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees to pay and to protect, indemnify, and save harmless Agent and each Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including attorneys' fees and allocated costs of internal counsel) which Agent or any Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or guaranty thereof, or (B) the failure of Agent or any Lender seeking indemnification or of any L/C Issuer to honor a demand for payment under any Letter of Credit or guaranty thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent as a result of the gross negligence or willful misconduct of Agent or such Lender (as finally determined by a court of competent jurisdiction). (ii) As between Agent and any Lender and Borrower, Borrower assumes all risks of the acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In furtherance and not in limitation of the foregoing, to the fullest extent permitted by law neither Agent nor any Lender shall be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document issued by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) for failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to demand payment under such Letter of Credit; provided that, in the case of any payment by Agent under any Letter of Credit or guaranty thereof, Agent shall be liable to the extent such payment was made as a result of its gross negligence or willful misconduct (as finally determined by a court of competent jurisdiction) in determining that the demand for payment under such Letter of Credit or guaranty thereof complies on its face with any applicable requirements for a demand for payment under such Letter of Credit or guaranty thereof; (D) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) for errors in interpretation of technical terms; (F) for any loss or delay in the transmission or otherwise of any document required in order to make a payment under any Letter of Credit or guaranty thereof or of the proceeds thereof; (G) for the credit of the proceeds of any drawing under any Letter of Credit or guaranty thereof; and (H) for any consequences arising from causes beyond the control of Agent or any Lender. None of the above shall affect, impair, or prevent the vesting of any of Agent's or any Lender's rights or powers hereunder or under the Agreement. (iii) Nothing contained herein shall be deemed to limit or to expand any waivers, covenants or indemnities made by Borrower in favor of any L/C Issuer in any letter of credit application, reimbursement agreement or similar document, instrument or agreement between Borrower and such L/C Issuer. B-6 157 * * * * B-7 158 ANNEX C (SECTION 1.8) TO CREDIT AGREEMENT CASH MANAGEMENT SYSTEMS Borrower shall, and shall cause its Subsidiaries to, establish and maintain the Cash Management Systems described below: (a) On or before the Closing Date and until the Termination Date, Borrower shall (i) establish lock boxes ("Lock Boxes") at one or more of the banks set forth on Disclosure Schedule (3.19), and shall request in writing and otherwise take such reasonable steps to ensure that all Account Debtors forward payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries to deposit or cause to be deposited promptly, and in any event no later than the third Business Day after the date of receipt thereof (unless the aggregate face amount of such items exceeds $25,000, in which case such items shall be deposited no later than the first Business Day after receipt thereof), all cash, checks, drafts or other similar items of payment relating to or constituting payments made in respect of any and all Collateral (whether or not otherwise delivered to a Lock Box) into bank accounts in Borrower's name or any such Subsidiary's name (collectively, the "Borrower Accounts") at banks set forth on Disclosure Schedule (3.19) (each, a "Relationship Bank"). On or before the Closing Date, Borrower shall have established a concentration account in its name (each a "Concentration Account" and, collectively, the "Concentration Accounts") at the bank or banks which shall be designated as the Concentration Account bank for Borrower on Disclosure Schedule (3.19) (each a "Concentration Account Bank" and collectively, the "Concentration Account Banks"), which banks shall be satisfactory to Agent. (b) On or before the Closing Date (or such later date as Agent shall consent to in writing), each Concentration Account Bank, each bank where a Funding Account or other Disbursement Account is located and all other Relationship Banks, shall have entered into tri- party blocked account agreements with Agent, for the benefit of itself and Lenders, and the applicable Borrower and Subsidiaries thereof, as applicable, in form and substance acceptable to Agent, which shall become operative on or prior to the Closing Date. Each such blocked account agreement shall provide, among other things, that (i) all items of payment deposited in such account and proceeds thereof deposited in the applicable Concentration Account are held by such bank as agent or bailee-in-possession for Agent, on behalf of Lenders, (ii) the bank executing such agreement has no rights of setoff or recoupment or any other claim against such account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of such account and for returned checks or other items of payment, and (iii) from and after the Closing Date (A) with respect to banks at which a Borrower Account is located, such bank agrees to forward immediately all available amounts in each Borrower Account to Borrower's Concentration Account Bank and to commence the process of daily 159 sweeps from such Borrower Account into the applicable Concentration Account and (B) with respect to each Concentration Account Bank, such bank agrees to immediately forward all available amounts received in the applicable Concentration Account to the Collection Account through daily sweeps from such Concentration Account into the Collection Account. Borrower shall not, nor shall it cause or permit any Subsidiary thereof to, accumulate or maintain cash in any disbursement or payroll accounts as of any date of determination in excess of checks outstanding against such accounts as of that date and amounts necessary to meet minimum balance requirements. (c) So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a Relationship Bank, Lock Box or Borrower Account or to replace any Concentration Account or any Funding Account or other Disbursement Account; provided, however, that (i) Agent shall have consented in writing in advance to the opening of such account or Lock Box with the relevant bank and (ii) prior to the time of the opening of such account or Lock Box, the applicable Borrower and/or the Subsidiaries thereof, as applicable, and such bank shall have executed and delivered to Agent a tri-party blocked account agreement, in form and substance satisfactory to Agent (except in the case of other Disbursement Accounts which are zero balance accounts). Borrower shall close any of their accounts (and establish replacement accounts in accordance with the foregoing sentence) promptly and in any event within thirty (30) days of notice from Agent that the creditworthiness of any bank holding an account is no longer acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within sixty (60) days of notice from Agent that the operating performance, funds transfer and/or availability procedures or performance with respect to accounts or lockboxes of the bank holding such accounts or Agent's liability under any tri-party blocked account agreement with such bank is no longer acceptable in Agent's reasonable judgment. (d) The Lock Boxes, Borrower Accounts, the "Funding Accounts" (as defined below), the Concentration Accounts, and to the extent not "zero balance accounts", each other disbursement account, payroll account or similar account now or hereafter used for payments by the Borrower or any of its Subsidiaries (collectively, "Disbursement Accounts"), shall be cash collateral accounts, with all cash, checks and other similar items of payment in such accounts securing payment of the Loans and all other Obligations, and in which Borrower and each Subsidiary thereof shall have granted a Lien to Agent, on behalf of itself and Lenders, pursuant to the Security Agreement. (e) All amounts deposited in the Collection Account shall be deemed received by Agent in accordance with Section 1.10 of the Agreement and shall be applied (and allocated) by Agent in accordance with Section 1.11 of the Agreement. In no event shall any amount be so applied unless and until such amount shall have been credited in immediately available funds to the Collection Account. C-2 160 (f) Borrower may maintain, in its name, an account (each a "_"Funding Account" and collectively, the "Funding Accounts") at a bank acceptable to Agent into which Agent shall, from time to time, deposit proceeds of Revolving Credit Advances and Swing Line Advances made to Borrower pursuant to Section 1.1 for use by Borrower solely in accordance with the provisions of Section 1.4. (g) Borrower shall and shall cause its Affiliates, officers, employees, agents, directors or other Persons acting for or in concert with Borrower (each a "Related Person") to (i) hold in trust for Agent, for the benefit of itself and Lenders, all checks, cash and other items of payment received by Borrower or any such Related Person, and (ii) within three (3) Business Days after receipt by Borrower or any such Related Person (unless the aggregate face amount of such items exceeds $25,000, in which case such items shall be deposited within one (1) Business Day after such receipt), of any checks, cash or other items or payment, deposit the same into a Borrower Account. Borrower and each Related Person thereof acknowledges and agrees that all cash, checks or items of payment constituting proceeds of Collateral are the property of Agent and Lenders. All proceeds of the sale or other disposition of any Collateral, shall be deposited directly into the applicable Borrower Accounts. * * * * C-3 161 ANNEX D (SECTION 2.1(a)) TO CREDIT AGREEMENT LIST OF CLOSING DOCUMENTS In addition to, and not in limitation of, the conditions described in Section 2.1 of the Agreement, pursuant to Section 2.1(a), the items described on the attached List of Closing Documents must be received by Agent in form and substance satisfactory to Agent on or prior to the Closing Date (each capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in Annex A to the Agreement), unless otherwise indicated therein as permitted to be delivered on a later date. * * * * 162 ANNEX D Execution Copy GENERAL ELECTRIC CAPITAL CORPORATION AS AGENT $25,500,000 CREDIT FACILITY TO CODE-ALARM, INC. AS OF OCTOBER 24, 1997 LIST OF CLOSING DOCUMENTS A. LOAN DOCUMENTS 1. Credit Agreement dated as of October 24, 1997 (the "Credit Agreement") among Code-Alarm, Inc., a Michigan corporation ("Code-Alarm", in such capacity, the "Borrower"), General Electric Capital Corporation, a New York corporation ("GECC"), in its capacity as a "Lender", and the other financial institutions which may from time to time become parties to the Credit Agreement (GECC, in such capacity, and such other financial institutions being sometimes hereinafter referred to collectively as the "Lenders" and individually as a "Lender"), and General Electric Capital Corporation, a New York corporation, in its separate capacity as agent for the Lenders (the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Credit Agreement. Exhibits and Schedules Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance Exhibit 1.1(a)(ii) - Form of Revolving Note Exhibit 1.1(b) - Form of Term A Note Exhibit 1.1(c)(i) - Form of Term B Note Exhibit 1.1(c)(ii) - Form of Notice of Term Loan B Advance Exhibit 1.1(d)(iii) - Form of Notice of Term Loan C Advance Exhibit 1.1(e) - Form of Swing Line Note Exhibit 1.5(e) - Form of Notice of Conversion/Continuation Exhibit 4.1(b) - Form of Borrowing Base Certificate Exhibit 9.1(a) - Form of Assignment Agreement Schedule 1.1 - Responsible Individual Schedule 1.4 - Sources and Uses; Funds Flow Memorandum Schedule 3.2 - Executive Offices; FEIN Schedule 3.4(A) - Financial Statements 163 Schedule 3.4(B) - Pro Forma Schedule 3.4(C) - Projections Schedule 3.4(D) - Fair Salable Balance Sheet Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Labor Matters Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.11 - Tax Matters Schedule 3.12 - ERISA Plans Schedule 3.13 - Litigation Schedule 3.15 - Intellectual Property Schedule 3.17 - Hazardous Materials Schedule 3.18 - Insurance Schedule 3.19 - Deposit and Disbursement Accounts Schedule 3.20 - Government Contracts Schedule 3.21 - Customer and Trade Relations Schedule 3.22 - Material Agreements Schedule 5.1 - Trade Names Schedule 6.2 - Investments Schedule 6.3 - Indebtedness Schedule 6.4(a) - Transactions with Affiliates Schedule 6.7 - Existing Liens Annex A (Recitals) - Definitions Annex B (Section 1.2) - Letters of Credit Annex C (Section 1.8) - Cash Management System Annex D (Section 2.1(a)) - List of Closing Documents Annex E (Section 4.1(a)) - Financial Statements and Projections -- Reporting Annex F (Section 4.1(b)) - Collateral Reports Annex G (Section 6.10) - Financial Covenants Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information Annex I (Section 11.10) - Notice Addresses 2. Revolving Notes in an aggregate amount of up to $12,000,000 payable by Borrower to the Lenders in the amounts listed on Schedule I. 3. Swing Line Notes in an aggregate amount of $1,200,000 payable by Borrower to GECC in its capacity as Swing Line Lender. 4. Term A Notes in an aggregate amount of $1,500,000 payable by Borrower to the Lenders in the amounts listed on Schedule I. 5. Term B Notes in an aggregate amount of up to $3,000,000 payable by Borrower to the Lenders in the amounts listed on Schedule I. D-2 164 6. Term C Notes in an aggregate amount of up to $12,000,000 payable by Borrower to the Lenders in the amounts listed on Schedule I. B. GUARANTY AND COLLATERAL DOCUMENTS 7. Security Agreements executed by each of the Borrower and Tessco Group, Inc., a Michigan corporation ("Tessco") in favor of the Agent and the Lenders pursuant to which Borrower and Tessco respectively grants a security interest in substantially all of its personal property as security for the Obligations. 8. Guaranty and Security Agreements executed by each of the following Credit Parties in favor of the Agent and the Lenders pursuant to which each such Credit Party unconditionally guarantees all of the Obligations: a. Anes, Inc., a Michigan corporation ("Anes"); b. Chapman Security Systems, Inc., a Michigan corporation ("Chapman"); and c. Intercept Systems, Inc., a Michigan corporation ("Intercept"). 9. Guaranty executed by Tessco in favor of the Agent and the Lenders pursuant to which Tessco unconditionally guarantees all of the Obligations. 10. Pledge Agreement executed by Borrower in favor of the Agent and the Lenders pursuant to which Borrower grants a security interest in all of the issued and outstanding capital stock of Tessco, Anes, Chapman and Intercept, as security for the Obligations, together with stock certificates and stock powers executed in blank. 11. Pledge Agreement executed by Mr. Craig S. Camalo (the "Series B Pledgor") in favor of the Agent and the Lenders pursuant to which the Series B Pledgor grants a security interest in all of the issued and outstanding Series B Preferred Stock of Borrower as security for the Obligations, together with stock certificates and stock powers executed in blank. 12. Patent Security Agreement executed by Borrower in favor of the Agent and the Lenders pursuant to which Borrower grants a security interest in substantially all of its patents, patent applications and related licenses as security for the Obligations. 13. Trademark Security Agreements executed by each of the following Credit Parties in favor of the Agent and the Lenders pursuant to which each such Credit Party grants a security interest in substantially all of its trademarks, service marks and related applications and licenses as security for the Obligations and, in the case of such Credit Parties (other than Borrower), as security for their respective obligations under their Guaranties: a. Borrower; D-3 165 b. Anes; and c. Chapman. 14. Copyright Security Agreements executed by Borrower in favor of the Agent and the Lenders pursuant to which Borrower grants a security interest in substantially all of its copyrights and related applications and licenses as security for the Obligations. 15. Contribution and Indemnification Agreement among the Credit Parties with respect to their obligations and grants of collateral in favor of the Agent and the Lenders pursuant to the Loan Documents. 16. Loss Payable Endorsements and certificates of insurance relating to the Credit Parties' property and casualty insurance policies naming the Agent as loss payee, and certificates of insurance relating to the Credit Parties' liability insurance policies naming the Agent and the Lenders as additional insureds. 17. Lockbox and Blocked Account Agreements and Pledged Account Agreements for Borrower with each lockbox and concentration account bank and other banks at which each such Borrower maintains a depository account, together with evidence that the Cash Management Systems complying with Annex C have been established. 18. Landlord Agreements executed by each lessor of the premises of each Credit Party at the respective locations listed on Schedule II. 19. Collateral assignment of key-man life insurance policies aggregating $3,000,000 on the life of Mr. Rand W. Mueller, together with certificates of insurance with respect to such policies and copies of such policies. 20. Master Intercompany Demand Note between the Borrower and Tessco. C. LITIGATION L/C AGREEMENTS 21. Litigation L/C and Term Loan C Agreement (the "Litigation Agreement") dated as of October 24, 1997 among Borrower, Agent and the other financial institutions which may from time to time become parties to the Litigation Agreement as Term Lenders. Exhibit A - Form of Term C Note 22. Security Agreements executed by each of the Borrower and Tessco Group, Inc., a Michigan corporation ("Tessco") in favor of the Agent and the Term Lenders pursuant to which Borrower and Tessco respectively grants a security interest in substantially all of its personal property as security for the Litigation Obligations. D-4 166 23. Guaranty and Security Agreements executed by each of the following Credit Parties in favor of the Agent and the Term Lenders pursuant to which each such Credit Party unconditionally guarantees all of the Litigation Obligations: a. Anes, Inc., a Michigan corporation ("Anes"); b. Chapman Security Systems, Inc., a Michigan corporation ("Chapman"); and c. Intercept Systems, Inc., a Michigan corporation ("Intercept"). 24. Guaranty executed by Tessco in favor of the Agent and the Term Lenders pursuant to which Tessco unconditionally guarantees all of the Litigation Obligations. 25. Pledge Agreement executed by Borrower in favor of the Agent and the Term Lenders pursuant to which Borrower grants a security interest in all of the issued and outstanding capital stock of Tessco, Anes, Chapman and Intercept, as security for the Litigation Obligations, together with stock certificates and stock powers executed in blank. 26. Pledge Agreement executed by Mr. Craig S. Camalo (the "Series B Pledgor") in favor of the Agent and the Term Lenders pursuant to which the Series B Pledgor grants a security interest in all of the issued and outstanding Series B Preferred Stock of Borrower as security for the Litigation Obligations, together with stock certificates and stock powers executed in blank. 27. Patent Security Agreement executed by Borrower in favor of the Agent and the Term Lenders pursuant to which Borrower grants a security interest in substantially all of its patents, patent applications and related licenses as security for the Litigation Obligations. 28. Trademark Security Agreements executed by each of the following Credit Parties in favor of the Agent and the Term Lenders pursuant to which each such Credit Party grants a security interest in substantially all of its trademarks, service marks and related applications and licenses as security for the Litigation Obligations and, in the case of such Credit Parties (other than Borrower), as security for their respective obligations under their Guaranties: a. Borrower; b. Anes; and c. Chapman. 29. Copyright Security Agreements executed by Borrower in favor of the Agent and the Term Lenders pursuant to which Borrower grants a security interest in substantially all of its copyrights and related applications and licenses as security for the Litigation Obligations. D-5 167 D. PEGASUS SUPPORT DOCUMENTS 30. Limited Supplemental Guaranty ("Supplemental Guaranty") executed and delivered by Pegasus Partners, L.P., a Delaware limited partnership ("Pegasus Partners"), and Pegasus Related Partners, L.P., a Delaware limited partnership ("Pegasus Related Partners"), in favor of the Agent and the Lenders pursuant to which Pegasus Partners and Pegasus Related Partners jointly and severally guaranty up to $4,000,000 of the Borrowers Obligations. 31. Limited Litigation Guaranty ("Litigation Guaranty") executed and delivered by Pegasus Partners and Pegasus Related Partners in favor of the Agent and the Lenders pursuant to which Pegasus Partners and Pegasus Related Partners jointly and severally guaranty up to $12,000,000 of the Litigation L/C Obligations. E. UCC FINANCING STATEMENTS AND SEARCHES 32. Intellectual property title searches. 33. Pre-Filing UCC Lien Search Reports (including fixture filings) relating to the Credit Parties and certain of their predecessors and former names, in the offices and against the names set forth on Schedule III. 34. Tax Lien and Judgment Search Reports relating to the Credit Parties and certain of their predecessors and former names, in the offices and against the names set forth on Schedule III. 35. Acknowledgment copies of UCC-1 Financing Statements filed against the Credit Parties in the offices set forth on Schedule IV. 36. Acknowledgment copies of Fixture Financing Statements filed against the Credit Parties in the offices set forth on Schedule IV. 37. Post-Filing Search Reports of filings against the Credit Parties in the offices set forth on Schedule IV. F. OTHER LOAN DOCUMENTS 38. Initial Borrowing Base Certificate delivered to the Agent by Borrower. 39. Disbursement Direction Letter delivered to the Agent by Borrower, setting forth the disbursement instructions for Loans to be made on the Closing Date. D-6 168 40. Appointment by each Credit Party of CT Corporation as their agent for service of process in Illinois. G. RELEASE DOCUMENTS 41. Estoppel Letter executed by NBD Bank ("NBD") in connection with the repayment in full of amounts outstanding under the credit facilities or other evidences of debt and security held by NBD with respect to the Credit Parties. 42. UCC Termination Statements and the other release documents executed and delivered by NBD and described on Schedule V H. ORGANIZATION AND AUTHORIZATION DOCUMENTS 43. Certificate executed by the Secretary or Assistant Secretary of each Credit Party certifying (i) the resolutions adopted by the Board of Directors of such Credit Party authorizing or ratifying the execution, delivery and performance of the Credit Agreement and/or the other Loan Documents (including, without limitation, GECC Warrant Documents), Series A Preferred Stock Documents, and Series B Preferred Stock Documents to which such Credit Party is a party, (ii) the names, signatures, and incumbency of the officers of such Credit Party authorized to execute such documents on behalf of such Credit Party and (iii) the Articles or Certificates of Incorporation and Bylaws of such Credit Party as in effect on the date of such certification. 44. Articles and Certificates of Incorporation of each Credit Party certified by the Secretaries of State of its jurisdiction of organization. 45. Good Standing Certificates for each Credit Party from the offices designated on Schedule VII 46. Limited Partnership Agreements and Certificates of Organization of Pegasus Partners, Pegasus Related Partners, and Pegasus Investors, L.P. ("Pegasus Investors") certified by the Secretary of State of Delaware. 47. Articles and Certificate of Incorporation of Pegasus Investors GP, Inc. ("Pegasus GP") certified by the Secretary of State of Delaware. 48. Good Standing Certificates for Pegasus Partners, Pegasus Related Partners, Pegasus Investors and Pegasus GP from the Secretary of State of Delaware. I. OPINIONS AND CERTIFICATES D-7 169 49. Opinions of counsel to the Credit Parties and the Series B Pledgor addressed to the Agent and the Lenders, in form, scope and substance acceptable to Agent. 50. Opinions of counsel to Pegasus Partners and Pegasus Related Partners, in form, scope and substance acceptable to Agent. 51. Financial Condition Certificates executed and delivered by the Chief Financial Officer or Treasurer of the Borrower, together with Pro Forma, Fair Salable Balance Sheet and Projections of the Borrower and its subsidiaries, prepared after giving effect to the consummation of each of the Related Transactions pursuant to the Related Transactions Documents. 52. Officer's Certificate executed and delivered by the Chief Financial Officer of Borrower stating that (i) since December 31, 1996, (a) no event or condition has occurred or is existing which could reasonably be expected to have a Material Adverse Effect; (b) there has been no material adverse change in the industry in which Borrower operates; (c) no Litigation has been commenced which could reasonably be expected to have, or which has had, a Material Adverse Effect or could challenge any of the transactions contemplated by the Agreement and the other Loan Documents; (d) there have been no Restricted Payments made by any Credit Party; and (e) there has been no material increase in liabilities, liquidated or contingent, and no material decrease in assets of Borrower or any of its Subsidiaries, (ii) each of the Related Transactions have been consummated in accordance with the terms and conditions of the Related Transaction Documents, and (iii) Code-Alarm has received $7,000,000 in cash proceeds from the issuance of the Series A Preferred Stock. J. EQUITY DOCUMENTS 53. Unit Purchase Agreement ("Unit Purchase Agreement") among Code-Alarm and Pegasus Partners and Pegasus Related Partners. 54. Certificate of Designation Number, Powers, Preferences and Relative Participating, Optional and Other Rights of Series A Preferred Stock of Code-Alarm, Inc., adopted by Borrower's Board of Directors. 55. Registration Rights Agreements among Borrower, Pegasus Partners, Pegasus Related Partners and GECC. 56. "Attached Warrants", "Shortfall Warrants" and "Litigation Warrants" (as such terms are defined in the Unit Purchase Agreement executed by Pegasus Partners, Pegasus Related Partners and GECC). 57. Subscription Agreement among Borrower and the Series B Pledgor. D-8 170 58. Certificate of Designation, Preference and Rights of Series B Preferred Stock of Borrower adopted by Borrower's Board of Directors. 59. Warrant Purchase Agreement executed by GECC and Borrower. 60. Warrant To Purchase Common Stock of Code-Alarm, Inc. executed by Borrower in favor of GECC. K. MISCELLANEOUS 61. GECC Fee Letter. * * * * D-9 171 SCHEDULE I LOAN ALLOCATIONS Revolving Notes General Electric Capital Corporation $12,000,000 Term A Notes General Electric Capital Corporation $1,500,000 Term B Notes General Electric Capital Corporation $3,000,000 Term C Notes General Electric Capital Corporation $12,000,000 D-10 172 SCHEDULE II LANDLORD AGREEMENT LOCATIONS Lessor's Name Property Address and Address 1. 950 E. Whitcomb Diversified Real Estate Fund Limited Madison Heights, Michigan Partnership [to be obtained post-closing] Heitman Properties of Michigan 11100 Metro Airport Center Drive/140 Romulus, Michigan 48174 2. 1000 E. Whitcomb Heitman Michigan Trustee I Corporation Madison Heights, Michigan Heitman Properties of Michigan [to be obtained post-closing] 11100 Metro Airport Center Drive/140 Romulus, Michigan 48174-1467 3. 16742 Burke Lane Princeland Properties (International), Inc. Huntington Beach, California P.O. Box 3938 Laguna Hills, California 92654 4. 300 Industrial Avenue BSR Investments Co. Georgetown, Texas P.O. Box 541177 Dallas, TX 75354-1177 D-11 173 SCHEDULE III PRE-FILING UCC LIEN SEARCH REPORTS 1. DEBTOR NAME: CODE-ALARM, INC. JURISDICTIONS: (1) California (a) Secretary of State (b) Orange County (2) Michigan (a) Secretary of State (b) Oakland County (3) Texas (a) Secretary of State (b) Williamson County 2. DEBTOR NAME: TESSCO GROUP, INC. JURISDICTIONS: (1) California (a) Secretary of State (b) Orange County (2) Michigan (a) Secretary of State (b) Oakland County (3) Texas (a) Secretary of State (b) Williamson County 3. DEBTOR NAME: ANES, INC. JURISDICTIONS: (1) Michigan (a) Secretary of State (b) Oakland County 4. DEBTOR NAME: ANES SECURITY, INC. JURISDICTIONS: (1) Michigan (a) Secretary of State (b) Oakland County 5. DEBTOR NAME: CHAPMAN SECURITY SYSTEMS, INC. JURISDICTIONS: (1) Michigan (a) Secretary of State (b) Oakland County 6. DEBTOR NAME: INTERCEPT SYSTEM, INC. JURISDICTIONS: (1) Michigan (a) Secretary of State (b) Oakland County D-12 174 FEDERAL AND STATE TAX LIEN AND JUDGMENT SEARCH REPORTS 1. DEBTOR NAME: CODE-ALARM, INC. JURISDICTIONS: (1) California (a) US District Court - Central District (b) Orange County (2) Michigan (a) US District Court - Eastern District (b) Oakland County (3) Texas (a) US District Court - Western District (b) Williamson County 2. DEBTOR NAME: TESSCO GROUP, INC. JURISDICTIONS: (1) California (a) US District Court - Central District (b) Orange County (2) Michigan (a) US District Court - Eastern District (b) Oakland County (3) Texas (a) US District Court - Western District (b) Williamson County 3. DEBTOR NAME: ANES, INC. JURISDICTIONS: (1) Michigan (a) US District Court - Eastern District (b) Oakland County 4. DEBTOR NAME: ANES SECURITY, INC. JURISDICTIONS: (1) Michigan (a) US District Court - Eastern District (b) Oakland County 5. DEBTOR NAME: CHAPMAN SECURITY SYSTEMS, INC. JURISDICITONS: (1) Michigan (a) US District Court - Eastern District (b) Oakland County 6. DEBTOR NAME: INTERCEPT SYSTEM, INC. JURISDICITONS: (1) Michigan (a) US District Court - Eastern District (b) Oakland County D-13 175 D-14 176 SCHEDULE IV UCC-1 FINANCING STATEMENTS AND FIXTURE FILINGS (AND POST-FILING SEARCH LOCATIONS) 1. UCC-1 Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas Debtor: TESSCO GROUP, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas Debtor: ANES, INC. Locations: (1) Secretary of State of Michigan Debtor: CHAPMAN SECURITY SYSTEMS, INC. Locations: (1) Secretary of State of Michigan Debtor: INTERCEPT SYSTEM, INC. Locations: (1) Secretary of State of Michigan Debtor: CRAIG S. CAMALO Locations: (1) Secretary of State of Michigan 2. UCC Fixture Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas Debtor: TESSCO GROUP, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas D-15 177 SCHEDULE V RELEASE AND TERMINATION DOCUMENTS UCCS CALIFORNIA (1) Debtor: Code-Alarm, Inc. Secured Party: NBD Bank Jurisdiction: Secretary of State File No.: 9515060645 File Date: 5/26/95 (2) Debtor: Code-Alarm, Inc. Secured Party: NBD Bank Jurisdiction: Orange County File No.: 95-0343051 File Date: 8/9/95 MICHIGAN (1) Debtor: (1) Code-Alarm, Inc. (2) Tessco Group, Inc. Secured Party: NBD Bank Jurisdiction: Secretary of State File No.: 56238B File Date: 5/25/95 (2) Debtor: Code-Alarm, Inc. Secured Party: NBD Bank Jurisdiciton: Macomb County File No.: 134979 15545/372 File Date: 7/26/95 (3) Debtor: (1) Chapman Security Systems, Inc. (2) Intercept Systems, Inc. Secured Party: NBD Bank Jurisdiction: Secretary of State File No.: 56236B File Date: 5/25/95 D-16 178 (4) Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank Jurisdiction: Macomb County File No.: 134980 15545/375 File Date: 7/26/95 (5) Debtor: (1) Anes, Inc., d/b/a Anes Security, Inc. (2) Anes Security, Inc., a d/b/a of Anes, Inc. Secured Party: NBD Bank Jurisdiction: Secretary of State File No.: 56237B File Date: 5/25/95 (6) Debtor: Anes, Inc., d/b/a Anes Security, Inc. Secured Party: NBD Bank Jurisdiction: Macomb County File No.: 134976 15545/363 File Date: 7/26/95 (7) Debtor: Anes Security, Inc. a d/b/a of Anes, Inc. Secured Party: NBD Bank Jurisdiction: Macomb County File No.: 134977 15545/366 File Date: 7/26/95 TEXAS (1) Debtor: (1) Tessco Group, Inc. (2) Code-Alarm, Inc. Secured Party: NBD Bank Jurisdiction: Secretary of State File No.: 105891 File Date: 5/26/95 (2) Debtor: (1) Code-Alarm, Inc. (2) Tessco Group, Inc. Secured Party: NBD Bank Jurisdiction: Williamson County File No.: vol: 2730 pg: 0328 File Date: 5/30/95 D-17 179 TRADEMARKS (1) Trademark: ELITE Debtor: Code-Alarm, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,709,313 Registration Date: 8/18/92 (2) Trademark: CHAPMAN Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,161,795 Registration Date: 7/21/81 (3) Trademark: PROTECTION RACKET Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,256,806 Registration Date: 10/25/82 (4) Trademark: "INSURANCE MAN" Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,183,685 Registration Date: 12/29/81 (5) Trademark: CHAPMAN-LOK Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,113,544 Registration Date: 2/20/79 (6) Trademark: TOTAL PROTECTION Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,195,137 Registration Date: 5/11/82 (7) Trademark: CHAPMAN Debtor: Chapman Security Systems, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,183,684 Registration Date: 12/29/81 D-18 180 (8) Trademark: THE BIG STICK Debtor: Anes, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,720,117 Registration Date: 9/29/92 (9) Trademark: EWS Debtor: Anes, Inc. Secured Party: NBD Bank, N.A. Registration Number: 1,758,074 Registration Date: 3/16/93 PATENTS (1) Patent: AUTOMOBILE BURGLAR ALARM Debtor: Code-Alarm, Inc. Secured Party: NBD Bank, N.A. Patent Number: 4,740,775 Issue Date: 4/26/88 (2) Patent: SECURITY SYSTEM Debtor: Code-Alarm, Inc. Secured Party: NBD Bank, N.A. Patent Number: 5,543,778 Issue Date: 8/6/96 (3) Patent: VEHICLE ANTITHEFT SYSTEM Debtor: Code-Alarm, Inc. Secured Party: NBD Bank, N.A. Patent Number: 4,107,543 Issue Date: 8/15/78 OTHER Release and Reassignment of Life Insurance Policy D-19 181 SCHEDULE VI GOOD STANDING JURISDICTIONS CREDIT PARTY: CODE-ALARM, INC. JURISDICTIONS: (1) Secretary of State of Michigan (2) Secretary of State of California CREDIT PARTY: TESSCO GROUP, INC. JURISDICTIONS: (1) Secretary of State of Michigan (2) Secretary of State of Texas CREDIT PARTY: ANES, INC. JURISDICTIONS: (1) Secretary of State of Michigan CREDIT PARTY: CHAPMAN SECURITY SYSTEMS, INC. JURISDICTIONS: (1) Secretary of State of Michigan CREDIT PARTY: INTERCEPT SYSTEMS, INC. JURISDICTIONS: (1) Secretary of State of Michigan 182 ANNEX E (SECTION 4.1(A)) TO CREDIT AGREEMENT FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING Borrower shall deliver or cause to be delivered to Agent or to Agent and Lenders, as indicated, the following: (a) Monthly Financials. To Agent and Lenders, within thirty (30) days after the end of each Fiscal Month, financial information regarding Borrower and its Subsidiaries, certified by the Chief Financial Officer of Borrower, consisting of consolidated and consolidating (i) unaudited balance sheets as of the close of such Fiscal Month and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Month; (ii) unaudited statements of income and cash flows for such Fiscal Month, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments); and (iii) a schedule of the outstanding balance of all intercompany Indebtedness among Borrower and each of its Subsidiaries as of the last day of that Fiscal Month. Such financial information shall be accompanied by (A) a statement in reasonable detail (each, a "Compliance Certificate") showing the calculations used in determining compliance with each financial covenant set forth on Annex G which is tested on a monthly basis, and (B) the certification of the chief financial officer of Borrower that (i) such financial information presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial position and results of operations of Borrower and its Subsidiaries, on a consolidated and consolidating basis, in each case as at the end of such month and for the period then ended and (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default; (b) Quarterly Financials. To Agent and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, consolidated and consolidating financial information regarding Borrower and its Subsidiaries, certified by the chief financial officer of Borrower, including (i) unaudited balance sheets as of the close of such Fiscal Quarter and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited statements of income and cash flows for such Fiscal Quarter, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments). Such financial information shall be accompanied by (A) a Compliance Certificate in respect of each of the financial covenants set forth on Annex G which is tested on a quarterly basis and (B) the certification of 183 the chief financial officer of Borrower that (i) such financial information presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial position, results of operations and statements of cash flows of Borrower and its Subsidiaries, on both a consolidated and consolidating basis, as at the end of such Fiscal Quarter and for the period then ended, (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default. In addition, Borrower shall deliver to Agent and Lenders, within forty-five (45) days after the end of its first Fiscal Quarter ending in 1998 and each Fiscal Quarter thereafter, a management discussion and analysis which includes a comparison to budget for that Fiscal Quarter and a comparison of performance for that Fiscal Quarter to the corresponding period in the prior year; (c) Operating Plan. To Agent and Lenders, as soon as available, but not later than thirty (30) days after the end of each Fiscal Year, an annual operating plan for Borrower, approved by the Board of Directors of Borrower, for the following year, which will include a statement of all of the material assumptions on which such plan is based, will include monthly balance sheets and a monthly budget for the following year and will integrate sales, gross profits, operating expenses, operating profit, cash flow projections and Borrowing Availability projections all prepared on the same basis and in similar detail as that on which operating results are reported (and in the case of cash flow projections, representing management's good faith estimates of future financial performance based on historical performance), and including plans for personnel, Capital Expenditures and facilities; (d) Annual Audited Financials. To Agent and Lenders, within ninety (90) days after the end of each Fiscal Year, audited Financial Statements for Borrower and its Subsidiaries on a consolidated and consolidating basis, consisting of balance sheets and statements of income and retained earnings and cash flows, setting forth in comparative form in each case the figures for the previous Fiscal Year and the figures contained in the Projections for such Fiscal Year, which Financial Statements shall be prepared in accordance with GAAP, certified without qualification, (as to the consolidated financial statements) by an independent certified public accounting firm of national standing or otherwise acceptable to Agent. Such Financial Statements shall be accompanied by (i) a statement prepared in reasonable detail showing the calculations used in determining compliance with each of the financial covenants set forth on Annex G, (ii) the annual letters to such accountants in connection with their audit examination detailing contingent liabilities and material litigation matters, and (iii) the certification of the chief executive officer or chief financial officer of Borrower that all such Financial Statements present fairly in accordance with GAAP the financial position, results of operations and statements of cash flows of Borrower and its Subsidiaries on a consolidated and consolidating basis, as at the end of such year and for the period then ended, and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default; E-2 184 (e) Management Letters. To Agent and Lenders, within five (5) Business Days after receipt thereof by any Credit Party, copies of all management letters, exception reports or similar letters or reports received by such Credit Party from its independent certified public accountants; (f) Default Notices. To Agent and Lenders, as soon as practicable, and in any event within five (5) Business Days after the chief executive officer or chief financial officer of Borrower has actual knowledge of the existence of any Default, Event of Default, or other event which has had a Material Adverse Effect, telephonic or telecopied notice specifying the nature of such Default or Event of Default or other event, including the anticipated effect thereof, which notice, if given telephonically, shall be promptly confirmed in writing on the next Business Day; (g) SEC Filings and Press Releases. To Agent and Lenders, promptly upon their becoming available, copies of: (i) all Financial Statements, reports, notices and proxy statements made publicly available by any Credit Party to its security holders; (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by any Credit Party with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority; and (iii) all press releases and other statements made available by any Credit Party to the public concerning material adverse changes or developments in the business of any such Person; (h) Subordinated Debt and Equity Notices. To Agent, as soon as practicable, copies of all material written notices given or received by any Credit Party with respect to any Subordinated Debt or Stock of such Person, and, within three (3) Business Days after any Credit Party obtains knowledge of any matured or unmatured event of default with respect to any Subordinated Debt, notice of such event of default; (i) Supplemental Schedules. To Agent, supplemental disclosures, if any, required by Section 5.6 of the Agreement; (j) Litigation. To Agent in writing, (i) promptly upon learning thereof, notice of any Litigation commenced or threatened against any Credit Party that (A) seeks damages in excess of $100,000, (B) seeks injunctive relief, (C) is asserted or instituted against any Plan, its fiduciaries or its assets or against any Credit Party or ERISA Affiliate in connection with any Plan, (D) alleges criminal misconduct by any Credit Party, or (E) alleges the violation of any law regarding, or seeks remedies in connection with, any Environmental Liabilities of the Credit Parties, (ii) promptly upon hearing thereof, notice of any material development in any such Litigation referred to in clause (i) hereof or described in the Disclosure Schedules (including, without limitation, the DEI Litigation) and (iii) monthly (prior to the Term Loan B Funding Date or the date on which the Litigation L/C is issued, whichever is later), together with the delivery of the monthly financial statements referred to in clause (a) above, a description of the status of the DEI Litigation and a schedule disclosing the amount that would be determined pursuant to E-3 185 Sections 2.2(a)(iv) or 2.3(a)(iii) of the Credit Agreement as if the Term Loan B Funding Date occurred on the date such schedule was prepared. (k) Insurance Notices. To Agent, disclosure of losses or casualties required by Section 5.4 of the Agreement; (l) Leases; Warehouses. To Agent, copies of (i) any and all default notices received under or with respect to any leased location or public warehouse where Collateral is located, and (ii) such other notices or documents as Agent may request in its reasonable discretion; (m) OEM Contracts. To Agent and Lenders, copies of all notices received indicating or asserting that (i) any Credit Party is in material default or breach of any OEM Contract, (ii) any OEM Contract is or will be terminated or expired and will not replaced, or (iii) any OEM Accreditation will expire or be withdrawn or terminated; and (n) Other Documents. To Agent and Lenders, such other financial and other information respecting any Credit Party's business or financial condition as Agent or any Lender shall, from time to time, request. * * * * E-4 186 ANNEX F (SECTION 4.1(B)) TO CREDIT AGREEMENT COLLATERAL REPORTS Borrower shall deliver or cause to be delivered the following: (a) To Agent, upon its request, and in no event less frequently than monthly (together with a copy of all or any part of such delivery requested by any Lender in writing after the Closing Date), each of the following, in each case providing information as of the Friday of the then immediately preceding month: (i) a Borrowing Base Certificate, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (ii) a summary of Inventory by location and type with a supporting perpetual Inventory report, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (iii) a trial balance showing Accounts outstanding aged from invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; and (iv) a calculation of the Tessco Liquidation Reserve. (b) To Agent, on a monthly basis or at such more frequent intervals as Agent may request from time to time (together with a copy of all or any part of such delivery requested by any Lender in writing after the Closing Date), collateral reports, including all additions and reductions (cash and non-cash) with respect to Accounts, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (c) To Agent, at the time of delivery of each of the monthly Financial Statements delivered pursuant to Annex E, a reconciliation of the Accounts trial balance and month-end Inventory reports of Borrower to Borrower's general ledger and monthly Financial Statements delivered pursuant to such Annex E, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (d) To Agent, at the time of delivery of each of the quarterly and annual Financial Statements delivered pursuant to Annex E, (i) a listing of government contracts of 187 Borrower and Tessco subject to the Federal Assignment of Claims Act of 1940; and (ii) a list of any applications for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency which any Credit Party thereof has filed in the prior Fiscal Quarter; (e) Borrower, at its own expense, shall deliver to Agent the results of each physical verification, if any, which Borrower or any of its Subsidiaries may in their discretion have made, or caused any other Person to have made on their behalf, of all or any portion of their Inventory (and, if a Default or an Event of Default shall have occurred and be continuing, Borrower shall, upon the request of Agent, conduct, and deliver the results of, such physical verifications as Agent may require); (f) Borrower, at its own expense, shall deliver to Agent such appraisals of its assets as Agent may request at any time after the occurrence and during the continuance of a Default or an Event of Default, such appraisals to be conducted by an appraiser, and in form and substance, satisfactory to Agent; and (g) Such other reports, statements and reconciliations with respect to the Borrowing Base or Collateral of any or all Credit Parties as Agent shall from time to time request in its reasonable discretion. * * * * F-2 188 ANNEX G (SECTION 6.10) TO CREDIT AGREEMENT FINANCIAL COVENANTS Borrower shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied: (a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a consolidated basis shall not make Capital Expenditures during any of its Fiscal Years of more than (i) the amount set forth below opposite such Fiscal Year plus (ii) in the case of Fiscal Year 1998 and each Fiscal Year thereafter, 25% of the unused portion of the maximum amount of Capital Expenditures permitted hereunder for the then immediately preceding Fiscal Year (but without giving effect to an additional amounts permitted during such preceding Fiscal Year because of this clause (ii)):
Fiscal Year Maximum Amount ----------- -------------- 1997 $1,000,000 1998 $1,300,000 1999 and each Fiscal Year thereafter $1,000,000.
(b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall have on a consolidated basis at the end of any Fiscal Quarter ending on or after December 31, 1997, a Fixed Charge Coverage Ratio for the 12-month period then ended, taken as a single accounting period (or with respect to the Fiscal Quarters ending on or before June 30, 1998, the period commencing on October 1, 1997 and ending on the last day of such Fiscal Quarter, taken as a single accounting period) of not less 1.5 to 1.0; provided, however, that, if Term Loan C shall be outstanding during any such Fiscal Quarter, such ratio shall not be less than, for any such Fiscal Quarter, the ratio set forth below and corresponding to the outstanding principal balance of Term Loan C as of the last day of such Fiscal Quarter:
Term Loan C Balance Minimum Ratio ------------------- ------------- $0 to $3,000,000 1.15 to 1.0 Greater than $3,000,000 and less than or equal to $6,000,000 1.10 to 1.0
189 Greater than $6,000,000 and less than or equal to $9,000,000 1.05 to 1.0 Greater than $9,000,000 1.00 to 1.0.
(c) Cumulative Minimum EBITDA. Borrowers and its Subsidiaries on a consolidated basis shall have, for the period commencing October 1, 1997 and ending as of the end of each Fiscal Month set forth below, EBITDA for such period then ended (taken as a single accounting period) of not less than the following:
Month Ending Amount ------------ ------ October, 1997 $ 175,000 November, 1997 $ 375,000 December, 1997 $ 850,000 January, 1998 $1,200,000 February, 1998 $1,500,000 March, 1998 $1,900,000 April, 1998 $2,250,000 May, 1998 $2,600,000 June, 1998 $3,000,000.
(d) Minimum Quarterly EBITDA. Borrower and its Subsidiaries on a consolidated basis shall have, for the Fiscal Quarter ending September 30, 1998 and for each Fiscal Quarter ending thereafter, EBITDA for such Fiscal Quarter of not less than $1,500,000. (e) Minimum Net Worth. Borrower and its Subsidiaries on a consolidated basis shall have Net Worth at all times of not less than the "Minimum Net Worth" (as defined below). "Minimum Net Worth" shall mean $6,500,000 as of the Closing Date and shall increase (on a cumulative basis), as of the end of the Fiscal Quarter ending December 31, 1997 and each subsequent Fiscal Quarter, by 80% of an amount equal to (i) Borrower's and its Subsidiaries' consolidated net income, determined in accordance with GAAP for such Fiscal Quarter minus (ii) all dividends paid or accrued with respect to the Series A Preferred Stock for such Fiscal Quarter (and without duplication of such amounts that were accrued in prior periods and paid in the current period). Unless otherwise specifically provided herein, any accounting term used in the Agreement shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP consistently G-2 190 applied as in effect on the Closing Date (and without giving effect to any changes in GAAP except to the extent agreed to in writing by Borrowers and the Requisite Lenders). That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. * * * * G-3 191 ANNEX H (SECTION 9.9(A)) TO CREDIT AGREEMENT WIRE TRANSFER INFORMATION Attached. 192 ANNEX I (SECTION 11.10) TO CREDIT AGREEMENT NOTICE ADDRESSES (A) If to Agent or GE Capital, at General Electric Capital Corporation 10 South LaSalle Street Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopier No.: (312) 419-5957 Telephone No.: (312) 419-0985 with copies to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: H. Bruce Bernstein Telecopier No.: (312) 853-7000 Telephone No.: (312) 853-7036 and: General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopier No.: (203) 316-7889 Telephone No.: (203) 316-7552 (B) If to Borrower, at Code-Alarm, Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Craig S. Camalo Telecopier No.: (248) 585-4799 Telephone No.: (248) 583-9620 193 with copies to: Pepper, Hamilton & Scheetz 100 Renaissance Center 36th Floor Detroit, Michigan 48243-1157 Attention: Dennis S. Kayes Telecopier No.: (313) 259-7926 Telephone No.: (313) 393-7450 * * * * I-2 EX-10.41 6 EXHIBIT 10.41 1 EXHIBIT 10.41 EXECUTION COPY SECURITY AGREEMENT SECURITY AGREEMENT, dated as of October 24, 1997, between CODE-ALARM, INC., a Michigan corporation ("Grantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. WITNESSETH: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Grantor (in such capacity, "Borrower"), the other Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make the Loans to, and to incur Letter of Credit Obligations for the benefit of, the Borrower; WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and the Loan Documents other than Litigation Collateral Documents (hereinafter, the "Loan Documents") and to induce Lenders to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, Grantor has agreed to grant a continuing Lien on the Collateral (as hereinafter defined) to secure the Obligations other than the Litigation Obligations (hereinafter, the "Obligations"); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Grantor's Obligations, Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Agent, for itself and the benefit of Lenders, a security interest in and lien upon all of its right, title and interest in, to and under the following property, other than Permitted Encumbrances, whether now owned by or owing to, or hereafter acquired by or arising in favor of Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, Grantor, and regardless of where located (all of which being hereinafter collectively referred to as the "Collateral"): 2 (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all Fixtures; (vii) all General Intangibles; (viii) all goods; (ix) all Instruments; (x) all Inventory; (xi) all Investment Property; (xii) All Borrower Accounts, Concentration Accounts, Disbursement Accounts, Funding Accounts, and all other deposit and other bank accounts and all deposits therein; (xiii) all money, cash or cash equivalents of Grantor; and (xiv) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce Agent and Lenders as aforesaid, Grantor hereby grants to Agent, for itself and the benefit of Lenders, a right of setoff against the property of Grantor held by Agent or any Lender, consisting of property described above in Section 2(a) now or hereafter in the possession or custody of or in transit to Agent or any Lender, for any purpose, including safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power. -2- 3 3. AGENT'S AND LENDERS' RIGHTS; LIMITATIONS ON AGENT'S AND LENDERS' OBLIGATIONS. (a) It is expressly agreed by Grantor that, anything herein to the contrary notwithstanding, Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Neither Agent nor any Lender shall have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Agent or any Lender of any payment relating to any Contract or License pursuant hereto. Neither Agent nor any Lender shall be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Agent may at any time after an Event of Default shall have occurred and be continuing, without prior notice to Grantor, notify Account Debtors, parties to the Contracts and obligors in respect of Instruments and Chattel Paper, that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Agent, and that payments shall be made directly to Agent, for itself and the benefit of Lenders. Upon the request of Agent, Grantor shall so notify Account Debtors, parties to Contracts and obligors in respect of Instruments and Chattel Paper. (c) Agent may at any time in Agent's own name or in the name of Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper to verify with such Persons, to Agent's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. If an Event of Default shall have occurred and be continuing, Grantor, at its own expense, shall cause the independent certified public accountants then engaged by Grantor to prepare and deliver to Agent and each Lender at any time and from time to time promptly upon Agent's request the following reports with respect to Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Agent may request. Grantor, at its own expense, shall deliver to Agent the results of each physical verification, if any, which Grantor may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants that, on the Closing Date and, unless otherwise specified below, as of each time Grantor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: -3- 4 (a) Grantor is the sole owner of each item of the Collateral upon which it purports to grant a Lien hereunder, and has good and marketable title thereto free and clear of any and all Liens other than Permitted Encumbrances. (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by Grantor in favor of Agent pursuant to this Security Agreement or the Loan Documents, and (ii) in connection with any other Permitted Encumbrances. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto and, with respect to locations of Collateral established after the Closing Date, such additional financing statements delivered to Agent pursuant to Section 4(g), a perfected Lien in favor of Agent, for itself and the benefit of Lenders, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except Permitted Encumbrances that would be prior to Liens in favor of Agent for the benefit of Agent and Lenders as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from Grantor (other than purchasers of Inventory in the ordinary course of business). All action by Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken. (d) As of the Closing Date, Schedule II hereto lists all Instruments and Chattel Paper of Grantor, other than those having a face amount of less than $5,000 individually and an aggregate face amount of less than $10,000. All action by Grantor necessary or desirable to protect and perfect the Lien of Agent on each item set forth on Schedule II (including the delivery of all originals thereof to Agent and the legending of all Chattel Paper as required by Section 5(b) hereof), and on all Instruments and Chattel Paper of Grantor acquired after the Closing Date (other than those having a face amount of less than $5,000 individually and less than $10,000 in the aggregate, including those existing on the Closing Date), has been duly taken. The Lien of Agent, for the benefit of Agent and Lenders, on the Collateral listed on Schedule II hereto, and such Instruments and Chattel Paper acquired after the Closing Date, is prior to all other Liens, except Permitted Encumbrances that would be prior to the Liens in favor of Agent as a matter of law, and is enforceable as such against any and all creditors of and purchasers from Grantor. (e) Grantor's chief executive office, principal place of business, corporate offices, and, as of the Closing Date, all warehouses and premises where Collateral is stored or located and all locations of its books and records concerning the Collateral, are set forth on Schedule III hereto. Prior to Grantor's maintaining any Collateral at any other location, Grantor shall have obtained Agent's written consent thereto and shall have delivered to Agent signed financing statements with respect thereto and such additional documentation as may be required by Section 4(g) hereto. -4- 5 (f) With respect to the Accounts, except as specifically disclosed on the most recent Collateral Report delivered to Agent, (i) they represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and Grantor has not made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by Grantor in the ordinary course of its business for prompt payment and disclosed to Agent; (iii) to Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on Grantor's books and records and any invoices, statements and Collateral Reports delivered to Agent and Lenders with respect thereto; (iv) Grantor has not received any notice of proceedings or actions which are threatened or pending against any Account Debtor which might result in any adverse change in such Account Debtor's financial condition; (v) Grantor has no knowledge that any Account Debtor is unable generally to pay its debts as they become due, (vi) the amounts shown on all invoices, statements and Collateral Reports which may be delivered to the Agent with respect thereto are actually and absolutely owing to Grantor as indicated thereon and are not in any way contingent; (vii) no payments have been or shall be made thereon except payments immediately delivered to the Borrower Accounts or the Agent as required pursuant to the terms of Annex C to the Credit Agreement; and (viii) to Grantor's knowledge, all Account Debtors have the capacity to contract. (g) With respect to any Inventory scheduled or listed on the most recent Collateral Report delivered to Agent pursuant to the terms of this Security Agreement or the Credit Agreement, except as specifically disclosed on such Collateral Report, (i) such Inventory is located at one of Grantor's locations set forth on Schedule III hereto, or at such other locations with respect to which Grantor shall have obtained Agent's prior written consent pursuant to clause (ii) hereof and delivered to Agent additional financing statements and other documents as may be required by clause (ii) hereof, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without Agent's prior written consent, and if Agent gives such consent, Grantor will concurrently therewith deliver to Agent such additional financing statements as may be required by Agent with respect thereto and obtain, to the extent required by the Credit Agreement, bailee, consignee, landlord and mortgagee agreements with respect thereto, (iii) Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Agent, for the benefit of Agent and Lenders, and except for Permitted Encumbrances, (iv) such Inventory is Eligible Inventory of good and merchantable quality, free from any defects, (v) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (vi) the completion of manufacture, sale or other disposition of such Inventory by Agent following an Event of Default -5- 6 shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which Grantor is a party or to which such property is subject. (h) Grantor has no interest in, nor title to, any Patent, Trademark or Copyright except as set forth in Schedule IV hereto or, with respect to such property acquired or created after the Closing Date, as is described in writing to Agent within thirty (30) days of Grantor's acquisition or creation thereof. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office, and the filing of appropriate financing statements listed on Schedule I hereto, perfected Liens, other than Permitted Encumbrances, in favor of Agent on Grantor's Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Agent's Lien on Grantor's Patents, Trademarks or Copyrights shall have been duly taken. 5. COVENANTS. Grantor covenants and agrees with Agent, for the benefit of Agent and Lenders, that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances; Pledge of Instruments. At any time and from time to time, upon the written request of Agent and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Agent of any License or Contract held by Grantor or in which Grantor has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the Code with respect to the Liens granted hereunder or under any other Loan Document, (iii) transferring Collateral to Agent's possession (for the benefit of Agent and Lenders) if such Collateral consists of Chattel Paper, Instruments (subject to the provisions of Section 4(d)) or if a Lien on such Collateral can be perfected only by possession, and (iv) obtaining, or using its best efforts to obtain, waivers of Liens, if any exist, from landlords, bailees, consignees and mortgagees in accordance with the Credit Agreement. Grantor also hereby authorizes Agent, for the benefit of Agent and Lenders, to file any such financing or continuation statements without the signature of Grantor to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Agent immediately upon Grantor's receipt thereof. -6- 7 (b) Maintenance of Records. Grantor shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantor shall mark its books and records pertaining to the Collateral to evidence this Security Agreement and the Liens granted hereby. Subject to the materiality exceptions set forth in Section 4(d), Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation, as Agent, for the benefit of Agent and certain Lenders." (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantor shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including 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) regarding Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Agent prior written notice thereof, and, upon request of Agent, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Agent may request to evidence Agent's Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby. (iii) Grantor shall take all actions necessary or requested by Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of its business. (iv) In the event that any of the Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Agent promptly after Grantor learns thereof. Grantor shall, unless Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation -7- 8 or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Agent or any Lender relating to any Account, Chattel Paper, Contract, Document, General Intangible or Instrument for any sum owing thereunder or to enforce any provision of any Account, Chattel Paper, Contract, Document, General Intangible or Instrument, Grantor will save, indemnify and keep Agent and Lenders harmless from and against all expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Grantor, except in the case of Agent or any Lender, to the extent such expense, loss, or damage is attributable to the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. All such obligations of Grantor shall be and remain enforceable against and only against Grantor and shall not be enforceable against Agent or any Lender. (e) Compliance with Terms of Accounts, etc. In all material respects, Grantor will perform and comply with all obligations in respect of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. Grantor will not create, permit or suffer to exist, and Grantor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except Permitted Encumbrances, and will defend the right, title and interest of Agent and Lenders in and to any of Grantor's rights under the Collateral against the claims and demands of all Persons whomsoever. (g) Limitations on Disposition. Grantor will not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Credit Agreement. (h) Further Identification of Collateral. Grantor will, if so requested by Agent, furnish to Agent, as often as Agent requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in such detail as Agent may specify. (i) Notices. Grantor will advise Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder or under any other Loan Document. -8- 9 6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date Grantor shall execute and deliver to Agent a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Agent, for the benefit of Agent and Lenders, under the Power of Attorney are solely to protect Agent's interests (for the benefit of Agent and Lenders) in the Collateral and shall not impose any duty upon Agent or any Lender to exercise any such powers. Agent agrees that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Agent shall account for any moneys received by Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that none of Agent nor any Lender shall have any duty as to any Collateral, and Agent and Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF AGENT, LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES TO THE EXTENT ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES; RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Agent may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving Grantor or any other Person notice and opportunity for a hearing on Agent's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Agent or any Lender shall have the right upon any such public sale or sales and, to the -9- 10 extent permitted by law, upon any such private sale or sales, to purchase for the benefit of Agent and Lenders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Agent shall have the right to conduct such sales on Grantor's premises or elsewhere and shall have the right to use Grantor's premises without charge for such time or times as Agent deems necessary or advisable. Grantor further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at places which Agent shall select, whether at Grantor's premises or elsewhere. Until Agent is able to effect a sale, lease, or other disposition of Collateral, Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Agent. Agent shall have no obligation to Grantor to maintain or preserve the rights of Grantor as against third parties with respect to Collateral while Collateral is in the possession of Agent. Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Agent's remedies (for the benefit of Agent and Lenders), with respect to such appointment without prior notice or hearing as to such appointment. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Agent of any other amount required by any provision of law, need Agent account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Agent or any Lender arising out of the repossession, retention or sale of the Collateral except to the extent such arise out of the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. Grantor agrees that ten (10) days' prior written notice by Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including any attorneys' fees or other expenses incurred by Agent or any Lender to collect such deficiency. (b) Except as otherwise specifically provided herein, Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Agent to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Agent shall be lawfully entitled to exercise such rights and remedies, Grantor hereby grants to Agent, for the benefit of Agent and Lenders, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter -10- 11 acquired by Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL. Agent and each Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Neither Agent nor any Lender shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Agent or such Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. Notwithstanding anything contained herein to the contrary, this Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the Loan Documents which, taken together, set forth the complete understanding and agreement of Agent, Lenders and Grantor with respect to the matters referred to herein and therein. -11- 12 13. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Agent and Grantor. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor (including any debtor-in-possession on behalf of Grantor) and shall, together with the rights and remedies of Agent, for the benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one and the same agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS -12- 13 SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG GRANTOR, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY -13- 14 JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 20. Section Titles. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and Section 19, with its counsel. 23. Benefit of Lenders. All Liens granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. -14- 15 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: /s/ Rand Mueller --------------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk -------------------------------------- Name: Timothy S. Van Kirk ---------------------------- Title: Duly Authorized Signatory ---------------------------- 16 SCHEDULE I FILING JURISDICTIONS 1. UCC-1 Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas 2. UCC Fixture Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas 17 SCHEDULE II INSTRUMENTS None. 18 SCHEDULE III SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING GRANTOR'S COLLATERAL I. Chief Executive Office and principal place of business of Grantor: 950 E. Whitcomb Madison Heights, Michigan II. Corporate Offices of Grantor: 950 E. Whitcomb Madison Heights, Michigan III. Warehouses: 950 E. Whitcomb Madison Heights, Michigan 16742 Burke Lane Huntington Beach, California IV. Other Premises at which Collateral is Stored or Located: 300 Industrial Drive Georgetown, Texas V. Locations of Records Concerning Collateral: 950 E. Whitcomb Madison Heights, Michigan 16742 Burke Lane Huntington Beach, California 19 SCHEDULE IV PATENTS, TRADEMARKS AND COPYRIGHTS PATENTS: CODE-ALARM PATENT REGISTRATIONS Mark Patent No. Issue Date ---- ---------- ---------- AUTOMOBILE BURGLAR 4,740,775 4/26/88 ALARM SECURITY SYSTEM 5,543,778 8/6/96 VEHICLE ANTITHEFT 4,107,543 8/15/78 SYSTEM SECURITY SYSTEM 4,333,074 6/1/82 PATENT APPLICATIONS Serial No. Filing Date ---------- ----------- 08/624,146 5/28/93 08/774,954 4/19/93 08/842,374 4/23/97 08/838,684 4/9/97 20 PATENT LICENSES Name of Agreement Parties/Purpose Date of Agreement ----------------- --------------- ----------------- MAGNADYNE/NUTEK: Code-Alarm licensed April 1996 Cross License Agreement "Price" patent to Magnadyne/Nutek; Magnadyne/Nutek licensed "Chen" patent to Code-Alarm BULLDOG Code-Alarm, Inc. September 1994 licensed "Price" patent use to Bulldog AUDIOVOX Code-Alarm, Inc. August 1994 licensed "Stouffer" patent to Audiovox AUDIOVOX: Cross Code-Alarm licensed August 1994 License Agreement use of "Price" patent to patent to Audiovox; Audiovox licensed use of "Posse" patent to Code-Alarm SHERWOOD Code-Alarm licensed use of January 1997 "Price" patent to Sherwood 21 TRADEMARKS: CODE-ALARM TRADEMARK REGISTRATIONS Mark Reg. No. Date ---- -------- ---- ELITE 1,709,313 8/18/92 The following table lists Code-Alarm's Common Law Trademarks. Where a federal Trademark has been abandoned, the prior Registration Number and Registration Date are included; where a federal Trademark Application has been abandoned, the Serial Number and Filing Date are included. Mark Prior Reg. No./Serial No. Prior Reg./Filing Date ---- ------------------------- ---------------------- MIRAGE 1,528,131 (cancelled) 3/7/89 CODE-ALARM 1,537,231 (cancelled) 5/2/89 SCORPION 1,588,738 (cancelled) 3/27/90 FOCUS BAND 74/360,227 (abandoned) 2/19/93 CRF 74/360,230 (abandoned) 2/19/93 INTERCEPT 74/020,162 (abandoned) 1/18/90 FALCON (abandoned) LIVEWIRES Not Registered MICRO-SHIELD Not Registered NIGHTHAWK Not Registered PREDATOR Not Registered RADICAL AUDIO DESIGN Not Registered RAD WIRES Not Registered 22 TRADEMARK APPLICATIONS Mark Serial No. Filing Date ---- ---------- ----------- CODE-ALARM 75/333,752 7/31/97 CODE-ALARM 75/333,753 7/31/97 CODE 75/333,754 7/31/97 CODE-ALARM and Design 75/333,755 7/31/97 CODE-ALARM 75/333,756 7/31/97 PRO 75/333,757 7/31/97 TRADEMARK LICENSES Name of Agreement Parties Date of Agreement ----------------- ------- ----------------- None. 23 EXHIBIT A POWER OF ATTORNEY This Power of Attorney is executed and delivered by Code-Alarm, Inc., a Michigan corporation ("Grantor") to General Electric Capital Corporation, a New York corporation (hereinafter referred to as "Attorney"), as Agent for the benefit of Agent and Lenders, under a Credit Agreement and a Security Agreement, both dated as of October 24, 1997 and other related documents (the "Loan Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Loan Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time following the occurrence and during the continuation of an Event of Default, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue to obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) 24 cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney's request, the following reports: (1) a reconciliation of all accounts; (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; and (h) execute, in connection with sale provided for in any Loan Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this 24th day of October, 1997. CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------------- Name: Rand Mueller ------------------------ Title: President ------------------------ ATTEST: By: /s/ Craig S. Camalo ------------------------------- (SEAL) Title: Vice President and CFO EX-10.42 7 EXHIBIT 10.42 1 EXHIBIT 10.42 EXECUTION COPY (TESSCO) SECURITY AGREEMENT SECURITY AGREEMENT, dated as of October 24, 1997, between TESSCO GROUP, INC., a Michigan corporation ("Grantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), the other Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make the Loans to, and to incur Letter of Credit Obligations for the benefit of, the Borrower; WHEREAS, Grantor is currently a wholly-owned subsidiary of Borrower and will derive direct and indirect economic benefits from the making of the Loans and other financial accommodations provided to Borrower pursuant to the Credit Agreement; WHEREAS, Agent and Lenders are willing to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, but only upon the condition, among others, that Grantor shall have executed and delivered to Agent, for itself and the ratable benefit of Lenders, that certain Guaranty dated as of the date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Guaranty"); WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and Loan Documents other than Litigation Collateral Documents (hereinafter, "Loan Documents") and to induce Lenders to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, Grantor has agreed to grant to Agent, for the benefit of itself and Lenders, a lien on and security interest in substantially all of its property as security for such Guaranteed Obligations (as defined in the Guaranty). NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Guaranteed Obligations and all other Obligations other than Permitted Encumbrances and Litigation Obligations (hereinafter, "Obligations") of Grantor hereunder and under each of the Loan Documents to which it is a party, Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Agent, for itself and the benefit of Lenders, a security interest in and lien upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, Grantor, and regardless of where located (all of which being hereinafter collectively referred to as the "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all Fixtures; (vii) all General Intangibles; (viii) all goods; (ix) all Instruments; (x) all Inventory; (xi) all Investment Property; (xii) All Borrower Accounts, Concentration Accounts, Disbursement Accounts, and all other deposit and other bank accounts and all deposits therein; (xiii) all money, cash or cash equivalents of Grantor; and -2- 3 (xiv) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce Agent and Lenders as aforesaid, Grantor hereby grants to Agent, for itself and the benefit of Lenders, a right of setoff against the property of Grantor held by Agent or any Lender, consisting of property described above in Section 2(a) now or hereafter in the possession or custody of or in transit to Agent or any Lender, for any purpose, including safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power. 3. AGENT'S AND LENDERS' RIGHTS; LIMITATIONS ON AGENT'S AND LENDERS' OBLIGATIONS. (a) It is expressly agreed by Grantor that, anything herein to the contrary notwithstanding, Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Neither Agent nor any Lender shall have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Agent or any Lender of any payment relating to any Contract or License pursuant hereto. Neither Agent nor any Lender shall be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Agent may at any time after an Event of Default shall have occurred and be continuing, without prior notice to Grantor, notify Account Debtors, parties to the Contracts and obligors in respect of Instruments and Chattel Paper, that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Agent, and that payments shall be made directly to Agent, for itself and the benefit of Lenders. Upon the request of Agent, Grantor shall so notify Account Debtors, parties to Contracts and obligors in respect of Instruments and Chattel Paper. (c) Agent may at any time in Agent's own name or in the name of Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper to verify with such Persons, to Agent's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. If an Event of Default shall have occurred and be continuing, Grantor, at its own expense, shall cause the independent certified public accountants then engaged by Grantor to prepare and -3- 4 deliver to Agent and each Lender at any time and from time to time promptly upon Agent's request the following reports with respect to Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Agent may request. Grantor, at its own expense, shall deliver to Agent the results of each physical verification, if any, which Grantor may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants that, on the Closing Date and, unless otherwise specified below, as of each time Grantor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (a) Grantor is the sole owner of each item of the Collateral upon which it purports to grant a Lien hereunder, and has good and marketable title thereto free and clear of any and all Liens other than Permitted Encumbrances. (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by Grantor in favor of Agent pursuant to this Security Agreement or the Loan Documents, and (ii) in connection with any other Permitted Encumbrances. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto and, with respect to locations of Collateral established after the Closing Date, such additional financing statements delivered to Agent pursuant to Section 4(g), a perfected Lien in favor of Agent, for itself and the benefit of Lenders, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except Permitted Encumbrances that would be prior to Liens in favor of Agent for the benefit of Agent and Lenders as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from Grantor (other than purchasers of Inventory in the ordinary course of business). All action by Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken. (d) As of the Closing Date, Schedule II hereto lists all Instruments and Chattel Paper of Grantor, other than those having a face amount of less than $5,000 individually and an aggregate face amount of less than $10,000. All action by Grantor necessary or desirable to protect and perfect the Lien of Agent on each item set forth on Schedule II (including the delivery of all originals thereof to Agent and the legending of all Chattel Paper as required by Section 5(b) hereof), and on all Instruments and Chattel Paper of Grantor acquired after the Closing Date (other than those having a face amount of less than $5,000 individually and less than $10,000 in the aggregate, including those existing on the Closing Date), has been duly taken. The Lien of Agent, for the benefit of Agent and Lenders, on the Collateral listed on Schedule II hereto, and such Instruments and Chattel Paper acquired after the Closing Date, is -4- 5 prior to all other Liens, except Permitted Encumbrances that would be prior to the Liens in favor of Agent as a matter of law, and is enforceable as such against any and all creditors of and purchasers from Grantor. (e) Grantor's chief executive office, principal place of business, corporate offices, and, as of the Closing Date, all warehouses and premises where Collateral is stored or located and all locations of its books and records concerning the Collateral, are set forth on Schedule III hereto. Prior to Grantor's maintaining any Collateral at any other location, Grantor shall have obtained Agent's written consent thereto and shall have delivered to Agent signed financing statements with respect thereto and such additional documentation as may be required by Section 4(g) hereto. (f) With respect to the Accounts, except as specifically disclosed on the most recent Collateral Report delivered to Agent, (i) they represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and Grantor has not made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by Grantor in the ordinary course of its business for prompt payment and disclosed to Agent; (iii) to Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on Grantor's books and records and any invoices, statements and Collateral Reports delivered to Agent and Lenders with respect thereto; (iv) Grantor has not received any notice of proceedings or actions which are threatened or pending against any Account Debtor which might result in any adverse change in such Account Debtor's financial condition; (v) Grantor has no knowledge that any Account Debtor is unable generally to pay its debts as they become due, (vi) the amounts shown on all invoices, statements and Collateral Reports which may be delivered to the Agent with respect thereto are actually and absolutely owing to Grantor as indicated thereon and are not in any way contingent; (vii) no payments have been or shall be made thereon except payments immediately delivered to the Borrower Accounts or the Agent as required pursuant to the terms of Annex C to the Credit Agreement; and (viii) to Grantor's knowledge, all Account Debtors have the capacity to contract. (g) With respect to any Inventory scheduled or listed on the most recent Collateral Report delivered to Agent pursuant to the terms of this Security Agreement or the Credit Agreement, except as specifically disclosed on such Collateral Report, (i) such Inventory is located at one of Grantor's locations set forth on Schedule III hereto, or at such other locations with respect to which Grantor shall have obtained Agent's prior written consent pursuant to clause (ii) hereof and delivered to Agent additional financing statements and other documents as may be required by clause (ii) hereof, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without Agent's prior written consent, and if Agent -5- 6 gives such consent, Grantor will concurrently therewith deliver to Agent such additional financingstatements as may be required by Agent with respect thereto and obtain, to the extent required by the Credit Agreement, bailee, consignee, landlord and mortgagee agreements with respect thereto, (iii) Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Agent, for the benefit of Agent and Lenders, and except for Permitted Encumbrances, (iv) such Inventory is Eligible Inventory of good and merchantable quality, free from any defects, (v) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (vi) the completion of manufacture, sale or other disposition of such Inventory by Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which Grantor is a party or to which such property is subject. (h) Grantor has no interest in, nor title to, any Patent, Trademark or Copyright except as set forth in Schedule IV hereto or, with respect to such property acquired or created after the Closing Date, as is described in writing to Agent within [thirty (30)] days of Grantor's acquisition or creation thereof. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office, and the filing of appropriate financing statements listed on Schedule I hereto, perfected Liens, other than Permitted Encumbrances, in favor of Agent on Grantor's Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Agent's Lien on Grantor's Patents, Trademarks or Copyrights shall have been duly taken. 5. COVENANTS. Grantor covenants and agrees with Agent, for the benefit of Agent and Lenders, that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances; Pledge of Instruments. At any time and from time to time, upon the written request of Agent and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Agent of any License or Contract held by Grantor or in which Grantor has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the Code with -6- 7 respect to the Liens granted hereunder or under any Loan Document, (iii) transferring Collateralto Agent's possession (for the benefit of Agent and Lenders) if such Collateral consists of Chattel Paper, Instruments (subject to the provisions of Section 4(d)) or if a Lien on such Collateral can be perfected only by possession, and (iv) obtaining, or using its best efforts to obtain, waivers of Liens, if any exist, from landlords, bailees, consignees and mortgagees in accordance with the Credit Agreement. Grantor also hereby authorizes Agent, for the benefit of Agent and Lenders, to file any such financing or continuation statements without the signature of Grantor to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Agent immediately upon Grantor's receipt thereof. (b) Maintenance of Records. Grantor shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantor shall mark its books and records pertaining to the Collateral to evidence this Security Agreement and the Liens granted hereby. Subject to the materiality exceptions set forth in Section 4(d), Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation, as Agent, for the benefit of Agent and certain Lenders." (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantor shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including 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) regarding Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Agent prior written notice thereof, and, upon request of Agent, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Agent may request to evidence Agent's Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby. -7- 8 (iii) Grantor shall take all actions necessary or requested by Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of its business. (iv) In the event that any of the Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Agent promptly after Grantor learns thereof. Grantor shall, unless Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Agent or any Lender relating to any Account, Chattel Paper, Contract, Document, General Intangible or Instrument for any sum owing thereunder or to enforce any provision of any Account, Chattel Paper, Contract, Document, General Intangible or Instrument, Grantor will save, indemnify and keep Agent and Lenders harmless from and against all expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Grantor, except in the case of Agent or any Lender, to the extent such expense, loss, or damage is attributable to the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. All such obligations of Grantor shall be and remain enforceable against and only against Grantor and shall not be enforceable against Agent or any Lender. (e) Compliance with Terms of Accounts, etc. In all material respects, Grantor will perform and comply with all obligations in respect of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. Grantor will not create, permit or suffer to exist, and Grantor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except Permitted Encumbrances, and will defend the right, title and interest of Agent and Lenders in and to any of Grantor's rights under the Collateral against the claims and demands of all Persons whomsoever. -8- 9 (g) Limitations on Disposition. Grantor will not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Credit Agreement. (h) Further Identification of Collateral. Grantor will, if so requested by Agent, furnish to Agent, as often as Agent requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in such detail as Agent may specify. (i) Notices. Grantor will advise Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder or under any Loan Document. 6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date Grantor shall execute and deliver to Agent a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Agent, for the benefit of Agent and Lenders, under the Power of Attorney are solely to protect Agent's interests (for the benefit of Agent and Lenders) in the Collateral and shall not impose any duty upon Agent or any Lender to exercise any such powers. Agent agrees that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Agent shall account for any moneys received by Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that none of Agent nor any Lender shall have any duty as to any Collateral, and Agent and Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF AGENT, LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES TO THE EXTENT ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES; RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default -9- 10 shall have occurred and be continuing, Agent may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving Grantor or any other Person notice and opportunity for a hearing on Agent's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Agent or any 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 for the benefit of Agent and Lenders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Agent shall have the right to conduct such sales on Grantor's premises or elsewhere and shall have the right to use Grantor's premises without charge for such time or times as Agent deems necessary or advisable. Grantor further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at places which Agent shall select, whether at Grantor's premises or elsewhere. Until Agent is able to effect a sale, lease, or other disposition of Collateral, Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Agent. Agent shall have no obligation to Grantor to maintain or preserve the rights of Grantor as against third parties with respect to Collateral while Collateral is in the possession of Agent. Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Agent's remedies (for the benefit of Agent and Lenders), with respect to such appointment without prior notice or hearing as to such appointment. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Agent of any other amount required by any provision of law, need Agent account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Agent or any Lender arising out of the repossession, retention or sale of the Collateral except to the extent such arise out of the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. Grantor agrees that ten (10) days' prior written notice by Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are -10- 11 insufficient to pay all Obligations, including any attorneys' fees or other expenses incurred by Agent or any Lender to collect such deficiency. (b) Except as otherwise specifically provided herein, Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Agent to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Agent shall be lawfully entitled to exercise such rights and remedies, Grantor hereby grants to Agent, for the benefit of Agent and Lenders, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL. Agent and each Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Neither Agent nor any Lender shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Agent or such Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. Notwithstanding anything contained herein to the contrary, this Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication -11- 12 shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the Loan Documents which, taken together, set forth the complete understanding and agreement of Agent, Lenders and Grantor with respect to the matters referred to herein and therein. 13. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Agent and Grantor. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor -12- 13 (including any debtor-in-possession on behalf of Grantor) and shall, together with the rights and remedies of Agent, for the benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Obligations and their respective successors fand assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one and the same agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG GRANTOR, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT -13- 14 AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 20. Section Titles. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and Section 19, with its counsel. 23. Benefit of Lenders. All Liens granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. -14- 15 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. TESSCO GROUP, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ------------------------------ Title: President ----------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By:/s/ Timothy S. Van Kirk ------------------------------------ Name: Timothy S. Van Kirk ------------------------------- Title: Duly Authorized Signatory ------------------------------ -15- 16 SCHEDULE I FILING JURISDICTIONS 1. UCC-1 Financing Statements: Debtor: TESSCO GROUP, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas 2. UCC Fixture Financing Statements: Debtor: TESSCO GROUP, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas 17 SCHEDULE II INSTRUMENTS None. 18 SCHEDULE III SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING GRANTOR'S COLLATERAL I. Chief Executive Office and principal place of business of Grantor: 300 Industrial Avenue Georgetown, Texas II. Corporate Offices of Grantor: 300 Industrial Avenue Georgetown, Texas III. Warehouses: 300 Industrial Avenue Georgetown, Texas IV. Other Premises at which Collateral is Stored or Located: None. V. Locations of Records Concerning Collateral: 300 Industrial Avenue Georgetown, Texas 19 SCHEDULE IV PATENTS, TRADEMARKS AND COPYRIGHTS None. 20 EXHIBIT A POWER OF ATTORNEY This Power of Attorney is executed and delivered by Tessco Group, Inc., a Michigan corporation ("Grantor") to General Electric Capital Corporation, a New York corporation (hereinafter referred to as "Attorney"), as Agent for the benefit of Agent and Lenders, under a Credit Agreement and a Security Agreement, both dated as of October 24, 1997 and other related documents (the "Loan Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Loan Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time following the occurrence and during the continuation of an Event of Default, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue to obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) 21 cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney's request, the following reports: (1) a reconciliation of all accounts; (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; and (h) execute, in connection with sale provided for in any Loan Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this 24th day of October, 1997. TESSCO GROUP, INC. By: /s/ Rand Mueller ---------------------------------- Name: Rand Mueller --------------------------- Title: President -------------------------- ATTEST: By: /s/ Craig S. Camalo ---------------------------------- (SEAL) Title: Vice President and CFO -------------------------- -2- EX-10.43 8 EXHIBIT 10.43 1 EXHIBIT 10.43 EXECUTION COPY (TESSCO) GUARANTY This GUARANTY (this "Guaranty"), dated as of October 24, 1997, by and between TESSCO GROUP, INC., a Michigan corporation ("Guarantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, individually and as agent (in such capacity, "Agent") for itself and the lenders from time to time signatory to the "Credit Agreement" hereinafter defined ("Lenders"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), the other Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for the benefit of, Borrower. WHEREAS, Guarantor is a currently wholly-owned subsidiary of Borrower and will derive direct and indirect economic benefits from the making of the Loans and other financial accommodations provided to Borrower pursuant to the Credit Agreement; and WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and Loan Documents other than Litigation Collateral Documents (hereinafter, the "Loan Documents") and to induce Lenders to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, Guarantor has agreed to guarantee payment of the Obligations other than Litigation Obligations. NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lenders to provide the Loans and other financial accommodations under the Credit Agreement, it is agreed as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement, unless otherwise defined herein. References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any annexes, exhibits and schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. 2 2. THE GUARANTY. 2.1. Guaranty of Guaranteed Obligations of Borrower. Guarantor hereby unconditionally guarantees to Agent and Lenders, and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Obligations of Borrower other than Litigation Obligations (hereinafter the "Guaranteed Obligations"). Guarantor agrees that this Guaranty is a guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in this Guaranty, any Loan Document or any other agreement, document or instrument to which any Credit Party are or may become a party; (b) the absence of any action to enforce this Guaranty or any Loan Document or the waiver or consent by Agent and/or Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any Collateral for the Guaranteed Obligations or any action, or the absence of any action, by Agent in respect thereof; (d) the insolvency of any Credit Party; or (e) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged until the Termination Date. Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Guaranteed Obligations. Guarantor agrees that any notice or directive given at any time to Agent which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by Agent and Lenders, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Agent and Lenders have specifically agreed otherwise in writing. It is agreed among Guarantor, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, Agent and Lenders would decline to enter into the Credit Agreement. 2.2. Demand by Agent or Lenders. In addition to the terms of the Guaranty set forth in Section 2.1 hereof, and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if, at any time, the outstanding principal amount of the Guaranteed Obligations under the Credit Agreement (including all accrued interest thereon) is 2 3 declared to be immediately due and payable (hereinafter, a "Guaranty Default"), then Guarantor shall, without demand, pay to the holders of the Guaranteed Obligations the entire outstanding Guaranteed Obligations due and owing to such holders. Payment by Guarantor shall be made to Agent in immediately available Federal funds to an account designated by Agent or at the address set forth herein for the giving of notice to Agent or at any other address that may be specified in writing from time to time by Agent, and shall be credited and applied to the Guaranteed Obligations. 2.3. Enforcement of Guaranty. In no event shall Agent have any obligation (although it is entitled, at its option) to proceed against Borrower or any other Credit Party before seeking satisfaction from Guarantor. 2.4. Waiver. In addition to the waivers contained in Section 2.1 hereof, Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshaling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its Guaranteed Obligations under, or the enforcement by Agent or Lenders of, this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Guaranteed Obligations, notice of adverse change in Borrower's financial condition or any other fact which might increase the risk to Guarantor) with respect to any of the Guaranteed Obligations or all other demands whatsoever and waive the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Agent or Lenders or any other Credit Party of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against Agent or any Lender or against any other Credit Party of any kind which may arise in the future. 2.5. Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any Credit Party and Agent or Lenders, the obligations of any Credit Party under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, indorsed or assigned by Agent or any Lender to any Person or Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.6. Modification of Guaranteed Obligations, Etc. Guarantor hereby acknowledges and agrees that Agent and Lenders may at any time or from time to time, with or without the consent of, or notice to, Guarantor: 3 4 (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for any Credit Party's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold Collateral for the payment of the Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Agent or Lenders have been granted a Lien, to secure any Obligations; (f) release anyone who may be liable in any manner for the payment of any amounts owed by Guarantor or any other Credit Party to Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of Guarantor or any other Credit Party are subordinated to the claims of Agent and Lenders; and/or (h) apply any sums by whomever paid or however realized to any amounts owing by Guarantor or any other Credit Party to Agent or any Lender in such manner as Agent or any Lender shall determine in its discretion; and Agent and Lenders shall not incur any liability to Guarantor as a result thereof, and no such action shall impair or release the Guaranteed Obligations of Guarantor under this Guaranty. 2.7. Reinstatement. Notwithstanding anything contained herein to the contrary, this Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Credit Party or Guarantor for liquidation or reorganization, should any Credit Party or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of such Credit Party's or Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by Agent or any Lender, whether as a "voidable preference", "fraudulent 4 5 transfer," "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 2.8. Deferral of Subrogation, Etc. Notwithstanding anything to the contrary in this Guaranty, or in any Loan Document, Guarantor hereby: (a) expressly and irrevocably waives, on behalf of itself and its successors and assigns (including any surety) until the Termination Date, any and all rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to a guarantor against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which Guarantor may have or hereafter acquire against any Credit Party in connection with or as a result of Guarantor's execution, delivery and/or performance of this Guaranty, or any other documents to which Guarantor is a party or otherwise; and (b) acknowledges and agrees (i) that this waiver is intended to benefit Agent and Lenders and shall not limit or otherwise effect Guarantor's liability hereunder or the enforceability of this Guaranty, and (ii) that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.9 and their rights under this Section 2.9 shall survive payment in full of the Guaranteed Obligations. 2.9. Election of Remedies. If Agent may, under applicable law, proceed to realize benefits under any of the Loan Documents giving Agent and Lenders a Lien upon any Collateral owned by any Credit Party, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party, whether because of any applicable laws pertaining to "election of remedies" or the like, Guarantor hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation which Guarantor might otherwise have had but for such action by Agent. Any election of remedies which results in the denial or impairment of the right of Agent to seek a deficiency judgment against any Credit Party shall not impair Guarantor's obligation to pay the full amount of the Guaranteed Obligations. In the event Agent shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent may bid all or less than the amount of the Guaranteed Obligations and the amount of such bid need not be paid by Agent but shall be credited against the Guaranteed Obligations. The amount of the successful bid at any such sale shall be conclusively deemed to be the fair 5 6 market value of the collateral and the difference between such bid amount and the remaining balance of the Guaranteed Obligations shall be conclusively deemed to be the amount of the Guaranteed Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent and Lenders might otherwise be entitled but for such bidding at any such sale. 2.10. Funds Transfers. If Guarantor shall engage in any transaction as a result of which Borrower is required to make a mandatory prepayment with respect to the Guaranteed Obligations under the terms of the Credit Agreement (including any sale of Guarantor's Stock or assets), Guarantor shall distribute to, or make a contribution to the capital of, the Borrower an amount equal to the mandatory prepayment required under the terms of the Credit Agreement. 3. DELIVERIES. In a form satisfactory to Agent, Guarantor shall deliver to Agent (with sufficient copies for each Lender), concurrently with the execution of this Guaranty and the Credit Agreement, the Loan Documents and other instruments, certificates and documents as are required to be delivered by Guarantor to Agent under the Credit Agreement. 4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the Loans and incur Letter of Credit Obligations under the Credit Agreement, Guarantor makes the representations and warranties as to Guarantor contained in the Credit Agreement, each of which is incorporated herein by reference, and the following representations and warranties to Agent and each Lender, each and all of which shall survive the execution and delivery of this Guaranty: 4.1. Corporate Existence; Compliance with Law. Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (ii) is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its charter and by-laws; and (vi) is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.2. Executive Offices. Guarantor's executive office and principal place of business are as set forth in Schedule I hereto. 6 7 4.3. Name. Guarantor's exact legal name is correctly set forth in the introductory paragraph to this Guaranty. 4.4. Corporate Power; Authorization; Enforceable Guaranteed Obligations. The execution, delivery and performance of this Guaranty and all Loan Documents and all instruments and documents to be delivered by Guarantor hereunder and under the Credit Agreement are within Guarantor's corporate power, have been duly authorized by all necessary or proper corporate action, including the consent of stockholders where required, are not in contravention of any provision of Guarantor's charter or by-laws, do not violate any law or regulation, or any order or decree of any Governmental Authority, do not conflict with or result in the breach of, or constitute a default under, or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Guarantor is a party or by which Guarantor or any of its property is bound, do not result in the creation or imposition of any Lien upon any of the property of any Guarantor, other than those in favor of Agent, for itself and the benefit of Lenders, and the same do not require the consent or approval of any Governmental Authority or any other Person except those referred to in Section 2.1(c) of the Credit Agreement, all of which have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, this Guaranty and each of the Loan Documents to which Guarantor is a party shall have been duly executed and delivered for the benefit of or on behalf of Guarantor, and each shall then constitute a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. 5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of Agent or any Lender, to execute and deliver to Agent or such Lender, from time to time, any additional instruments or documents reasonably considered necessary by Agent or such Lender to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 6. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by each Guarantor hereunder shall be made to Agent and Lenders free and clear of, and without deduction for, any and all present and future Taxes. If Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (a) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 6) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (b) Guarantor shall make such deductions, and (c) Guarantor shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Guarantor shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof. Guarantor shall indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 6) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. 7 8 7. OTHER TERMS. 7.1. Entire Agreement. This Guaranty, together with the Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the loans and advances under the Loan Documents and/or the Guaranteed Obligations. 7.2. Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 7.3. Severability. Whenever possible, each provision of this Guaranty shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 7.4. Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Guaranty, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified as follows: (a) If to Agent, at: General Electric Capital Corporation 10 South LaSalle Street, Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopy Number: (312) 419-5957 Telephone Number: (312) 419-0985 8 9 with copies to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: H. Bruce Bernstein Telecopy Number: (312) 853-7036 Telephone Number: (312) 853-7000 and: General Electric Capital Corporation 201 High Ridge Road Stanford, Connecticut 06927-5100 Attention: General Counsel Telecopy Number: (203) 316-7889 Telephone Number: (203) 316-7552 (b) If to any Lender, at the address of such Lender specified in the Credit Agreement. (c) If to Guarantor, at the address of Guarantor specified on Schedule I hereto. or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and three (3) Business Days after the same shall have been deposited with the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 7.4), (iii) one (1) Business Day after deposit with a reputable overnight carrier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any of the above-listed persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 7.5. Successors and Assigns. This Guaranty and all obligations of Guarantor hereunder shall be binding upon the successors and assigns of Guarantor (including a debtor-in-possession on behalf of Guarantor) and shall, together with the rights and remedies of Agent, for itself and for the benefit of Lenders, hereunder, inure to the benefit of Agent and Lenders, all 9 10 future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the rights of Agent and Lenders hereunder. Guarantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty. 7.6. No Waiver; Cumulative Remedies; Amendments. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Guaranty may be waived, altered, modified, supplemented or amended except by an instrument in writing, duly executed by Agent and Guarantor. 7.7. Termination. This Guaranty is a continuing guaranty and shall remain in full force and effect until the Termination Date. Upon payment and performance in full of the Guaranteed Obligations, Agent shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 7.8. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall collectively and separately constitute one and the same agreement. 7.9. Credit Agreement. Guarantor agrees to perform, comply with and be bound by, the covenants contained in Sections 4, 5 and 6 of the Credit Agreement, and each other provision thereof which is specifically applicable to each Credit Party, which covenants and provisions are incorporated herein by reference. * * * * 10 11 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date first above written. TESSCO GROUP, INC. By: /s/ Rand Mueller ------------------------------------ Name: Rand Mueller ------------------------- Title: President ------------------------ GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ------------------------------------ Name: Timothy S. Van Kirk ------------------------- Title: Duly Authorized Signatory ------------------------ 12 SCHEDULE I A. Executive Office; Principal Place of Business: 300 Industrial Avenue Georgetown, TX 78626 B. Address for Notices: 300 Industrial Avenue Georgetown, TX 78626 EX-10.44 9 EXHIBIT 10.44 1 EXHIBIT 10.44 EXECUTION COPY (CODE ALARM) PLEDGE AGREEMENT This PLEDGE AGREEMENT, dated as of October 24, 1997 (together with all amendments, if any, from time to time hereto, this "Agreement") between CODE-ALARM, INC., a Michigan corporation (the "Pledgor") and GENERAL ELECTRIC CAPITAL CORPORATION in its capacity as Agent for "Lenders", as defined below ("Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Pledgor (in such capacity, the "Borrower"), the Persons named therein as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified (the "Credit Agreement"), the Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for the benefit of, Borrower; WHEREAS, Pledgor is the record and beneficial owner of the shares of Stock listed in Schedule I hereto; WHEREAS, in order to induce Agent and Lenders to make the Loans and to incur the Letter of Credit Obligations as provided for in the Credit Agreement, Pledgor has agreed to pledge the Pledged Collateral to Agent in accordance herewith; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce Lenders to make Loans and to incur Letter of Credit Obligations under the Credit Agreement, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Bankruptcy Code" means title 11, United States Code, as amended from time to time, and any successor statute thereto. "Pledged Collateral" has the meaning assigned to such term in Section 2 hereof. "Pledged Entity" means an issuer of Pledged Stock. "Pledged Shares" means those shares listed in Schedule I hereto. "Secured Obligations" has the meaning assigned to such term in Section 3 hereof. 2 2. Pledge. Pledgor hereby pledges to Agent, and grants to Agent for itself and the benefit of Lenders, a continuing security interest in all of the following, other than Permitted Encumbrances collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and (ii) such portion, as determined by Agent as provided in Section 6(d) below, of any additional shares of Stock of a Pledged Entity from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares, and all dividends, distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Stock. 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all Obligations other than the Litigation Obligations of any kind under or in connection with the Credit Agreement and the other Loan Documents other than the Litigation Collateral Documents and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent, for itself and the benefit of Lenders, pursuant hereto. All Pledged Shares shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Agent. 5. Representations and Warranties. Pledgor represents and warrants to Agent that on the Closing Date and, unless otherwise specified below, as of each time Pledgor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (a) Pledgor is, and at the time of delivery of the Pledged Shares to Agent will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for Permitted Encumbrances or any Lien created by this Agreement; (b) All of the Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable; 2 3 (c) Pledgor has the right and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Agent as provided herein; (d) None of the Pledged Shares has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject; (e) All of the Pledged Shares are presently owned by Pledgor, and are presently represented by the certificates listed in Schedule I hereto. As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged Shares; (f) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally; (g) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid Lien on and a continuing perfected security interest in favor of the Agent for the benefit of Agent and Lenders in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations, subject to no other Lien (other than Permitted Encumbrances and Liens created pursuant to the Litigation Collateral Documents); (h) This Agreement has been duly authorized, executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms; and (i) The Pledged Shares constitute 100% of the issued and outstanding shares of Stock of each Pledged Entity. The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Agreement. 6. Covenants. Pledgor covenants and agrees that until the Termination Date: (a) Without the prior written consent of Agent, Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or any unpaid dividends, interest or other distributions or payments with respect to the 3 4 Pledged Collateral or grant a Lien in the Pledged Collateral, unless otherwise expressly permitted by the Credit Agreement; (b) Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Agent from time to time may request in order to ensure to Agent and Lenders the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary Code financing statements, which may be filed by Agent with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Agent, at Pledgor's expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral; (c) Pledgor has and will defend the title to the Pledged Collateral and the Liens of Agent in the Pledged Collateral against the claim of any Person and will maintain and preserve such Liens; and (d) Pledgor will, upon obtaining ownership of any additional Stock of a Pledged Entity or Stock otherwise required to be pledged to Agent pursuant to any of the Loan Documents (other than the Litigation Collateral Documents), which Stock is not already Pledged Collateral, promptly (and in any event within three (3) Business Days) deliver to Agent a Pledge Amendment, duly executed by Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment") in respect of any such additional Stock, pursuant to which Pledgor shall pledge to Agent all of such additional Stock. Pledgor hereby authorizes Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Agent shall for all purposes hereunder be considered Pledged Collateral. 7. Pledgor's Rights. As long as no Default or Event of Default shall have occurred and be continuing and until written notice shall be given to Pledgor in accordance with Section 8(a) hereof: (a) Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of Agent in respect of the Pledged Collateral or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Credit Agreement): (i) the dissolution or liquidation, in whole or in part, of a Pledged Entity; 4 5 (ii) the consolidation or merger of a Pledged Entity with any other Person; (iii) the sale, disposition or encumbrance of all or substantially all of the assets of a Pledged Entity, except for Liens in favor of Agent; (iv) any change in the authorized number of shares, the stated capital or the authorized share capital of a Pledged Entity or the issuance of any additional shares of its Stock; or (v) the alteration of the voting rights with respect to the Stock of a Pledged Entity; and (b) (i) Pledgor shall be entitled, from time to time, to collect and receive for its own use all cash dividends paid in respect of the Pledged Shares to the extent not in violation of the Credit Agreement other than any and all: (A) dividends paid or payable other than in cash in respect of any Pledged Collateral, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral; (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in capital of a Pledged Entity; and (C) cash paid, payable or otherwise distributed, in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral; provided, however, that until actually paid all rights to such distributions shall remain subject to the Lien created by this Agreement; and (ii) all dividends (other than such cash dividends as are permitted to be paid to Pledgor in accordance with clause (i) above) and all other distributions in respect of any of the Pledged Shares, whenever paid or made, shall be delivered to Agent to hold as Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Agent, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). 8. Defaults and Remedies. (a) Upon the occurrence of an Event of Default and during the continuation of such Event of Default, and concurrently with written notice to Pledgor, Agent (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates representing or evidencing Pledged Collateral for certificates of smaller or larger denominations, to exercise the voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, to sell in one 5 6 or more sales after ten (10) days' notice of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though Agent was the outright owner thereof, Pledgor hereby irrevocably constituting and appointing Agent as the proxy and attorney-in-fact of Pledgor, with full power of substitution to do so, and which appointment shall remain in effect until the Termination Date; provided, however, Agent shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at Agent's place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Agent may deem fair, and Agent may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Agent reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Agent. (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to Agent, in its discretion, that the proceeds of the sales of the whole of the Pledged Collateral would be unlikely to be sufficient to discharge all the Secured Obligations, Agent may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after ten (10) days' notice to Pledgor. c) If, at any time when Agent in its sole discretion determines, following the occurrence and during the continuance of an Event of Default, that, in connection with any actual or contemplated exercise of its rights (when permitted under this Section 8) to sell the whole or any part of the Pledged Shares hereunder, it is necessary or advisable to effect a public registration of all or part of the Pledged Collateral pursuant to the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Pledgor shall, in an expeditious manner, cause the Pledged Entities to: (i) Prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to the Pledged Shares and in good faith use commercially reasonable efforts to cause such registration statement to become and remain effective; 6 7 (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of the Pledged Shares covered by such registration statement whenever Agent shall desire to sell or otherwise dispose of the Pledged Shares; (iii) Furnish to Agent such numbers of copies of a prospectus and a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Agent may request in order to facilitate the public sale or other disposition of the Pledged Shares by Agent; (iv) Use commercially reasonable efforts to register or qualify the Pledged Shares covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as Agent shall request, and do such other reasonable acts and things as may be required of it to enable Agent to consummate the public sale or other disposition in such juris dictions of the Pledged Shares by Agent; (v) Furnish, at the request of Agent, on the date that shares of the Pledged Collateral are delivered to the underwriters for sale pursuant to such registration or, if the security is not being sold through underwriters, on the date that the registration statement with respect to such Pledged Shares becomes effective, (A) an opinion, dated such date, of the independent counsel representing such registrant for the purposes of such registration, addressed to the underwriters, if any, and in the event the Pledged Shares are not being sold through underwriters, then to Agent, in customary form and covering matters of the type customarily covered in such legal opinions; and (B) a comfort letter, dated such date, from the independent certified public accountants of such registrant, addressed to the underwriters, if any, and in the event the Pledged Shares are not being sold through underwriters, then to Agent, in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or Agent shall reasonably request. The opinion of counsel referred to above shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as Agent may reasonably request. The letter referred to above from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five (5) Business Days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as Agent may reasonably request; and (vi) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but not later than 18 months 7 8 after the effective date of the registration statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act. (d) All expenses incurred in complying with Section 8(c) hereof, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel for the registrant, the fees and expenses of counsel for Agent, expenses of the independent certified public accountants (including any special audits incident to or required by any such registration) and expenses of complying with the securities or blue sky laws or any jurisdictions, shall be paid by Pledgor. (e) If, at any time when Agent shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Agent may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Agent may deem necessary or advisable, but subject to the other requirements of this Section 8, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, Agent in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (y) may approach and negotiate with a single possible purchaser to effect such sale, and (z) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8, then Agent shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions: (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale; (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof; 8 9 (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgor and such Person's intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and (iv) as to such other matters as Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (f) Pledgor recognizes that Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (e) above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and the Pledged Entity would agree to do so. (g) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Pledgor agrees that it will not interfere with any right, power and remedy of Agent provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by Agent of any one or more of such rights, powers or remedies. No failure or delay on the part of Agent to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any such remedies shall operate as a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (h) Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Agent, that Agent shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and 9 10 Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations. 9. Waiver. No delay on Agent's part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Agent's rights as against Pledgor in any respect. 10. Assignment. Agent may assign, indorse or transfer any instrument evidencing all or any part of the Secured Obligations as provided in, and in accordance with, the Credit Agreement, and the holder of such instrument shall be entitled to the benefits of this Agreement. 11. Termination. Immediately following the Termination Date, Agent shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the Liens hereof and, except as otherwise provided herein, all of Pledgor's obligations hereunder shall at such time terminate. 12. Lien Absolute. All rights of Agent hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (c) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) the insolvency of any Credit Party; or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor. 10 11 13. Release. Pledgor consents and agrees that Agent may at any time, or from time to time, in its discretion: (a) renew, extend or change the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations; and (b) exchange, release and/or surrender all or any of the Collateral (including the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Agent in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Agent may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Credit Agreement, or any other agreement governing any Secured Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Agent's part shall in any event affect or impair this Agreement. 14. Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor or any Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's or a Pledged Entity's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference", "fraudulent transfer", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 15. Miscellaneous. (a) Agent may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder. 11 12 (b) Pledgor agrees to promptly reimburse Agent for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Agent in connection with the administration and enforcement of this Agreement as provided in the Credit Agreement. (c) Neither Agent, nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (d) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF AGENT AND PLEDGOR. 16. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid. 17. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 18. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 19. Counterparts. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 20. Benefit of Lenders. All security interests granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to the Secured Obligations in accordance with the terms of the Credit Agreement. 12 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. CODE-ALARM, INC. By: /s/ Rand Mueller ---------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ---------------------------------- Name: Timothy S. Van Kirk ------------------------------ Its Duly Authorized Signatory 14 SCHEDULE I PLEDGED SHARES
Class Stock Certificate Number Percentage of Pledged Entity of Stock Number(s) of Shares Outstanding Shares -------------- -------- ----------- --------- ------------------ Tessco Group, Inc. Common 001 1000 100% Anes, Inc. Common 1001 1000 100% Chapman Security Systems, Inc. Common 1001 1000 100% Intercept Systems, Inc. Common 1001 1000 100%
15 SCHEDULE II PLEDGE AMENDMENT This Pledge Amendment, dated October 24, 1997 is delivered pursuant to Section 6(d) of the Pledge Agreement referred to below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. The undersigned hereby certifies that the representations and warranties in Section 5 of the Pledge Agreement are and continue to be true and correct, both as to the shares pledged prior to this Pledge Amendment and as to the shares pledged pursuant to this Pledge Amendment. The undersigned further agrees that this Pledge Amendment may be attached to that certain Pledge Agreement, dated October 24, 1997, between undersigned, as Pledgor, and General Electric Capital Corporation, as Agent, (the "Pledge Agreement") and that the Pledged Shares listed on this Pledge Amendment shall be and become a part of the Pledged Collateral referred to in said Pledge Agreement and shall secure all Secured Obligations referred to in said Pledge Agreement. The undersigned acknowledges that any shares not included in the Pledged Collateral at the discretion of Agent may not otherwise be pledged by Pledgor to any other Person or otherwise used as security for any obligations other than the Secured Obligations or the Litigation Obligations. CODE-ALARM, INC. By:____________________________ Name:_______________________ Title:______________________
Name and Class Certificate Number Address of Pledgor Pledged Entity of Stock Number(s) of Shares ------------------ -------------- -------- ---------- ---------
16 EXHIBIT to PLEDGE AGREEMENT dated as of October 24, 1997 Form of Stock Power STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Tessco Group, Inc., a Michigan corporation, represented by Certificate No. _____________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ____________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CODE-ALARM, INC. By:______________________ Title: 17 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Tessco Group, Inc., a Michigan corporation, represented by Certificate No. _________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint __________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------- Title: President 18 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Anes, Inc., a Michigan corporation, represented by Certificate No. _________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint _______________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CODE-ALARM, INC. By: /s/ Rand Mueller ---------------------- Title: President 19 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Chapman Security Systems, Inc., a Michigan corporation, represented by Certificate No. ___________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint_____________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------ Title: President 20 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Intercept Systems, Inc., a Michigan corporation, represented by Certificate No. (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint _______ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------ Title: President EX-10.45 10 EXHIBIT 10.45 1 EX-10.45 EXECUTION COPY (Craig Camalo) PLEDGE AGREEMENT This PLEDGE AGREEMENT, dated as of October 24, 1997 (together with all amendments, if any, from time to time hereto, this "Agreement") between Craig S. Camalo (the "Pledgor"), Code-Alarm, Inc., a Michigan corporation (the "Borrower") and GENERAL ELECTRIC CAPITAL CORPORATION in its capacity as Agent for "Lenders", as defined below ("Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Borrower, the Persons named therein as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified (the "Credit Agreement"), the Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for the benefit of, Borrower; WHEREAS, Pledgor is the record and beneficial owner of the shares of stock listed in Schedule I hereto; WHEREAS, in order to induce Agent and Lenders to make the Loans and to incur the Letter of Credit Obligations as provided for in the Credit Agreement, Pledgor has agreed to pledge the Pledged Collateral to Agent in accordance herewith; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce Lenders to make Loans and to incur Letter of Credit Obligations under the Credit Agreement, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Bankruptcy Code" means title 11, United States Code, as amended from time to time, and any successor statute thereto. "Pledged Collateral" has the meaning assigned to such term in Section 2 hereof. "Pledged Entity" means Borrower. "Pledged Shares" means those shares listed in Schedule I hereto. "Secured Obligations" has the meaning assigned to such term in Section 3 hereof. 2 2. Pledge. Pledgor hereby pledges to Agent, and grants to Agent for itself and the benefit of Lenders, a continuing security interest in all of the following, other than Permitted Encumbrances (collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares; and (ii) such portion, as determined by Agent as provided in Section 6(d) below, of any additional shares of the same series of stock as the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares. 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all Obligations other than the Litigation Obligations of any kind under or in connection with the Credit Agreement and the other Loan Documents other than the Litigation Collateral Documents and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent, for itself and the benefit of Lenders, pursuant hereto. All Pledged Shares shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Agent. 5. Representations and Warranties. (a) Pledgor represents and warrants to Agent that on the Closing Date: (i) Pledgor is, and at the time of delivery of the Pledged Shares to Agent will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for Permitted Encumbrances or any Lien created by this Agreement; (ii) Pledgor has the right to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Agent as provided herein; (b) Borrower represents and warrants to the Agent that on the Closing Date and, unless otherwise specified below, as of each time Borrower requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: 2 3 (i) All Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable; (ii) None of the Pledged Shares has been issued in violation of applicable federal and state securities laws; (iii) The Pledged Shares are currently owned of record by Pledgor, and are currently represented by the certificates listed in Schedule I hereto. As of the date hereof, there are no existing options, warrants, calls or commitments issued by the Borrower of any character whatsoever relating to the Pledged Shares; (iv) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by applicable securities laws and except as may be required by a change in control of Borrower; (v) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid Lien on and perfected security interest in favor of the Agent for the benefit of Agent and Lenders in the Pledged Collateral, securing the payment of the Secured Obligations; (vi) This Agreement has been duly authorized, executed and delivered by Borrower and constitutes a legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms; and (vii) The Pledged Shares constitute 100% of the issued and outstanding shares of Series B Preferred Stock of Borrower. (c) The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Agreement. 6. Covenants. Pledgor or Borrower, as applicable, covenants and agrees that until the Termination Date: (a) Without the prior written consent of Agent, Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or grant a Lien in the Pledged Collateral, unless otherwise expressly permitted by the Agent or the Credit Agreement; 3 4 (b) Pledgor will, at Borrower's expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Agent from time to time may request in order to ensure to Agent and Lenders the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary Code financing statements, which may be filed by Agent with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Agent, at Borrower's expense, in maintaining and preserving Agent's Lien in the Pledged Collateral and in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral; (c) Borrower will defend Pledgor's title to the Pledged Collateral and the Liens of Agent in the Pledged Collateral against the claim of any Person; and (d) Pledgor will, upon obtaining ownership of any additional shares of the same series of stock as the Pledged Shares as is being pledged hereby on the date hereof, which stock is not already Pledged Collateral. 7. Pledgor's Rights. As long as no Default or Event of Default shall have occurred and be continuing and until written notice shall be given to Pledgor in accordance with Section 8(a) hereof: (a) Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of Agent in respect of the Pledged Collateral or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Credit Agreement): (i) the dissolution or liquidation, in whole or in part, of a Pledged Entity; (ii) the consolidation or merger of a Pledged Entity with any other Person; (iii) the sale, disposition or encumbrance of all or substantially all of the assets of a Pledged Entity, except for Liens in favor of Agent; (iv) any change in the authorized number of shares of the Borrower's Series B Preferred Stock; or (v) the alteration of the voting rights with respect to the Stock of a Pledged Shares; and 4 5 (b) (i) Pledgor shall be entitled, from time to time, to collect and receive for its own use all cash dividends paid in respect of the Pledged Shares to the extent not in violation of the Credit Agreement; and (ii) all dividends (other than such cash dividends as are permitted to be paid to Pledgor in accordance with clause (i) above) and all other distributions in respect of any of the Pledged Shares, whenever paid or made, shall be delivered to Agent to hold as Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Agent, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). 8. Defaults and Remedies. (a) Upon the occurrence of an Event of Default and during the continuation of such Event of Default, and concurrently with written notice to Pledgor, Agent (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates representing or evidencing Pledged Collateral for certificates of smaller or larger denominations, to exercise the voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, to sell in one or more sales after ten (10) days' notice to Pledgor and to Borrower of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though Agent was the outright owner thereof, Pledgor hereby irrevocably constituting and appointing Agent as the proxy and attorney-in-fact of Pledgor, with full power of substitution to do so, and which appointment shall remain in effect until the Termination Date; provided, however, Agent shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at Agent's place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Agent may deem fair, and Agent may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Agent reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Agent. (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for 5 6 sale would indicate to Agent, in its discretion, that the proceeds of the sales of the whole of the Pledged Collateral would be unlikely to be sufficient to discharge all the Secured Obligations, Agent may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after ten (10) days' notice to Pledgor. (c) If, at any time when Agent shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Agent may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Agent may deem necessary or advisable, but subject to the other requirements of this Section 8, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, Agent in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (y) may approach and negotiate with a single possible purchaser to effect such sale, and (z) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8, then Agent shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions: (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale; (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof; (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgor and such Person's intentions as to the holding of the 6 7 Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and (iv) as to such other matters as Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (d) Pledgor recognizes that Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (e) above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and the Pledged Entity would agree to do so. (e) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Pledgor agrees that it will not interfere with any right, power and remedy of Agent provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by Agent of any one or more of such rights, powers or remedies. No failure or delay on the part of Agent to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any such remedies shall operate as a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (f) Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Agent, that Agent shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not 7 8 then due and payable in accordance with the agreements and instruments governing and evidencing such obligations. 9. Waiver. No delay on Agent's part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Agent's rights as against Pledgor in any respect. 10. Assignment. Agent may assign, indorse or transfer any instrument evidencing all or any part of the Secured Obligations as provided in, and in accordance with, the Credit Agreement, and the holder of such instrument shall be entitled to the benefits of this Agreement. 11. Termination. Immediately following the Termination Date, Agent shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the Liens hereof and, except as otherwise provided herein, all of Pledgor's obligations hereunder shall at such time terminate. 12. Lien Absolute. All rights of Agent hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (c) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) the insolvency of any Credit Party; or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor. 13. Release. Pledgor consents and agrees that Agent may at any time, or from time to time, in its discretion: 8 9 (a) renew, extend or change the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations; and (b) exchange, release and/or surrender all or any of the Collateral (including the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Agent in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Agent may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Credit Agreement, or any other agreement governing any Secured Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Agent's part shall in any event affect or impair this Agreement. 14. Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor or any Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's or a Pledged Entity's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference", "fraudulent transfer", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 15. Miscellaneous. (a) Agent may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder. (b) Borrower agrees to promptly reimburse Agent for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Agent in connection with the administration and enforcement of this Agreement as provided in the Credit Agreement. 9 10 (c) The Pledgor shall have no personal liability for payment of the Secured Obligations, and in any action or suit to collect the Secured Obligations Agent shall not seek any in personam judgment against the Pledgor or any judgment for a deficiency but shall look solely to the security interests hereunder and the Pledged Collateral described herein for payment of the Secured Obligations. Nothing contained in this Section shall be construed to impair the validity of the Secured Obligations or this Agreement or affect or impair in any way the right of Agent to exercise its rights and remedies under the Credit Agreement in accordance with its terms. (d) Neither Agent, nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (e) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF AGENT AND PLEDGOR. 16. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid. 17. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 18. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 19. Counterparts. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 10 11 20. Benefit of Lenders. All security interests granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to the Secured Obligations in accordance with the terms of the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. CRAIG S. CAMALO /s/ Craig S. Camalo ------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk -------------------------------- Name: Timothy S. Van Kirk -------------------------------- Its Duly Authorized Signatory CODE-ALARM, INC., as Borrower By: /s/ Rand Mueller --------------------------------- Name: Rand Mueller ------------------------------- Its Duly Authorized Signatory 12 SCHEDULE I PLEDGED SHARES Class Stock Certificate Number Percentage of Pledged Entity of Stock Number(s) of Shares Outstanding Shares -------------- -------- ----------------- --------- ------------------ Code-Alarm, Inc. Series B B-1 1 100% Preferred Stock
13 SCHEDULE II PLEDGE AMENDMENT This Pledge Amendment, dated October 24, 1997 is delivered pursuant to Section 6(d) of the Pledge Agreement referred to below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. The undersigned hereby certifies that the representations and warranties in Section 5 of the Pledge Agreement are and continue to be true and correct, both as to the shares pledged prior to this Pledge Amendment and as to the shares pledged pursuant to this Pledge Amendment. The undersigned further agrees that this Pledge Amendment may be attached to that certain Pledge Agreement, dated October 24, 1997, between undersigned, as Pledgor, and General Electric Capital Corporation, as Agent, (the "Pledge Agreement") and that the Pledged Shares listed on this Pledge Amendment shall be and become a part of the Pledged Collateral referred to in said Pledge Agreement and shall secure all Secured Obligations referred to in said Pledge Agreement. The undersigned acknowledges that any shares not included in the Pledged Collateral at the discretion of Agent may not otherwise be pledged by Pledgor to any other Person or otherwise used as security for any obligations other than the Secured Obligations and the other Obligations (as defined in that certain Credit Agreement dated as of October 24, 1997 among Code-Alarm, Inc., the Persons named therein as Credit Parties, the Persons signatory thereto from time to time as Lenders and General Electric Capital Corporation, as Agent). CODE-ALARM, INC. By:_____________________________________ Name:___________________________________ Title:__________________________________ Class Certificate Number Name and Address of Pledgor Pledged Entity of Stock Number(s) of Shares ------------------ -------------- -------- ---------- ---------
14 EXHIBIT to PLEDGE AGREEMENT dated as of October 24, 1997 Form of Stock Power STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Series B Preferred Capital Stock of Code-Alarm, Inc., a Michigan corporation, represented by Certificate No. ______________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ______________________________________as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CRAIG S. CAMALO _________________________ 15 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Series B Preferred Capital Stock of Code-Alarm, Inc., a Michigan corporation, represented by Certificate No. _______________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ______________________________________as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated: October 24, 1997 CRAIG S. CAMALO /s/ Craig S. Camalo ----------------------------------- EX-10.46 11 EXHIBIT 10.46 1 EXHIBIT 10.46 EXECUTION COPY PATENT SECURITY AGREEMENT ------------------------- PATENT SECURITY AGREEMENT, dated as of October 24, 1997, by CODE-ALARM, INC., a Michigan corporation ("Grantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Grantor, the Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make the Loans, and to incur Letter of Credit Obligations, for the benefit of Grantor; WHEREAS, Agent and Lenders are willing to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, but only upon the condition, among others, that Grantor shall have executed and delivered to Agent, for itself and the ratable benefit of Lenders, that certain Security Agreement dated as of the date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); WHEREAS, pursuant to the Security Agreement, Grantor is required to execute and deliver to Agent, for itself and the ratable benefit of Lenders, this Patent Security Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in Annex A thereto to the Credit Agreement. 2. GRANT OF SECURITY INTEREST IN PATENT COLLATERAL. Grantor hereby grants to Agent, on behalf of itself and Lenders, as security for all of Grantor's Obligations other than Litigation Obligations, a continuing security interest in all of Grantor's right, title and interest in, to and under the following, other than Permitted Encumbrances, whether presently existing or hereafter created or acquired (collectively, the "Patent Collateral"): (a) all of its Patents and Patent Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto; 2 (b) all reissues, continuations or extensions of the foregoing; (c) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (i) infringement or dilution of any Patent or Patent licensed under any Patent License. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Patent Security Agreement are granted in conjunction with the security interests granted to Agent, on behalf of itself and Lenders, pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. * * * * -2- 3 IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------------ Name: Rand Mueller ----------------------- Title: President ----------------------- ACCEPTED AND ACKNOWLEDGED BY: GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ---------------------------------- Name: Timothy S. Van Kirk ---------------------------- Title: Duly Authorized Signatory -------------------------- ACKNOWLEDGMENT OF GRANTOR STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) On this 24th day of October, 1997 before me personally appeared Rand Mueller, proved to me on the basis of satisfactory evidence to be the person who executed the foregoing instrument on behalf of Code-Alarm, Inc., who being by me duly sworn did depose and say that he is an authorized officer of said corporation, that the said instrument was signed on behalf of said corporation as authorized by its Board of Directors and that he acknowledged said instrument to be the free act and deed of said corporation. /s/ Monique Wilson --------------------------- {seal} Notary Public Monique Wilson Notary Public, State of New York No. 01W15054453 Qualified in Queens County Commission Expires: 1-16-98 4 SCHEDULE I ---------- to PATENT SECURITY AGREEMENT PATENT REGISTRATIONS --------------------- Mark Patent No. Issue Date ---- ---------- ---------- AUTOMOBILE BURGLAR ALARM 4,740,775 4/26/88 SECURITY SYSTEM 5,543,778 8/6/96 VEHICLE ANTITHEFT SYSTEM 4,107,543 8/15/78 SECURITY SYSTEM 4,333,074 6/1/82
PATENT APPLICATIONS ------------------- Serial No. Filing Date ---------- ----------- 08/624,146 5/28/93 08/774,954 4/19/93 08/842,374 4/23/97 08/838,684 4/9/97
5 PATENT LICENSES --------------- Name of Agreement Parties/Purpose Date of Agreement ----------------- --------------- ----------------- MAGNADYNE/NUTEK: Cross Code-Alarm licensed "Price" April 1996 License Agreement patent to Magnadyne/Nutek; Magnadyne/Nutek licensed "Chen" patent to Code-Alarm BULLDOG Code-Alarm, Inc. licensed September 1994 "Price" patent use to Bulldog AUDIOVOX Code-Alarm, Inc. licensed August 1994 "Stouffer" patent to Audiovox AUDIOVOX: Cross License Code-Alarm licensed use of August 1994 Agreement "Price" patent to Audiovox; Audiovox licensed use of "Posse" patent to Code-Alarm SHERWOOD Code-Alarm licensed use of January 1997
"Price" patent to Sherwood - 5 - EX-10.47 12 EXHIBIT 10.47 1 EXHIBIT 10.47 EXECUTION COPY CONTRIBUTION, INDEMNIFICATION AND SUBORDINATION AGREEMENT THIS CONTRIBUTION, INDEMNIFICATION AND SUBORDINATION AGREEMENT ("Agreement") is made as of this 24th day of October, 1997 among Code-Alarm, Inc., a Michigan corporation ("Code Alarm"), Tessco Group, Inc., a Michigan corporation ("Tessco"), Anes, Inc., a Michigan corporation ("Anes"), Chapman Security Systems, Inc., a Michigan corporation ("Chapman"), Intercept Systems, Inc., a Michigan corporation ("Intercept") (Code Alarm, Tessco, Anes, Chapman and Intercept being sometimes hereinafter collectively referred to as the "Credit Parties" and each individually referred to as a "Credit Party"), and General Electric Capital Corporation as "Agent" for the "Lenders" from time to time party to that certain Credit Agreement of even date herewith among Code Alarm (the "Borrower"), the other Credit Parties, the Agent and the Lenders (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"). Undefined capitalized terms which are used herein shall have the meanings ascribed to such terms in the Credit Agreement. 1. Contribution and Indemnification among the Credit Parties. (a) Pursuant to the Credit Agreement, the Agent and the Lenders have provided, and from time to time hereafter may provide, Loans and Letters of Credit to and for the benefit of the Borrower. (b) As a condition to the Agent's and the Lenders' entering into the Credit Agreement, each of the Credit Parties have guaranteed all of the Obligations under and as defined in the Credit Agreement and each have granted security interests in and liens on substantially all of their properties as security for such guaranty obligations and Obligations pursuant to certain Loan Documents. (c) To the extent that any Credit Party shall, under the Loan Documents as a guarantor, pledgor, mortgagor or other third party accommodation party, repay (whether directly or with the proceeds of property constituting Collateral) any of the Obligations (an "Accommodation Payment"), then the Credit Party making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Credit Parties in an amount, for each of the Credit Parties, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such Credit Party's "Allocable Amount" (as defined below) and the denominator of which is the sum of the Allocable Amounts of all of the Credit Parties. (d) As of any date of determination, the "Allocable Amount" of each Credit Party shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Credit Party under the Loan Documents without (i) rendering such Credit 2 Party "insolvent" within the meaning of Section 101(32) of the Federal Bankruptcy Code (11 U.S.C. Section 101 et. seq.) (the "Bankruptcy Code"), Section 2 of the Uniform Fraudulent Transfer Act (the "UFTA") or Section 2 of the Uniform Fraudulent Conveyance Act (the "UFCA"), (ii) leaving such Credit Party with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA, (iii) leaving such Credit Party unable to pay its debts as they mature or become due within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 6 of the UFCA, or (iv) having any similar result under any other applicable insolvency law. (e) The provisions of this Agreement shall, to the extent inconsistent with any provision in any other Loan Document, supersede any such inconsistent provision. 2. Subordination of Intercompany Claims Among Credit Parties. (a) Each Credit Party hereby agrees that, until the payment in full of all Obligations, the termination of the Commitments and the expiration of all Letters of Credit, and without in any way limiting any provisions of any Guaranty: (i) all obligations and claims which are now or hereafter owing to such Credit Party from another Credit Party, including, without limitation, all intercompany loans, advances and other obligations heretofore, now or hereafter made to such Credit Party by the other Credit Parties, including, without limitation, amounts evidenced by the Master Intercompany Demand Note, and all claims arising under the terms of this Agreement (collectively, the "Intercompany Claims"), are hereby subordinated in right of payment to all Obligations of the Credit Parties now existing or hereafter arising under any of the Loan Documents, whether fixed or contingent, matured or unmatured, including, without limitation, all such obligations arising after the filing of a petition in bankruptcy under the Bankruptcy Code, regardless of whether or not allowed under such case or proceeding; provided, however, that Intercompany Claims may be repaid in the ordinary course of the Credit Parties' businesses as conducted on the Closing Date and; provided, further, however, that following the occurrence of an Event of Default and Agent's notice to the Credit Parties of Agent's exercise of its rights under this paragraph, all such payments with respect to the Intercompany Claims shall be paid directly to Agent for application to the Obligations; (ii) it shall not, without the written consent of Agent, enforce, or seek to enforce, any right or remedy with respect to the Intercompany Claims or any security therefor, by judicial or administrative action or otherwise, nor shall it file or join the filing of any involuntary petition in bankruptcy, appoint a trustee, receiver, conservator or liquidator of any Credit Party, in each case with respect to its Intercompany Claims, or otherwise initiate or participate in the initiation of any similar proceedings for the benefit of creditors of any Credit Party; 2 3 (iii) except as permitted under the proviso of Section 2(a)(i) of this Agreement or under the other Loan Documents, it shall not receive any payments in cash or other property with respect to any Intercompany Claim, whether by payment or set-off; (iv) it shall pay over to Agent all amounts received by it in payment of its Intercompany Claims which, pursuant to the terms of this Agreement, it is not entitled to retain, in the precise form in which such amounts are received (with any endorsements thereon as may be required by Agent), for application to the Obligations, and until so paid over, it shall hold such amounts in trust for Agent; and (v) in the event of any receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization or arrangement with creditors, whether or not pursuant to bankruptcy law, the sale of all or substantially all of the assets of any Credit Party, dissolution, liquidation or any other marshalling of the assets or liabilities of any Credit Party, each other Credit Party will file all claims, proofs of claim or other instruments of similar character necessary to enforce the Intercompany Claims and promptly pay over to Agent in the form received (except for any necessary endorsement) for application to the Obligations any and all moneys, dividends or other assets received in any such proceedings on account of the Intercompany Claims, unless and until the Obligations have been paid in full. If any Credit Party shall fail to take any such action, Agent, as attorney-in-fact for such Credit Party, may take such action on any Credit Party's behalf. Each Credit Party hereby irrevocably appoints Agent, or any of its officers or employees, as the attorney-in-fact for such Credit Party (which appointment is coupled with an interest) with the power but not the duty to demand, sue for, collect and receive any and all such moneys, dividends or other assets and give acquittance therefor and to file any claim, proof of claim or other instrument of similar character, to vote claims comprising Intercompany Claims to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension and to take such other action in Agent's own name or in the name of any Credit Party as Agent may deem necessary or advisable for the enforcement of the agreements contained herein; and each Credit Party will execute and deliver to Agent such other and further powers-of-attorney or instruments as Agent may request in order to accomplish the foregoing. (b) If any Credit Party shall have any right under applicable law or otherwise to terminate or revoke the provisions of this Section 2, which right cannot be waived, such termination or revocation shall not be effective until written notice of such termination or revocation, signed by such Credit Party, is actually received by Agent. Absent the circumstances described in the preceding sentence, this is a continuing agreement of each Credit Party that Agent may continue, at any time and without notice to any Credit Party, to extend credit or other financial accommodations and loan monies to or for the benefit of any Credit Party on the faith hereof. Any termination or revocation described hereinabove shall not affect this Agreement in relation to any of the Obligations which arose prior to receipt thereof or which are created after receipt thereof, if such Obligations were incurred either through readvances by Agent pursuant to Agent's financing arrangements with any Credit Parties, and/or for the purpose of protecting any 3 4 collateral, including, but not limited to, all protective advances, costs, expenses, and attorneys' and paralegals' fees, whensoever made, advanced or incurred by Agent in connection with the Obligations. If, in reliance on this Agreement, Agent makes loans or other advances to or for the benefit of any Credit Party, or take other action under the Loan Documents after such termination or revocation by any Credit Party but prior to the receipt by Lender of said written notice as set forth above, the rights of Lender shall be the same as if such termination or revocation had not occurred. (c) All of the Obligations shall be deemed to have been made or incurred in reliance upon this Agreement. Each Credit Party expressly waives all notices not specifically required pursuant to the terms of this Agreement, and each Credit Party expressly waives reliance by Agent upon the subordination and other agreements provided herein. Except as expressly set forth herein, each Credit Party acknowledges that Agent has made no warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of any Loan Documents or the collectibility of the Obligations. Agent shall be entitled to manage and supervise its loans to any Credit Party in accordance with applicable law and Agent's usual practices, modified from time to time as Agent deem appropriate under the circumstances, without regard to the existence of any rights that any Credit Party may now or hereafter have with respect to other Credit Parties, and Agent shall have no liability to any Credit Party for, and each Credit Party hereby waives any claim which any Credit Party may now or hereafter have against, Agent arising out of any and all actions which Agent, in good faith, takes or omits to take (including, without limitation, actions with respect to the creation, perfection or continuation of liens or security interests in any Collateral or proceeds thereof, actions with respect to the occurrence of any Event of Default, actions with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of Collateral or proceeds thereof, and actions with respect to the collection of any claim for all or any part of the Obligations from any account debtor, guarantor or any other party) with respect to any Loan Documents or to the collection of the Obligations or the valuation, use, protection or release of any Collateral or proceeds thereof, and/or other security for the Obligations. 3. Governing Law. This Agreement shall be construed and enforced and the rights and duties of the parties shall be in all respects governed by and in accordance with the internal laws and decisions (as opposed to the conflict of laws provisions) of the State of Illinois. 4. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute part of this Agreement. 5. Counterparts. This Agreement may be executed by one or more of the parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement. * * * * 4 5 IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- TESSCO GROUP, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- ANES, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- CHAPMAN SECURITY SYSTEMS, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- 6 INTERCEPT SYSTEMS, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- Agreed and Accepted as of this 24th day of October, 1997: GENERAL ELECTRIC CAPITAL CORPORATION as the Agent By: /s/ Timothy S. Van Kirk ---------------------------------- Name: Timothy S. Van Kirk ----------------------------- Title: Duly Authorized Signatory ---------------------------- EX-10.48 13 EXHIBIT 10.48 1 EXHIBIT 10.48 EXECUTION COPY LITIGATION L/C AND TERM LOAN C AGREEMENT LITIGATION L/C AND TERM LOAN C AGREEMENT, dated as of October 24, 1997 among Code-Alarm, Inc., a Michigan corporation (a "Borrower"); GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as a Term Lender, and as Agent for Term Lenders, and the other Term Lenders signatory hereto from time to time. RECITALS WHEREAS, Borrower desires that the Term Lenders provide financial accommodations in the form of a risk participated guaranty issued by Agent for the benefit of a surety which may issue a Bond or Bonds in connection with Borrower's potential appeal of a certain potential adverse judgment or judgments in or relating to the DEI Litigation; and for these purposes, Agent is willing to enter into this Agreement and issue such guaranty and the Term Lenders are willing to provide the Term Loan C Commitment, advance Term Loan C and enter into such risk participations, subject to the terms and conditions set forth herein and in the "Credit Agreement" referred to below; WHEREAS, Borrower desires that the Term Lenders may alternatively make a direct term loan for Borrower's benefit to satisfy a final judgment or settlement with respect to the DEI Litigation without first issuing a Litigation L/C or after terminating the Litigation L/C prior to its being drawn; WHEREAS, Borrower desires to secure all of its obligations under this Agreement by granting to Agent, for the benefit of Agent and the Term Lenders, security interests in and liens upon all of its existing and after-acquired personal and real property, provided that such security interests and liens shall be subordinate to all other liens and security interests granted to Agent, for the benefit of Agent and the Term Lenders, in connection with the Credit Agreement (as defined below) in accordance with the terms and condition of this Agreement; and WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in that certain Credit Agreement of even date herewith among Borrower, certain other Credit Parties thereto, the Lenders from time to time party thereto and Agent, and in Annex A thereto (such Credit Agreement, together with its exhibits, schedules and annexes, as amended, restated, supplemented, extended and otherwise modified from time to time being hereinafter referred to as the "Credit Agreement"). 2 NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1 Reimbursement of Litigation L/C Obligations; Term Loan C. (a) Subject to the terms and conditions set forth in this Agreement, the Credit Agreement and Annex B to the Credit Agreement, Agent and Term Lenders shall incur Litigation L/C Obligations in connection with the issuance of the Litigation L/C. Alternatively, and subject to the terms and conditions set forth in this Agreement and the Credit Agreement, the Term Lenders shall make a term loan in connection with the settlement or other final disposition of the DEI Litigation. Borrower hereby acknowledges and agrees that, notwithstanding anything contained herein to the contrary, Borrower's Litigation Obligations shall arise, and shall be deemed to arise, immediately upon Borrower's execution of this Agreement. 1.1 (b) If Agent and Term Lenders shall have incurred Litigation L/C Obligations, then, upon payment by the L/C Issuer under the Litigation L/C, and regardless of whether an Event of Default or Default shall then exist and notwithstanding the failure of Borrower to satisfy any of the conditions set forth in Section 2.4 of the Credit Agreement, each Term Lender shall fund its Pro Rata Share of such payment to Agent pursuant to Annex B of the Credit Agreement and in accordance with their respective Term Loan C Commitments, and, upon such payments, Borrower's Obligations to reimburse Agent for the Litigation L/C Obligations shall thereafter be payable directly to such Term Lenders pursuant to the terms of this Agreement and Annex B to the Credit Agreement (which Obligations to the Term Lenders shall thereafter constitute "Term Loan C" hereunder and thereunder). Borrower's request for Agent's and Term Lenders' incurrence of Litigation L/C Obligations shall be made on notice by Borrower to Agent two (2) Business Days prior to incurrence pursuant to Annex B of the Credit Agreement. Notwithstanding anything herein to the contrary, such recharacterization of Borrower's Litigation L/C Obligations hereunder shall occur solely for purposes of references herein, in the Credit Agreement and in the other Loan Documents, to such Obligations and shall not be construed to constitute a refinancing, repayment or novation of any such Obligations. All liens and security interests in the Collateral which are granted to Agent under the Litigation Collateral Documents to secure the Litigation L/C Obligations shall continue to secure Borrower's Obligations with respect to Term Loan C as so recharacterized. The obligations of the Term Lenders to pay to Agent their respective Pro Rata Shares of payments under the Litigation L/C hereunder shall be several and not joint. (c) If Agent shall not have incurred Litigation L/C Obligations, or shall have terminated the Litigation L/C prior to its being drawn, Borrower may request that Term Lenders directly advance the Term Loan C by delivering to Agent a Notice of Term Loan C Advance pursuant to the terms of the Credit Agreement. -2- 3 (d) Each Term Loan C shall be evidenced by a promissory note substantially in the form of Exhibit A hereto (each a "Term C Note" and collectively the "Term C Notes"), and Borrower shall execute and deliver its Term C Note to each Term Lender on the Closing Date in an amount equal to such Term Lender's Term Loan C Commitment. Each Term C Note, following the applicable Term Lenders' payment to Agent of its Pro Rata Share of payment under the Litigation L/C, or following Term Lenders' advance of the Term Loan C pursuant to the Credit Agreement, shall represent the Obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan C, together with interest thereon as prescribed in Section 1.4. (e) The Litigation L/C and Litigation L/C Obligations shall be subject to all of the terms and conditions set forth in Annex B to the Credit Agreement, which Annex is hereby incorporated in its entirety by this reference. (f) Borrower shall pay the aggregate principal amount of the Term Loan C in equal, consecutive quarterly installments equal to the lesser of $250,000 and one-twelfth (1/12) of the aggregate original principal amount of such Loan, on the first day of January, April, July and October of each year, commencing on the first of such dates occurring after the date on which the L/C Issuer makes payment under the Litigation L/C or the Term Lenders otherwise advance the Term Loan C (unless the first of such dates is less than forty-five (45) days following the date of such payment by the L/C Issuer, in which case such installments shall commence on the second of such dates occurring after the date of such payment). (g) Notwithstanding the foregoing clause (b), the aggregate outstanding principal balance of the Term Loan C, shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (h) Each payment of principal with respect to the Term Loan C shall be paid to Agent for the ratable benefit of each Term Lender making a Term Loan C ratably in proportion to each such Term Lender's respective Term Loan C Commitment. 1.2 Payments and Prepayments. Borrower may voluntarily prepay, and shall mandatorily prepay and provide cash collateral for, the Litigation Obligations in accordance with the terms and conditions of the Credit Agreement. The proceeds of such prepayments and cash collateral payments, and all other payments received by Agent and the Term Lenders shall be applied by Agent in accordance with the terms and conditions of the Credit Agreement. 1.3 Utilization of Litigation L/C and Use of Proceeds. Borrower shall utilize the Litigation L/C solely to obtain and secure a Bond or Bonds exclusively in accordance with the terms and conditions set forth in the Credit Agreement. Borrower shall utilize the proceeds of any direct advance of Term Loan C under Section 1.1(c) hereof solely for the payment of the Final Judgment. -3- 4 1.4 Interest on Term Loan C. (a) Borrower shall pay interest to Agent, for the ratable benefit of the Term Lenders, in arrears on each applicable Interest Payment Date with respect to the outstanding principal balance of Term Loan C, at the Index Rate plus the Applicable Term Loan Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Term Loan LIBOR Margin per annum. (b) Borrower shall pay Fees with respect to the Litigation L/C as provided in Annex B to the Credit Agreement. (c) If any payment on Term Loan C becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (d) All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. The Index Rate shall be determined each day based upon the Index Rate as in effect each day. Each determination by Agent of an interest rate hereunder shall be conclusive, absent manifest error. (e) At the election of Agent (or upon the written request of Requisite Lenders) confirmed by written notice from Agent to Borrower, and so long as any Default or Event of Default shall have occurred and be continuing, the interest rates applicable to the Term Loan C and the Letter of Credit Fees with respect to the Litigation L/C shall be increased by two percentage points (2%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder ("Default Rate"). Interest and Letter of Credit Fees at the Default Rate shall accrue from the date of such notice until such Default or Event of Default is cured or waived, or the Agent (upon written authorization therefor from the Requisite Lenders) notifies Borrower that the Default Rate no longer applies, and shall be payable upon demand. (f) So long as no Default or Event of Default shall have occurred and be continuing, and subject to the additional conditions precedent set forth in Section 2.4 of the Credit Agreement Borrower shall have the option to (i) convert at any time all or any part of outstanding Term Loan C from Index Rate Loans to LIBOR Loans, (ii) convert any portion thereof constituting a LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) of the Credit Agreement if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iii) continue all or any portion of Term Loan C as a LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued portion of Term Loan C shall commence on the last day of the LIBOR Period of the Loan to be continued. Any portion of Term Loan C to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount. Any such election must -4- 5 be made by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no election is received with respect to a LIBOR Loan by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing or if the additional conditions precedent set forth in Section 2.4 of the Credit Agreement shall not have been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a Notice of Conversion/Continuation. (g) Notwithstanding anything to the contrary set forth in this Section 1.4, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the Maximum Lawful Rate, then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Term Lenders, is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided elsewhere in this section, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Term Lender pursuant to the terms hereof exceed the amount which such Term Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.4(g), a court of competent jurisdiction shall finally determine that a Term Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 of the Credit Agreement and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. 2. CONDITIONS PRECEDENT The Agent and Term Lenders shall not be obligated to incur Litigation L/C Obligations, cause the Litigation L/C to be issued or renewed, extended or modified, or directly advance the Term Loan C pursuant to Section 1.1(c) hereof, unless and until each of the conditions set forth in Sections 2.1, 2.3 and 2.4 of the Credit Agreement shall have been satisfied -5- 6 or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Term Lenders. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS Agent and Term Lenders, in connection with their respective obligations under this Agreement, have relied upon the truth, accuracy and completeness of each of the representations, warranties and covenants set forth in the Credit Agreement, and all other provisions set forth in the Credit Agreement and Litigation Collateral Documents, all of which are hereby incorporated herein in their entirety by this reference. 4. EVENTS OF DEFAULT Upon the occurrence and during the continuation of any Event of Default or Default, Agent and Term Lenders shall have, with respect to this Agreement, the Litigation Obligations and the Collateral securing the Litigation Obligations, all of the rights and remedies as are provided in the Credit Agreement and the Litigation Collateral Documents following such occurrences. 5. MISCELLANEOUS 5.1 Amendments and Waivers. This Agreement may be amended or otherwise modified only upon the express written agreement of the parties hereto. 5.2 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 5.3 GOVERNING LAW. THIS AGREEMENT, LITIGATION COLLATERAL DOCUMENTS AND THE LITIGATION OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND TERM LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE LITIGATION COLLATERAL DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE LITIGATION COLLATERAL DOCUMENTS, -6- 7 PROVIDED, THAT AGENT, TERM LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE LITIGATION OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 5.4 Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered as provided in the Credit Agreement. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower or Agent) designated on Annex I of the Credit Agreement to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 5.5 Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. -7- 8 5.6 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 5.7 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, TERM LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE LITIGATION COLLATERAL DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 5.8 Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower for liquidation or reorganization, should Borrower become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Litigation Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Litigation Obligations, whether as a "voidable preference," "fraudulent transfer", "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Litigation Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 5.9 Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 5.3 and 5.7, with its counsel. 5.10 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. -8- 9 5.11 Subordination. The Credit Parties, Agent and Term Lenders hereby agree that, notwithstanding anything in any of the Loan Documents to the contrary, all Liens of Agent and Term Lenders now or hereafter securing the Litigation Obligations or any portion thereof shall be subordinate in priority to all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations. From and after the occurrence of any Event of Default, unless consented to by Agent and the Requisite Lenders, no payments shall be made, received or enforced with respect to the Litigation Obligations unless and until all other Obligations shall have been indefeasibly paid in full and all Commitments shall have expired or been terminated. IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. CODE-ALARM, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President ------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Term Lender By: /s/ Timothy S. Van Kirk ---------------------------------- Name: Timothy S. Van Kirk ---------------------------- Title: Duly Authorized Signatory --------------------------- -9- 10 EXHIBIT A TO LITIGATION L/C AND TERM LOAN C AGREEMENT DATED AS OF OCTOBER 24, 1997 Form of Term Loan C Note Attached. -10- 11 EXHIBIT A (1.1 (d)(i)) TO LITIGATION L/C AND TERM LOAN C AGREEMENT FORM OF TERM C NOTE Chicago, Illinois 12,000,000 October 24, 1997 FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION ("Lender") at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders ("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago, Illinois 60603, or at such other place as Agent may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the amount of TWELVE MILLION DOLLARS AND NO CENTS ($12,000,000) or such lesser amount as may have been advanced as Term Loan C to the undersigned under the "Credit Agreement" (as hereinafter defined). All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. This Term C Note is one of the Term C Notes issued pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of October 24, 1997 by and among Borrower, the other Persons named therein as Credit Parties, Agent, Lender and the other Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), evidences Lender's Term Loan C, and is entitled to the benefit and security of the Credit Agreement and the Litigation Collateral Documents referred to therein. Reference is hereby made to the Credit Agreement for a statement of all of the terms and conditions under which such Term Loan C is made and is to be repaid. The principal balance of such Term Loan C, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by Agent on its books; provided that the failure of Agent to make any such recordation shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or this Term C Note. Borrower shall pay the aggregate amount of the Term Loan C evidenced hereby in equal, consecutive quarterly installments equal to the lesser of (i) $250,000 or (ii) one-twelfth (1/12) of the aggregate original principal amount of such Loan on the first day of January, April, July and October of each year, commencing, subject to the terms of the Credit Agreement, on the first of such dates occurring after the Term Loan C Funding Date. Interest thereon shall be paid 12 until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Credit Agreement. The terms of the Credit Agreement are hereby incorporated herein by reference. If any payment on this Term C Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (except as otherwise provided in the Credit Agreement) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Term Note may, as provided in the Credit Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Term C Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. Except as provided in the Credit Agreement, this Term C Note may not be assigned by Lender to any Person. THIS TERM C NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. CODE-ALARM, INC. By:___________________________ Name:___________________ Title:__________________ EX-10.49 14 EXHIBIT 10.49 1 EX 10.49 [LITIGATION] EXECUTION COPY SECURITY AGREEMENT SECURITY AGREEMENT, dated as of October 24, 1997, between CODE-ALARM, INC., a Michigan corporation ("Grantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. W I T N E S S E T H: WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of the date hereof by and among Grantor (in such capacity, "Borrower"), Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), such Term Lenders (collectively, the "Lenders") have agreed to incur Litigation Obligations for the benefit of the Borrower; WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and Litigation Collateral Documents (hereinafter, the "Loan Documents") and to induce Lenders to incur Litigation L/C Obligations and certain other Litigation Obligations, including the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement (collectively, hereinafter, "Obligations"), Grantor has agreed to grant a continuing Lien on the Collateral (as hereinafter defined) to secure the Obligations; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Grantor's Obligations, Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Agent, for itself and the benefit of Lenders, a security interest in and lien upon all of its right, title and interest in, to and under the following property, other than Permitted Encumbrances, whether now owned by or owing to, or hereafter acquired by or arising in favor of Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, Grantor, and regardless of where located (all of which being hereinafter collectively referred to as the "Collateral"): 2 (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all Fixtures; (vii) all General Intangibles; (viii) all goods; (ix) all Instruments; (x) all Inventory; (xi) all Investment Property; (xii) all Borrower Accounts, Concentration Accounts, Disbursement Accounts, Funding Accounts, and all other deposit and other bank accounts and all deposits therein; (xiii) all money, cash or cash equivalents of Grantor; and (xiv) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce Agent and Lenders as aforesaid, Grantor hereby grants to Agent, for itself and the benefit of Lenders, a right of setoff against the property of Grantor held by Agent or any Lender, consisting of property described above in Section 2(a) now or hereafter in the possession or custody of or in transit to Agent or any Lender, for any purpose, including safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power. (c) The liens and security interests granted to Agent, for itself and the benefit of Lenders, pursuant to this Section 2 shall be, and shall be deemed to be, subordinate in priority to all Liens of Agent and Lenders now or hereafter securing the Obligations which do not -2- 3 constitute Litigation Obligations in accordance with Section 5.11 of the Litigation L/C Agreement, which is incorporated herein by reference. 3. AGENT'S AND LENDERS' RIGHTS; LIMITATIONS ON AGENT'S AND LENDERS' OBLIGATIONS. (a) It is expressly agreed by Grantor that, anything herein to the contrary notwithstanding, Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Neither Agent nor any Lender shall have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Agent or any Lender of any payment relating to any Contract or License pursuant hereto. Neither Agent nor any Lender shall be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Agent may at any time after an Event of Default shall have occurred and be continuing, without prior notice to Grantor, notify Account Debtors, parties to the Contracts and obligors in respect of Instruments and Chattel Paper, that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Agent, and that payments shall be made directly to Agent, for itself and the benefit of Lenders. Upon the request of Agent, Grantor shall so notify Account Debtors, parties to Contracts and obligors in respect of Instruments and Chattel Paper. (c) Agent may at any time in Agent's own name or in the name of Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper to verify with such Persons, to Agent's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. If an Event of Default shall have occurred and be continuing, Grantor, at its own expense, shall cause the independent certified public accountants then engaged by Grantor to prepare and deliver to Agent and each Lender at any time and from time to time promptly upon Agent's request the following reports with respect to Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Agent may request. Grantor, at its own expense, shall deliver to Agent the results of each physical verification, if any, which Grantor may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. -3- 4 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants that, on the Closing Date and, unless otherwise specified below, as of each time Grantor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (a) Grantor is the sole owner of each item of the Collateral upon which it purports to grant a Lien hereunder, and has good and marketable title thereto free and clear of any and all Liens other than Permitted Encumbrances. (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by Grantor in favor of Agent pursuant to this Security Agreement or the Loan Documents, and (ii) in connection with any other Permitted Encumbrances. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto and, with respect to locations of Collateral established after the Closing Date, such additional financing statements delivered to Agent pursuant to Section 4(g), a perfected Lien in favor of Agent, for itself and the benefit of Lenders, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations and Permitted Encumbrances that would be prior to Liens in favor of Agent for the benefit of Agent and Lenders as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from Grantor (other than purchasers of Inventory in the ordinary course of business). All action by Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken. (d) As of the Closing Date, Schedule II hereto lists all Instruments and Chattel Paper of Grantor, other than those having a face amount of less than $5,000 individually and an aggregate face amount of less than $10,000. All action by Grantor necessary or desirable to protect and perfect the Lien of Agent on each item set forth on Schedule II (including the delivery of all originals thereof to Agent and the legending of all Chattel Paper as required by Section 5(b) hereof), and on all Instruments and Chattel Paper of Grantor acquired after the Closing Date (other than those having a face amount of less than $5,000 individually and less than $10,000 in the aggregate, including those existing on the Closing Date), has been duly taken. The Lien of Agent, for the benefit of Agent and Lenders, on the Collateral listed on Schedule II hereto, and such Instruments and Chattel Paper acquired after the Closing Date, is prior to all other Liens, except all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations and Permitted Encumbrances that would be prior to the Liens in favor of Agent as a matter of law, and is enforceable as such against any and all creditors of and purchasers from Grantor. -4- 5 (e) Grantor's chief executive office, principal place of business, corporate offices, and, as of the Closing Date, all warehouses and premises where Collateral is stored or located and all locations of its books and records concerning the Collateral, are set forth on Schedule III hereto. Prior to Grantor's maintaining any Collateral at any other location, Grantor shall have obtained Agent's written consent thereto and shall have delivered to Agent signed financing statements with respect thereto and such additional documentation as may be required by Section 4(g) hereto. (f) With respect to the Accounts, except as specifically disclosed on the most recent Collateral Report delivered to Agent, (i) they represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and Grantor has not made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by Grantor in the ordinary course of its business for prompt payment and disclosed to Agent; (iii) to Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on Grantor's books and records and any invoices, statements and Collateral Reports delivered to Agent and Lenders with respect thereto; (iv) Grantor has not received any notice of proceedings or actions which are threatened or pending against any Account Debtor which might result in any adverse change in such Account Debtor's financial condition; (v) Grantor has no knowledge that any Account Debtor is unable generally to pay its debts as they become due, (vi) the amounts shown on all invoices, statements and Collateral Reports which may be delivered to the Agent with respect thereto are actually and absolutely owing to Grantor as indicated thereon and are not in any way contingent; (vii) no payments have been or shall be made thereon except payments immediately delivered to the Borrower Accounts or the Agent as required pursuant to the terms of Annex C to the Credit Agreement; and (viii) to Grantor's knowledge, all Account Debtors have the capacity to contract. (g) With respect to any Inventory scheduled or listed on the most recent Collateral Report delivered to Agent pursuant to the terms of this Security Agreement or the Credit Agreement, except as specifically disclosed on such Collateral Report, (i) such Inventory is located at one of Grantor's locations set forth on Schedule III hereto, or at such other locations with respect to which Grantor shall have obtained Agent's prior written consent pursuant to clause (ii) hereof and delivered to Agent additional financing statements and other documents as may be required by clause (ii) hereof, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without Agent's prior written consent, and if Agent gives such consent, Grantor will concurrently therewith deliver to Agent such additional financing statements as may be required by Agent with respect thereto and obtain, to the extent required by the Credit Agreement, bailee, consignee, landlord and mortgagee agreements with respect thereto, (iii) Grantor has good, indefeasible and merchantable title to such Inventory and -5- 6 such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder and pursuant to any other Security Agreement, and except for Permitted Encumbrances, (iv) such Inventory is Eligible Inventory of good and merchantable quality, free from any defects, (v) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (vi) the completion of manufacture, sale or other disposition of such Inventory by Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which Grantor is a party or to which such property is subject. (h) Grantor has no interest in, nor title to, any Patent, Trademark or Copyright except as set forth in Schedule IV hereto or, with respect to such property acquired or created after the Closing Date, as is described in writing to Agent within thirty (30) days of Grantor's acquisition or creation thereof. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office, and the filing of appropriate financing statements listed on Schedule I hereto, perfected Liens other than Permitted Encumbrances, in favor of Agent on Grantor's Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office and the filing of appropriate financing statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Agent's Lien on Grantor's Patents, Trademarks or Copyrights shall have been duly taken. 5. COVENANTS. Grantor covenants and agrees with Agent, for the benefit of Agent and Lenders, that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances; Pledge of Instruments. At any time and from time to time, upon the written request of Agent and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Agent of any License or Contract held by Grantor or in which Grantor has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the Code with respect to the Liens granted hereunder or under any other Loan Document, (iii) transferring Collateral to Agent's possession (for the benefit of Agent and Lenders) if such Collateral consists of Chattel Paper, Instruments (subject to the provisions of Section 4(d)) or if a Lien on such -6- 7 Collateral can be perfected only by possession, and (iv) obtaining, or using its best efforts to obtain, waivers of Liens, if any exist, from landlords, bailees, consignees and mortgagees in accordance with the Credit Agreement. Grantor also hereby authorizes Agent, for the benefit of Agent and Lenders, to file any such financing or continuation statements without the signature of Grantor to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Agent immediately upon Grantor's receipt thereof. (b) Maintenance of Records. Grantor shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantor shall mark its books and records pertaining to the Collateral to evidence this Security Agreement and the Liens granted hereby. Subject to the materiality exceptions set forth in Section 4(d), Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation, as Agent, for the benefit of Agent and certain Lenders." (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantor shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including 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) regarding Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Agent prior written notice thereof, and, upon request of Agent, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Agent may request to evidence Agent's Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby. (iii) Grantor shall take all actions necessary or requested by Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of -7- 8 noncontestability and opposition and interference and cancellation proceedings, unless Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of its business. (iv) In the event that any of the Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Agent promptly after Grantor learns thereof. Grantor shall, unless Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Agent or any Lender relating to any Account, Chattel Paper, Contract, Document, General Intangible or Instrument for any sum owing thereunder or to enforce any provision of any Account, Chattel Paper, Contract, Document, General Intangible or Instrument, Grantor will save, indemnify and keep Agent and Lenders harmless from and against all expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Grantor, except in the case of Agent or any Lender, to the extent such expense, loss, or damage is attributable to the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. All such obligations of Grantor shall be and remain enforceable against and only against Grantor and shall not be enforceable against Agent or any Lender. (e) Compliance with Terms of Accounts, etc. In all material respects, Grantor will perform and comply with all obligations in respect of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. Grantor will not create, permit or suffer to exist, and Grantor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except the Liens granted to Agent, for the benefit of Agent and Lenders, hereunder and pursuant to any other Security Agreement and Permitted Encumbrances, and will defend the right, title and interest of Agent and Lenders in and to any of Grantor's rights under the Collateral against the claims and demands of all Persons whomsoever. (g) Limitations on Disposition. Grantor will not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Credit Agreement. -8- 9 (h) Further Identification of Collateral. Grantor will, if so requested by Agent, furnish to Agent, as often as Agent requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in such detail as Agent may specify. (i) Notices. Grantor will advise Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder or under any other Loan Document. 6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date Grantor shall execute and deliver to Agent a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Agent, for the benefit of Agent and Lenders, under the Power of Attorney are solely to protect Agent's interests (for the benefit of Agent and Lenders) in the Collateral and shall not impose any duty upon Agent or any Lender to exercise any such powers. Agent agrees that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Agent shall account for any moneys received by Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that none of Agent nor any Lender shall have any duty as to any Collateral, and Agent and Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF AGENT, LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES TO THE EXTENT ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES; RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Agent may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) -9- 10 to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving Grantor or any other Person notice and opportunity for a hearing on Agent's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Agent or any 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 for the benefit of Agent and Lenders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Agent shall have the right to conduct such sales on Grantor's premises or elsewhere and shall have the right to use Grantor's premises without charge for such time or times as Agent deems necessary or advisable. Grantor further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at places which Agent shall select, whether at Grantor's premises or elsewhere. Until Agent is able to effect a sale, lease, or other disposition of Collateral, Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Agent. Agent shall have no obligation to Grantor to maintain or preserve the rights of Grantor as against third parties with respect to Collateral while Collateral is in the possession of Agent. Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Agent's remedies (for the benefit of Agent and Lenders), with respect to such appointment without prior notice or hearing as to such appointment. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Agent of any other amount required by any provision of law, need Agent account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Agent or any Lender arising out of the repossession, retention or sale of the Collateral except to the extent such arise out of the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. Grantor agrees that ten (10) days' prior written notice by Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including any attorneys' fees or other expenses incurred by Agent or any Lender to collect such deficiency. -10- 11 The rights and remedies available to Agent and the Lenders pursuant to this Section 7(a) shall be subject in all respects to the subordination provisions set forth in Section 2(c) hereof and Section 5.11 of the Litigation L/C Agreement. (b) Except as otherwise specifically provided herein, Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Agent to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Agent shall be lawfully entitled to exercise such rights and remedies, Grantor hereby grants to Agent, for the benefit of Agent and Lenders, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL. Agent and each Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Neither Agent nor any Lender shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of Agent or such Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. Notwithstanding anything contained herein to the contrary, this Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. -11- 12 11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the Loan Documents which, taken together, set forth the complete understanding and agreement of Agent, Lenders and Grantor with respect to the matters referred to herein and therein. 13. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Agent and Grantor. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. -12- 13 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor (including any debtor-in-possession on behalf of Grantor) and shall, together with the rights and remedies of Agent, for the benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one and the same agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG GRANTOR, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. -13- 14 GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 20. Section Titles. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and Section 19, with its counsel. 23. Benefit of Lenders. All Liens granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. -14- 15 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President --------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ----------------------------------- Name: Timothy S. Van Kirk ---------------------------- Title: Duly Authorized Signatory --------------------------- 16 SCHEDULE I ---------- FILING JURISDICTIONS -------------------- 1. UCC-1 Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas 2. UCC Fixture Financing Statements: Debtor: CODE-ALARM, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas 17 SCHEDULE II ----------- INSTRUMENTS ----------- None. 18 SCHEDULE III ------------ SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING GRANTOR'S COLLATERAL ------------------------------------------- I. Chief Executive Office and principal place of business of Grantor: 950 E. Whitcomb Madison Heights, Michigan II. Corporate Offices of Grantor: 950 E. Whitcomb Madison Heights, Michigan III. Warehouses: 950 E. Whitcomb Madison Heights, Michigan 16742 Burke Lane Huntington Beach, California IV. Other Premises at which Collateral is Stored or Located: 300 Industrial Drive Georgetown, Texas V. Locations of Records Concerning Collateral: 950 E. Whitcomb Madison Heights, Michigan 16742 Burke Lane Huntington Beach, California 19 SCHEDULE IV ----------- PATENTS, TRADEMARKS AND COPYRIGHTS ---------------------------------- PATENTS: CODE-ALARM - -------------------- PATENT REGISTRATIONS ---------------------
Mark Patent No. Issue Date ---- ---------- ---------- AUTOMOBILE BURGLAR 4,740,775 4/26/88 ALARM SECURITY SYSTEM 5,543,778 8/6/96 VEHICLE ANTITHEFT 4,107,543 8/15/78 SYSTEM SECURITY SYSTEM 4,333,074 6/1/82 PATENT APPLICATIONS Serial No. Filing Date ---------- ----------- 08/624,146 5/28/93 08/774,954 4/19/93 08/842,374 4/23/97 08/838,684 4/9/97
20 PATENT LICENSES ---------------
Name of Agreement Parties/Purpose Date of Agreement ----------------- --------------- ----------------- MAGNADYNE/NUTEK: Code-Alarm licensed "Price" April 1996 Cross License patent to Magnadyne/Nutek; Agreement Magnadyne/Nutek licensed "Chen" patent to Code-Alarm BULLDOG Code-Alarm, Inc. licensed September 1994 "Price" patent use to Bulldog AUDIOVOX Code-Alarm, Inc. August 1994 licensed "Stouffer" patent to Audiovox AUDIOVOX: Cross Code-Alarm licensed use of August 1994 License Agreement "Price" patent to Audiovox; Audiovox licensed use of "Posse" patent to Code-Alarm SHERWOOD Code-Alarm licensed use of January 1997 "Price" patent to Sherwood
21 TRADEMARKS: CODE-ALARM - ----------------------- TRADEMARK REGISTRATIONS ------------------------
Mark Reg. No. Date ---- -------- ---- ELITE 1,709,313 8/18/92
The following table lists Code-Alarm's Common Law Trademarks. Where a federal Trademark has been abandoned, the prior Registration Number and Registration Date are included; where a federal Trademark Application has been abandoned, the Serial Number and Filing Date are included.
Mark Prior Reg. No./Serial No. Prior Reg./Filing Date ---- ------------------------- ---------------------- MIRAGE 1,528,131 (cancelled) 3/7/89 CODE-ALARM 1,537,231 (cancelled) 5/2/89 SCORPION 1,588,738 (cancelled) 3/27/90 FOCUS BAND 74/360,227 (abandoned) 2/19/93 CRF 74/360,230 (abandoned) 2/19/93 INTERCEPT 74/020,162 (abandoned) 1/18/90 FALCON (abandoned) LIVEWIRES Not Registered MICRO-SHIELD Not Registered NIGHTHAWK Not Registered PREDATOR Not Registered RADICAL AUDIO DESIGN Not Registered RAD WIRES Not Registered
22 TRADEMARK APPLICATIONS ----------------------
Mark Serial No. Filing Date ---- ---------- ----------- CODE-ALARM 75/333,752 7/31/97 CODE-ALARM 75/333,753 7/31/97 CODE 75/333,754 7/31/97 CODE-ALARM and Design 75/333,755 7/31/97 CODE-ALARM 75/333,756 7/31/97 PRO 75/333,757 7/31/97 TRADEMARK LICENSES ------------------ Name of Agreement Parties Date of Agreement ----------------- ------- ----------------- None.
23 EXHIBIT A --------- POWER OF ATTORNEY This Power of Attorney is executed and delivered by Code-Alarm, Inc., a Michigan corporation ("Grantor") to General Electric Capital Corporation, a New York corporation (hereinafter referred to as "Attorney"), as Agent for the benefit of Agent and Lenders, under a Credit Agreement and a Security Agreement, both dated as of October 24, 1997 and other related documents (the "Loan Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Loan Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time following the occurrence and during the continuation of an Event of Default, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue to obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise 24 deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney's request, the following reports: (1) a reconciliation of all accounts; (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; and (h) execute, in connection with sale provided for in any Loan Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fully and effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this 24th day of October, 1997. CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------------------- Name: Rand Mueller ---------------------------- Title: President --------------------------- ATTEST: By: /s/ Craig S. Camalo --------------------------------- (SEAL) Title: Vice President and CFO ------------------------ EX-10.50 15 EXHIBIT 10.50 1 EXHIBIT 10.50 [LITIGATION] EXECUTION COPY (TESSCO) SECURITY AGREEMENT SECURITY AGREEMENT, dated as of October 24, 1997, between TESSCO GROUP, INC., a Michigan corporation ("Grantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. W I T N E S S E T H: WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), such Term Lenders (collectively, the "Lenders") have agreed to incur Litigation Obligations for the benefit of the Borrower; WHEREAS, Grantor is currently a wholly-owned subsidiary of Borrower and will derive direct and indirect economic benefits from financial accommodations provided to Borrower pursuant to the Credit Agreement; WHEREAS, Agent and Lenders are willing to incur Litigation Obligations as provided for in the Credit Agreement, but only upon the condition, among others, that Grantor shall have executed and delivered to Agent, for itself and the ratable benefit of Lenders, that certain Guaranty dated as of the date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Guaranty"); WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and Litigation Collateral Documents (hereinafter, "Loan Documents") and to induce Lenders to incur Litigation L/C Obligations and certain other Litigation Obligations, including the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement (collectively, hereinafter, "Obligations"), Grantor has agreed to grant to Agent, for the benefit of itself and Lenders, a lien on and security interest in substantially all of its property as security for such Guaranteed Obligations (as defined in the Guaranty). NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Credit Agreement or in Annex A thereto. All other undefined terms contained in this Security Agreement, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. 2. GRANT OF LIEN. (a) To secure the prompt and complete payment, performance and observance of all of the Guaranteed Obligations and all other Obligations other than Permitted Encumbrances and Litigation Obligations (hereinafter, "Obligations") of Grantor hereunder and under each of the Loan Documents to which it is a party, Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Agent, for itself and the benefit of Lenders, a security interest in and lien upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of Grantor (including under any trade names, styles or derivations thereof), and whether owned or consigned by or to, or leased from or to, Grantor, and regardless of where located (all of which being hereinafter collectively referred to as the "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all Fixtures; (vii) all General Intangibles; (viii) all goods; (ix) all Instruments; (x) all Inventory; (xi) all Investment Property; -2- 3 (xii) all Borrower Accounts, Concentration Accounts, Disbursement Accounts, and all other deposit and other bank accounts and all deposits therein; (xiii) all money, cash or cash equivalents of Grantor; and (xiv) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, to secure the prompt and complete payment, performance and observance of the Obligations and in order to induce Agent and Lenders as aforesaid, Grantor hereby grants to Agent, for itself and the benefit of Lenders, a right of setoff against the property of Grantor held by Agent or any Lender, consisting of property described above in Section 2(a) now or hereafter in the possession or custody of or in transit to Agent or any Lender, for any purpose, including safekeeping, collection or pledge, for the account of Grantor, or as to which Grantor may have any right or power. (c) The liens and security interests granted to Agent, for itself and the benefit of Lenders, pursuant to this Section 2 shall be, and shall be deemed to be, subordinate in priority to all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations in accordance with Section 5.11 of the Litigation L/C Agreement, which is incorporated herein by reference. 3. AGENT'S AND LENDERS' RIGHTS; LIMITATIONS ON AGENT'S AND LENDERS' OBLIGATIONS. (a) It is expressly agreed by Grantor that, anything herein to the contrary notwithstanding, Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder. Neither Agent nor any Lender shall have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting herein of a Lien thereon or the receipt by Agent or any Lender of any payment relating to any Contract or License pursuant hereto. Neither Agent nor any Lender shall be required or obligated in any manner to perform or fulfill any of the obligations of Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Agent may at any time after an Event of Default shall have occurred and be continuing, without prior notice to Grantor, notify Account Debtors, parties to the Contracts -3- 4 and obligors in respect of Instruments and Chattel Paper, that the Accounts and the right, title and interest of Grantor in and under such Contracts, Instruments and Chattel Paper have been assigned to Agent, and that payments shall be made directly to Agent, for itself and the benefit of Lenders. Upon the request of Agent, Grantor shall so notify Account Debtors, parties to Contracts and obligors in respect of Instruments and Chattel Paper. (c) Agent may at any time in Agent's own name or in the name of Grantor communicate with Account Debtors, parties to Contracts, obligors in respect of Instruments and obligors in respect of Chattel Paper to verify with such Persons, to Agent's satisfaction, the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. If an Event of Default shall have occurred and be continuing, Grantor, at its own expense, shall cause the independent certified public accountants then engaged by Grantor to prepare and deliver to Agent and each Lender at any time and from time to time promptly upon Agent's request the following reports with respect to Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as Agent may request. Grantor, at its own expense, shall deliver to Agent the results of each physical verification, if any, which Grantor may in its discretion have made, or caused any other Person to have made on its behalf, of all or any portion of its Inventory. 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants that, on the Closing Date and, unless otherwise specified below, as of each time Grantor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (a) Grantor is the sole owner of each item of the Collateral upon which it purports to grant a Lien hereunder, and has good and marketable title thereto free and clear of any and all Liens other than Permitted Encumbrances. (b) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed (i) by Grantor in favor of Agent pursuant to this Security Agreement or the Loan Documents, and (ii) in connection with any other Permitted Encumbrances. (c) This Security Agreement is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements listed on Schedule I hereto and, with respect to locations of Collateral established after the Closing Date, such additional financing statements delivered to Agent pursuant to Section 4(g), a perfected Lien in favor of Agent, for itself and the benefit of Lenders, on the Collateral with respect to which a Lien may be perfected by filing pursuant to the Code. Such Lien is prior to all other Liens, except all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations and Permitted Encumbrances that would be prior to Liens in favor of Agent for the benefit of Agent and Lenders as a matter of law, and is enforceable as such as against any and all creditors of and purchasers from Grantor (other than purchasers of Inventory in the ordinary -4- 5 course of business). All action by Grantor necessary or desirable to protect and perfect such Lien on each item of the Collateral has been duly taken. (d) As of the Closing Date, Schedule II hereto lists all Instruments and Chattel Paper of Grantor, other than those having a face amount of less than $5,000 individually and an aggregate face amount of less than $10,000. All action by Grantor necessary or desirable to protect and perfect the Lien of Agent on each item set forth on Schedule II (including the delivery of all originals thereof to Agent and the legending of all Chattel Paper as required by Section 5(b) hereof), and on all Instruments and Chattel Paper of Grantor acquired after the Closing Date (other than those having a face amount of less than $5,000 individually and less than $10,000 in the aggregate, including those existing on the Closing Date), has been duly taken. The Lien of Agent, for the benefit of Agent and Lenders, on the Collateral listed on Schedule II hereto, and such Instruments and Chattel Paper acquired after the Closing Date, is prior to all other Liens, except all Liens of Agent and Lenders now or hereafter securing the Obligations which do not constitute Litigation Obligations and Permitted Encumbrances that would be prior to the Liens in favor of Agent as a matter of law, and is enforceable as such against any and all creditors of and purchasers from Grantor. (e) Grantor's chief executive office, principal place of business, corporate offices, and, as of the Closing Date, all warehouses and premises where Collateral is stored or located and all locations of its books and records concerning the Collateral, are set forth on Schedule III hereto. Prior to Grantor's maintaining any Collateral at any other location, Grantor shall have obtained Agent's written consent thereto and shall have delivered to Agent signed financing statements with respect thereto and such additional documentation as may be required by Section 4(g) hereto. (f) With respect to the Accounts, except as specifically disclosed on the most recent Collateral Report delivered to Agent, (i) they represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of Grantor's business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or disputes existing or asserted with respect thereto and Grantor has not made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by Grantor in the ordinary course of its business for prompt payment and disclosed to Agent; (iii) to Grantor's knowledge, there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on Grantor's books and records and any invoices, statements and Collateral Reports delivered to Agent and Lenders with respect thereto; (iv) Grantor has not received any notice of proceedings or actions which are threatened or pending against any Account Debtor which might result in any adverse change in such Account Debtor's financial condition; (v) Grantor has no knowledge that any Account Debtor is unable generally to pay its debts as they become due, (vi) the amounts shown on all invoices, statements and Collateral Reports which may be delivered to the Agent -5- 6 with respect thereto are actually and absolutely owing to Grantor as indicated thereon and are not in any way contingent; (vii) no payments have been or shall be made thereon except payments immediately delivered to the Borrower Accounts or the Agent as required pursuant to the terms of Annex C to the Credit Agreement; and (viii) to Grantor's knowledge, all Account Debtors have the capacity to contract. (g) With respect to any Inventory scheduled or listed on the most recent Collateral Report delivered to Agent pursuant to the terms of this Security Agreement or the Credit Agreement, except as specifically disclosed on such Collateral Report, (i) such Inventory is located at one of Grantor's locations set forth on Schedule III hereto, or at such other locations with respect to which Grantor shall have obtained Agent's prior written consent pursuant to clause (ii) hereof and delivered to Agent additional financing statements and other documents as may be required by clause (ii) hereof, (ii) no Inventory is now, or shall at any time or times hereafter be stored at any other location without Agent's prior written consent, and if Agent gives such consent, Grantor will concurrently therewith deliver to Agent such additional financing statements as may be required by Agent with respect thereto and obtain, to the extent required by the Credit Agreement, bailee, consignee, landlord and mortgagee agreements with respect thereto, (iii) Grantor has good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder and pursuant to any other Security Agreement, and except for Permitted Encumbrances, (iv) such Inventory is Eligible Inventory of good and merchantable quality, free from any defects, (v) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party upon sale or disposition of that Inventory or the payment of any monies to any third party as a precondition of such sale or other disposition, and (vi) the completion of manufacture, sale or other disposition of such Inventory by Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which Grantor is a party or to which such property is subject. (h) Grantor has no interest in, nor title to, any Patent, Trademark or Copyright except as set forth in Schedule IV hereto or, with respect to such property acquired or created after the Closing Date, as is described in writing to Agent within [thirty (30)] days of Grantor's acquisition or creation thereof. This Security Agreement is effective to create a valid and continuing Lien on and, upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office, and the filing of appropriate financing statements listed on Schedule I hereto, perfected Liens, other than Permitted Encumbrances, in favor of Agent on Grantor's Patents, Trademarks and Copyrights and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from Grantor. Upon filing of the Copyright Security Agreements with the United States Copyright Office and filing of the Patent Security Agreements and the Trademark Security Agreements with the United States Patent and Trademark Office and the filing of appropriate financing -6- 7 statements listed on Schedule I hereto, all action necessary or desirable to protect and perfect Agent's Lien on Grantor's Patents, Trademarks or Copyrights shall have been duly taken. 5. COVENANTS. Grantor covenants and agrees with Agent, for the benefit of Agent and Lenders, that from and after the date of this Security Agreement and until the Termination Date: (a) Further Assurances; Pledge of Instruments. At any time and from time to time, upon the written request of Agent and at the sole expense of Grantor, Grantor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (i) using its best efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of Agent of any License or Contract held by Grantor or in which Grantor has any rights not heretofore assigned, (ii) filing any financing or continuation statements under the Code with respect to the Liens granted hereunder or under any Loan Document, (iii) transferring Collateral to Agent's possession (for the benefit of Agent and Lenders) if such Collateral consists of Chattel Paper, Instruments (subject to the provisions of Section 4(d)) or if a Lien on such Collateral can be perfected only by possession, and (iv) obtaining, or using its best efforts to obtain, waivers of Liens, if any exist, from landlords, bailees, consignees and mortgagees in accordance with the Credit Agreement. Grantor also hereby authorizes Agent, for the benefit of Agent and Lenders, to file any such financing or continuation statements without the signature of Grantor to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral is or shall become evidenced by any Instrument, such Instrument, other than checks and notes received in the ordinary course of business, shall be duly endorsed in a manner satisfactory to Agent immediately upon Grantor's receipt thereof. (b) Maintenance of Records. Grantor shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Grantor shall mark its books and records pertaining to the Collateral to evidence this Security Agreement and the Liens granted hereby. Subject to the materiality exceptions set forth in Section 4(d), Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation, as Agent, for the benefit of Agent and certain Lenders." (c) Covenants Regarding Patent, Trademark and Copyright Collateral. (i) Grantor shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or -7- 8 development (including 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) regarding Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (ii) In no event shall Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving Agent prior written notice thereof, and, upon request of Agent, Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements or Trademark Security Agreements as Agent may request to evidence Agent's Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby. (iii) Grantor shall take all actions necessary or requested by Agent to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless Grantor shall determine that such Patent, Trademark or Copyright is not material to the conduct of its business. (iv) In the event that any of the Patent, Trademark or Copyright Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Agent promptly after Grantor learns thereof. Grantor shall, unless Grantor shall reasonably determine that such Patent, Trademark or Copyright Collateral is in no way material to the conduct of its business or operations, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as Agent shall deem appropriate under the circumstances to protect such Patent, Trademark or Copyright Collateral. (d) Indemnification. In any suit, proceeding or action brought by Agent or any Lender relating to any Account, Chattel Paper, Contract, Document, General Intangible or Instrument for any sum owing thereunder or to enforce any provision of any Account, Chattel Paper, Contract, Document, General Intangible or Instrument, Grantor will save, indemnify and keep Agent and Lenders harmless from and against all expense (including reasonable attorneys' fees and expenses), loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from Grantor, except in the case of Agent or any Lender, to the extent such expense, loss, or damage is attributable to the gross negligence or willful misconduct of Agent or such Lender as finally determined by a -8- 9 court of competent jurisdiction. All such obligations of Grantor shall be and remain enforceable against and only against Grantor and shall not be enforceable against Agent or any Lender. (e) Compliance with Terms of Accounts, etc. In all material respects, Grantor will perform and comply with all obligations in respect of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it is bound relating to the Collateral. (f) Limitation on Liens on Collateral. Grantor will not create, permit or suffer to exist, and Grantor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except the Liens granted to Agent, for the benefit of Agent and Lenders, hereunder and pursuant to any other Security Agreement and Permitted Encumbrances, and will defend the right, title and interest of Agent and Lenders in and to any of Grantor's rights under the Collateral against the claims and demands of all Persons whomsoever. (g) Limitations on Disposition. Grantor will not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so except as permitted by the Credit Agreement. (h) Further Identification of Collateral. Grantor will, if so requested by Agent, furnish to Agent, as often as Agent requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in such detail as Agent may specify. (i) Notices. Grantor will advise Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder or under any Loan Document. 6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. On the Closing Date Grantor shall execute and deliver to Agent a power of attorney (the "Power of Attorney") substantially in the form attached hereto as Exhibit A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on Agent, for the benefit of Agent and Lenders, under the Power of Attorney are solely to protect Agent's interests (for the benefit of Agent and Lenders) in the Collateral and shall not impose any duty upon Agent or any Lender to exercise any such powers. Agent agrees that (a) it shall not exercise any power or authority granted under the Power of Attorney unless an Event of Default has occurred and is continuing, and (b) Agent shall account for any moneys received by Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided that none of Agent nor any Lender shall have any duty as to any Collateral, and Agent and Lenders -9- 10 shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF AGENT, LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES TO THE EXTENT ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 7. REMEDIES; RIGHTS UPON DEFAULT. (a) In addition to all other rights and remedies granted to it under this Security Agreement, the Credit Agreement, the Loan Documents and under any other instrument or agreement securing, evidencing or relating to any of the Obligations, if any Event of Default shall have occurred and be continuing, Agent may exercise all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, Grantor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith enter upon the premises of Grantor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving Grantor or any other Person notice and opportunity for a hearing on Agent's claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk. Agent or any 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 for the benefit of Agent and Lenders, the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. Agent shall have the right to conduct such sales on Grantor's premises or elsewhere and shall have the right to use Grantor's premises without charge for such time or times as Agent deems necessary or advisable. Grantor further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at places which Agent shall select, whether at Grantor's premises or elsewhere. Until Agent is able to effect a sale, lease, or other disposition of Collateral, Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by Agent. Agent shall have no obligation to Grantor to maintain or preserve the -10- 11 rights of Grantor as against third parties with respect to Collateral while Collateral is in the possession of Agent. Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of Agent's remedies (for the benefit of Agent and Lenders), with respect to such appointment without prior notice or hearing as to such appointment. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations as provided in the Credit Agreement, and only after so paying over such net proceeds, and after the payment by Agent of any other amount required by any provision of law, need Agent account for the surplus, if any, to Grantor. To the maximum extent permitted by applicable law, Grantor waives all claims, damages, and demands against Agent or any Lender arising out of the repossession, retention or sale of the Collateral except to the extent such arise out of the gross negligence or willful misconduct of Agent or such Lender as finally determined by a court of competent jurisdiction. Grantor agrees that ten (10) days' prior written notice by Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations, including any attorneys' fees or other expenses incurred by Agent or any Lender to collect such deficiency. The rights and remedies available to Agent and the Lenders pursuant to this Section 7(a) shall be subject in all respects to the subordination provisions set forth in Section 2(c) hereof and Section 5.11 of the Litigation L/C Agreement. (b) Except as otherwise specifically provided herein, Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the purpose of enabling Agent to exercise rights and remedies under Section 7 hereof (including, without limiting the terms of Section 7 hereof, in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Collateral) at such time as Agent shall be lawfully entitled to exercise such rights and remedies, Grantor hereby grants to Agent, for the benefit of Agent and Lenders, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to Grantor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 9. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL. Agent and each Lender shall use reasonable care with respect to the Collateral in its possession or under its control. Neither Agent nor any Lender shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or -11- 12 nominee of Agent or such Lender, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 10. REINSTATEMENT. Notwithstanding anything contained herein to the contrary, this Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent transfer," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give and serve upon any other party any communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 12. SEVERABILITY. Whenever possible, each provision of this Security Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Credit Agreement and the Loan Documents which, taken together, set forth the complete understanding and agreement of Agent, Lenders and Grantor with respect to the matters referred to herein and therein. 13. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, -12- 13 nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Agent and Grantor. 14. LIMITATION BY LAW. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. 16. SUCCESSORS AND ASSIGNS. This Security Agreement and all obligations of Grantor hereunder shall be binding upon the successors and assigns of Grantor (including any debtor-in-possession on behalf of Grantor) and shall, together with the rights and remedies of Agent, for the benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the Lien granted to Agent, for the benefit of Agent and Lenders, hereunder. Grantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 17. COUNTERPARTS. This Security Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one and the same agreement. 18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR -13- 14 AND DETERMINE ANY CLAIMS OR DISPUTES AMONG GRANTOR, AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. -14- 15 20. Section Titles. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 21. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security Agreement. 22. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Security Agreement and, specifically, the provisions of Section 18 and Section 19, with its counsel. 23. Benefit of Lenders. All Liens granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Obligations in accordance with the terms of the Credit Agreement. -15- 16 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. TESSCO GROUP, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller ------------------------- Title: President ------------------------ GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk -------------------------------- Name: Timothy S. Van Kirk ------------------------- Title: Duly Authorized Signatory ------------------------- -16- 17 SCHEDULE I FILING JURISDICTIONS 1. UCC-1 Financing Statements: Debtor: TESSCO GROUP, INC. Locations: (1) Secretary of State of California (2) Secretary of State of Michigan (3) Secretary of State of Texas 2. UCC Fixture Financing Statements: Debtor: TESSCO GROUP, INC. Locations: (1) Oakland County, Michigan (2) Williamson County, Texas 18 SCHEDULE II INSTRUMENTS None. 19 SCHEDULE III SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING GRANTOR'S COLLATERAL I. Chief Executive Office and principal place of business of Grantor: 300 Industrial Drive Georgetown, Texas II. Corporate Offices of Grantor: 300 Industrial Drive Georgetown, Texas III. Warehouses: 300 Industrial Drive Georgetown, Texas IV. Other Premises at which Collateral is Stored or Located: None. V. Locations of Records Concerning Collateral: 300 Industrial Drive Georgetown, Texas 20 SCHEDULE IV PATENTS, TRADEMARKS AND COPYRIGHTS None. 21 EXHIBIT A POWER OF ATTORNEY This Power of Attorney is executed and delivered by Tessco Group, Inc., a Michigan corporation ("Grantor") to General Electric Capital Corporation, a New York corporation (hereinafter referred to as "Attorney"), as Agent for the benefit of Agent and Lenders, under a Credit Agreement and a Security Agreement, both dated as of October 24, 1997 and other related documents (the "Loan Documents"). No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation from Grantor as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Grantor irrevocable waives any right to commence any suit or action, in law or equity, against any person or entity which acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by Grantor without Attorney's written consent. Grantor hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as Grantor's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Grantor and in the name of Grantor or in its own name, from time to time in Attorney's discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of the Loan Documents and, without limiting the generality of the foregoing, Grantor hereby grants to Attorney the power and right, on behalf of Grantor, without notice to or assent by Grantor, and at any time following the occurrence and during the continuation of an Event of Default, to do the following: (a) change the mailing address of Grantor, open a post office box on behalf of Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and receipts for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any property of Grantor; (b) effect any repairs to any asset of Grantor, or continue to obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against Grantor or its property; (d) defend any suit, action or proceeding brought against Grantor if Grantor does not defend such suit, action or proceeding or if Attorney believes that Grantor is not pursuing such defense in a manner that will maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Grantor whenever payable and to enforce any other right in respect of Grantor's property; (f) 22 cause the certified public accountants then engaged by Grantor to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney's request, the following reports: (1) a reconciliation of all accounts; (2) an aging of all accounts, (3) trial balances, (4) test verifications of such accounts as Attorney may request, and (5) the results of each physical verification of inventory; (g) communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts and other matters relating thereto; and (h) execute, in connection with sale provided for in any Loan Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though Attorney were the absolute owner of the property of Grantor for all purposes, and to do, at Attorney's option and Grantor's expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon Grantor's property or assets and Attorney's Liens thereon, all as fullyand effectively as Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor and Grantor has caused its seal to be affixed pursuant to the authority of its board of directors this 24th day of October, 1997. TESSCO GROUP, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President -------------------------- ATTEST: By: /s/ Craig S. Camalo -------------------------------- (SEAL) Title: Vice President and CFO ---------------------- -2- EX-10.51 16 EXHIBIT 10.51 1 EXHIBIT 10.51 [LITIGATION] EXECUTION COPY (TESSCO) GUARANTY This GUARANTY (this "Guaranty"), dated as of October 24, 1997, by and between TESSCO GROUP, INC., a Michigan corporation ("Guarantor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, individually and as agent (in such capacity, "Agent") for itself and the "Lenders" from time to time signatory to the "Credit Agreement" hereinafter defined. WITNESSETH: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation (in such capacity, the "Borrower"), Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), such Term Lenders (hereinafter, "Lenders") have agreed to incur Litigation Obligations for the benefit of Borrower. WHEREAS, Guarantor is a currently wholly-owned subsidiary of Borrower and will derive direct and indirect economic benefits from the financial accommodations provided to Borrower pursuant to the Credit Agreement; and WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and Litigation Collateral Documents (hereinafter, the "Loan Documents") and to induce Lenders to incur Litigation L/C Obligations and certain other Litigation Obligations, including, the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement (collectively, hereinafter, "Obligations"), Guarantor has agreed to guarantee payment of the Obligations. NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lenders to provide the financial accommodations under the Credit Agreement, it is agreed as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement, unless otherwise defined herein. References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any annexes, exhibits and schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. 2 2. THE GUARANTY. 2.1 Guaranty of Guaranteed Obligations of Borrower. Guarantor hereby unconditionally guarantees to Agent and Lenders, and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Obligations of Borrower (hereinafter the "Guaranteed Obligations"). Guarantor agrees that this Guaranty is a guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in this Guaranty, any Loan Document or any other agreement, document or instrument to which any Credit Party are or may become a party; (b) the absence of any action to enforce this Guaranty or any Loan Document or the waiver or consent by Agent and/or Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any Collateral for the Guaranteed Obligations or any action, or the absence of any action, by Agent in respect thereof; (d) the insolvency of any Credit Party; or (e) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged until the Termination Date. Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Guaranteed Obligations. Guarantor agrees that any notice or directive given at any time to Agent which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by Agent and Lenders, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Agent and Lenders have specifically agreed otherwise in writing. It is agreed among Guarantor, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, Agent and Lenders would decline to enter into the Credit Agreement. 2.2 Demand by Agent or Lenders. In addition to the terms of the Guaranty set forth in Section 2.1 hereof, and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if, at any time, the outstanding principal amount of the Guaranteed Obligations under the Credit Agreement (including all accrued interest thereon) is 2 3 declared to be immediately due and payable (hereinafter, a "Guaranty Default"), then Guarantor shall, without demand, pay to the holders of the Guaranteed Obligations the entire outstanding Guaranteed Obligations due and owing to such holders. Payment by Guarantor shall be made to Agent in immediately available Federal funds to an account designated by Agent or at the address set forth herein for the giving of notice to Agent or at any other address that may be specified in writing from time to time by Agent, and shall be credited and applied to the Guaranteed Obligations. 2.3 Enforcement of Guaranty. In no event shall Agent have any obligation (although it is entitled, at its option) to proceed against Borrower or any other Credit Party before seeking satisfaction from Guarantor. 2.4 Waiver. In addition to the waivers contained in Section 2.1 hereof, Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshaling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its Guaranteed Obligations under, or the enforcement by Agent or Lenders of, this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Guaranteed Obligations, notice of adverse change in Borrower's financial condition or any other fact which might increase the risk to Guarantor) with respect to any of the Guaranteed Obligations or all other demands whatsoever and waive the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Agent or Lenders or any other Credit Party of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against Agent or any Lender or against any other Credit Party of any kind which may arise in the future. 2.5 Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any Credit Party and Agent or Lenders, the obligations of any Credit Party under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, indorsed or assigned by Agent or any Lender to any Person or Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.6 Modification of Guaranteed Obligations, Etc. Guarantor hereby acknowledges and agrees that Agent and Lenders may at any time or from time to time, with or without the consent of, or notice to, Guarantor: 3 4 (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for any Credit Party's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold Collateral for the payment of the Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Agent or Lenders have been granted a Lien, to secure any Obligations; (f) release anyone who may be liable in any manner for the payment of any amounts owed by Guarantor or any other Credit Party to Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of Guarantor or any other Credit Party are subordinated to the claims of Agent and Lenders; and/or (h) apply any sums by whomever paid or however realized to any amounts owing by Guarantor or any other Credit Party to Agent or any Lender in such manner as Agent or any Lender shall determine in its discretion; and Agent and Lenders shall not incur any liability to Guarantor as a result thereof, and no such action shall impair or release the Guaranteed Obligations of Guarantor under this Guaranty. 2.7 Reinstatement. Notwithstanding anything contained herein to the contrary, this Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Credit Party or Guarantor for liquidation or reorganization, should any Credit Party or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of such Credit Party's or Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by Agent or any Lender, whether as a "voidable preference", "fraudulent 4 5 transfer", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Guaranteed Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 2.8 Deferral of Subrogation, Etc. Notwithstanding anything to the contrary in this Guaranty, or in any Loan Document, Guarantor hereby: (a) expressly and irrevocably waives, on behalf of itself and its successors and assigns (including any surety) until the Termination Date, any and all rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to a guarantor against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which Guarantor may have or hereafter acquire against any Credit Party in connection with or as a result of Guarantor's execution, delivery and/or performance of this Guaranty, or any other documents to which Guarantor is a party or otherwise; and (b) acknowledges and agrees (i) that this waiver is intended to benefit Agent and Lenders and shall not limit or otherwise effect Guarantor's liability hereunder or the enforceability of this Guaranty, and (ii) that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.9 and their rights under this Section 2.9 shall survive payment in full of the Guaranteed Obligations. 2.9. Election of Remedies. If Agent may, under applicable law, proceed to realize benefits under any of the Loan Documents giving Agent and Lenders a Lien upon any Collateral owned by any Credit Party, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party, whether because of any applicable laws pertaining to "election of remedies" or the like, Guarantor hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation which Guarantor might otherwise have had but for such action by Agent. Any election of remedies which results in the denial or impairment of the right of Agent to seek a deficiency judgment against any Credit Party shall not impair Guarantor's obligation to pay the full amount of the Guaranteed Obligations. In the event Agent shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent may bid all or less than the amount of the Guaranteed Obligations and the amount of such bid need not be paid by Agent but shall be credited against the Guaranteed Obligations. The amount of the successful bid at any such sale shall be conclusively deemed to 5 6 be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Guaranteed Obligations shall be conclusively deemed to to be the amount of the Guaranteed Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent and Lenders might otherwise be entitled but for such bidding at any such sale. 2.10 Funds Transfers. If Guarantor shall engage in any transaction as a result of which Borrower is required to make a mandatory prepayment with respect to the Guaranteed Obligations under the terms of the Credit Agreement (including any sale of Guarantor's Stock or assets), Guarantor shall distribute to, or make a contribution to the capital of, the Borrower an amount equal to the mandatory prepayment required under the terms of the Credit Agreement. 3. DELIVERIES. In a form satisfactory to Agent, Guarantor shall deliver to Agent (with sufficient copies for each Lender), concurrently with the execution of this Guaranty and the Credit Agreement, the Loan Documents and other instruments, certificates and documents as are required to be delivered by Guarantor to Agent under the Credit Agreement. 4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to incur the Obligations under the Credit Agreement, Guarantor makes the representations and warranties as to Guarantor contained in the Credit Agreement, each of which is incorporated herein by reference, and the following representations and warranties to Agent and each Lender, each and all of which shall survive the execution and delivery of this Guaranty: 4.1 Corporate Existence; Compliance with Law. Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (ii) is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its charter and by-laws; and (vi) is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.2 Executive Offices. Guarantor's executive office and principal place of business are as set forth in Schedule I hereto. 4.3 Name. Guarantor's exact legal name is correctly set forth in the introductory paragraph to this Guaranty. 6 7 4.4 Corporate Power; Authorization; Enforceable Guaranteed Obligations. The execution, delivery and performance of this Guaranty and all Loan Documents and all instruments and documents to be delivered by Guarantor hereunder and under the Credit Agreement are within Guarantor's corporate power, have been duly authorized by all necessary or proper corporate action, including the consent of stockholders where required, are not in contravention of any provision of Guarantor's charter or by-laws, do not violate any law or regulation, or any order or decree of any Governmental Authority, do not conflict with or result in the breach of, or constitute a default under, or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Guarantor is a party or by which Guarantor or any of its property is bound, do not result in the creation or imposition of any Lien upon any of the property of any Guarantor, other than those in favor of Agent, for itself and the benefit of Lenders, and the same do not require the consent or approval of any Governmental Authority or any other Person except those referred to in Section 2.1(c) of the Credit Agreement, all of which have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, this Guaranty and each of the Loan Documents to which Guarantor is a party shall have been duly executed and delivered for the benefit of or on behalf of Guarantor, and each shall then constitute a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms. 5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of Agent or any Lender, to execute and deliver to Agent or such Lender, from time to time, any additional instruments or documents reasonably considered necessary by Agent or such Lender to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 6. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by each Guarantor hereunder shall be made to Agent and Lenders free and clear of, and without deduction for, any and all present and future Taxes. If Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (a) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 6) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (b) Guarantor shall make such deductions, and (c) Guarantor shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Guarantor shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof. Guarantor shall indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 6) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. 7 8 7. OTHER TERMS. 7.1 Entire Agreement. This Guaranty, together with the Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the loans and advances under the Loan Documents and/or the Guaranteed Obligations. 7.2 Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 7.3 Severability. Whenever possible, each provision of this Guaranty shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 7.4 Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Guaranty, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified as follows: (a) If to Agent, at: General Electric Capital Corporation 10 South LaSalle Street, Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopy Number: (312) 419-5957 Telephone Number: (312) 419-0985 8 9 with copies to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: H. Bruce Bernstein Telecopy Number: (312) 853-7036 Telephone Number: (312) 853-7000 and: General Electric Capital Corporation 201 High Ridge Road Stanford, Connecticut 06927-5100 Attention: General Counsel Telecopy Number: (203) 316-7889 Telephone Number: (203) 316-7552 (b) If to any Lender, at the address of such Lender specified in the Credit Agreement. (c) If to Guarantor, at the address of Guarantor specified on Schedule I hereto. or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and three (3) Business Days after the same shall have been deposited with the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 7.4), (iii) one (1) Business Day after deposit with a reputable overnight carrier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any of the above-listed persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 7.5 Successors and Assigns. This Guaranty and all obligations of Guarantor hereunder shall be binding upon the successors and assigns of Guarantor (including a debtor-in-possession on behalf of Guarantor) and shall, together with the rights and remedies of Agent, for itself and for the benefit of Lenders, hereunder, inure to the benefit of Agent and Lenders, all 9 10 future holders of any instrument evidencing any of the Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Obligations or any portion thereof or interest therein shall in any manner affect the rights of Agent and Lenders hereunder. Guarantor may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty. 7.6 No Waiver; Cumulative Remedies; Amendments. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Guaranty may be waived, altered, modified, supplemented or amended except by an instrument in writing, duly executed by Agent and Guarantor. 7.7 Termination. This Guaranty is a continuing guaranty and shall remain in full force and effect until the Termination Date. Upon payment and performance in full of the Guaranteed Obligations, Agent shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 7.8 Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall collectively and separately constitute one and the same agreement. 7.9 Credit Agreement. Guarantor agrees to perform, comply with and be bound by, the covenants contained in Sections 4, 5 and 6 of the Credit Agreement, and each other provision thereof which is specifically applicable to each Credit Party, which covenants and provisions are incorporated herein by reference. * * * * 10 11 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date first above written. TESSCO GROUP, INC. By: /s/ Rand Mueller ---------------------------------- Name: Rand Mueller ---------------------------- Title: President ---------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ----------------------------------- Name: Timothy S. Van Kirk -------------------------- Title: Duly Authorized Signatory -------------------------- 12 SCHEDULE I A. Executive Office; Principal Place of Business: 300 Industrial Avenue Georgetown, TX 78626 B. Address for Notices: 300 Industrial Avenue Georgetown, TX 78626 EX-10.52 17 EXHIBIT 10.52 1 EXHIBIT 10.52 [LITIGATION] EXECUTION COPY (CODE ALARM) PLEDGE AGREEMENT This PLEDGE AGREEMENT, dated as of October 24, 1997 (together with all amendments, if any, from time to time hereto, this "Agreement") between CODE-ALARM, INC., a Michigan corporation (the "Pledgor") and GENERAL ELECTRIC CAPITAL CORPORATION in its capacity as Agent for "Lenders," as defined below ("Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of the date hereof by and among Pledgor (in such capacity, the "Borrower"), Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified (the "Credit Agreement"), such Term Lenders (collectively, the "Lenders") have agreed to incur Litigation Obligations for the benefit of Borrower; WHEREAS, Pledgor is the record and beneficial owner of the shares of Stock listed in Schedule I hereto; WHEREAS, in order to induce Agent and Lenders to incur Litigation L/C Obligations and certain other Litigation Obligations, including the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement, Pledgor has agreed to pledge the Pledged Collateral to Agent in accordance herewith; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce Lenders to incur Obligations under the Credit Agreement, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Bankruptcy Code" means title 11, United States Code, as amended from time to time, and any successor statute thereto. "Pledged Collateral" has the meaning assigned to such term in Section 2 hereof. "Pledged Entity" means an issuer of Pledged Stock. "Pledged Shares" means those shares listed in Schedule I hereto. 2 "Secured Obligations" has the meaning assigned to such term in Section 3 hereof. 2. Pledge. Pledgor hereby pledges to Agent, and grants to Agent for itself and the benefit of Lenders, a continuing security interest in all of the following, other than Permitted Encumbrances (collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and (ii) such portion, as determined by Agent as provided in Section 6(d) below, of any additional shares of Stock of a Pledged Entity from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares, and all dividends, distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Stock. 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all Litigation Obligations of any kind under or in connection with the Credit Agreement and the other Litigation Collateral Documents (hereinafter, the "Loan Documents") and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent, for itself and the benefit of Lenders, pursuant hereto. All Pledged Shares shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Agent. 5. Representations and Warranties. Pledgor represents and warrants to Agent that on the Closing Date and, unless otherwise specified below, as of each time Pledgor requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (a) Pledgor is, and at the time of delivery of the Pledged Shares to Agent will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for Permitted Encumbrances or any Lien created by this Agreement; (b) All of the Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable; 2 3 (c) Pledgor has the right and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Agent as provided herein; (d) None of the Pledged Shares has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject; (e) All of the Pledged Shares are presently owned by Pledgor, and are presently represented by the certificates listed in Schedule I hereto. As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged Shares; (f) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally; (g) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid Lien on and a continuing perfected security interest in favor of the Agent for the benefit of Agent and Lenders in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations, subject to no other Lien (other than Permitted Encumbrances and Liens created pursuant to the Litigation Collateral Documents); (h) This Agreement has been duly authorized, executed and delivered by Pledgor and constitutes a legal, valid and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms; and (i) The Pledged Shares constitute 100% of the issued and outstanding shares of Stock of each Pledged Entity. The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Agreement. 6. Covenants. Pledgor covenants and agrees that until the Termination Date: (a) Without the prior written consent of Agent, Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or any unpaid dividends, interest or other distributions or payments with respect to the 3 4 Pledged Collateral or grant a Lien in the Pledged Collateral, unless otherwise expressly permitted by the Credit Agreement; (b) Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Agent from time to time may request in order to ensure to Agent and Lenders the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary Code financing statements, which may be filed by Agent with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Agent, at Pledgor's expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral; (c) Pledgor has and will defend the title to the Pledged Collateral and the Liens of Agent in the Pledged Collateral against the claim of any Person and will maintain and preserve such Liens; and (d) Pledgor will, upon obtaining ownership of any additional Stock of a Pledged Entity or Stock otherwise required to be pledged to Agent pursuant to any of the Loan Documents, which Stock is not already Pledged Collateral, promptly (and in any event within three (3) Business Days) deliver to Agent a Pledge Amendment, duly executed by Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment") in respect of any such additional Stock, pursuant to which Pledgor shall pledge to Agent all of such additional Stock. Pledgor hereby authorizes Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Agent shall for all purposes hereunder be considered Pledged Collateral. 7. Pledgor's Rights. As long as no Default or Event of Default shall have occurred and be continuing and until written notice shall be given to Pledgor in accordance with Section 8(a) hereof: (a) Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of Agent in respect of the Pledged Collateral or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Credit Agreement): (i) the dissolution or liquidation, in whole or in part, of a Pledged Entity; 4 5 (ii) the consolidation or merger of a Pledged Entity with any other Person; (iii) the sale, disposition or encumbrance of all or substantially all of the assets of a Pledged Entity, except for Liens in favor of Agent; (iv) any change in the authorized number of shares, the stated capital or the authorized share capital of a Pledged Entity or the issuance of any additional shares of its Stock; or (v) the alteration of the voting rights with respect to the Stock of a Pledged Entity; and (b) (i) Pledgor shall be entitled, from time to time, to collect and receive for its own use all cash dividends paid in respect of the Pledged Shares to the extent not in violation of the Credit Agreement other than any and all: (A) dividends paid or payable other than in cash in respect of any Pledged Collateral, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral; (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in capital of a Pledged Entity; and (C) cash paid, payable or otherwise distributed, in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral; provided, however, that until actually paid all rights to such distributions shall remain subject to the Lien created by this Agreement; and (ii) all dividends (other than such cash dividends as are permitted to be paid to Pledgor in accordance with clause (i) above) and all other distributions in respect of any of the Pledged Shares, whenever paid or made, shall be delivered to Agent to hold as Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Agent, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). 8. Defaults and Remedies. (a) Upon the occurrence of an Event of Default and during the continuation of such Event of Default, and concurrently with written notice to Pledgor, Agent (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates representing or evidencing Pledged Collateral for certificates of smaller or larger denominations, to exercise the voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, to sell in one 5 6 or more sales after ten (10) days' notice of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though Agent was the outright owner thereof, Pledgor hereby irrevocably constituting and appointing Agent as the proxy and attorney-in-fact of Pledgor, with full power of substitution to do so, and which appointment shall remain in effect until the Termination Date; provided, however, Agent shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at Agent's place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Agent may deem fair, and Agent may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Agent reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Agent. (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to Agent, in its discretion, that the proceeds of the sales of the whole of the Pledged Collateral would be unlikely to be sufficient to discharge all the Secured Obligations, Agent may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after ten (10) days' notice to Pledgor. c) If, at any time when Agent in its sole discretion determines, following the occurrence and during the continuance of an Event of Default, that, in connection with any actual or contemplated exercise of its rights (when permitted under this Section 8) to sell the whole or any part of the Pledged Shares hereunder, it is necessary or advisable to effect a public registration of all or part of the Pledged Collateral pursuant to the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Pledgor shall, in an expeditious manner, cause the Pledged Entities to: (i) Prepare and file with the Securities and Exchange Commission (the " Commission") a registration statement with respect to the Pledged Shares and in good faith use commercially reasonable efforts to cause such registration statement to become and remain effective; 6 7 (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of the Pledged Shares covered by such registration statement whenever Agent shall desire to sell or otherwise dispose of the Pledged Shares; (iii) Furnish to Agent such numbers of copies of a prospectus and a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Agent may request in order to facilitate the public sale or other disposition of the Pledged Shares by Agent; (iv) Use commercially reasonable efforts to register or qualify the Pledged Shares covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as Agent shall request, and do such other reasonable acts and things as may be required of it to enable Agent to consummate the public sale or other disposition in such jurisdictions of the Pledged Shares by Agent; (v) Furnish, at the request of Agent, on the date that shares of the Pledged Collateral are delivered to the underwriters for sale pursuant to such registration or, if the security is not being sold through underwriters, on the date that the registration statement with respect to such Pledged Shares becomes effective, (A) an opinion, dated such date, of the independent counsel representing such registrant for the purposes of such registration, addressed to the underwriters, if any, and in the event the Pledged Shares are not being sold through underwriters, then to Agent, in customary form and covering matters of the type customarily covered in such legal opinions; and (B) a comfort letter, dated such date, from the independent certified public accountants of such registrant, addressed to the underwriters, if any, and in the event the Pledged Shares are not being sold through underwriters, then to Agent, in a customary form and covering matters of the type customarily covered by such comfort letters and as the underwriters or Agent shall reasonably request. The opinion of counsel referred to above shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as Agent may reasonably request. The letter referred to above from the independent certified public accountants shall additionally cover such other financial matters (including information as to the period ending not more than five (5) Business Days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as Agent may reasonably request; and (vi) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but not later than 18 months 7 8 after the effective date of the registration statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act. (d) All expenses incurred in complying with Section 8(c) hereof, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel for the registrant, the fees and expenses of counsel for Agent, expenses of the independent certified public accountants (including any special audits incident to or required by any such registration) and expenses of complying with the securities or blue sky laws or any jurisdictions, shall be paid by Pledgor. (e) If, at any time when Agent shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Agent may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Agent may deem necessary or advisable, but subject to the other requirements of this Section 8, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, Agent in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (y) may approach and negotiate with a single possible purchaser to effect such sale, and (z) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8, then Agent shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions: (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale; (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof; 8 9 (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgor and such Person's intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and (iv) as to such other matters as Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (f) Pledgor recognizes that Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (e) above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and the Pledged Entity would agree to do so. (g) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Pledgor agrees that it will not interfere with any right, power and remedy of Agent provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by Agent of any one or more of such rights, powers or remedies. No failure or delay on the part of Agent to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any such remedies shall operate as a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (h) Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Agent, that Agent shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and 9 10 Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations. 9. Waiver. No delay on Agent's part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Agent's rights as against Pledgor in any respect. 10. Assignment. Agent may assign, indorse or transfer any instrument evidencing all or any part of the Secured Obligations as provided in, and in accordance with, the Credit Agreement, and the holder of such instrument shall be entitled to the benefits of this Agreement. 11. Termination. Immediately following the Termination Date, Agent shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the Liens hereof and, except as otherwise provided herein, all of Pledgor's obligations hereunder shall at such time terminate. 12. Lien Absolute. All rights of Agent hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (c) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) the insolvency of any Credit Party; or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor. 10 11 13. Release. Pledgor consents and agrees that Agent may at any time, or from time to time, in its discretion: (a) renew, extend or change the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations; and (b) exchange, release and/or surrender all or any of the Collateral (including the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Agent in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Agent may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Credit Agreement, or any other agreement governing any Secured Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Agent's part shall in any event affect or impair this Agreement. 14. Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor or any Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's or a Pledged Entity's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference", "fraudulent transfers", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 15. Miscellaneous. (a) Agent may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder. 11 12 (b) Pledgor agrees to promptly reimburse Agent for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Agent in connection with the administration and enforcement of this Agreement as provided in the Credit Agreement. (c) Neither Agent, nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (d) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF AGENT AND PLEDGOR. 16. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid. 17. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 18. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 19. Counterparts. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 20. Benefit of Lenders. All security interests granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to the Secured Obligations in accordance with the terms of the Credit Agreement. 12 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. CODE-ALARM, INC. By: /s/ Rand Mueller -------------------------------- Name: Rand Mueller -------------------------- Title: President -------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk --------------------------------- Name: Timothy S. Van Kirk ----------------------------- Its Duly Authorized Signatory 14 SCHEDULE I PLEDGED SHARES
Class Stock Certificate Number Percentage of Pledged Entity of Stock Number(s) of Shares Outstanding Shares -------------- -------- ----------------- --------- ------------------ Tessco Group, Inc. Common 001 1000 100% Anes, Inc. Common 1001 1000 100% Chapman Security Common 1001 1000 100% Systems, Inc. Intercept Systems, Common 1001 1000 100% Inc.
15 SCHEDULE II PLEDGE AMENDMENT This Pledge Amendment, dated October 24, 1997 is delivered pursuant to Section 6(d) of the Pledge Agreement referred to below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. The undersigned hereby certifies that the representations and warranties in Section 5 of the Pledge Agreement are and continue to be true and correct, both as to the shares pledged prior to this Pledge Amendment and as to the shares pledged pursuant to this Pledge Amendment. The undersigned further agrees that this Pledge Amendment may be attached to that certain Pledge Agreement, dated October 24, 1997, between undersigned, as Pledgor, and General Electric Capital Corporation, as Agent, (the "Pledge Agreement") and that the Pledged Shares listed on this Pledge Amendment shall be and become a part of the Pledged Collateral referred to in said Pledge Agreement and shall secure all Secured Obligations referred to in said Pledge Agreement. The undersigned acknowledges that any shares not included in the Pledged Collateral at the discretion of Agent may not otherwise be pledged by Pledgor to any other Person or otherwise used as security for any obligations other than the Secured Obligations and the other Obligations (as defined in that certain Credit Agreement dated as of October 24, 1997 among Code-Alarm, Inc., the Persons named therein as Credit Parties, the Persons signatory thereto from time to time as Lenders and General Electric Capital Corporation, as Agent). CODE-ALARM, INC. By:_______________________________________ Name:__________________________________ Title:_________________________________
Name and Class Certificate Number Address of Pledgor Pledged Entity of Stock Number(s) of Shares - ------------------ -------------- ---------- -------- ----------
16 EXHIBIT to PLEDGE AGREEMENT dated as of October 24, 1997 Form of Stock Power STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Tessco Group, Inc., a Michigan corporation, represented by Certificate No. __________ ________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ________________________________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:________________________________________ CODE-ALARM, INC. By:_________________________ Title: 17 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Tessco Group, Inc., a Michigan corporation, represented by Certificate No. __________ ________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ________________________________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:________________________________________ CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------- Title: President 18 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Anes, Inc., a Michigan corporation, represented by Certificate No. ________________________ __ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ________________________________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:________________________________________ CODE-ALARM, INC. By: /s/ Rand Mueller ---------------------- Title: President 19 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Chapman Security Systems, Inc., a Michigan corporation, represented by Certificate No. ___________________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint _____________as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:________________________________________ CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------- Title: President 20 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Shares of Capital Stock of Intercept Systems, Inc., a Michigan corporation, represented by Certificate No. _____ _____________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ________________________________________________________ as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:________________________________________ CODE-ALARM, INC. By: /s/ Rand Mueller ----------------------- Title: President EX-10.53 18 EXHIBIT 10.53 1 EXHIBIT 10.53 [LITIGATION] EXECUTION COPY (Craig Camalo) PLEDGE AGREEMENT This PLEDGE AGREEMENT, dated as of October 24, 1997 (together with all amendments, if any, from time to time hereto, this "Agreement") between Craig S. Camalo (the "Pledgor"), Code-Alarm, Inc., a Michigan corporation (the "Borrower") and GENERAL ELECTRIC CAPITAL CORPORATION in its capacity as Agent for "Lenders", as defined below ("Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of the date hereof by and among Borrower, Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits and schedules thereto, and as from time to time amended, restated, supplemented or otherwise modified (the "Credit Agreement"), such Term Lenders (collectively, the "Lenders") have agreed to incur Litigation Obligations for the benefit of Borrower; WHEREAS, Pledgor is the record and beneficial owner of the shares of stock listed in Schedule I hereto; WHEREAS, in order to induce Agent and Lenders to incur the Litigation L/C Obligations and certain other Litigation Obligations, including the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement, Pledgor has agreed to pledge the Pledged Collateral to Agent in accordance herewith; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and to induce Lenders to incur Obligations under the Credit Agreement, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Bankruptcy Code" means title 11, United States Code, as amended from time to time, and any successor statute thereto. "Pledged Collateral" has the meaning assigned to such term in Section 2 hereof. "Pledged Entity" means Borrower. "Pledged Shares" means those shares listed in Schedule I hereto. 2 "Secured Obligations" has the meaning assigned to such term in Section 3 hereof. 2. Pledge. Pledgor hereby pledges to Agent, and grants to Agent for itself and the benefit of Lenders, a continuing security interest in all of the following, other than Permitted Encumbrances (collectively, the "Pledged Collateral"): (i) the Pledged Shares and the certificates representing the Pledged Shares; and (ii) such portion, as determined by Agent as provided in Section 6(d) below, of any additional shares of the same series of stock as the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares. 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of all Obligations of any kind under or in connection with the Credit Agreement and the other Litigation Collateral Documents (hereinafter, the "Loan Documents") and all obligations of Pledgor now or hereafter existing under this Agreement including, without limitation, all fees, costs and expenses whether in connection with collection actions hereunder or otherwise (collectively, the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent, for itself and the benefit of Lenders, pursuant hereto. All Pledged Shares shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Agent. 5. Representations and Warranties. (a) Pledgor represents and warrants to Agent that on the Closing Date: (i) Pledgor is, and at the time of delivery of the Pledged Shares to Agent will be, the sole holder of record and the sole beneficial owner of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon or affecting the title thereto, except for Permitted Encumbrances or for any Lien created by this Agreement; (ii) Pledgor has the right to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by Pledgor to Agent as provided herein; 2 3 (b) Borrower represents and warrants to the Agent that on the Closing Date and, unless otherwise specified below, as of each time Borrower requests or accepts the proceeds of an Advance or Loan under the Credit Agreement: (i) All Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable; (ii) None of the Pledged Shares has been issued in violation of applicable federal and state securities laws; (iii) The Pledged Shares are currently owned of record by Pledgor, and are currently represented by the certificates listed in Schedule I hereto. As of the date hereof, there are no existing options, warrants, calls or commitments issued by the Borrower of any character whatsoever relating to the Pledged Shares; (iv) No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority is required (i) for the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by applicable securities and except as may be required by a change in control of Borrower; (v) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid Lien on and perfected security interest in favor of the Agent for the benefit of Agent and Lenders in the Pledged Collateral, securing the payment of the Secured Obligations; (vi) This Agreement has been duly authorized, executed and delivered by Borrower and constitutes a legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms; and (vii) The Pledged Shares constitute 100% of the issued and outstanding shares of Series B Preferred Stock of Borrower. (c) The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Agreement. 6. Covenants. Pledgor or Borrower, as applicable, covenants and agrees that until the Termination Date: (a) Without the prior written consent of Agent, Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of its rights in or to the Pledged Collateral, or 3 4 grant a Lien in the Pledged Collateral, unless otherwise expressly permitted by the Agent or the Credit Agreement; (b) Pledgor will, at Borrower's expense, promptly execute, acknowledge and deliver all such instruments and take all such actions as Agent from time to time may request in order to ensure to Agent and Lenders the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary Code financing statements, which may be filed by Agent with or (to the extent permitted by law) without the signature of Pledgor, and will cooperate with Agent, at Borrower's expense, in maintaining and preserving Agent's Lien in the Pledged Collateral and in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Pledged Collateral; (c) Borrower will defend Pledgor's title to the Pledged Collateral and the Liens of Agent in the Pledged Collateral against the claim of any Person; and (d) Pledgor will, upon obtaining ownership of any additional shares of the same series of stock as the Pledged Shares as is being pledged hereby on the date hereof, which stock is not already Pledged Collateral. 7. Pledgor's Rights. As long as no Default or Event of Default shall have occurred and be continuing and until written notice shall be given to Pledgor in accordance with Section 8(a) hereof: (a) Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of Agent in respect of the Pledged Collateral or which would authorize, effect or consent to (unless and to the extent expressly permitted by the Credit Agreement): (i) the dissolution or liquidation, in whole or in part, of a Pledged Entity; (ii) the consolidation or merger of a Pledged Entity with any other Person; (iii) the sale, disposition or encumbrance of all or substantially all of the assets of a Pledged Entity, except for Liens in favor of Agent; (iv) any change in the authorized number of shares of the Borrower's Series B Preferred Stock; or 4 5 (v) the alteration of the voting rights with respect to the Pledged Shares; and (b) (i) Pledgor shall be entitled, from time to time, to collect and receive for its own use all cash dividends paid in respect of the Pledged Shares to the extent not in violation of the Credit Agreement; and (ii) all dividends (other than such cash dividends as are permitted to be paid to Pledgor in accordance with clause (i) above) and all other distributions in respect of any of the Pledged Shares, whenever paid or made, shall be delivered to Agent to hold as Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Agent, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Agent as Pledged Collateral in the same form as so received (with any necessary indorsement). 8. Defaults and Remedies. (a) Upon the occurrence of an Event of Default and during the continuation of such Event of Default, and concurrently with written notice to Pledgor, Agent (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates representing or evidencing Pledged Collateral for certificates of smaller or larger denominations, to exercise the voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, to sell in one or more sales after ten (10) days' notice to Pledgor and to Borrower of the time and place of any public sale or of the time at which a private sale is to take place (which notice Pledgor agrees is commercially reasonable) the whole or any part of the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though Agent was the outright owner thereof, Pledgor hereby irrevocably constituting and appointing Agent as the proxy and attorney-in-fact of Pledgor, with full power of substitution to do so, and which appointment shall remain in effect until the Termination Date; provided, however, Agent shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at Agent's place of business, or at any place to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Agent may deem fair, and Agent may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Agent reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Agent. 5 6 (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to Agent, in its discretion, that the proceeds of the sales of the whole of the Pledged Collateral would be unlikely to be sufficient to discharge all the Secured Obligations, Agent may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after ten (10) days' notice to Pledgor. (c) If, at any time when Agent shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Agent may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Agent may deem necessary or advisable, but subject to the other requirements of this Section 8, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, Agent in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (y) may approach and negotiate with a single possible purchaser to effect such sale, and (z) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or any part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Section 8, then Agent shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions: (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale; (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof; 6 7 (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgor and such Person's intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and (iv) as to such other matters as Agent may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (d) Pledgor recognizes that Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (e) above. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if Pledgor and the Pledged Entity would agree to do so. (e) Pledgor agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Pledgor agrees that it will not interfere with any right, power and remedy of Agent provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by Agent of any one or more of such rights, powers or remedies. No failure or delay on the part of Agent to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any such remedies shall operate as a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. (f) Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Agent, that Agent shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against Pledgor, and 7 8 Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations. 9. Waiver. No delay on Agent's part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Agent with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Agent's right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Agent's rights as against Pledgor in any respect. 10. Assignment. Agent may assign, indorse or transfer any instrument evidencing all or any part of the Secured Obligations as provided in, and in accordance with, the Credit Agreement, and the holder of such instrument shall be entitled to the benefits of this Agreement. 11. Termination. Immediately following the Termination Date, Agent shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the Liens hereof and, except as otherwise provided herein, all of Pledgor's obligations hereunder shall at such time terminate. 12. Lien Absolute. All rights of Agent hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument governing or evidencing any Secured Obligations; (c) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) the insolvency of any Credit Party; or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor. 8 9 13. Release. Pledgor consents and agrees that Agent may at any time, or from time to time, in its discretion: (a) renew, extend or change the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations; and (b) exchange, release and/or surrender all or any of the Collateral (including the Pledged Collateral), or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Agent in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Agent may deem proper, and without notice to or further assent from Pledgor, it being hereby agreed that Pledgor shall be and remain bound upon this Agreement, irrespective of the value or condition of any of the Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Credit Agreement, or any other agreement governing any Secured Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon Pledgor. No act or omission of any kind on Agent's part shall in any event affect or impair this Agreement. 14. Reinstatement. Notwithstanding anything contained herein to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor or any Pledged Entity become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Pledgor's or a Pledged Entity's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded, avoided or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference", "fraudulent transfer", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. Notwithstanding anything contained herein to the contrary, in the event that any payment, or any part thereof, is rescinded, avoided, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, avoided, reduced, restored or returned. 15. Miscellaneous. (a) Agent may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder. 9 10 (b) Borrower agrees to promptly reimburse Agent for actual out-of-pocket expenses, including, without limitation, reasonable counsel fees, incurred by Agent in connection with the administration and enforcement of this Agreement as provided in the Credit Agreement. (c) The Pledgor shall have no personal liability for payment of the Secured Obligations, and in any action or suit to collect the Secured Obligations Agent shall not seek any in personam judgment against the Pledgor or any judgment for a deficiency but shall look solely to the security interests hereunder and the Pledged Collateral described herein for payment of the Secured Obligations. Nothing contained in this Section shall be construed to impair the validity of the Secured Obligations or this Agreement or affect or impair in any way the right of Agent to exercise its rights and remedies under the Credit Agreement in accordance with its terms. (d) Neither Agent, nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (e) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF AGENT AND PLEDGOR. 16. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or effect those portions of this Agreement which are valid. 17. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be given in the manner, and deemed received, as provided for in the Credit Agreement. 10 11 18. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 19. Counterparts. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 20. Benefit of Lenders. All security interests granted or contemplated hereby shall be for the benefit of Agent and Lenders, and all proceeds or payments realized from the Pledged Collateral in accordance herewith shall be applied to the Secured Obligations in accordance with the terms of the Credit Agreement. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. CRAIG S. CAMALO /s/ Craig S. Camalo ------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk --------------------------------- Name: /s/ Timothy S. Van Kirk ------------------------------ Its Duly Authorized Signatory CODE-ALARM, INC., as Borrower By: /s/ Rand Mueller --------------------------------- Name: Rand Mueller ------------------------------ Its Duly Authorized Signatory 13 SCHEDULE I PLEDGED SHARES
Class Stock Certificate Number Percentage of Pledged Entity of Stock Number(s) of Shares Outstanding Shares -------------- -------- ----------------- --------- ------------------ Code-Alarm, Inc. Series B B-1 1 100% Preferred Stock
14 SCHEDULE II PLEDGE AMENDMENT This Pledge Amendment, dated October 24, 1997 is delivered pursuant to Section 6(d) of the Pledge Agreement referred to below. All defined terms herein shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. The undersigned hereby certifies that the representations and warranties in Section 5 of the Pledge Agreement are and continue to be true and correct, both as to the shares pledged prior to this Pledge Amendment and as to the shares pledged pursuant to this Pledge Amendment. The undersigned further agrees that this Pledge Amendment may be attached to that certain Pledge Agreement, dated October 24, 1997, between undersigned, as Pledgor, and General Electric Capital Corporation, as Agent, (the "Pledge Agreement") and that the Pledged Shares listed on this Pledge Amendment shall be and become a part of the Pledged Collateral referred to in said Pledge Agreement and shall secure all Secured Obligations referred to in said Pledge Agreement. The undersigned acknowledges that any shares not included in the Pledged Collateral at the discretion of Agent may not otherwise be pledged by Pledgor to any other Person or otherwise used as security for any obligations other than the Secured Obligations and the other Obligations (as defined in that certain Credit Agreement dated as of October 24, 1997 among Code-Alarm, Inc., the Persons named therein as Credit Parties, the Persons signatory thereto from time to time as Lenders and General Electric Capital Corporation, as Agent). CODE-ALARM, INC. By:_____________________________________ Name:________________________________ Title:_______________________________
Name and Class Certificate Number Address of Pledgor Pledged Entity of Stock Number(s) of Shares ------------------ -------------- -------- ---------- ---------
15 EXHIBIT to PLEDGE AGREEMENT dated as of October 24, 1997 Form of Stock Power STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Share of Series B Preferred Capital Stock of Code-Alarm, Inc., a Michigan corporation, represented by Certificate No. ______________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint _______________________________________as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:_________________ CRAIG S. CAMALO _________________________ 16 STOCK POWER FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to ________________________________________ _____ Share of Series B Preferred Capital Stock of Code-Alarm, Inc., a Michigan corporation, represented by Certificate No. _______________________ (the "Stock"), standing in the name of the undersigned on the books of said corporation and does hereby irrevocably constitute and appoint ______________________________________as the undersigned's true and lawful attorney, for it and in its name and stead, to sell, assign and transfer all or any of the Stock, and for that purpose to make and execute all necessary endorsements or other acts of assignment and transfer thereof; and to substitute one or more persons with like full power, hereby ratifying and confirming all that said attorney or substitute or substitutes shall lawfully do by virtue hereof. Dated:_____________________ CRAIG S. CAMALO /s/ Craig S. camalo --------------------------- EX-10.54 19 EXHIBIT 10.54 1 EXHIBIT 10.54 [LITIGATION] EXECUTION COPY PATENT SECURITY AGREEMENT PATENT SECURITY AGREEMENT, dated as of October 24, 1997, by CODE-ALARM, INC., a Michigan corporation ("Grantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, in its capacity as Agent for Lenders. W I T N E S S E T H: WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement dated as of the date hereof by and among Grantor, Agent and the Persons signatory thereto from time to time as Term Lenders (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), such Term Lenders (collectively, the "Lenders") have agreed to incur Litigation Obligations for the benefit of Grantor; WHEREAS, Agent and Lenders are willing to incur Litigation L/C Obligations and certain other Litigation Obligations, including the obligations constituting Term Loan C, or to advance the Term Loan C, as provided for in the Credit Agreement (collectively, hereinafter, "Obligations") but only upon the condition, among others, that Grantor shall have executed and delivered to Agent, for itself and the ratable benefit of Lenders, that certain Security Agreement dated as of the date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); WHEREAS, pursuant to the Security Agreement, Grantor is required to execute and deliver to Agent, for itself and the ratable benefit of Lenders, this Patent Security Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in Annex A thereto to the Credit Agreement. 2. GRANT OF SECURITY INTEREST IN PATENT COLLATERAL. Grantor hereby grants to Agent, on behalf of itself and Lenders, as security for all of Grantor's Obligations a continuing security interest in all of Grantor's right, title and interest in, to and under the following, other than Permitted Encumbrances, whether presently existing or hereafter created or acquired (collectively, the "Patent Collateral"): 2 (a) all of its Patents and Patent Licenses to which it is a party, including, without limitation, those referred to on Schedule I hereto; (b) all reissues, continuations or extensions of the foregoing; (c) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (i) infringement or dilution of any Patent or Patent licensed under any Patent License. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Patent Security Agreement are granted in conjunction with the security interests granted to Agent, on behalf of itself and Lenders, pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. * * * * -2- 3 IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. CODE-ALARM, INC. By: /s/ Rand Mueller -------------------------- Name: Rand Mueller ------------------- Title: President ------------------ ACCEPTED AND ACKNOWLEDGED BY: GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ----------------------------- Name: Timothy S. Van Kirk ---------------------- Title: Duly Authorized Signatory -------------------------- ACKNOWLEDGMENT OF GRANTOR STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) On this 24th day of October, 1997 before me personally appeared Rand, proved to me on the basis of satisfactory evidence to be the person who executed the foregoing instrument on behalf of Code-Alarm, Inc., who being by me duly sworn did depose and say that he is an authorized officer of said corporation, that the said instrument was signed on behalf of said corporation as authorized by its Board of Directors and that he acknowledged said instrument to be the free act and deed of said corporation. /s/ Monique Wilson ------------------------- {seal} Notary Public Monique Wilson Notary Public, State of New York No. 01W15054453 Qualified in Queens County Commission Expires: 1-16-98 4 SCHEDULE I ---------- to PATENT SECURITY AGREEMENT PATENT REGISTRATIONS ---------------------
Mark Patent No. Issue Date AUTOMOBILE BURGLAR 4,740,775 4/26/88 ALARM SECURITY SYSTEM 5,543,778 8/6/96 VEHICLE ANTITHEFT 4,107,543 8/15/78 SYSTEM SECURITY SYSTEM 4,333,074 6/1/82
PATENT APPLICATIONS -------------------
Serial No. Filing Date ---------- ----------- 08/624,146 5/28/93 08/774,954 4/19/93 08/842,374 4/23/97 08/838,684 4/9/97
5 PATENT LICENSES ---------------
Name of Agreement Parties/Purpose Date of Agreement ----------------- --------------- ----------------- MAGNADYNE/NUTEK: Code-Alarm licensed April 1996 Cross License "Price" patent to Agreement Magnadyne/Nutek; Magnadyne/Nutek licensed "Chen" patent to Code-Alarm BULLDOG Code-Alarm, Inc. Septmeber 1994 licensed "Price" patent use to Bulldog AUDIOVOX Code-Alarm, Inc. August 1994 licensed "Stouffer" patent to Audiovox AUDIOVOX: Cross Code-Alarm licensed August 1994 License Agreement use of "Price" patent to Audiovox; Audiovox licensed use of "Posse" patent to Code-Alarm SHERWOOD Code-Alarm licensed January 1997 use of "Price" patent to Sherwood
-5- EX-10.55 20 EXHIBIT 10.55 1 EXHIBIT 10.55 [EXECUTION COPY] ================================================================= WARRANT PURCHASE AGREEMENT dated as of October 24, 1997 between CODE-ALARM, INC. and GENERAL ELECTRIC CAPITAL CORPORATION ================================================================= 2 TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2. ISSUE AND SALE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.01. Sale of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.02. Allocated Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.01. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.02. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.03. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.01. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.02. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.03. Valid Issuance of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.04. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.05. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.07. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.08. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.09. Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.10. Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.11. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 5. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.01. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5.03. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.04. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.05. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.06. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.07. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.09. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.11. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Schedule A -- Schedule of Capital Stock Schedule B -- Schedule of Persons Owning More Than 5% of Any Schedule C -- Schedule of Outstanding Convertible -i- 3 WARRANT PURCHASE AGREEMENT THIS WARRANT PURCHASE AGREEMENT (this "Agreement") dated as of October 24, 1997, by and between CODE-ALARM, INC., a Michigan corporation (the "Company"), and GENERAL ELECTRIC CAPITAL CORPORATION (the "Purchaser"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement of even date herewith among the Company, the Purchaser as Agent and Lender and the other Credit Parties and Lenders named therein (the "Credit Agreement"), the Purchaser is extending certain credit facilities to the Company; WHEREAS, in order to induce the Purchaser to enter into the Credit Agreement, the Company has agreed to issue and sell to the Purchaser a Warrant initially exercisable for 131,718 shares of the Common Stock of the Company; NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, and for other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, the parties mutually agree as follows: SECTION 1. DEFINITIONS. The terms hereinafter set forth when used herein shall have the following meanings, and any terms not otherwise defined herein that are defined in the Credit Agreement shall have the respective meanings specified in the Credit Agreement: "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute. "Common Stock" shall mean the common stock, without par value, of the Company. "Commission" shall mean the Securities and Exchange Commission, or any other federal agency then administering the Securities Act. "Contractual Obligation" shall mean, with respect to any person, any provision of any mortgage or security issued by such person or of any lease, franchise, agreement, guaranty, instrument or undertaking to which such person is a party or by which it or any of its properties is bound. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and 4 any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Pegasus Warrants" means the warrants to purchase shares of Common Stock issued pursuant to the Unit Purchase Agreement of even date herewith among the Company, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. or the Certificate of Designation referred to therein. "Requirement of Law" shall mean any applicable law, statute, treaty, rule, regulation, arbitration award, judgment, decree, order or other determination of any Governmental Authority. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time. "Warrant" shall have the meaning assigned in Section 2.01 hereof. SECTION 2. ISSUE AND SALE OF WARRANT. 2.01. Sale of Warrant. Concurrently with the execution and delivery hereof, the Company is issuing and selling to the Purchaser, and the Purchaser is purchasing from the Company, Warrant No. A-1 (the "Warrant") initially exercisable for the purchase of 131,718 shares of Common Stock. 2.02. Allocated Purchase Price. The Company and the Purchaser hereby acknowledge that for the purposes of Section 1273(c)(2) of the Code, the Warrant is a part of an investment unit with the loans being made by the Purchaser to the Company under the Credit Agreement, and that the allocated purchase price of the Warrant for such purposes is $1,317. The Company and the Purchaser agree to use the foregoing allocated purchase price as the purchase price of the Warrant for all income tax purposes. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby respectively represents and warrants to the Company as follows: 3.01. Authority. The Purchaser has full legal right, power and authority to enter into and perform this Agreement, and the execution and delivery of this Agreement by it and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement constitutes the legal, valid and binding obligation of the -2- 5 Purchaser, enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and subject to general principles of equity. 3.02. Brokers and Finders. No brokerage or finder's commissions or fees are payable in connection with the transactions contemplated by this Agreement on account of any action taken by the Purchaser or its representatives, and the Purchaser will indemnify the Company against and hold the Company harmless from any liability, loss or expense (including, without limitation, reasonable attorneys' fees) arising in connection with any claim for any such commissions or fees. 3.03. Securities Laws. The Purchaser is an "accredited investor" within the meaning of Rule 501 promulgated under the Securities Act. The Warrant is being acquired for the Purchaser's own account for the purpose of investment and not with a present view to, or for sale in connection with, any distribution thereof; provided that the disposition of Purchaser's property shall at all times remain within its control. The Purchaser understands that the Warrant and the shares of Common Stock for which the Warrant is exercisable (collectively, the "Securities") have not been registered under the Securities Act, that the Securities must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or an exemption from registration is available under applicable securities laws then in effect and the Securities will bear a restrictive legend in the form prescribed in Section 8.2 of the Warrant. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchaser as follows: 4.01. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan, with all requisite power to own its properties and assets and to conduct its business as now conducted, and is duly qualified as a foreign corporation and is in good standing in all other jurisdictions in which such qualification is required. 4.02. Capitalization. (a) Schedule A hereto sets forth as of the day hereof the Company's authorized capital stock, indicating the number of shares issued, outstanding and reserved for issuance. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable, free of preemptive rights and have been offered and issued without violation of the Securities Act or any applicable state securities or blue sky law -3- 6 or any preemptive rights of any person. Schedule B hereto accurately sets forth, as of the date hereof, the number of issued and outstanding shares of Common Stock held by each person known by the Company to own beneficially or of record more than 5% of any class of the Company's outstanding capital stock. (b) Except for the Pegasus Warrants and except as disclosed on Schedule C hereto: (i) there are no issued or outstanding securities that are convertible into or exchangeable for shares of the Company's capital stock ("Convertible Securities"); (ii) there are no issued or outstanding subscriptions, options, warrants or other rights to purchase or acquire any shares of the capital stock of the Company or any Convertible Securities ("Option Rights") other than the Warrant; (iii) the Company is not a party to any agreement or understanding pursuant to which it is obligated to purchase or redeem any shares of its capital stock or any Convertible Securities or Option Rights and is not otherwise under any obligation to repurchase, redeem or otherwise acquire any shares of its capital stock or any Convertible Securities or Option Rights; (iv) the Company is not a party to any agreement or understanding pursuant to which it is obligated to register any shares of its capital stock or other securities under the Securities Act or any state securities laws; (v) to the best knowledge of the Company, no securities holder of the Company is a party to any voting agreement, voting trust, irrevocable proxy or other agreement affecting the voting rights of any shares of the Company's capital stock or any agreement providing for any call or put option, right of first refusal or offer or other right to acquire or dispose of any shares of the Company's capital stock or any Convertible Securities or Option Rights; (vi) there are not outstanding debt securities of the Company that provide the holders thereof with voting rights; and (vii) no shares of Common Stock are issuable upon the exercise of any outstanding Convertible Securities or Option Rights of the Company and no additional shares of Common Stock will become issuable upon exercise of such Convertible Securities or Option Rights on account of the issuance of the Warrants. 4.03. Valid Issuance of Warrant. (a) The Warrant has been duly executed and delivered by the Company, has been duly authorized and validly issued free and clear of all liens, encumbrances, equities and claims, is fully paid and non-assessable, and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and subject to general principles of equity and except that only 131, 718 shares of Common Stock have been have been reserved for issuance upon exercise of the Warrant. (b) The 131,718 shares of Common Stock initially issuable upon exercise of the Warrant have been duly authorized -4- 7 and reserved for issuance and, when issued in accordance with the terms of the Warrant, will be validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances, equities and claims and without violation of any preemptive rights. 4.04. Authority. The Company has full legal right, power and authority (i) to enter into and perform this Agreement and (ii) to issue the Warrant and to perform all its obligations relating thereto; provided that only 131,718 shares of Common Stock have been reserved for issuance upon exercise of the Warrant, and to the extent that any additional shares become issuable upon exercise of the Warrant, there may not be sufficient authorized and unreserved shares of Common Stock for such issuance. The execution and delivery of this Agreement, the issuance of the Warrant by the Company and the consummation of the transactions contemplated hereby and thereby have all been duly authorized by the Board of Directors of the Company and, where required, the shareholders of the Company; provided that to the extent that the Warrant becomes exercisable for more than 131,718 shares of Common Stock, the shareholders may be required to approve an amendment to the Articles of Incorporation of the Company increasing the number of shares of authorized Common Stock. No consent, waiver or authorization of, or filing with any other Person (including without limitation, any Governmental Authority) is required by the Company in connection with any of the foregoing or with the validity or enforceability against the Company of this Agreement or the Warrants, except for the filing of the amendment to the Company's Articles of Incorporation referred to above, any securities laws filings required in connection with any transfer of the Warrant or of shares of Common Stock issued upon exercise thereof, the reporting obligations of the Company under the Securities Exchange Act of 1934, as amended. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and subject to general principles of equity. 4.05. No Conflict. The execution, delivery and performance of this Agreement and the Warrants and the consummation of the transactions contemplated hereby and thereby do not and will not, with or without the passage of time or the giving of notice or both, (i) conflict with or violate any provision of the Company's Articles of Incorporation (except to the extent that more than 131,718 shares of Common Stock become issuable upon exercise of the Warrant, in which case an amendment to the Articles of Incorporation may be required to increase the number of authorized shares of Common Stock) or By-laws, (ii) conflict with or violate any Requirement of Law or Contractual Obligation applicable to the Company, (iii) result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or -5- 8 Contractual Obligation or (iv) require any action by or in respect of, or filing with, any governmental body, agency or official other than as described in the third sentence of Section 4.04 above. 4.06. Litigation. No action, suit, claim, litigation, investigation or proceeding (formal or informal) of or before any arbitrator or Governmental Authority is pending or (to the best of the Company's knowledge) threatened by or against the Company or against any of its properties or revenues with respect to this Agreement or the Warrant or any of the transactions contemplated hereby or thereby. 4.07. Compliance With Laws. The Company is in compliance, in all material respects, with all laws, ordinances, governmental rules and regulations to which it is subject, where the failure to so comply would have an adverse effect on the enforceability against the Company of this Agreement or the Warrant or the ability of the Company to perform its obligations hereunder and thereunder. 4.08. Brokers and Finders. Except as disclosed in the Credit Agreement and the schedules thereto, no brokerage or finder's commissions or fees are payable in connection with the transactions contemplated by this Agreement on account of any action taken by the Company, its affiliates or their representatives, and the Company will indemnify the Purchaser against and hold the Purchaser harmless from any liability, loss or expense (including, without limitation, reasonable attorneys' fees) arising in connection with any claim for any such commissions or fees. 4.09. Securities Law Compliance. The offer and sale of the Warrants hereunder is exempt from the registration and prospectus delivery requirements of the Securities Act, and the rules and regulations thereunder, and all applicable state securities laws. The Company has not offered the Warrant to anyone other than the Purchaser. 4.10. Transfer Taxes. Except as have been paid by the Company prior to the date hereof, no fees, taxes, charges or other amounts imposed by any federal, state or local taxing or other Governmental Authority are or will become payable by the Company or the Purchaser as a consequence of the offer, sale or issuance of the Warrant. 4.11. Full Disclosure. This Agreement, together with the Credit Agreement and the exhibits, schedules, attachments, documents, certificates and other written items and materials prepared and supplied to the Purchaser by or on behalf of the Company with respect to the transactions contemplated hereby and thereby, taken as a whole, do not and will not, as the case may be, contain any untrue statement of a material fact or omit to -6- 9 state any material fact necessary to make the statements contained therein not misleading in the context made. There is no fact known to the Company which the Company has not disclosed to the Purchaser in writing and which is reasonably likely to have a material adverse effect on the business, operations, property, prospects or condition (financial or otherwise) of the Company or would have an adverse effect on the enforceability against the Company of this Agreement or the Warrant or the ability of the Company to perform its obligations hereunder or thereunder. SECTION 5. MISCELLANEOUS. 5.01. Expenses. The Company agrees to pay, and save the Purchaser harmless against liability for the payment of, all reasonable out-of-pocket expenses arising in connection with the transactions contemplated by this Agreement or by the Warrant, including, without limitation, any stamp or similar taxes (including interest and penalties, if any) which may be determined to be payable in respect of the execution, delivery, issue and sale of the Warrant, the reasonable fees and expenses of counsel to the Purchaser in connection with the preparation of this Agreement and the issuance of the Warrant, including any modifications, amendments or consents to such agreements, the expense of preparing and issuing the Warrant, the cost of delivering the Warrant to such place as the Purchaser shall determine, insured to their satisfaction, and the costs and expenses incurred in the preparation of all certificates and letters on behalf of the Company and of the performance by the Company of and compliance with all agreements and conditions contained herein to be performed or complied with. 5.02. Notices. (a) All communications under this Agreement shall be in writing and shall be given by delivery in person (including delivery by courier), by telecopy or by registered or certified or first class mail, postage prepaid, addressed as follows: -7- 10 (1) if to the Purchaser, to: General Electric Capital Corporation 10 South La Salle Street - Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopier No.: (312) 419-5957 Telephone No.: (312) 419-0985 with a copy to: Sidley & Austin One First National Plaza Chicago, Illinois, 60603 Attention: H. Bruce Bernstein Telecopier No.: (312) 853-7000 Telephone No.: (312) 853-7036 and: General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopier No.: (203) 316-7889 Telephone No.: (203) 316-7552 or at such other address as such Purchaser may have furnished the Company in writing, or (2) if to the Company, to: Code-Alarm, Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: President and Chief Financial Officer Telecopier No.: (248) 585-4799 Telephone No.: (248) 583-9620 with a copy to: Pepper, Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes Telecopier No.: (313) 259-7926 Telephone No.: (313) 393-7458 or at such other address as the Company may have furnished to the Purchaser in writing. -8- 11 (b) Any notice so addressed and delivered by registered or certified mail shall be deemed to have been given five business days after being deposited in the mail, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by telecopier (followed by confirmation copy sent by overnight or two-day courier). 5.03. Survival. All warranties, representations, and covenants made herein or in any certificate or other instrument delivered by the parties hereto or on their behalf under this Agreement shall be considered to have been relied upon and shall survive the delivery of the Warrant and payment therefor, regardless of any investigation made by any such party or on their behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by such party hereunder. 5.04. Amendment. This Agreement may be amended only by a written instrument signed by the Purchaser and the Company. 5.05. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Any transfer of any Warrant shall be deemed to constitute an automatic assignment of the rights of the transferor hereunder to the transferee. 5.06. Severability. Should any part of this Agreement for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part or parts which may, for any reason, be hereafter declared invalid. 5.07. Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 5.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF. 5.09. Waiver of Jury Trial. The Company and the Purchaser each hereby expressly acknowledges that any dispute arising out of, connected with, or incidental to the relationships established between them in connection with, this Agreement, will be a highly complex commercial matter inappropriate for resolution by a jury. The Company and the Purchaser each hereby waives any right to have a jury participate in resolving any such dispute, whether sounding in contract, tort or other- -9- 12 wise. Instead, any disputes resolved in court will be resolved in a bench trial without a jury. 5.10. Entire Agreement. This Agreement, together with the Credit Agreement, the Warrant and the Registration Rights Agreement of even date herewith among the Company, the Purchaser, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement, together with the Credit Agreement, the Warrant and such Registration Rights Agreement, supersede all prior agreements and understandings between the parties with respect to such subject matter. 5.11. Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement or the Warrant, or where any provision hereof or thereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 5.12. Counterparts. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------------ GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Timothy S. Van Kirk ------------------------------- -10- EX-10.56 21 EXHIBIT 10.56 1 EXHIBIT 10.56 NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE OR OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY EITHER A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH COMPARABLE LETTERS FROM ANY APPLICABLE STATE SECURITIES AUTHORITIES, OR AN OPINION OF COUNSEL (WHO MAY BE AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN SECURITIES MATTERS TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE PROPOSED TRANSFER. - -------------------------------------------------------------------------------- WARRANT to Purchase Common Stock of CODE-ALARM, INC. - -------------------------------------------------------------------------------- Warrant No. A-1 Original Issue Date: October 24, 1997 2 TABLE OF CONTENTS PAGE 1. DEFINITIONS 1 2. EXERCISE OF WARRANT 2.1. Manner of Exercise 8 2.2 Payment of Taxes 9 2.3. Fractional Shares 9 2.4. Continued Validity and Application. 10 3. TRANSFER, DIVISION AND COMBINATION 3.1 Transfer 10 3.2. Division and Combination 10 3.3. Expenses 11 3.4. Maintenance of Books 11 4. ANTIDILUTION PROVISIONS 11 4.1. Stock Dividends, Subdivisions and Combinations 11 4.2. Issuance of Additional Shares of Common Stock 11 4.3. Issuances of Stock Purchase Rights and Convertible Securities 12 4.4. Certain Other Distributions 14 4.5. Adjustment of Number of Shares Purchasable 15 4.6. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets 15 4.7. Determination of Consideration 16 4.8. Other Dilutive Events 17 4.9. Other Provisions Applicable to Adjustments Under this Section 18 4.10. Challenge to Good Faith Determination 20 5. NO IMPAIRMENT 20 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY 21 7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS 21 7.1. Notices of Corporate Actions 21 7.2. Taking of Record 22 7.3 Closing of Transfer Books 22 i 3 8. TRANSFER 22 8.1. Restrictions on Transfer 23 8.2. Restrictive Legends 23 8.3. Termination of Securities Law Restrictions 25 8.4. Listing on Securities Exchange 25 9. REGISTRATION RIGHTS AGREEMENT 25 10. LOSS OR MUTILATION 26 11. OFFICE OF THE COMPANY 26 12. FINANCIAL AND BUSINESS INFORMATION 26 13. MISCELLANEOUS 28 13.1. Nonwaiver 28 13.2. Notice Generally 28 13.3. Indemnification 28 13.4. Limitation of Liability 29 13.5. Remedies 29 13.6. Successors and Assigns 29 13.7. Amendment 29 13.8. Severability 29 13.9. Headings 30 13.10. Governing Law; Jurisdiction 30 ANNEXES: ANNEX A - Subscription Form ANNEX B - Assignment Form ii 4 Warrant No. A-1 Original Issue Date: October 24, 1997 WARRANT CODE-ALARM, INC. THIS IS TO CERTIFY THAT GENERAL ELECTRIC CAPITAL CORPORATION, or registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from CODE-ALARM, INC., a Michigan corporation (the "Company"), One Hundred Thirty-One Thousand Seven Hundred Eighteen (131,718) shares of the Common Stock of the Company (subject to adjustment as provided herein), at a purchase price of $1.8759559 per share (the initial "Exercise Price", subject to adjustment as provided herein), all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Affiliate" of any Person means a Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person, (b) which beneficially owns or holds more than five percent (5.0%) of the outstanding shares of any class of voting stock of such Person or (c) more than five percent (5.0%) of the outstanding shares of any class of voting stock (or, in the case of a Person which is not a corporation, more than five percent (5.0%) of the equity interest) of which is beneficially owned or held by such Person. The term "control" as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "After-Tax Basis" when referring to a payment that is required hereunder (the "target amount"), shall mean a total payment (the "total amount") that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount. "Agreed Rate" shall mean the Index Rate (as defined in the Credit Agreement dated as of the Original Issue Date among the Company, General Electric Capital Corporation, as agent, and 1 5 the other Credit Parties and Lenders named therein, as may be amended from time to time) plus three and one-half percent (3.5%) per annum. "Appraised Value" per share of Common Stock as of a date specified herein shall mean the fair market value of such a share as of such date as determined by an investment banking firm of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment banking firm selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment banking firm, then the Company and the Majority Warrant Holders shall each choose one such investment banking firm and the respective chosen firms shall jointly select a third investment banking firm, which shall make the determination. The Company shall pay the costs and fees of each such investment banking firm (including any such investment banking firm selected by the Majority Warrant Holders), if the Appraised Value is greater than the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company (as contemplated in clause (B)(1) of "Fair Value" as set forth in Section 1 hereof), and the Majority Warrant Holders shall pay the costs and fees of each such investment banking firm (including any such investment banking firm selected by the Company), if the Appraised Value is less than such fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company. The decision of the investment banking firm making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value of the entire Company as a going concern and (B) the liquidation value of the entire Company. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of Michigan. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, without par value, of the Company, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and 2 6 which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.6 hereof) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.6 hereof. "Company" means CODE-ALARM, INC., a Michigan corporation, and any successor corporation. "Company Default" means (a) the material breach of any warranty or the material inaccuracy at the time when made of any representation made by the Company herein or (b) the material failure by the Company to comply with any covenant of the Company contained herein. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities that are convertible into or exchangeable for, with or without payment of additional consideration in cash or property, shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Market Price" shall mean as of any specified date the average of the daily market prices of the Common Stock of the Company for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement of any event giving rise to an adjustment of the Exercise Price pursuant to Section 4 below and ending on such date. The "daily market price" for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange or is listed on NASDAQ and is designated as a National Market System security, the last sale price, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for the Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for the Common Stock as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Designated Office" shall have the meaning set forth in Section 11 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 3 7 "Exercise Notice" shall have the meaning set forth in Section 2.1 hereof. "Exercise Period" shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof. "Exercise Price" shall mean, in respect of a share of Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant as adjusted from time to time pursuant to Section 4 hereof. "Expiration Date" shall mean the seventh anniversary of the Original Issue Date. "Fair Value" per share of Common Stock as of any specified date shall mean (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if the Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if the Majority Warrant Holders object in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding on such date and all shares of Common Stock issuable in respect of (x) the Warrants outstanding on such date, (y) any Convertible Securities outstanding on such date and (z) any other Stock Purchase Rights outstanding on such date, in each case regardless of whether or not the conversion, exchange, subscription or purchase rights associated with such Convertible Securities or Stock Purchase Rights are presently exercisable. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose. 4 8 "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Majority Warrant Holders" shall mean the holders of Warrants exercisable for the purchase of more than fifty percent (50%) of the aggregate number of shares of Warrant Stock then purchasable upon exercise of all Warrants. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "NASDAQ" shall mean the NASD quotation system, or any successor reporting system. "Opinion of Counsel" means a written opinion of counsel (who may be an employee of a Holder) experienced in Securities Act matters chosen by the holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company. "Original Issue Date" shall mean the date on which the Original Warrants were issued, as set forth on the cover page of this Warrant. "Original Warrants" shall mean the Warrants originally issued by the Company on the Original Issue Date to General Electric Capital Corporation. "Other Property" shall have the meaning set forth in Section 4.6 hereof. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Pegasus Purchase Agreement" shall mean the Unit Purchase Agreement dated as of the Original Issue Date among the Company, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. 5 9 "Pegasus Warrants" shall mean, collectively, the Attached Warrants, the Shortfall Warrants and any Litigation Warrants issued pursuant to the Pegasus Purchase Agreement and the agreements, documents and instruments referred to therein. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of the Original Issue Date among the Company, Pegasus Partners, L.P., Pegasus Related Partners, L.P. and General Electric Capital Corporation, as amended from time to time. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 8.2(a) hereof. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Share Withholding Option" has the meaning set forth in Section 2.1 hereof. "Stock Purchase Rights" shall mean any options, warrants or other securities or rights to subscribe to or exercisable for the purchase of shares of Common Stock or Convertible Securities, whether or not immediately exercisable. "Subsequent Issuance" shall mean any sale or issuance by the Company of Common Stock, Convertible Securities or Stock Purchase Rights after the Original Issue Date other than: (i) Any issuance of Warrant Stock upon exercise of the Warrants; (ii) Any issuance of Pegasus Warrants other than Litigation Warrants(including, without limitation, the issuance of additional Attached Warrants in connection with the payment of any payment - in kind dividend on the Company's Series A Preferred Stock) other than Litigation Warrants and any issuance of Common Stock pursuant to the exercise of any of the Pegasus Warrants (it being agreed that any Litigation Warrants issued pursuant to the Pegasus Purchase Agreement will be deemed to constitute a Subsequent 6 10 Issuance, and will be deemed to have been issued without consideration for the purposes of Section 4.3 hereof); (iii) The issuance of up to 280,000 options to purchase shares of Common Stock under the Company's 1987 Stock Option Plan, as amended prior to the Original Issue Date (as such number shall be reduced by the number of options issued under such plan prior to the Original Issue Date and increased by any options issued under such plan that expire or become unexercisable without being exercised and that become available for reissuance under such plan), but only to the extent that any such option is granted with an exercise price that is not less than the Exercise Price in effect under this Warrant as of the date of issuance of such option; (iv) The issuance of up to 1,317,178 options to purchase shares of Common Stock under the Company's 1997 Stock Option Plan (as such number shall be reduced by the number of any options issued under such plan prior to the Original Issue Date and increased by any options issued under such plan that expire or become unexercisable without being exercised and that become available for reissuance under such plan), but only to the extent that any such option is granted with an exercise price that is not less than the Exercise Price in effect under this Warrant as of the date of issuance of such option; and (v) Any other issuance of Common Stock, Convertible Securities or Stock Purchase Rights with respect to which the Majority Warrant Holders shall have waived application of the provisions of Section 4 below. "Subsidiary" means any corporation or association (a) more than 50% (by number of votes) of the voting stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries, or any other business entity in which the Company or one or more Subsidiaries or the Company and one or more Subsidiaries own more than a 50% interest either in the profits or capital of such business entity or (b) whose net earnings, or portions thereof, are consolidated with the net earnings of the Company and are recorded on the books of the Company for financial reporting purposes in accordance with GAAP. "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a "sale" thereof within the meaning of the Securities Act. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of 7 11 this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price as of the date of such exercise. "Warrants" shall mean the Original Warrants and all warrants issued upon transfer, division or combination of, or in substitution for, such Original Warrants or any other such Warrant. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. "Warrant Stock" generally shall mean the shares of Common Stock issued, issuable or both (as the context may require) upon the exercise of Warrants until such time as such shares of Common Stock have either been (i) Transferred in a public offering pursuant to a registration statement filed under the Securities Act or (ii) Transferred in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof with all transfer restrictions and restrictive legends with respect to such Common Stock being removed in connection with such transaction. 2. EXERCISE OF WARRANT 2.1 Manner of Exercise. (a) From and after the Original Issue Date and until 5:00 P.M., Detroit time, on the Expiration Date, the Holder may from time to time exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below). In order to exercise this Warrant, in whole or in part, the Holder shall (i) deliver to the Company at the Designated Office a written notice of the Holder's election to exercise this Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable and specify the number of shares of Common Stock to be purchased, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice shall be in the form of the subscription form appearing at the end of this Warrant as Annex A, duly executed by the Holder or its duly authorized agent or attorney. (b) Upon receipt of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall 8 12 reasonably request in the Exercise Notice and shall be registered in the name of the Holder or such other name as shall be designated in the Exercise Notice (subject to compliance with the applicable provisions of Section 8). This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date. (c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the amount of such Warrant Price, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding Option") or (iii) by surrendering to the Company shares of Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price. In connection with any such surrender of Common Stock, Holder shall deliver to Company duly executed stock power endorsed in blank. In the event of any withholding of Warrant Stock or surrender of Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof. (d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the shares of Common Stock being issued, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant. Such new Warrant shall in all other respects be identical with this Warrant. 2.2 Payment of Taxes. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive rights and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder and the Company shall reimburse the Holder therefor (other than for any taxes on net income or capital gains or any transfer taxes required to be paid by such Holder) on an After-Tax Basis. 9 13 2.3 Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share that the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of (i) the Current Market Price of one share of Common Stock on the Exercise Date, if the Common Stock is then publicly traded or (ii) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company, if the Common Stock is not then publicly traded. 2.4 Continued Validity and Application. (a) A holder of shares of Warrant Stock issued upon the exercise of this Warrant, in whole or in part, including any transferee of such shares (other than a transferee in whose hands such shares no longer constitute Warrant Stock as defined herein), shall continue, with respect to such shares, (i) to be entitled to all rights to which it would have been entitled as the Holder under Sections 2.2 and 12, and (ii) to be subject to all obligations that are applicable to such holder by the terms of this Warrant. The Company shall, at the time of any exercise of this Warrant or any transfer of Warrant Stock, upon the request of the holder of the shares of Warrant Stock issued in connection with such exercise or transfer, acknowledge in writing, in a form reasonably satisfactory to such holder, its continuing obligation to afford to such holder such rights referred to in this Section 2.4; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1 Transfer. Subject to compliance with Section 8 hereof, each transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the Holder or its agent or attorney. Upon such surrender and delivery, the Company shall, subject to Section 8, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and this Warrant shall promptly be canceled. A Warrant, if properly assigned in compliance with Section 8, may be exercised by the new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 10 14 3.2 Division and Combination. Subject to compliance with the applicable provisions of this Warrant, this Warrant may be divided or combined with other Warrants upon presentation hereof at the Designated Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with the applicable provisions of this Warrant as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3 Expense. The Company shall prepare, issue and deliver at its own expense any new Warrant or Warrants required to be issued under this Section 3. 3.5 Maintenance of Books. The Company agrees to maintain, at the Designated Office, books for the registration and transfer of the Warrants. 4. ANTIDILUTION PROVISIONS The number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 4. 4.1 Stock DividendsIf at any time the Company shall: (i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, additional shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of such Common Stock, pursuant to a stock split or otherwise, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of such Common Stock, pursuant to a reverse stock split or otherwise, then the Exercise Price shall be adjusted to equal the product of the Exercise Price in effect immediately prior to such event multiplied by a fraction the numerator of which is equal to the number of shares of Common Stock Outstanding immediately prior to the adjustment and the denominator of which is equal to the number of shares of Common Stock Outstanding immediately after such adjustment. 4.2 Issuance of Additional Shares of Common Stock. If at any time the Company shall issue or sell any shares of 11 15 Common Stock in a Subsequent Issuance for a consideration per share that is less than either (i) the Fair Value in effect immediately prior to such issuance or sale and (ii) the Exercise Price in effect immediately prior to such issuance or sale, then, forthwith upon such issuance or sale, the Exercise Price shall be reduced to the lower of the prices calculated by: (1) dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock Outstanding immediately prior to such Subsequent Issuance multiplied by the then existing Exercise Price, plus (y) the aggregate consideration (determined in accordance with the provisions of Section 4.7 hereof), if any, received by the Company in connection with such Subsequent Issuance, by (B) the total number of shares of Common Stock Outstanding immediately after such Subsequent Issuance; and (2) multiplying the then existing Exercise Price by a fraction, the numerator of which shall be the quotient obtained by dividing (A) the sum of (x) the number of shares of Common Stock Outstanding immediately prior to such Subsequent Issuance multiplied by the Fair Value per share of Common Stock immediately prior to such Subsequent Issuance plus (y) the aggregate consideration (determined in accordance with the provisions of Section 4.7 hereof), if any, received by the Company in connection with such Subsequent Issuance divided by (B) the total number of shares of Common Stock Outstanding immediately after such Subsequent Issuance, and the denominator of which shall be the Fair Value per share of Common Stock immediately prior to such Subsequent Issuance. (b) The provisions of this Section 4.2 shall not apply to (i) any issuance of Common Stock for which an adjustment is provided for under Section 4.1 or (ii) any issuance or sale of Common Stock pursuant to the exercise of any Stock Purchase Rights or Convertible Securities to the extent that an adjustment shall have been previously made hereunder in connection with the issuance of such Stock Purchase Rights or Convertible Securities pursuant to the provisions of Section 4.3 hereof. 4.3 Issuances of Stock Purchase Rights and Convertible Securities. (a) In the event that the Company shall at any time issue, sell or grant any Stock Purchase Rights to any Person in a Subsequent Issuance, then, for the purpose of Section 4.2 above, the Company shall be deemed to have issued at that time a number of shares of Common Stock equal to the maximum number of shares of Common Stock that are or may become issuable upon exercise of such Stock Purchase Rights (or upon exercise of any Convertible Securities issuable upon exercise of such Stock Purchase Rights) for a consideration per share equal to (i) the aggregate consideration per share (determined in accordance with the provisions of Section 4.7 hereof) received by the Company in 12 16 connection with the issuance, sale or grant of such Stock Purchase Rights plus (ii) the minimum amount of such consideration per share receivable by the Company in connection with the exercise of such Stock Purchase Rights (and the exercise of any Convertible Securities issuable upon exercise of such Stock Purchase Rights). (b) In the event that the Company shall at any time issue or sell any Convertible Securities to any Person in a Subsequent Issuance, then, for the purposes of Section 4.2 above, the Company shall be deemed to have issued at that time a number of shares of Common Stock equal to the maximum number of shares of Common Stock that are or may become issuable upon the exercise of the conversion or exchange rights associated with such Convertible Securities for a consideration per share equal to (i) the aggregate consideration per share (determined in accordance with the provisions of Section 4.7 hereof) received by the Company in connection with the issuance or sale of such Convertible Securities plus (ii) the minimum amount of such consideration per share receivable by the Company in connection with the exercise of such conversion or exchange rights. (c) If, at any time after any adjustment of the Exercise Price shall have been made hereunder as the result of any issuance, sale or grant of any Stock Purchase Rights or Convertible Securities, the maximum number of shares issuable upon exercise of such Stock Purchase Rights or of the rights of conversion or exchange associated with such Convertible Securities shall increase, or the minimum amount of consideration per share receivable in connection with such exercise shall decrease, whether by operation of any antidilution rights pertaining to such Stock Purchase Rights or Convertible Securities, by agreement of the parties or otherwise, the Exercise Price then in effect shall first be readjusted to eliminate the effects of the original issuance, sale or grant of such Stock Purchase Rights or Convertible Securities on such Exercise Price and then readjusted as if such Stock Purchase Rights or Convertible Securities had been issued on the effective date of such increase in number of shares or decrease in consideration, but only if the effect of such two-step readjustment is to reduce the Exercise Price below the Exercise Price in effect immediately prior to such increase or decrease. (d) If, at any time after any adjustment of the Exercise Price shall have been made hereunder as the result of any issuance, sale or grant of any Stock Purchase Rights or Convertible Securities, any of such Stock Purchase Rights or the rights of conversion or exchange associated with such Convertible Securities shall expire by their terms or any of such Stock Purchase Rights or Convertible Securities shall be repurchased by the Company or a Subsidiary thereof for a consideration per underlying share of Common Stock not exceeding the amount of such consideration received by the Company in connection with the 13 17 issuance, sale or grant of such Stock Purchase Rights or Convertible Securities, the Exercise Price then in effect shall forthwith be increased to the Exercise Price that would have been in effect if such expiring Stock Purchase Rights or rights of conversion or exchange or such repurchased Stock Purchase Rights or Convertible Securities had never been issued. Similarly, if at any time after any such adjustment of the Exercise Price shall have been made pursuant to Section 4.2 (i) any additional consideration is received or becomes receivable by the Company in connection with the issuance or exercise of such Stock Purchase Rights or Convertible Securities or (ii) there is a reduction in the conversion ratio applicable to such Convertible Securities so that fewer shares of Common Stock will be issuable upon the conversion or exchange thereof or there is a decrease in the number of shares of Common Stock issuable upon exercise of such Stock Purchase Rights, the Exercise Price then in effect shall be forthwith readjusted to the Exercise Price that would have been in effect had such changes taken place at the time that such Stock Purchase Rights or Convertible Securities were initially issued, granted or sold. In no event shall any readjustment under this Section 4.3(d) affect the validity of any shares of Warrant Stock issued upon any exercise of this Warrant prior to such readjustment, nor shall any such readjustment have the effect of increasing the Exercise Price above the Exercise Price that would have been in effect if the related Stock Purchase Rights or Convertible Securities had never been issued. 4.4 Certain Other Distributions. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash; (b) any evidences of its indebtedness, any shares of its capital stock or any other securities or property of any nature whatsoever (other than cash, shares of Common Stock, Convertible Securities or Stock Purchase Rights); or (c) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its capital stock or any other securities or property of any nature whatsoever (other than cash, shares of Common Stock, Convertible Securities or Stock Purchase Rights); then the Exercise Price shall be adjusted to be equal to the Exercise Price in effect immediately prior to such event multiplied by a fraction (A) the numerator of which shall be the Current Market Price per share of Common Stock per share of Common Stock as of the date of taking such record, minus the amount allocable to one share of Common Stock of (x) any such cash so distributable and (y) the fair value (as determined in good faith by the Board of Directors of the Company, subject to 14 18 the right of the Holders to object to such determination pursuant to Section 4.10 below) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable and (B) the denominator of which shall be such Current Market Price per share of Common Stock. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.4 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.5 Adjustment of Number of Shares Purchaseable. Upon any adjustment of the Exercise Price as provided in Section 4.1, 4.2, 4.3 or 4.4 hereof, the Holder hereof shall thereafter be entitled to purchase upon the exercise of this Warrant, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable on the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 4.6 Reorgranization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is any change whatsoever in, or distribution with respect to, the Outstanding Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, (i) shares of common stock of the successor or acquiring corporation or of the Company (if it is the surviving corporation) or (ii) any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property") are to be received by or distributed to the holders of Common Stock of the Company who are holders immediately prior to such transaction, then the Holder of this Warrant shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or 15 19 as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In such event, the aggregate Exercise Price otherwise payable for the shares of Common Stock issuable upon exercise of this Warrant shall be allocated among the shares of common stock and Other Property receivable as a result of such reorganization, reclassification, merger, consolidation or disposition of assets in proportion to the respective fair market values of such shares of common stock and Other Property as determined in good faith by the Board of Directors of the Company. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be reasonably deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of any shares of the common stock of such successor or acquiring corporation for which this Warrant thus becomes exercisable, which modifications shall be as equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.6, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities that are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.6 shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets. 4.7 Determination of Consideration. For purposes of Sections 4.2 and 4.3 hereof, the consideration received and/or receivable by the Company in connection with the issuance, sale, grant or exercise of additional shares of Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of the accounting treatment of such consideration, shall be valued as follows: (1) Cash Payment. In the case of cash, the net amount received by the Company after deduction of any accrued interest or dividends, but including any underwriting commissions or concessions paid or allowed by the Company. 16 20 (2) Securities or Other Property. In the case of securities or other property, the fair market value thereof as of the date immediately preceding such issuance, sale, grant or exercise as determined in good faith by the Board of Directors of the Company. (3) Allocation Related to Common Stock. In the event shares of Common Stock are issued or sold together with other securities or other assets of the Company for a consideration which covers both, the consideration received (computed as provided in (1) and (2) above) shall be allocable to such shares of Common Stock as determined in good faith by the Board of Directors of the Company. (4) Allocation Related to Stock Purchase Rights and Convertible Securities. In case any Stock Purchase Rights or Convertible Securities shall be issued or sold together with other securities or other assets of the Company, together comprising one integral transaction in which no specific consideration is allocated to the Stock Purchase Rights or Convertible Securities, the consideration allocable to such Stock Purchase Rights or Convertible Securities shall be determined in good faith by the Board of Directors of the Company. (5) Dividends in Securities. In case the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in either case in Common Stock or Convertible Securities, such Common Stock or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (6) Merger, Consolidation or Sale of Assets. In case any shares of Common Stock, Stock Purchase Rights or Convertible Securities shall be issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the assets and business of the non-surviving corporation attributable to such Common Stock, Stock Purchase Rights or Convertible Securities, as is determined in good faith by the Company's Board of Directors. 4.8 Other Dilutive Events. In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent 17 21 and principles hereof (including, without limitation, the issuance of securities other than Common Stock which have the right to participate in distributions to the holders of Common Stock, the granting of "phantom stock" rights or "stock appreciation rights" or the repurchase of outstanding shares of Common Stock, Convertible Securities or Stock Purchase Rights for a purchase price exceeding the fair market value thereof), then, in each such case, the Company shall make such adjustment, if any, as the Board of Directors determines to be required to be made on a basis consistent with the essential intent and principles established herein as a result of such event in order to preserve the purchase rights represented by the Warrants and shall promptly give each Holder of a Warrant written notice of such adjustment. If the Majority Warrant Holders disagree with such adjustment and give the Company written notice of such disagreement within thirty (30) days after receiving notice of such adjustment, then such adjustment shall instead be determined by an independent investment banking firm of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company. If the investment banking firm selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment banking firm, then the Company and the Majority Warrant Holders shall each choose one such investment banking firm and the respective chosen firms shall jointly select a third investment banking firm, which shall make the determination. The decision of the investment banking firm making such determination shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Promptly after receipt of the opinion of such investment banking firm as to any such required adjustments, the Company shall take any actions necessary to implement same. The Company shall pay the costs and fees of each such investment banking firm (including any such investment banking firm selected by the Majority Warrant Holders) in the event that the investment banking firm making the determination determines that an adjustment is required that is greater than the adjustment proposed by the Board of Directors, and the Majority Warrant Holders shall pay such fees if such investment banking firm determines that no such adjustment greater than that proposed by the Board of Directors is required. 4.9 Other Provisions Applicable to Adjustments Under this Section. The following provisions shall be applicable to the adjustments provided for pursuant to this Section 4: (a) When Adjustments To Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring such an adjustment shall occur. For the purpose of any such adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. 18 22 (b) Record Date. In case the Company shall take a record of the holders of the Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Convertible Securities or Stock Purchase Rights or (ii) to subscribe for or purchase Common Stock, Convertible Securities or Stock Purchase Rights, then all references in this Section 4 to the date of the issuance or sale of such shares of Common Stock, Convertible Securities or Stock Purchase Rights shall be deemed to be references to such record date. (c) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/100th of a share. (d) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution to which the provisions of Section 4.1 would apply, but shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) Maximum Exercise Price. Except as provided in Section 4.1 above, at no time shall the Exercise Price per share of Common Stock exceed the amount set forth in the first paragraph of the preamble of this Warrant. (f) Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction that, by reason of any adjustment under Section 4.1, 4.2, 4.3 or 4.4 above, would cause the Exercise Price to be less than the par value of the Common Stock, if any, unless the Company first reduces the par value of the Common Stock to be less than the Exercise Price that would result from such transaction. (g) Notice of Adjustments. Whenever the number of shares of Common Stock for which this Warrant is exercisable or the Exercise Price shall be adjusted pursuant to this Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such 19 23 adjustment was made pursuant to Section 4.6) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any related change in the Exercise Price, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to each Holder in accordance with Section 13.2. The Company shall keep at its principal office or at the Designated Office, if different, copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by any Holder or any prospective transferee of a Warrant designated by a Holder thereof. (h) Independent Application. Except as otherwise provided herein, all subsections of this Section 4 are intended to operate independently of one another (but without duplication). If an event occurs that requires the application of more than one subsection, all applicable subsections shall be given independent effect without duplication. 4.10 Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Majority Warrant Holders within thirty (30) days after receipt of written notice of such determination, and any dispute shall be resolved by an investment banking firm of nationally recognized standing selected by the Majority Warrant Holders and reasonably acceptable to the Company (the fair value of the item as resolved by the investment banking firm referred to herein as the "Determined Value"). If the investment banking firm selected by the Majority Warrant Holders is not reasonably acceptable to the Company, and the Company and the Majority Warrant Holders cannot agree on a mutually acceptable investment banking firm, then the Company and the Majority Warrant Holders shall each choose one such investment banking firm and the respective chosen firms shall jointly select a third investment banking firm, which shall make the Determined Value. The Company shall pay the costs and fees of each such investment banking firm (including any such investment banking firm selected by the Majority Warrant Holders), if the Determined Value leads to a greater reduction in the Exercise Price than the fair value as determined in good faith by the Board of Directors of the Company, and the Majority Warrant Holders shall pay the costs and fees of each such investment banking firm, if the Determined Value leads to an increase or no change in such Exercise Price. 5. NO IMPAIRMENT 20 24 The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction over it as may be necessary to enable the Company to perform its obligations under this Warrant. 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK, REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants 131,718 shares of Common Stock. In addition, from and after the earlier of (i) May 31, 1998 and (ii) the filing of an amendment to the Articles of Incorporation of the Company increasing the Company's authorized Common Stock to 20,000,000 shares, the Company shall reserve and keep available for issuance upon the exercise of the Warrants such additional number of its authorized but unissued shares of Common Stock as may be required from time to time to permit the exercise in full of all outstanding Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance with the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. Before taking any action that would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction over such action. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 21 25 7. NOTICE OF CORPORATE ACTIONS, TAKING OR RECORD, TRANSFER BOOKS 7.1 Notices of Corporate Actions. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or distribution, or any right to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities, (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer or other disposition of all or substantially all the assets of the Company to another Person or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company or (d) any amendment of the Certificate of Incorporation of the Company, the Company shall mail to each Holder of a Warrant in accordance with the provisions of Section 13.2 hereof a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution, liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for the securities or Other Property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution, liquidation or winding-up and a description in reasonable detail of the transaction. Such notice shall be mailed to the extent practicable at least thirty (30), but not more than ninety (90) days prior to the date therein specified. In the event that the Company at any time sends any other notice to the holders of its Common Stock, it shall concurrently send a copy of such notice to each Holder of a Warrant. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of any Section hereof refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company shall not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. TRANSFER 22 26 The Holder, by acceptance of this Warrant or any Restricted Common Stock issued upon exercise hereof, agrees to be bound by the provisions of this Section 8. 8.1 Restrictions on Transfer. (a) Neither this Warrant nor any shares of Restricted Common Stock issued upon the exercise hereof shall be Transferred other than pursuant to an effective registration statement under the Securities Act or an exemption from the registration provisions thereof. No Transfer of this Warrant or any such shares of Restricted Stock other than pursuant to such an effective registration statement shall be valid or effective unless (i) the holder of the securities proposed to be transferred shall have delivered to the Company either a no-action letter from the Commission, together with comparable letters from any applicable state securities authorities, or an Opinion of Counsel to the effect that such proposed Transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws or (ii) such Transfer is being made pursuant to Rule 144 or Rule 144A under the Securities Act and such holder shall have delivered to the Company a certificate, in a form reasonably acceptable to Company, setting forth the basis for applying such Rule to the proposed Transfer. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon any such Transfer, other than in a public offering pursuant to an effective registration statement shall bear the restrictive legend set forth in Section 8.2(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 8.2(b), unless the Holder delivers to the Company an Opinion of Counsel to the effect that such legend is not required for the purposes of compliance with the Securities Act. Holders of the Warrants or the Restricted Common Stock, as the case may be, shall not be entitled to Transfer such Warrants or such Restricted Common Stock except in accordance with this Section 8.1(a). (b) Except with the prior written consent of the Company, neither this Warrant nor any shares of Warrant Stock issuable upon exercise hereof may be Transferred at any time to: (i) Directed Electronics, Inc. or any Affiliate or successor thereof, (ii) Darrell Issa or (iii) any Person that to the knowledge of the transferring Holder is a member of the immediate family of Darrell Issa. 8.2 Restrictive Legends. (a) Except as otherwise provided in this Section 8, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms: 23 27 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY EITHER A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH COMPARABLE LETTERS FROM ANY APPLICABLE STATE SECURITIES AUTHORITIES, OR AN OPINION OF COUNSEL (WHO MAY BE AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN SECURITIES MATTERS TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE PROPOSED TRANSFER." "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS SET FORTH IN THE WARRANT PURSUANT TO THE EXERCISE OF WHICH SUCH SHARES WERE ISSUED. AS WELL AS A REGISTRATION RIGHTS AGREEMENT AMONG THE COMPANY, PEGASUS PARTNERS, L.P., PEGASUS RELATED PARTNERS, L.P. AND GENERAL ELECTRIC CAPITAL CORPORATION DATED AS OF THE ORIGINAL ISSUE DATE. COPIES OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY." (b) Except as otherwise provided in this Section 8, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: 24 28 "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE OR OF THE SECURITIES ISSUABLE UPON EXERCISE THEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY EITHER A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH COMPARABLE LETTERS FROM ANY APPLICABLE STATE SECURITIES AUTHORITIES, OR AN OPINION OF COUNSEL (WHO MAY BE AN EMPLOYEE OF SUCH HOLDER) EXPERIENCED IN SECURITIES MATTERS TO THE EFFECT THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE PROPOSED TRANSFER." 8.3 Termination of Securities Law Restrictions. Notwithstanding the foregoing provisions of Section 8, the restrictions imposed by Section 8.1 upon the transferability of the Warrants and the Restricted Common Stock and the legend requirements of Section 8.2 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the holder thereof an Opinion of Counsel to the effect that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Sections 8.1 and 8.2 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTIONS 8.1 AND 8.2 HEREOF TERMINATED ON ______________, 19__, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Wherever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 8.2(a). 25 29 8.4. Listing on Securities Exchange. If the Company shall list any shares of Common Stock on any securities exchange or on NASDAQ, it shall at its expense, to the extent permitted by the rules of such securities exchange or NASDAQ, list thereon, maintain and, when necessary, increase such listing of, all shares of Warrant Stock issued or, to the extent permissible under the applicable securities exchange rules, issuable upon the exercise of this Warrant. 9. REGISTRATION RIGHTS AGREEMENT The Holder of this Warrant and holders of Warrant Stock are entitled to the benefits of and are subject to certain obligations under the Registration Rights Agreement. The Company shall keep a copy of the Registration Rights Agreement at the Designated Office and shall furnish a copy thereof to the Holder of this Warrant or any such holder of Warrant Stock upon request. 10. LOSS OR MUTILATION Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement or affidavit of loss of General Electric Capital Corporation shall be a 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 to such Holder; provided, however, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation. 11. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the "Designated Office"), where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 950 Whitcomb, Madison Heights, Michigan 48071, Attn: President. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered holders of Warrants at least ten (10) Business Days prior to the effective date of such change. 12. FINANCIAL AND BUSINESS INFORMATION 26 30 Until the Expiration Date, the Company shall deliver to each holder of Warrants or of Warrant Stock one copy of each of the following items: (i) as soon as available, and in any event within forty-five (45) days after the end of each of the first three quarters of each fiscal year, unaudited interim consolidated balance sheets of the Company and its Subsidiaries as at the end of such quarter and the related consolidated statements of income, cash flow, stockholders equity and changes in financial position of the Company and its Subsidiaries as at the end of and for such quarter, setting forth in each case in comparative form the corresponding figures for and as at the end of the corresponding quarter of the preceding fiscal year, all in reasonable detail and certified by a principal financial officer of the Company, as prepared in accordance with GAAP consistently applied (subject to year end adjustments and the absence of footnotes), and fairly presenting the consolidated financial position and results of operations of the Company and its Subsidiaries for such periods (it being agreed that the Company will be deemed to have complied with its obligations under this subsection (i) if the Company delivers to Holders the Company's quarterly report on Form 10-Q promptly after filing thereof with the Commission); (ii) within ninety (90) days after the end of each fiscal year of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, stockholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of independent public accountants of recognized national standing selected by the Company, which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and changes in their financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards (it being agreed that the Company will be deemed to have complied with its obligations of this subsection 27 31 (ii) if the Company delivers to Holders the Company's annual report on Form 10-K promptly after filing thereof with the Commission); (iii) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available by the Company to the holders of any class of its securities generally or by any Subsidiary of the Company to the holders of any class of its securities that are publicly traded; and (iv) with reasonable promptness, such other information relating to the Company and its Subsidiaries as the Holder may, from time to time, reasonably request, provided that in the event the Company determines in good faith that any such information is confidential or proprietary, such Holder shall first execute an appropriate confidentiality agreement. 13. MISCELLANEOUS 13.1 Nonwaiver. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person. 13.2 Notice Generally. Any notice, demand, request, consent, approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) if to any Holder of this Warrant or holder of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose; (b) if to the Company, at its Designated Office; or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall 28 32 have been delivered to Federal Express or another overnight courier service. 13.3 Indemnification. If the Company fails to make, when due, any payments provided for in this Warrant, the Company shall pay to the holder hereof (a) interest at the Agreed Rate on any amounts due and owing to such holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such holder in collecting any amounts due hereunder. The Company shall indemnify, save and hold harmless the Holder hereof and the holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from a Company Default. This indemnification provision shall be in addition to the rights of such Holder or holders to bring an action against the Company for breach of contract based on such Company Default. 13.4 Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 13.5 Remedies. Each holder of Warrants and/or Warrant Stock, in addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate. 13.6 Successors and Assigns. Subject to the provisions of Sections 3.1, 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such holder. 13.7 Amendment. This Warrant and all other Warrants may be modified or amended or the provisions hereof waived with 29 33 the written consent of the Company and the Majority Warrant Holders, provided that no such Warrant may be modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided therein) without the written consent of the holder thereof. 13.8 Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 13.9 Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 13.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT, PROVIDED, THAT IT IS ACKNOWLEDGED THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary. CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------ Name: Rand Mueller Title: President 30 34 ANNEX A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _____________ shares (the "Purchased Shares") of Common Stock of CODE-ALARM, INC. (the "Company") and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________________ whose address is _______________________________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. [IF THE WARRANT PRICE IS BEING PAID IN CASH, PLEASE ADD THE FOLLOWING: In payment of the Warrant Price for the Purchased Shares, the undersigned is enclosing herewith a certified or official bank check payable to the order of the Company in the amount of $____________.] [IF THE SHARE WITHHOLDING OPTION IS BEING EXERCISED, PLEASE ADD THE FOLLOWING: In payment of the Warrant Price for the Purchased Shares, pursuant to Section 2.1(c) of this Warrant the undersigned hereby instructs the Company to withhold a number of Purchased Shares with an aggregate Fair Value equal to such Warrant Price.] [IF THE WARRANT PRICE IS BEING PAID THROUGH THE DELIVERY OF PREVIOUSLY OWNED SHARES, PLEASE ADD THE FOLLOWING: In payment of the Warrant Price for the Purchased Shares, pursuant to Section 2.1(c) of this Warrant, the undersigned is herewith surrendering to the Company ___________ shares of Common Stock.] 31 35 _______________________________ (Name of Registered Owner) _______________________________ (Signature of Registered Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 32 36 ANNEX B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: No. of Shares of Name and Address of Assignee Common Stock - ---------------------------- ---------------- and does hereby irrevocably constitute and appoint ______________ _____________ attorney-in-fact to register such transfer onto the books of CODE-ALARM, INC. maintained for the purpose, with full power of substitution in the premises. Dated:___________________ Print Name:___________________ Signature:____________________ Witness:______________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 33 EX-10.57 22 EXHIBIT 10.57 1 EXHIBIT 10.57 UNIT PURCHASE AGREEMENT AMONG CODE ALARM INC., PEGASUS PARTNERS, L.P. AND PEGASUS RELATED PARTNERS, L.P. DATED AS OF OCTOBER 27, 1997 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I AUTHORIZATION, PURCHASE AND SALE OF UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Authorization of the Preferred Shares, the Units and the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Purchase and Sale of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (a) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (b) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II PREFERRED SHARE CERTIFICATES; CERTAIN TERMS OF THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . 2 2.01 Form of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.02 Replacement of Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.03 Registration; Transfer; Registration of Transfer and Exchange of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.04 PPN Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.05 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.01 Conditions to Purchasers' Obligations , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (b) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (c) All Proceedings to be Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (d) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (e) Necessary Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (f) No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (g) Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (h) No Injunctions, Restraining Order or Adverse Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (i) Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (j) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (k) Exemption from Chapter 7A of Michigan Business Corporation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (l) Amendment to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (m) Amendment to Restated Articles of Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (n) Employee Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (o) Mueller Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (p) Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (q) Debt Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (r) [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (s) Shortfall Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (t) Series A-2 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (u) Documentation at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.02 Conditions to the Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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PAGE ---- (b) Purchasers' Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (c) Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (d) Litigation Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.02 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.03 Authorization; Validity of Agreement; Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.04 Consents and Approvals; No Violations; Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.05 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.06 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.07 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.08 Employee Benefit Plans; ERISA; Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.10 No Default; Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.15 Patents and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE V COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.01 Financial and Business Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.02 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.03 Shareholder Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.04 Issuance of Litigation Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.05 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.06 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.07 Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.08 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.09 Hart-Scott-Rodino, Voting Rights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.10 Prohibition on Realization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.11 Expiration of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.01 Representations by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.02 Transfer of Units; Surrender of Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.03 No Transfer of Units to Directed Electronics, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE VII CERTAIN SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.01 Representations by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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PAGE ---- 7.02 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (a) Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (b) Termination of Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 7.03 Additional Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE VIII CALL RIGHT; PUT RIGHT; RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8.01 Company's Right to Repurchase Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (a) Repurchase During Year One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (b) Repurchase After Year Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (c) Notice of Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (d) Cessation of Dividends on Preferred Shares Redeemed; Shares No Longer Outstanding . . . . . . . . . . . . . . . . . 32 (e) Status of Redeemed Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (f) Limitation on Company's Right to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 8.02 Purchasers' Right to Put Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (a) Obligation to Redeem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (b) Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 8.03 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (a) Company's Right to Acquire Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (b) Non-Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (c) Termination or Suspension of Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 9.01 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 9.02 No Waiver: Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9.03 Amendments; Waiver and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 9.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 9.06 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.07 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.08 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.09 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.10 Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.11 Governing Law; Consent to Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.12 Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 9.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 9.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 9.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 9.16 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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EXHIBITS Exhibit A Certificate of Designation Exhibit B-1 Form of Attached Warrant Exhibit B-2 Form of Shortfall Warrant Exhibit B-3 Form of Litigation Warrant Exhibit C-1 Form of Series A-1 Preferred Share Certificate Exhibit D Opinion of Pepper, Hamilton & Scheetz LLP Exhibit E Stock Option Plan Exhibit F Mueller Agreement Exhibit G Registration Rights Agreement SCHEDULES Schedule 1.02 Investment Proportions Schedule 3.01(f) Material Adverse Effect Schedule 4.01 Subsidiaries Schedule 4.02(a) Capitalization Schedule 4.02(b) Capitalization of Subsidiaries Schedule 4.04(a) Governmental Consents and Approvals Schedule 4.04(b) Licenses Schedule 4.06 Liabilities Schedule 4.07 Certain Changes Schedule 4.08 ERISA Schedule 4.09 Litigation Schedule 4.11 Taxes Schedule 4.14 Transactions with Affiliates Schedule 4.15 Intellectual Property
iv 6 Index of Defined Terms
PAGE ---- 1997 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Additional Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Attached Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Basic Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Certificate of Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Charter Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Company Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Current Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 D&O Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 DEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 DOJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Fully Diluted Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 GECC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Indemnified Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Interim Dividend Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Inventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
v 7
PAGE ---- IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Key Man Life Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Litigation Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Litigation Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Materials of Environmental Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 MBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 multiemployer pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 New Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Non-Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Offer Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 parachute payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Permitted Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Preferred Share Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Preferred Share Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Put Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Realization Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Restriction Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Seller Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Series A Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Series A-1 Preferred Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Series A-1 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Series A-2 Preferred Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Series A-2 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Shortfall Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 single employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
vi 8 Page ---- Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Triggering Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Voting Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 welfare plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
vii 9 UNIT PURCHASE AGREEMENT THIS UNIT PURCHASE AGREEMENT (the "Agreement") is made as of October 27, 1997 among CODE ALARM INC., a Michigan corporation (the "Company"), PEGASUS PARTNERS, L.P., a Delaware limited partnership, and PEGASUS RELATED PARTNERS, L.P., a Delaware limited partnership (together with their respective successors and assigns, each a "Purchaser" and together, the "Purchasers"). ARTICLE I AUTHORIZATION, PURCHASE AND SALE OF UNITS 1.01 Authorization of the Preferred Shares, the Units and the Warrants. Pursuant to its Restated Articles of Incorporation, as amended, the Company has established a series of preferred stock designated as "Series A Preferred Stock", which will be issuable in two sub-series, "Series A-1 Preferred Stock" and "Series A-2 Preferred Stock", and authorized the issuance of up to 200,000 shares of Series A-1 Preferred Stock (each such share, a "Series A-1 Preferred Share" and together with the Series A-2 Preferred Shares (as defined in Section 3.01(t)), the "Preferred Shares") in accordance with the terms of the Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Preferred Stock, attached as Exhibit A hereto (the "Certificate of Designation"). The Company has authorized the issuance and sale to the Purchasers of 55,000 units (the "Units"), each Unit consisting of one Series A-1 Preferred Share and one warrant (collectively, with other such warrants, the "Attached Warrants") to purchase 72.2525247 shares of the Company's common stock, no par value (the "Common Stock"), which may be aggregated with other Attached Warrants. A portion of each Attached Warrant entitling the holder to purchase 6.1033% of the Common Stock for which the entire Attached Warrant is exercisable (an "Interim Dividend Warrant") has been allocated to provide for future accrued and unpaid dividends on the Preferred Shares. The Company has also authorized the issuance and sale to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of one or more warrants to purchase an aggregate of 1,000,000 shares of Common Stock (the "Shortfall Warrants" and together with the Attached Warrants and the Litigation Warrants (as defined in Section 5.04), the "Warrants"). The terms of the Attached Warrants are set forth in the form of Warrant attached as Exhibit B-1 hereto. The terms of the Shortfall Warrants are set forth in the form of Warrant attached as Exhibit B-2 hereto. The terms of the Litigation Warrants are set forth in the form of Warrant attached as Exhibit B-3 hereto. The shares of Common Stock issuable upon exercise of the Warrants are referred to as the "Warrant Shares." The Preferred Shares, the Warrants and the Warrant Shares are sometimes referred to herein as the "Securities." This Agreement, the Certificate of Designation and the Registration Rights Agreement (as hereinafter defined), including the schedules and exhibits attached hereto and thereto, are referred to herein as the "Basic Documents." 10 1.02 Purchase and Sale of Units. (a) The Closing. The Company agrees to issue and sell to the Purchasers, and, subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, the Purchasers agree to purchase, 55,000 Units for an aggregate purchase price of $6,999,850.00, or $127.27 per Unit (the "Purchase Price"), in the proportions set forth on Schedule 1.02. Such purchase and sale shall take place at a closing (the "Closing") to be held on October 27, 1997 (the "Closing Date") at 10:00 a.m. Eastern Time, at the offices of Sidley & Austin in New York, NY. At the Closing, the Company will issue to each Purchaser a certificate or certificates representing the number of Preferred Shares purchased by such Purchaser and a certificate or certificates representing the number of Warrants purchased by such Purchaser. At the Closing, each Purchaser will deliver to the Company, by wire transfer of immediately available funds to an account designated by the Company by written notice to the Purchasers, the aggregate Purchase Price for the Preferred Shares and Warrants to be purchased by such Purchaser. (b) Use of Proceeds. The Company agrees to use the proceeds from the sale of the Units to refinance a portion of the current bank financing with NBD Bank and for working capital purposes. ARTICLE II PREFERRED SHARE CERTIFICATES; CERTAIN TERMS OF THE PREFERRED SHARES 2.01 Form of Preferred Shares. The certificates representing the Series A-1 Preferred Shares shall be substantially in the form of Exhibit C- 1 hereto and the certificates representing the Series A-2 Preferred Shares shall be in substantially similar form thereto (collectively, the "Preferred Share Certificates"), and may have such letters, numbers or other marks of identification and such legends printed, lithographed or engraved upon them as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement or the Certificate of Designation. 2.02 Replacement of Preferred Share Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Share Certificate, and, if requested in the case of any such loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of any such Preferred Share Certificate, the Company will issue a new Preferred Share Certificate, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Preferred Share Certificate; provided, however, if any Preferred Share Certificate of which any Purchaser, its nominee, or any of its officers or principals is the registered holder is lost, stolen or destroyed, the affidavit of such principal or officer of such holder setting forth the circumstances with respect to such loss, theft or destruction, together with an agreement to indemnify the Company with respect thereto, 2 11 shall be accepted as satisfactory evidence thereof, and no bond or other security shall be required as a condition to the execution and delivery by the Company of a new Preferred Share Certificate in replacement of such lost, stolen or destroyed Preferred Share Certificate. 2.03 Registration; Transfer; Registration of Transfer and Exchange of Preferred Shares. The Preferred Shares shall be issued in registered form only. The Company, or a transfer agent appointed by the Company (the Company or such designated agent, in such capacity, the "Preferred Share Agent"), shall number and list each Preferred Share Certificate, as it is issued, in a register (the "Preferred Share Register") which the Company or such agent shall maintain at the principal executive offices of the Company or at such office specified in a notice to the registered holders (the "Holders") of the Preferred Shares pursuant to Section 9.04 of this Agreement (the "Office"). At the option of any Holder of Preferred Shares, any Preferred Share Certificate may be exchanged at the Office for a new Preferred Share Certificate (or new Preferred Share Certificates, in the same or different denominations), upon payment of the charges (if any) hereinafter provided. Whenever any Preferred Share Certificates are so surrendered for exchange the Company shall execute, and, if applicable, the Preferred Share Agent shall countersign and deliver, the Preferred Share Certificates that the Holder making the exchange is entitled to receive. Subject to compliance with the restrictions set forth in this Agreement (including, without limitation, Section 7.02 hereof), the Preferred Share Certificates shall be transferable only on the Preferred Share Register, upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Company or the Preferred Share Agent. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and to remain with the Preferred Share Agent in its discretion. Upon any registration of transfer, the Company shall execute and, if applicable, the Preferred Share Agent shall countersign and deliver, a new Preferred Share Certificate(s) to the Persons entitled thereto. As used in this Agreement, "Person" means any natural person, corporation, partnership, joint venture, limited liability company, firm, association, joint-stock company, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. All Preferred Share Certificates issued upon any registration of transfer or exchange of Preferred Share Certificates shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Preferred Share Certificates surrendered for such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange of Preferred Share Certificates. The Company may require payment of a sum 3 12 sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Preferred Share Certificates. Any Preferred Share Certificate when duly endorsed in blank shall be deemed negotiable, and when a Preferred Share Certificate shall have been so endorsed, the Holder thereof may be treated by the Company, the Preferred Share Agent and all other Persons dealing therewith as the absolute owner thereof for any purpose and as the Person entitled to exercise the rights represented thereby, or the transfer thereof on the Preferred Share Register, any notice to the contrary notwithstanding, but until such transfer on the Preferred Share Register, the Company and the Preferred Share Agent may treat the registered Holder thereof as the owner for all purposes. 2.04 PPN Application. The Company acknowledges that filing an application with Standard & Poor's Corporation CUSIP Service Bureau is necessary for the assignment of a Private Placement Number with respect to each of the Preferred Shares and the Company consents to the filing with such Bureau of all documents and materials required to be submitted with such application. 2.05 Taxes. The Company will pay all taxes (including interest and penalties), other than taxes imposed on the income of the Purchasers, which may be payable in respect of the execution and delivery of this Agreement or of the issuance and delivery (but not the transfer) of any of the Securities. ARTICLE III CONDITIONS TO CLOSING 3.01 Conditions to Purchasers' Obligations. The obligation of the Purchasers to purchase and pay for the Units at the Closing is subject to the fulfillment by the Company or waiver by the Purchasers of each of the following conditions: (a) Representations and Warranties. Each of the representations and warranties of the Company set forth in Article IV hereof and in the Basic Documents shall be true and correct in all material respects on the Closing Date. (b) Performance. The Company shall have performed and complied in all material respects with all covenants and agreements contained herein and received any and all consents, approvals or waivers necessary in order to complete the transactions required to be performed or complied with by it prior to or at the Closing. (c) All Proceedings to be Satisfactory. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to the 4 13 Purchasers, including, without limitation, the filing of the duly adopted Certificate of Designation with the Department of Consumer & Industry Services of the State of Michigan. The Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (d) Legal Opinion. The Purchasers shall have received an originally executed copy of an opinion of Pepper Hamilton & Scheetz LLP, special counsel for the Company, dated as of the Closing Date and substantially in the form attached as Exhibit D hereto. (e) Necessary Consents. Except for shareholder approval of the Charter Amendment, on or before the Closing Date, the Company shall have obtained any required governmental authorizations with respect to the Basic Documents and the Warrants and shall have obtained all material consents to the transactions contemplated under the Basic Documents and the Warrants, of any Person required under any contractual obligation or any other obligations (including any obligations imposed by law) of the Company or any of its Subsidiaries. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (f) No Material Adverse Effect. Except as disclosed in Schedule 3.01(f), since December 31, 1996, no Material Adverse Effect shall have occurred. As used in this Agreement, any reference to "Material Adverse Effect" means any event, change or effect that is materially adverse to the consolidated financial condition, businesses, results of operations, cash flows or prospects of the Company and its Subsidiaries, taken as a whole, or that materially impairs the ability of the Company to perform or the Purchasers to enforce the obligations of the Company under the Basic Documents or the Warrants. (g) Payment of Fees and Expenses. Without limiting the provisions of Section 9.05 hereof, the Company shall have paid on or before the Closing, the reasonable fees, charges and disbursements of the Purchasers, including the fees and expenses of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the Purchasers. (h) No Injunctions, Restraining Order or Adverse Litigation. No order, judgment or decree of any Governmental Entity (as hereinafter defined) shall purport to enjoin or restrain the Purchasers from acquiring Units or Shortfall Warrants on the Closing Date. As of the Closing Date, there shall not be pending or, to the knowledge of Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company or any of its Subsidiaries or any property of the Company or any of its Subsidiaries that has not been disclosed by the Company in writing pursuant to Section 4.09, and there shall have occurred no development not so disclosed in any such action, suit, proceeding, 5 14 governmental investigation or arbitration so disclosed, that, in either event, could reasonably be expected to have a Material Adverse Effect; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement, the other Basic Documents or the Warrants. (i) Employment Agreements. The Company shall have entered into an employment agreement with Mr. Craig Camalo and shall have amended its employment agreement with Mr. Rand Mueller, each in form and substance satisfactory to the Purchasers. The foregoing employment agreements and the Company's employment agreements with each of Messrs. Peter Stouffer and Michael Schroder shall be in full force and effect, and the Purchasers shall have received evidence satisfactory to them thereof. (j) Insurance. The Company shall have secured a directors' and officers' liability insurance policy (the "D&O Policy") with an insurance carrier approved by and on terms reasonably satisfactory to the Purchasers, covering each of the Company's existing and future officers and directors, with coverage of not less than $5,000,000. The Purchasers shall have received evidence satisfactory to them of the D&O Policy. (k) Exemption from Chapter 7A of Michigan Business Corporation Act. Prior to the execution of this Agreement, the Company's Board of Directors shall have adopted an irrevocable resolution pursuant to Section 782 of the Michigan Business Corporation Act (the "MBCA"), exempting from the requirements of Section 780 of the MBCA all business combinations (as such term is defined in Section 776(5) of the MBCA) involving transactions with Pegasus Partners, L.P. and Pegasus Related Partners, L.P. and their affiliates (as such term is defined in Section 776(1) of the MBCA), including, without limitation, the transactions contemplated by this Agreement and the other Basic Documents and the Warrants. Prior to or at the Closing, the Company shall have delivered to the Purchasers a complete and correct copy of such resolution certified by the Secretary or an Assistant Secretary of the Company. (l) Amendment to Bylaws. Prior to the execution of this Agreement, the Company's Board of Directors shall have adopted a resolution amending the Company's Bylaws to (i) increase the number of directors comprising the Company's Board of Directors to nine and (ii) provide that the provisions of Chapter 7B of the MBCA do not apply to control share acquisitions (as defined therein) of shares of the Company. Prior to or at the Closing, the Company shall have delivered to the Purchasers a complete and correct copy of such resolution certified by the Secretary or an Assistant Secretary of the Company. (m) Amendment to Restated Articles of Incorporation. Prior to the execution of this Agreement, the Company's Board of Directors shall have adopted a resolution approving an amendment to the Company's Restated Articles of Incorporation to increase the number of authorized shares of Common Stock from 5,000,000 shares to 20,000,000 shares (the "Charter Amendment"), directing that the Charter Amendment be presented to the holders of 6 15 Common Stock at the next meeting of shareholders of the Company in accordance with applicable Michigan law and recommending that the holders of Common Stock approve the Charter Amendment. Prior to or at the Closing, the Company shall have delivered to the Purchasers a complete and correct copy of such resolution certified by the Secretary or an Assistant Secretary of the Company, as well as copies of executed agreements by holders of at least 28% of the outstanding Common Stock, pursuant to which such holders agree to vote all of their shares of Common Stock in favor of approving the Charter Amendment. (n) Employee Stock Option Plan. The Company's Board of Directors shall have adopted a resolution (i) approving the implementation of an employee Stock Option Plan, which plan shall be substantially in the form attached as Exhibit E hereto (the "1997 Stock Option Plan"), (ii) allocating the options issuable under the 1997 Stock Option Plan in a manner acceptable to the Purchasers, (iii) directing that the 1997 Stock Option Plan be presented to the holders of Common Stock for a vote at the next meeting of shareholders of the Company in accordance with applicable Michigan law and (iv) recommending that the holders of Common Stock approve the 1997 Stock Option Plan. Prior to or at the Closing, the Company shall have delivered to the Purchasers a complete and correct copy of such resolution certified by the Secretary or an Assistant Secretary of the Company. (o) Mueller Agreement. The Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder Unitrust and Mr. Rand Mueller (collectively, the "Stockholders") shall have entered into an agreement with the Company and the Purchasers, substantially in the form attached as Exhibit F hereto, pursuant to which the Stockholders have agreed to certain restrictions on the transferability of the Common Stock beneficially owned by them. (p) Due Diligence Review. The Purchasers shall be reasonably satisfied with their due diligence review of the Company's assets, liabilities, business, contracts, financial statements, information, cash flow and prospects. (q) Debt Refinancing. The Company shall have completed a refinancing of its bank indebtedness on terms satisfactory to the Purchasers, or all conditions precedent to such completion, other than the consummation of the purchase of Units pursuant to this Agreement, shall have been satisfied. (r) [Intentionally Omitted]. (s) Shortfall Warrants. The Company shall have issued to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. Shortfall Warrants to purchase 277,727 and 722,273 shares of Common Stock, respectively, in exchange for financial accommodations being provided by the Purchasers to General Electric Capital Corporation ("GECC") in connection with its refinancing of the Company's indebtedness to NBD Bank. (t) Series A-2 Preferred Stock. The Company shall have established a sub-series of preferred stock designated as "Series A-2 Preferred Stock" and shall have 7 16 authorized the issuance of up to 200,000 shares of such preferred stock (each such share, a "Series A-2 Preferred Share") in accordance with the terms of the Certificate of Designation. The Series A-2 Preferred Shares shall be issued in replacement of the Series A-1 Preferred Shares, upon the transfer thereof by Pegasus Partners, L.P., Pegasus Related Partners, L.P. or any of their affiliates to a party other than an affiliate of Pegasus Partners, L.P. or Pegasus Related Partners, L.P. (u) Documentation at Closing. The Purchasers shall have received prior to or at the Closing all of the following, each in form and substance satisfactory to the Purchasers: (i) A Registration Rights Agreement executed by the Company, substantially in the form attached as Exhibit G hereto (the "Registration Rights Agreement"); (ii) The Certificate of Designation, adopted by the Board of Directors of the Company, as attested by the Secretary or an Assistant Secretary of the Company and filed with the Department of Consumer & Industry Services of the State of Michigan; (iii) A certified copy of the Company's Restated Articles of Incorporation, as amended and the Company's Bylaws; a certified copy of the resolutions of the Board of Directors evidencing approval of the Basic Documents, the Units, the Preferred Shares, the Warrants and other matters contemplated hereby; and certified copies of all documents evidencing other necessary corporate, shareholder or other action and governmental approvals, if any, with respect to the execution, delivery and performance of the Basic Documents, the Units, the Preferred Shares and the Warrants; (iv) A certificate of the Secretary or an Assistant Secretary of the Company which shall certify the names of the officers authorized to sign this Agreement and the other Basic Documents and issue the Units, the Shortfall Warrants and the Litigation Warrants on behalf of the Company, together with the true signatures of such officers. The Purchasers may rely conclusively on such certificates until they shall receive a further certificate of the Secretary or an Assistant Secretary of the Company canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate; (v) A certificate from a duly authorized officer of the Company stating that (a) the representations and warranties contained in Article IV hereof and the other Basic Documents and the Warrants or otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct in all material respects on the date of the Closing; (b) the Company has performed and complied with all covenants and agreements contained herein in all material respects and has received any and all consents, approvals or waivers necessary in order to complete the transactions required to be performed or complied with by it prior to or on the date of the Closing; (c) no event shall have occurred and be continuing as of the Closing, or would result from the consummation of the purchase of the Units 8 17 or the other transactions contemplated by the Basic Documents or Warrants, that would constitute a "Triggering Event" under the Certificate of Designation or a breach or violation of any Basic Document or Warrant; and (d) the Company has delivered to the Purchasers all documents and satisfied all conditions referred to in Sections 3.01(e) and (h) hereof except to the extent the Purchasers have waived such conditions; (vi) Fully executed copies of the Company's employment agreements with each of Messrs. Rand Mueller, Craig Camalo, Michael Schroder and Peter Stouffer. (vii) Other evidence reasonably requested by the Purchasers of the satisfaction of the conditions set forth in this Article III. 3.02 Conditions to the Company's Obligations. The obligation of the Company to issue and deliver the Units on the Closing Date is subject to the performance by the Purchasers of their agreements theretofore to be performed hereunder and to the fulfillment, prior thereto or concurrently therewith, of the following further conditions: (a) Representations and Warranties. Each of the representations and warranties of the Purchasers contained in this Agreement shall be true and correct in all material respects on the Closing Date, except as otherwise affected by the transactions contemplated hereby. (b) Purchasers' Certificates. The Company shall have received a certificate from each Purchaser, dated the Closing Date, signed by a duly authorized representative of such Purchaser, certifying that the conditions specified in the foregoing Section 3.02(a) hereof have been fulfilled. (c) Injunction. There shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein not be consummated as herein provided. (d) Litigation Guarantee. Pegasus Partners, L.P. and Pegasus Related Partners, L.P. shall have executed and delivered a guarantee to GECC pursuant to the requirements of the Litigation L/C Agreement among GECC as Agent and Term Lender, the other Term Lenders identified therein and the Company, which guarantee shall be in form and substance satisfactory to the Company. 9 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY In order to induce the Purchasers to enter into this Agreement and purchase the Units, the Company represents, warrants and covenants to the Purchasers as follows: 4.01 Organization. (a) Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to have such governmental approvals could not reasonably be expected to have a Material Adverse Effect. The Company and each of its Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or prevent the Company from consummating any of the transactions contemplated hereby. (b) The Company has heretofore made available to the Purchasers a complete and correct copy of its Restated Articles of Incorporation, as amended as of the date hereof, and its By-Laws and the organizational documents of each of its Subsidiaries, as currently in effect. Each such document is in full force and effect and no other organizational documents are applicable to or binding upon the Company or any Subsidiary. (c) Schedule 4.01 identifies all Subsidiaries of the Company. 4.02 Capitalization. (a) The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock and 500,000 shares of preferred stock, no par value. Schedule 4.02(a) sets forth the (i) the number of issued and outstanding shares of Common Stock as of the date hereof; (ii) a description of all unexpired options to purchase Common Stock ("Company Options"), including number of shares, exercise price, date of vesting and exercise date as well as a statement describing outstanding Company options; and (iii) all other shares of Common Stock issuable to any person pursuant to any existing options, warrants, calls, preemptive (or similar) rights, subscriptions or other rights, agreements, arrangements or commitments of any character. As of the date hereof and immediately prior to the Closing, no shares of preferred stock are issued and outstanding or held in the treasury of the Company, except one share of Series B Preferred Stock issued to Craig Camalo, and no shares of Common Stock are held in the treasury of the Company. The Company has taken all necessary corporate, shareholder and other action (except as contemplated by Section 5.03) to authorize and reserve and to permit it to issue shares of Common Stock which may be issued pursuant to Company Options and the transactions contemplated hereby. There are no bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having such rights) 10 19 ("Voting Debt") of the Company or any of its Subsidiaries issued and outstanding. Except as set forth in Schedule 4.02(a) and except for the Preferred Shares and the Warrants, as of the date hereof, (i) there are no shares of capital stock of the Company authorized, issued or outstanding, (ii) there are no existing options, warrants, calls, preemptive (or similar) rights, subscriptions or other rights, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or any of its Subsidiaries, obligating the Company or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Voting Debt of, or other equity interest in, the Company or any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interest or obligations of the Company or any of its Subsidiaries, and (iii) except for the Registration Rights Agreement, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to register under the Securities Act of 1933, as amended (the "Securities Act") or to repurchase, redeem or otherwise acquire any shares or Common Stock, or capital stock of the Company or any Subsidiary or affiliate of the Company. (b) Except as set forth on Schedule 4.02(b), all of the outstanding shares of capital stock of each of the Company's Subsidiaries are beneficially owned by the Company, directly or indirectly, free and clear of all security interests, liens, claims, pledges, agreements, limitations on voting rights, charges or other encumbrances of any nature whatsoever. (c) There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the capital stock of the Company or any of its Subsidiaries. None of the Company or its Subsidiaries is required to redeem, repurchase or otherwise acquire shares of capital stock of the Company, or any of its Subsidiaries, respectively, as a result of the transactions contemplated by this Agreement, except as provided in the Certificate of Designation or the Warrants. (d) As of the Closing, the Preferred Shares constituting part of Units sold at the Closing, the Attached Warrants constituting part of Units sold at the Closing and the Shortfall Warrants will be validly issued, fully paid and non-assessable and not subject to preemptive (or similar) rights. The rights, privileges and preferences of the Preferred Shares will be as set forth in the Certificate of Designation. If issued in accordance with the terms of Section 5.04, the Litigation Warrants will be validly issued, fully paid and non-assessable and not subject to pre-emptive (or similar) rights. If issued in accordance with the terms of the Certificate of Designation, the Preferred Shares and the Attached Warrants constituting part of Additional Units will be validly issued, fully paid and non-assessable and not subject to pre-emptive (or similar) rights. (e) The Company has authorized and reserved 2,267,421 shares of Common Stock for issuance upon exercise of the Attached Warrants and the Shortfall Warrants, including any Attached Warrants issued to the Purchasers as part of Units in payment of dividends on Preferred Shares ("Additional Units"). The Company has authorized and reserved 145,000 Series A-1 Preferred Shares for issuance as part of Additional Units. 11 20 4.03 Authorization; Validity of Agreement; Company Action. The Company has full corporate power and authority to execute and deliver each Basic Document and the Warrants, to issue the Units, the Shortfall Warrants and the Litigation Warrants and to consummate the transactions contemplated hereby and thereby, except if more than 2,267,421 shares of Common Stock are required to be issued upon exercise of Warrants, additional shares must be authorized. The Certificate of Designation has been duly approved by the Company and filed with the Department of Consumer & Industry Services of the State of Michigan. The execution, delivery and performance by the Company of each Basic Document and the Warrants and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of the Company and, other than shareholder approval of the Charter Amendment, no other corporate or shareholder action on the part of the Company is necessary to authorize the execution, delivery or performance by the Company of any Basic Document or Warrant, the issuance of any Units, Shortfall Warrants or Litigation Warrants or the consummation by it of the transactions contemplated hereby and thereby, except if more than 2,267,421 shares of Common Stock are required to be issued upon exercise of Warrants, additional shares must be authorized and if more than 200,000 shares of Series A-1 Preferred Stock or Series A-2 Preferred are required to be issued by reason of the payment of dividends in-kind on such sub-series, additional shares of such sub-series must be authorized. This Agreement, the Registration Rights Agreement, the Attached Warrants and the Shortfall Warrants have been duly executed and delivered by the Company and (assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto) this Agreement, the other Basic Documents, the Attached Warrants and the Shortfall Warrants are valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. If issued in accordance with the terms of Section 5.04 hereof, the Litigation Warrants will be valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 4.04 Consents and Approvals; No Violations; Licenses. (a) None of the execution, delivery or performance of any Basic Document or Warrant by the Company, the issuance of any Units, Shortfall Warrants or Litigation Warrants or the consummation by the Company of the transactions contemplated hereby or thereby, nor compliance by the Company with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the Restated Articles of Incorporation, as amended or the By-Laws or other organizational documents of the Company or of any of its Subsidiaries, except if more than 2,267,421 shares of Common Stock are required to be issued upon exercise of Warrants, 12 21 additional shares must be authorized and if more than 200,000 shares of Series A-1 Preferred Stock or Series A-2 Preferred are required to be issued by reason of the payment of dividends in-kind on such sub-series, additional shares of such sub-series must be authorized, (ii) require on the part of the Company any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or other governmental or regulatory authority or agency (a "Governmental Entity"), including, without limitation, any consent or approval of any federal, state, local or foreign insurance industry agency, commission or other governing body, except for in the case of clause (ii) (A) filings, permits, authorizations, consents and approvals as may be required under federal and state securities laws, and the laws of other states in which the Company is qualified to do or is doing business, (B) those contemplated by the Basic Documents and Warrants, (C) those set forth on Schedule 4.04 (a), and (D) where the failure to obtain such permits, authorizations, consents or approvals or to make such filings, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect or prevent the Company from consummating the transactions contemplated hereby, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound (the "Material Agreements") or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its Subsidiaries or any of their properties or assets. (b) Schedule 4.04(b) hereto accurately and completely lists all licenses, permits, certificates, franchises, ordinances, registrations, or other rights, applications, consents, approvals and authorizations (collectively, "the Licenses") granted, issued or entered by the Federal Communications Commission (the "FCC") or any foreign Governmental Entity performing functions similar to those performed by the FCC, and held by the Company or one of its Subsidiaries. Except as set forth in Schedule 4.04(b), the Company or one of its Subsidiaries holds all Licenses filed with, granted or issued by, or entered by any Governmental Entity, including, without limitation, the FCC, or any federal, state, local or foreign regulatory authorities or any federal, state, local or foreign public service commission, public utility commission or industry agency or commission that are required for the conduct of the Company's and its Subsidiaries' businesses as now being conducted, except for those the absence of which could not, individually or in the aggregate reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.04(b), the Licenses are valid, in full force and effect, and the terms of said Licenses are not subject to any restrictions or conditions that materially limit or would materially limit the operations of the business of the Company or any of its Subsidiaries as presently conducted, other than restrictions or conditions generally applicable to licenses of that type. The Licenses granted, issued or entered by the FCC are subject to the Communications Act of 1934, as amended. There are no proceedings pending or, to the best knowledge of the Company, complaints or petitions by others, or threatened proceedings, before the FCC or any other Governmental Entity relating to the business or operations of the Company or any of its Subsidiaries or the Licenses, and there are no facts or conditions that reasonably could be expected to constitute grounds for the FCC or any other 13 22 Governmental Entity to revoke, terminate, suspend, deny, annul, or impose conditions on any renewal of any the Licenses, that individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or prevent the Company from consummating the transactions contemplated hereby or to impose any fines, forfeitures or other penalties on the Company or its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.05 SEC Reports and Financial Statements. (a) The Company and its Subsidiaries have filed with the Securities and Exchange Commission ("SEC") all forms, reports, schedules, statements, and other documents required to be filed by them with the SEC (as such documents have been amended since the time of their filing, collectively, the "SEC Documents"), and have filed all exhibits required to be filed with the SEC Documents. As of their respective dates or, if amended, as of the date of the last such amendment, the SEC Documents, including, without limitation, any financial statements or schedules included therein, complied in all material respects with the applicable requirements of the Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act"), and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the Company's Subsidiaries is required to file any forms, reports or other documents with the SEC pursuant to Section 12 or 15 of the Exchange Act. The financial statements of the Company included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (including the related notes thereto) and in the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 1997, copies of which have been furnished to the Purchasers (together, the "Financial Statements"), have been prepared from, and are in accordance with, the books and records of the Company and its consolidated Subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and subject, in the case of unaudited interim financial statements, to normal year-end adjustments), and fairly present the consolidated financial position and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as at the dates thereof or for the periods presented therein. The Company and its Subsidiaries have maintained a system of accounting established in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. (b) No representation or warranty of the Company contained in any Basic Document or Warrant or in any other document, certificate or written statement furnished to the Purchasers by or on behalf of the Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein when made not misleading in light of the circumstances in which the same were made. 14 23 4.06 No Undisclosed Liabilities. Except (i) as disclosed in the SEC Documents that have been delivered to the Purchasers prior to the date hereof, (ii) as set forth in Schedule 4.06, and (iii) for liabilities not in excess of $150,000 individually or $300,000 in the aggregate, each incurred in the ordinary course of business and consistent with past practice, and liabilities incurred in connection with the consummation of the transactions contemplated hereby (none of which, individually or in the aggregate, could reasonably have a Material Adverse Effect) since December 31, 1996, neither the Company nor any of its Subsidiaries has incurred any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which would be required by GAAP to be reflected on a consolidated balance sheet of the Company and its Subsidiaries (including the notes thereto), or which individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.07 Absence of Certain Changes. Except as contemplated by this Agreement and the other Basic Documents, or as disclosed in the SEC Documents that have been delivered to the Purchasers prior to the date hereof or in Schedule 4.07, since December 31, 1996, (i) the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course of business and consistent with past practice, (ii) there has not been any change in the business, properties, assets, liabilities, financial condition, cash flows, operations, licenses, franchises, results of operations or prospects of the Company or its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (iii) the Company has not (A) declared, set aside or paid any dividend or other distribution payable in cash, stock or property with respect to its capital stock; (B) directly or indirectly, split, combined or reclassified the outstanding shares of Common Stock; or (C) adopted a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries. 4.08 Employee Benefit Plans; ERISA; Labor. (a) Schedule 4.08 hereto sets forth (i) a list of all employee benefit plans (including but not limited to plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by the Company, any of its Subsidiaries or any trade or business, whether or not incorporated (an "ERISA Affiliate"), which together with the Company would be deemed a "single employer" within the meaning of Section 4001 (b)(1) of ERISA ("Benefit Plans") and (ii) all employment, consulting, retention, option and severance agreements with employees and consultants of the Company and its Subsidiaries ("Employee Agreements"). True and complete copies of all current Benefit Plans and Employee Agreements have been made available to the Purchasers. (b) With respect to each Benefit Plan: (i) if intended to qualify under Section 401(a) or 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), such plan has received a determination letter from the Internal Revenue Service (the "IRS") stating that it so qualifies and that its trust is exempt from taxation under Section 501(a) of the Code, no such determination letter has been revoked and no such revocation has been threatened, and nothing has occurred that could reasonably be expected to cause the relevant Benefit Plan to lose such qualification or exemption; (ii) such plan has been administered in all material respects in 15 24 accordance with its terms and applicable law, including state and federal securities laws; (iii) no breaches of fiduciary duty by the Company, or, to the Company's knowledge, by any other person have occurred that might reasonably be expected to give rise to material liability on the part of the Company or any ERISA Affiliate; (iv) no disputes are pending, or, to the knowledge of the Company, threatened that might reasonably be expected to give rise to material liability on the part of the Company or any ERISA Affiliate; (v) except as disclosed on Schedule 4.08, no prohibited transaction (within the meaning of Section 406 of ERISA) has occurred that might reasonably be expected to give rise to material liability on the part of the Company or any ERISA Affiliate; (vi) all contributions required to be made to such plan as of the date hereof (taking into account any extensions for the making of such contributions) have been made in full; (vii) to the Company's knowledge, no Benefit Plans are presently under audit or examination (nor has notice been received of a potential audit or examination) by the IRS, Department of Labor, or any other governmental agency or entity, and no matters are pending with respect to any Benefit Plan under the IRS's Voluntary Compliance Resolution program, its Closing Agreement Program, or other similar programs; and (viii) all monies withheld with respect to Benefit Plans have been transferred to the appropriate plan in accordance with the terms of such plan. (c) No Benefit Plan is a "multiemployer pension plan," as defined in Section 3(37) of ERISA, nor is any Benefit Plan a plan described in Section 4063(a) of ERISA. No Benefit Plan is or has been subject to Title IV of ERISA. (d) No liability under Title IV of ERISA has been incurred by the Company or any ERISA Affiliate (whether direct, indirect, actual, or contingent, and including, without limitation, withdrawal liability to a multiemployer plan), and no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring a material liability under such Title. No Benefit Plan has incurred an accumulated funding deficiency, as defined in Section 302 of ERISA or Section 312 of the Code, whether or not waived. (e) With respect to each Benefit Plan that is a "welfare plan" (as defined in Section 3(1) of ERISA), no such plan provides medical or death benefits with respect to current or former employees of the Company or any of its Subsidiaries beyond their termination of employment (other than to the extent required by applicable law). Except as set forth in Schedule 4.08, all group health plans of the Company and the ERISA Affiliates have been operated in material compliance with the requirements of Sections 4980B (and its predecessor) and 5000 of the Code, and the Company and ERISA Affiliates have provided, or will have provided prior to May 15, 1997, to individuals entitled thereto all required notices and coverage pursuant to Section 4980B, except to the extent that failure to provide such notice or coverage is not reasonably likely to result, individually or in the aggregate, in a Material Adverse Effect. (f) No Benefit Plan, plan documentation or agreement, summary plan description or other written communication distributed generally to employees of the Company or its Subsidiaries by its terms prohibits the amendment or termination of any such Benefit Plan. 16 25 (g) As of the date hereof, except for Employee Agreements or as described in the SEC Documents that have been delivered to the Purchasers prior to the date hereof, the Company and its Subsidiaries are not parties to any (i) agreement with any director, executive officer or other key employee of the Company or its Subsidiaries (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or its Subsidiaries of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment of such director, executive officer or key employee; (ii) agreement, plan or arrangement under which any person may receive payments from the Company or its Subsidiaries that may be subject to the tax imposed by Section 4999 of the Code or included in the determination of such person's "parachute payment" under Section 280G of the Code; and (iii) agreement or plan binding the Company or its Subsidiaries, including, without limitation, any stock option plan, stock appreciation right plan, restricted stock plan, stock purchase plan, severance benefit plan or employee benefit plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (h) As of the date hereof, no collective bargaining agreement is binding and in force against the Company or its Subsidiaries or is currently under negotiation, and no current employees of the Company or its Subsidiaries are represented by any labor union. As of the date hereof, to the Company's knowledge, no labor representation effort exists with respect to the Company or its Subsidiaries. 4.09 Litigation. Schedule 4.09 hereto sets forth each suit, action or proceeding (including, without limitation, any proceeding or investigation by any Governmental Entity) pending (as to which the Company has received notice), or, to the knowledge of the Company, threatened against the Company, any of its Subsidiaries, or their properties or assets on the date hereof, or to which the Company or any of its Subsidiaries is a party. Except as set forth on Schedule 4.09 hereto, none of the foregoing, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect if resolved adversely to the Company or its Subsidiaries. Except as set forth on Schedule 4.09 hereto, as of the date hereof, neither the Company nor any of its Subsidiaries, nor any of their respective properties, is subject to any order, writ, judgment, injunction, decree, determination or award having, or which would have, a Material Adverse Effect, or which would prevent the Company from consummating the transactions contemplated hereby. 4.10 No Default; Compliance with Applicable Laws. Neither the Company nor any of its Subsidiaries is in default or violation in any material respect of any term, condition or provision of (i) its respective Articles of Incorporation or By-laws or other organizational documents, (ii) any Material Agreement or (iii) any federal, state, local or foreign statute, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company or any of its 17 26 Subsidiaries or by which they or their respective assets may be bound (other than matters addressed in Sections 4.04, 4.08, 4.11, and 4.12), excluding from the foregoing clause (iii), defaults or violations which could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or prevent the Company from consummating the transactions contemplated hereby. 4.11 Taxes. Except as set forth on Schedule 4.11: (a) The Company and its Subsidiaries have (i) duly and timely filed (or there has been filed on their behalf) with the appropriate governmental authorities all Tax Returns (as hereinafter defined) required to be filed by them on or prior to the date hereof, other than those Tax Returns for which extensions for filing have been obtained in a timely manner, and such Tax Returns are true, correct and complete in all material respects, and (ii) duly paid in full all Taxes (as hereinafter defined) shown to be due on such Tax Returns or have provided adequate reserves in their financial statements for any Taxes that have not been paid. There are no liens on any of the assets of the Company or any of its Subsidiaries that arose in connection with any delinquency in paying any Tax. (b) As of the date hereof, there are no ongoing federal, state, local or foreign audits or examinations of any Tax Return of the Company or its Subsidiaries. (c) As of the date hereof, there are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes or deficiencies against the Company or any of its Subsidiaries (excluding extensions for filings that have been timely obtained), and no power of attorney granted by either the Company or any of its Subsidiaries with respect to any Taxes is currently in force. (d) Neither the Company nor any of its Subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes. (e) "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real or personal property, sales, withholding, social security, occupation, use, service, service use, license, net worth, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the Internal Revenue Service or any taxing authority (whether domestic or foreign including, without limitation, any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes. 18 27 4.12 Environmental Matters. (a) The Company and its Subsidiaries have complied in all material respects with all applicable Environmental Laws (as defined below). There is no pending or, to the knowledge of the Company, threatened, civil or criminal litigation, written notice or violation, formal administrative proceeding or investigation, inquiry or information request by any Governmental Entity relating to any Environmental Law involving the Company or any of its Subsidiaries or any of their properties. For purposes of this Agreement, "Environmental Law" means any foreign, federal, state or local law, statute, rule or regulation or the common law relating to the environment or occupational health and safety, including, without limitation, any statute, regulation or order pertaining to (i) treatment, storage, disposal, generation or transportation of industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air and water pollution; (iii) groundwater and soil contamination; (iv) the release into the environment of industrial, toxic or hazardous substances, or solid or hazardous waste, including, without limitation, emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wildlife, marine sanctuaries and wetlands, including, without limitation, all endangered and threatened species; (vi) storage tanks, vessels and containers; (vii) underground and other storage tanks or vessels, abandoned, disposed or discarded barrels, containers and other closed receptacles; (viii) health and safety of employees and other persons; and (ix) manufacture, processing, use, distribution, treatment, storage, disposal, transportation or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or oil or petroleum products or solid or hazardous waste. As used above, the terms "release" and "environment" shall have the meaning set forth in the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). (b) There have been no releases of any Materials of Environmental Concern (as defined below) into the environment by the Company or any of its Subsidiaries which could reasonably be expected to result in liability to the Company in excess of $50,000, or, to the knowledge of the Company, by any other party at any parcel of real property or any facility formerly or currently owned, operated or controlled by the Company or any of its Subsidiaries. For purposes of this Agreement, "Materials of Environmental Concern" means any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the federal Resource Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum products, or any other material subject to regulation under any Environmental Law. 4.13 Insurance. There is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility, insuring the Company and its Subsidiaries and their properties and businesses against such losses and risks, and in such amounts, as are customary in the case of corporations of established reputation engaged in the same or similar businesses and similarly situated. None of the Company or any of its Subsidiaries has been refused any insurance coverage sought or applied for, and the Company and its Subsidiaries have no reason to believe that they will be unable to renew their existing insurance coverage as and when the same shall expire upon terms at least as favorable as those 19 28 presently in effect, other than possible increases in premiums that do not result from any act or omission of the Company or any of its Subsidiaries. 4.14 Transactions with Affiliates. Except as set forth in the SEC Documents that have been delivered to the Purchasers prior to the date hereof or on Schedule 4.14, since December 31, 1996, neither the Company nor any of its Subsidiaries has entered into any transaction with any current director or officer of the Company or any Subsidiary or any transaction which would be subject to disclosure under the Exchange Act pursuant to the requirements of Item 404 of Regulation S-K. 4.15 Patents and Other Intangible Assets. (a) Except as set forth on Schedule 4.15, the Company and its Subsidiaries (i) own or have the right to use, free and clear of any lien, pledge, mortgage, security interest, encumbrance or charge of any kind (collectively, "Encumbrances"), and any other claim or restriction, all patents, trademarks, service marks, trade names, copyrights, licenses and rights with respect to the foregoing, used in or necessary for the conduct of their businesses as now conducted or proposed to be conducted (all of which are set forth on Schedule 4.15), (ii) are not infringing upon or otherwise acting adversely to the right or claimed right of any Person under or with respect to any patent, trademark, service mark, trade name, copyright or license with respect thereto, and (iii) are not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright or other intangible asset, with respect to the use thereof or in connection with the conduct of their businesses or otherwise, except in each case where it could not reasonably be expected to have a Material Adverse Effect. (b) The Company and/or one or more of its Subsidiaries owns and has the unrestricted right to use all material product rights, manufacturing rights, trade secrets, including know-how, negative know-how, formulas, patterns, compilations, programs, devices, methods, techniques, processes, inventions, designs, computer programs and technical data and all information that derives independent economic value, actual or potential, from not being generally known or known by competitors and which the Company and its Subsidiaries have taken reasonable steps to maintain in secret (all of the foregoing of which are collectively referred to herein as "intellectual property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company or any of its Subsidiaries, free and clear of any right, Encumbrance or claim of others, including without limitation former employers of its employees; provided, however, that the possibility exists that other Persons, completely independently of the Company and its Subsidiaries or their employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company and its Subsidiaries. The Company and its Subsidiaries are not aware of any such development of similar or identical trade secrets or technical information by others. (c) Since their organization, the Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all 20 29 intellectual property and all Inventions. As used herein, "Inventions" means all inventions, developments and discoveries which during the period of an employee's or other Person's service to the Company and/or any of its Subsidiaries, he or she makes or conceives of, either solely or jointly with others, that relate to any subject matter with which his or her work for the Company and/or any of its Subsidiaries may be concerned, or relate to or are connected with the businesses, products, services or projects of the Company and its Subsidiaries, or relate to the actual or demonstrably anticipated research or development of the Company and its Subsidiaries or involve the use of the Company's and its Subsidiaries' time, materials, facilities or trade secret information. (d) Except as set forth on Schedule 4.15, none of the Company or any of its Subsidiaries has sold, transferred, assigned, licensed or subjected to any Encumbrance, any intellectual property, trade secret, know-how, invention, design, process, computer program or technical data, or any interest therein, necessary or useful for the development, manufacture, use, operation or sale of any product or service presently under development or manufactured, sold or rendered by the Company or any of its Subsidiaries. (e) No director, officer, employee, agent or stockholder of the Company or any of its Subsidiaries owns or has any right in the intellectual property of the Company and its Subsidiaries, or any patents, trademarks, service marks, trade names, copyrights, licenses or rights with respect to the foregoing, or any inventions, developments or discoveries used in or necessary for the conduct of the Company's and its Subsidiaries' businesses as now conducted or as proposed to be conducted. (f) Except as set forth on Schedule 4.15, none of the Company or any of its Subsidiaries has received any communication alleging or stating that the Company or any of its Subsidiaries or any employee or agent has violated or infringed, or by conducting business as proposed, would violate or infringe, any patent, trademark, service mark, trade name, copyright, trade secret, proprietary right, process or other intellectual property of any other Person. 4.16 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission from the Company in connection with the issuance and sale of securities pursuant to this Agreement and the Company hereby indemnifies each Purchaser against, and agrees that it will hold each Purchaser harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. ARTICLE V COVENANTS OF THE COMPANY 21 30 5.01 Financial and Business Information. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. The Company during the term of this Agreement will, and will cause its Subsidiaries to, deliver to the Purchasers (provided that the Company shall not deliver to any Purchaser any such information to the extent that such Purchaser has requested in writing to the Company that such information not be delivered to such Purchaser): (a) As soon as practicable and in any event within 90 days after the close of each fiscal year of the Company, beginning with the current fiscal year, a consolidated balance sheet of the Company and its Subsidiaries as of the close of such fiscal year and consolidated statements of operations, shareholders' equity and cash flows for the Company and its Subsidiaries for the fiscal year then added, certified by the chief executive officer or chief financial officer of the Company to be true and accurate in all material respects (it being understood by the parties hereto that the delivery to the Purchasers of the Company's annual report on Form 10-K will satisfy the requirements of this Section 5.01(a)); (b) As soon as practicable and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, the consolidated and consolidating balance sheet of Company and its Subsidiaries as at the end of such fiscal quarter and the related consolidated and consolidating statements of operations, shareholders' equity and cash flows of Company and its Subsidiaries for such fiscal quarter and for the period from the beginning of the current fiscal year to the end of such fiscal quarter, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries as at the dates indicated and the results of its operations and its cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments (it being understood by the parties hereto that the delivery to the Purchasers of the Company's quarterly report on Form 10-Q will satisfy the requirements of this Section 5.01(b)); (c) Prompt notice of any event having a Material Adverse Effect; (d) Promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders, (b) all regular and periodic reports, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the SEC or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; (e) Promptly upon any officer of Company or any of its Subsidiaries obtaining knowledge of any condition or event that constitutes a Triggering Event (as defined in the Certificate of Designation) or a violation or default of any material term of any Basic Document or Warrant or an event of default or potential event of default under any indebtedness of Company or any of its Subsidiaries, or becoming aware that any person has given any notice 22 31 or taken any other action with respect to a claimed event of default or potential event of default, notice of any such event; and (f) Within a reasonable time, such other information about the property, financial condition and operations of the Company and its Subsidiaries as the Purchasers may from time to time reasonably request. 5.02 Notice of Certain Events. Unless any Purchaser shall otherwise request in writing, the Company during the term of this Agreement will, and will cause its Subsidiaries to, promptly give notice in writing to such Purchaser of any litigation or proceeding before any court or administrative body involving the Company or any Subsidiary which, if determined adversely to the Company or such Subsidiary, would be reasonably likely to have a Material Adverse Effect. 5.03 Shareholder Approvals. The Company will take all action reasonably necessary or appropriate to solicit and obtain proxies and votes in favor of the Charter Amendment and the 1997 Stock Option Plan from the holders of the requisite percentage of the Common Stock at the Company's 1998 annual meeting of shareholders (which shall in no event be held later than May 31, 1998), or if sooner, at the next meeting of the Company's shareholders. Notwithstanding the foregoing, upon the occurrence hereafter of any event (other than the issuance of Litigation Warrants) which results in there being an insufficient number of shares of Common Stock available for all outstanding Warrants (including those issued as part of Additional Units) to be exercised for shares of Common Stock in accordance with the terms thereof, as soon as practicable following the occurrence of such event, the Company will call a special meeting of the shareholders of the Company in order to obtain shareholder approval of the Charter Amendment, and the Company will take all action reasonably necessary or appropriate to solicit and obtain proxies and votes in favor of the Charter Amendment from the holders of the requisite percentage of Common Stock. As soon as is practicable after the approval of the Charter Amendment, the Company will reserve the number of shares of Common Stock required for issuance upon exercise in full of all of the Warrants. 5.04 Issuance of Litigation Warrants. In the event that Pegasus Partners, L.P. and Pegasus Related Partners, L.P. provide the Company with financing (including, without limitation, by way of an effective guarantee of the Company's obligations) for a judgment, appeal bond or settlement in connection with the litigation pending with the United States District Court for the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive Technology Corporation, case number 87-CV-74022-DT, as contemplated in the guarantee dated as of October 24, 1997 given by Pegasus Partners, L.P. and Pegasus Related Partners, L.P. to GECC (the "Litigation Guarantee"), the Company shall issue to Pegasus Partners, L.P. and Pegasus Related Partners, L.P., in proportions consistent with their relative investments in the Company, warrants (the "Litigation Warrants") to purchase such number of outstanding shares of Common Stock which, at the time of issuance will increase the aggregate ownership interest of Pegasus Partners, L.P. and Pegasus Related Partners, L.P. in the Company, on a fully-diluted basis (taking into account all issuances and adjustments to other outstanding warrants as a consequence of the 23 32 issuance of the Litigation Warrants), by 2% for each $1,000,000 of financing provided for an aggregate exercise price of $164,731 for each 1% interest (i.e., if Pegasus Partners, L.P. and Pegasus Related Partners, L.P. provide $5,000,000 of financing, the Litigation Warrants will give Pegasus Partners, L.P. and Pegasus Related Partners, L.P. the right to purchase such additional shares of Common Stock as will permit Pegasus Partners, L.P. and Pegasus Related Partners, L.P. to own in the aggregate an additional 10% of the Common Stock of the Company on a fully- diluted basis for an aggregate exercise price of $1,647,310). In the event the Litigation Warrants are issued in accordance with the terms of this Section 5.04, the Company will have authorized and reserved a sufficient number of shares of Common Stock for issuance upon exercise of all of the Litigation Warrants, subject to shareholder approval of the Charter Amendment in accordance with Section 5.03. 5.05 Insurance. The Company shall use reasonable best efforts to, as promptly as practicable, secure a key man life insurance policy (the "Key Man Life Policy") with an insurance carrier approved by and on terms reasonably satisfactory to the Purchasers, covering Mr. Rand Mueller, in an amount of not less than $5,000,000, which policy shall name the Company as beneficiary thereunder. The Company shall use reasonable best efforts to, as promptly as practicable, increase the amount of coverage under the D&O Policy to, an amount not less than $10,000,000. The Company shall at all times maintain the Key Man Life Policy and the D&O Policy in accordance with the terms (including, without limitation, the minimum amounts) set forth in Section 3.01(j) and in the foregoing sentences. The Company shall promptly deliver to the Purchasers copies of any notices, communications or other correspondence received from the applicable insurance companies in connection with the Key Man Life Policy and the D&O Policy and shall notify the Purchasers in writing in the event it becomes aware of any potential modification or cancellation of, or inability to renew the Key Man Life Policy or the D&O Policy. 5.06 Preemptive Rights. (a) In the event (and on each occasion) that, after the date hereof, the Company shall decide to undertake an issuance of additional shares of Common Stock or any rights, warrants or options to purchase Common Stock or any securities convertible into Common Stock ("New Securities") which would not result in an adjustment pursuant to Section 4 of the Attached Warrants, other than a Permitted Issuance (as defined below), the Company shall give each Purchaser written notice (an "Offer Notice") of the Company's decision, describing the type and amount of New Securities to be issued, the price per share at which the New Securities are to be issued, and the general terms upon which the Company has decided to issue the New Securities. Each Purchaser shall have thirty (30) days from the date on which the Company shall give the written Offer Notice to agree to purchase such New Securities for the price per share and upon the general terms specified in the Offer Notice, and in compliance with paragraph (c) of this Section 5.06, by giving written notice to the Company and stating therein the quantity of New Securities to be purchased by such Purchaser. If, in connection with such a proposed issuance of New Securities, such Purchaser shall for any reason fail or refuse to give such written notice to the Company within such period of thirty (30) days, such Purchaser shall, for all purposes of this Section 5.06, be deemed to have refused (in that particular instance only) to purchase any of such New Securities and to have waived (in that 24 33 particular instance only) all rights of such Purchaser under this Section 5.06 to purchase any of such New Securities. "Permitted Issuance" shall mean (i) the issuance of shares of Common Stock pursuant to an underwritten public offering, (ii) the issuance of shares of Common Stock upon exercise of the Warrants, (iii) the issuance of up to 280,000 shares of Common Stock upon the exercise of options issued to management employees of the Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan, (iv) provided that the Charter Amendment has (1) been approved and adopted by the Company's stockholders, (2) been filed with the Department of Consumer & Industry Services of the State of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of Common Stock or options to acquire such shares to management employees of the Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan, (v) the issuance to GECC on October 24, 1997 of warrants to purchase up to 131,718 shares of Common Stock (subject to adjustment as provided therein) and the issuance of Common Stock upon the exercise thereof, (vi) the issuance of the Securities and (vii) the issuance of New Securities, the proceeds of which are intended to be and are used for the redemption of all (but not less than all) of the Preferred Shares and the repurchase of one-half of the Attached Warrants. (b) In the event that any Purchaser shall fail or refuse to exercise in full its preemptive rights within said thirty (30) day period, the Company shall have forty-five (45) days thereafter to sell the quantity of New Securities which such Purchaser did not agree to purchase pursuant to paragraph (c) of this Section 5.06, at a price per share and upon general terms no more favorable to the purchasers thereof than specified in the Company's Offer Notice to the Purchasers. In the event the Company has not sold the New Securities within said period of forty-five (45) days, the Company will not thereafter issue or sell any New Securities without first offering such securities to the Purchasers in the manner provided by the foregoing provisions of this Section 5.06. (c) Each Purchaser shall be entitled to purchase a number of shares of New Securities equal to the product obtained by multiplying the total number of New Securities proposed to be issued by a fraction, the numerator of which is the sum of (i) the number of shares of Common Stock for which the Attached Warrants held by such Purchaser may be exercised and (ii) the number of shares of Common Stock held by such Purchaser pursuant to the exercise of Attached Warrants and the denominator of which is the total number of Fully Diluted Outstanding (as defined below) shares of Common Stock immediately prior to the issuance of the New Securities. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding at such date and all shares of Common Stock issuable in respect of options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date, whether or not such options, warrants or other securities are presently convertible or exercisable. 25 34 (d) Notwithstanding the foregoing, preemptive rights may not be assigned to any transferee if the exercise of such right by the transferee would, in the reasonable judgment of the Board of Directors of the Company after consultation with counsel to the Company, make an exemption from the registration requirements of the Securities Act, or applicable state securities laws, with respect to the offer and sale of the New Securities, unavailable. (e) The Company will not, at any time after the effective date of this Agreement, enter into any agreement or contract (whether written or oral) which is inconsistent in any respect with the preemptive rights granted by the Company to the Purchasers pursuant to this Section 5.06. 5.07 Public Announcement. Neither the Company, on the one hand, nor the Purchasers, on the other hand, shall issue any press release or make any public announcement regarding the transactions contemplated hereby without prior written consent of the other party or parties, except where a public announcement is required by law. In the event such an announcement is so required, the party or parties making such an announcement shall give the other party or parties reasonable advance notice of the fact that such announcement is to be made, shall permit it or them to review the language of such announcement prior to its release and shall consult with the other party or parties and use its or their best efforts to agree with the other party or parties on a mutually satisfactory text. 5.08 Stock Option Plan. Any grant of options by the Company pursuant to the 1997 Stock Option Plan shall be to Persons and in amounts satisfactory to the Purchasers. 5.09 Hart-Scott-Rodino, Voting Rights, Etc. (a) Upon the request of any Purchaser, the Company shall, as promptly as practicable, file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "DOJ") such notifications and other information required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (and, if requested by any Purchaser, request early termination of any applicable waiting period), to permit the acquisition by such Purchaser of any direct or indirect interest in the Company, including, but not limited to, through the exercise of Warrants or the exercise by such Purchaser of any rights under the Securities. The Company shall make available to such Purchaser such information in its possession as may be necessary for the completion of the notifications and other information to be filed by or on behalf of such Purchaser (or its ultimate parent entity). The Company shall respond as promptly as practicable to any inquiries received from the FTC and the DOJ for additional information or documentation in connection with any filings therewith, and shall respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other governmental authority in connection with antitrust matters. (b) The Company will promptly take all such actions as may from time to time be required by applicable law in connection with the exercise by the Purchasers of voting 26 35 rights under the Certificate of Designation, whether by written consent or at a meeting, including, without limitation, the preparation, filing and distribution of information statements under Section 14(c) of the Exchange Act, and the regulations promulgated thereunder, and the calling of, and causing to be held as soon as reasonably practicable a special meeting of shareholders for purposes specified by the Purchasers and permitted by law. 5.10 Prohibition on Realization Events. During the period beginning on the Closing Date and continuing until the earlier of (i) the date which is six months and one day following the most recent issuance to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of the Litigation Warrants in accordance with Section 5.04, provided that on or before such date, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from any unused portion of the Litigation Guarantee or (ii) such time as Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from the Litigation Guarantee, provided that no Litigation Warrants have been issued prior to such release, the Company shall not authorize or effect, in a single transaction or through a series of related transactions, a liquidation, winding up or dissolution of the Company or adoption of any plan for the same, any reorganization of the capital of the Company, reclassification of the capital stock of the Company, consolidation or merger with or into another corporation or other entity (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock), or sale, transfer or other disposal of all or substantially all of the property, assets or business of the Company (each, a "Realization Event"). 5.11 Expiration of Covenants. The Company's obligations under Sections 5.01, 5.02, 5.03, 5.05, 5.06, 5.08 and 5.09 shall terminate at such time as the Purchasers no longer hold any Preferred Shares, Warrants or Warrant Shares. ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS 6.01 Representations by Purchasers. Each Purchaser represents and warrants to the Company that: (a) It has full power and authority to execute and deliver this Agreement and the other Basic Documents to which it is a party and to perform its obligations hereunder and thereunder. (b) It has taken all action necessary for the authorization, execution, delivery, and performance of this Agreement and the other Basic Documents to which it is a party, and its obligations hereunder and thereunder, and, upon execution and delivery by the Company, this Agreement and other Basic Documents to which it is a party shall constitute the valid and binding obligation of such Purchaser, enforceable against it in accordance with their respective terms, except that (i) such enforcement may be subject to applicable bankruptcy, 27 36 insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) There are no claims for brokerage commissions or finder's fees or similar compensation in connection with the issuance and sale of Units pursuant to this Agreement based on any arrangement made by or on behalf of such Purchaser and such Purchaser agrees to indemnify and hold the Company harmless against any costs or damages incurred as a result of any such claim. 6.02 Transfer of Units; Surrender of Preferred Share Certificates. Unless and until the Company shall have exercised its right to repurchase Units pursuant to Section 8.01(a), no Purchaser shall transfer Preferred Shares or Attached Warrants, except as part of Units. Upon a transfer of Units by Pegasus Partners, L.P. or Pegasus Related Partners, L.P. or any of their affiliates to a party other than an affiliate of Pegasus Partners, L.P. or Pegasus Related Partners, L.P., the transferor shall, as promptly as practicable, surrender its Preferred Share Certificates representing the Series A-1 Preferred Shares being transferred as part of such Units for cancellation and reissuance as Series A-2 Preferred Shares. 6.03 No Transfer of Units to Directed Electronics, Inc. No Purchaser shall sell or otherwise transfer any Units or Warrants to Directed Electronics, Inc., a California corporation ("DEI"), any affiliate of DEI, Mr. Darrell Issa, the president of DEI, any entity which, to the knowledge of such Purchaser, is controlled by Mr. Issa, or any person who, to the knowledge of such Purchaser, is a member of the immediate family (as such term is defined in Rule 16a-1 promulgated under the Exchange Act) of Mr. Issa. ARTICLE VII CERTAIN SECURITIES LAW MATTERS 7.01 Representations by Purchasers. Each Purchaser represents and warrants to the Company that: (a) Such Purchaser is an "Accredited Investor" within the meaning of Rule 501 under the Securities Act. (b) The Units and the Shortfall Warrants are being acquired for such Purchaser's own account for the purpose of investment and not with a present view to or for sale in connection with any distribution thereof; provided, that the disposition of such Purchaser's property shall at all times be and remain within its control. 28 37 (c) Such Purchaser understands that (i) none of the Securities have been registered under the Securities Act, (ii) the Securities must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or an exemption from registration is available under applicable securities laws then in effect, and (iii) the Securities will bear a legend to such effect and the Company will make a notation on its transfer books to such effect. (d) Such Purchaser understands that no public market now exists for the Preferred Shares or the Warrants issued by the Company. 7.02 Restrictions on Transfer. The Securities (collectively, the "Restricted Securities") shall be transferable only if sold pursuant to a registration statement under the Securities Act (as hereinafter defined), or pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. (a) Restrictive Legend. Each certificate representing the Restricted Securities shall bear a legend in substantially the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state, and may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws." Each certificate representing such Restricted Securities shall bear the restrictive legend set forth above, in each case unless the restrictions on transfer provided for in this Section 7.02 shall have ceased and terminated as to such Restricted Securities. (b) Termination of Restriction. The restrictions imposed by this Section 7.02 upon the transferability of the Restricted Securities shall cease and terminate as to any particular Restricted Securities and any securities issued in exchange therefor or upon transfer thereof when, in the opinion of counsel reasonably acceptable to the Company, such restrictions are no longer required in order to assure compliance with the Securities Act, or when such Restricted Securities have been registered under the Securities Act. Whenever any of such restrictions shall cease and terminate as to any Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new certificates not bearing the legend set forth in Section 7.02(a). 7.03 Additional Legend. (a) Unless and until the Company shall have exercised its right to repurchase Units pursuant to Section 8.01(a), each certificate representing Preferred Shares and each Attached Warrant shall bear a legend in substantially the following form: 29 38 "The securities represented hereby may not be transferred except as part of Units containing shares of Series A Preferred Stock and warrants to purchase Common Stock of Code Alarm, Inc. and are subject to repurchase by Code Alarm, Inc. in accordance with the terms of a Unit Purchase Agreement dated as of October 27, 1997 among Code Alarm, Inc., Pegasus Partners, L.P. and Pegasus Related Partners, L.P." (b) In the event the Company shall have repurchased Units pursuant to Section 8.01(a), any holder of Attached Warrants shall be entitled to receive from the Company, without expense, new Attached Warrants representing the Attached Warrants not repurchased and not bearing the legend set forth in Section 7.03(a). ARTICLE VIII CALL RIGHT; PUT RIGHT; RIGHT OF FIRST REFUSAL 8.01 Company's Right to Repurchase Units. (a) Repurchase During Year One. At any time prior to October 19, 1998, but not thereafter, provided that the Charter Amendment has (1) been approved and adopted by the Company's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, and subject to Section 8.01(f), the Company, at its sole option, may redeem all, but not less than all, of the outstanding Preferred Shares and, concurrently therewith, repurchase all of the outstanding Interim Dividend Warrants, one-half of the outstanding Attached Warrants which are not Interim Dividend Warrants and a number of shares of Common Stock equivalent to one-half of the number of shares of Common Stock for which Attached Warrants have theretofore been exercised, for an aggregate redemption price consisting of cash in an amount equal to one hundred seventeen and one-half percent (117.5%) of the aggregate stated value of such Preferred Shares less any cash dividends previously paid thereon. (b) Repurchase After Year Two. At any time after the second anniversary of the Closing Date, provided that the Company has not theretofore exercised its rights pursuant to Section 8.01(a), and subject to Section 8.01(f), the Company, at its sole option, may repurchase all, but not less than all, of the outstanding Units and the Common Stock for which Attached Warrants have theretofore been exercised (other than shares of Common Stock which have been registered and sold under an effective registration statement pursuant to the Securities Act, or sold pursuant to Rule 144 promulgated thereunder ("Non-Repurchasable Stock")), for an aggregate repurchase price equal to the greater of (i) an amount determined by multiplying (x) the sum of (1) the number of shares of Common Stock for which the Attached Warrants are then exercisable and (2) the number of shares for which the Attached Warrants have theretofore been exercised (other than shares of Non-Repurchasable Stock) by (y) the Current 30 39 Market Price per share of Common Stock determined as of the date of repurchase and (ii) an amount sufficient to yield each Unit (other than Units which have been transformed into Non-Repurchasable Stock) a 35% annual rate of return from the date of its original issuance through the date of repurchase, after giving effect to any cash dividends actually paid to the holder or any prior holder of such Unit. For purposes hereof, "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the 20 consecutive Trading Days (as hereinafter defined) immediately preceding such date. The daily market price for each such Trading Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the last reported sale price as officially quoted on any such exchange, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, the last reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the Nasdaq Stock Market, the last reported sale price on the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or if such sale price is not available on such date, the average of the closing bid and asked prices on such date as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or (v) if there is no such organization or agency, as furnished by any member of the National Association of Securities Dealers, Inc., or any successor corporation thereto (the "NASD") selected mutually by the holders of a majority of the Units and the Company or, if they cannot agree upon such selection, by a member selected by two such members of the NASD, one of which shall be selected by such holders and one of which shall be selected by the Company. For purposes hereof, "Trading Day" shall mean (i) any day on which stock is traded on the principal stock exchange on which the Common Stock is listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not then traded on the Nasdaq Stock Market, any day on which stock is traded in the over-the counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices). (c) Notice of Repurchase. Notice of repurchase pursuant to Section 8.01(a) or (b) shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the repurchase date to such holder's address as the same appears on the books of the Company. Each such notice shall state: (i) the repurchase date; (ii) the number of Units and shares of Common Stock to be repurchased; (iii) the formula for determination of the repurchase price; (iv) the place or places where certificates for Preferred Shares and Attached Warrants comprising such Units, and/or for such shares of Common Stock are to be surrendered 31 40 for payment of the repurchase price; and (v) that dividends on the Preferred Shares to be redeemed as part of the repurchase of Units will cease to accrue on the repurchase date. (d) Cessation of Dividends on Preferred Shares Redeemed; Shares No Longer Outstanding. Notice having been mailed as stated in subsection (c) above, from and after the close of business on the repurchase date (unless default shall be made by the Company in providing money for the payment of the repurchase price of the Units and shares called for repurchase), dividends on the Preferred Shares redeemed as part of the repurchase of Units shall cease to accrue, and the Units , Preferred Shares, Attached Warrants and shares of Common Stock repurchased shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Company (except the right to receive from the Company the repurchase price) shall cease. Upon surrender in accordance with said notice of the certificates for any Preferred Shares and Attached Warrants comprising Units, and/or shares of Common Stock so repurchased (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state), such Units, Preferred Shares, Attached Warrants and/or shares shall be repurchased by the Company at the repurchase price aforesaid. (e) Status of Redeemed Preferred Shares. Upon repurchase of Units, any Preferred Shares which have been redeemed in connection therewith shall be retired and thereafter have the status of authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors or a duly authorized committee thereof. (f) Limitation on Company's Right to Repurchase. Notwithstanding anything to the contrary contained herein, the Company shall not be entitled to repurchase Units and/or shares of Common Stock until the earlier of (i) the date which is six months and one day following the most recent issuance to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of the Litigation Warrants in accordance with Section 5.04, provided that on or before such date, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from any unused portion of the Litigation Guarantee or (ii) such time as Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released in full from the Litigation Guarantee, provided that no Litigation Warrants have been issued prior to such release. 8.02 Purchasers' Right to Put Units. (a) Obligation to Redeem. (i) At any time after the date which is three years and six months after the Closing Date, any holder of Units, at its election, may, by notice to the Company (the "Put Notice"), demand repurchase of all, but not less than all, of such holder's Units. Subject to the provisions of Section 8.02(b), the Company shall, on the date (not less than 30 days after the date of the Put Notice) designated in such Put Notice, repurchase from the holder all (or such lesser portion permitted to be repurchased in accordance with Section 8.02(a)(iii)), of such holder's Units for an amount determined by multiplying (x) the number of shares of Common Stock for which the Attached Warrants which are part of such Units are 32 41 then exercisable by (y) the Current Market Price per share of Common Stock determined as of the date of the Put Notice. (ii) Notwithstanding the provisions of Section 8.02(a)(i), if, at any time during the period between the date on which a holder of Units shall have delivered a Put Notice and the date of repurchase by the Company pursuant thereto, a Realization Event shall occur and the consideration received or receivable by stockholders in connection with such Realization Event shall consist solely of cash, then such holder shall (whether or not such holder shall have previously surrendered its Units for repurchase by the Company pursuant to this Section 8.02) be entitled to receive, on the date of such repurchase, the higher of (x) the amount payable to such holder as determined pursuant to Section 8.02(a)(i) and (y) an amount equal to the amount of cash such holder would have received upon the occurrence of such Realization Event had such holder's Attached Warrants been exercised for Common Stock immediately prior thereto. (iii) The Company shall not be obligated under Section 8.02(a)(i) to repurchase Units if the Company is prohibited from doing so under any agreement or instrument evidencing the Company's or any of its subsidiaries' indebtedness for borrowed money, and such prohibition has not been waived, or if and to the extent such a repurchase (x) would cause an event of default to exist by reason of such repurchase, which event of default has not been waived, with respect to any such agreement or instrument or would violate any provision of any such agreement or instrument, or (y) would be in violation of applicable law ("Restrictions"), in any such case as determined by an opinion of counsel to the Company, reasonably acceptable to the holder; provided, however, that the Company shall use its reasonable best efforts to have any such Restriction either waived or terminated (including, without limitation, by obtaining refinancing for any such indebtedness on reasonable terms). In the event that, following receipt of a Put Notice, the Company will not repurchase Units requested to be repurchased in accordance with Section 8.02(a)(i) because of the existence of any Restriction, the Company shall, within twenty (20) days after receipt of the Put Notice, so notify the holder in writing (the "Restriction Notice"), setting forth the number of Units which will not be repurchased and the Restrictions which apply, and deliver to the holder a copy of the opinion referred to in the prior sentence. In addition, in such event, the Company shall, upon the request of the holder, use its best efforts to register the shares of Common Stock for which the Attached Warrants which will not be repurchased may be exercised, in accordance with the terms of the Registration Rights Agreement. In addition, if, in such event, the Company will be redeeming a number of Series A-1 Preferred Shares as part of the repurchase of Units which will result in the holders of Series A-1 Preferred Shares losing their voting and other rights pursuant to Sections 4(a) and (b) of the Certificate of Designation, the holder may, by written notice to the Company within five (5) days after receipt of the Restriction Notice, require that the Company purchase such lesser number of Units (and thereby redeem such lesser number of Series A-1 Preferred Shares) which will result in such holders retaining such rights. 33 42 (b) Payment of Repurchase Price. The repurchase price for any repurchase pursuant to this Section 8.02 shall be determined pursuant to Section 8.02(a) and shall be payable in cash. On the date of any repurchase of Units pursuant to this Section 8.02, the holder thereof shall surrender for repurchase a certificate for the number of Preferred Shares and a warrant for the number of Attached Warrants comprising the Units being repurchased, without any representation or warranty (other than that the holder has good and marketable title thereto, free and clear of liens, encumbrances and restrictions of any kind), together with an instrument of transfer reasonably acceptable to the Company, against payment therefor of the repurchase price by, at the option of the holder, (i) wire transfer to an account in a bank located in the United States designated by the holder for such purpose or (ii) a certified or official bank check payable to the order of the holder. If less than all of the holder's Preferred Shares or Attached Warrants represented by a single certificate or warrant are being redeemed or repurchased, the Company shall cancel such certificate or warrant, as the case may be, and issue in the name of, and deliver to, the holder a new certificate or warrant, as the case may be, for the portion not being redeemed or repurchased. 8.03 Right of First Refusal. (a) Company's Right to Acquire Units. So long as the Company has not exercised its rights pursuant to Section 8.01(a), if any holder of Units shall desire to transfer for value all or a portion of such Units to a third party that is not an affiliate or an associate (as such term is defined in Rule 405 promulgated under the Securities Act) of such holder, then such holder (the "Seller Holder") shall give notice to the Company of its intent to sell, setting forth the identity of such third party, the sale price (including the type of consideration), the proposed closing date of such sale (which shall not be prior to the date which is 10 days following the date of such notice) and the terms and conditions upon which the third party is willing to purchase the Units being offered for sale, and offer to sell such Units to the Company on such terms and conditions, including price. The Company shall then have 10 days (the "Notice Period") within which to give the notice to the Selling Holder that it or its designee wishes to acquire the Units offered for sale on such terms and conditions. Such notice from the Company shall state a closing date not later than the closing date specified in the notice from the Selling Holder or 10 days after the date of the Company's notice, whichever is later. If the Company shall not give notice within the Notice Period that it or its designee wishes to acquire the Units, the Selling Holder may sell such Units to such third party or to any other third party, at any time during the period of 90 days following the end of the Notice Period, on terms and conditions no less favorable to the Selling Holder than those set forth in the original notice. (b) Non-Cash Consideration. In the event all or a portion of the purchase price to be paid by the third party for the Units consists of consideration other than cash ("Non-Cash Consideration"), the Company shall, at its option, be entitled to pay to the Selling Holder, in lieu of the Non-Cash Consideration, the fair market value of such Non-Cash Consideration, as agreed upon between the Selling Holder and the Company. If the Selling 34 43 Holder and the Company are unable to agree on such fair market value within 10 days following delivery by the Selling Holder of the initial notice to the Company, they shall jointly select an investment banking firm of nationally recognized standing, and such investment banking firm shall, within 20 days after selection thereof, determine the fair market value of the Non-Cash Consideration. The fees and expenses of such investment banking firm shall be borne equally by the Selling Holder and the Company. In the event the parties are unable to agree on an investment banking firm within 15 days following delivery by the Selling Holder of the initial notice to the Company, each of them shall, within 5 business days thereafter, select an investment banking firm of nationally recognized standing and the two investment banking firms shall select a third investment banking firm of nationally recognized standing, which firm shall, within 20 days after the selection thereof, determine such fair market value. The fees and expenses of each party's own investment banking firm shall be borne by such party and the fees and expenses of the third investment banking firm shall be borne equally by the parties. In the event a determination of fair market value is required to be made in connection with any offer under this Section 8.03 and such determination is not made prior to the expiration of the Notice Period, the Notice Period shall be extended until the date which is two days following the date on which such fair market value determination is made. (c) Termination or Suspension of Right of First Refusal. If the Company or its designee fails to fulfill its obligation to purchase the Units on the same terms and conditions, subject to the provisions of Section 8.03(b), as those contained in the original offer after the Corporation gives notice that such purchase will be made, then, in addition to any available remedies, the Selling Holder may sell all or any portion of the Units offered for sale at any time thereafter, at any price and upon any terms, without regard to the provisions of this Section 8.03. Upon the occurrence and during the continuance of any Triggering Event (as defined in the Certificate of Designation), in addition to any available remedies, the Selling Holder may sell all or any portion of the Selling Holder's Units, at any price and upon any terms, without regard to the provisions of this Section 8.03. ARTICLE IX MISCELLANEOUS 9.01 Indemnification. In addition to the payment of expenses pursuant to Section 9.05, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to defend, indemnify, pay and hold harmless, the Purchasers, and the officers, directors, employees, agents and affiliates of the Purchasers (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including, without 35 44 limitation, securities and commercial laws, statutes, rules or regulations), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement, the other Basic Documents, the Warrants or the transactions contemplated hereby or thereby (including, without limitation, the Purchasers' agreement to purchase the Units or the use or intended use of the proceeds of such purchase) or the statements contained in any commitment letter delivered by the Purchasers to the Company with respect thereto (collectively called the "Indemnified Liabilities"); provided that the Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court or competent jurisdiction. To the extent that the undertaking to defend, indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 9.02 No Waiver: Cumulative Remedies. No failure or delay on the part of the Purchasers, or any other holder of any Security in exercising any right, power or remedy hereunder or thereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder or thereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 9.03 Amendments; Waiver and Consents. This Agreement may be amended or modified, and the obligations of the Company and the rights of the holders of Securities under this Agreement may be waived only by the written consent of holders of a majority of the Securities, determined on the basis of shares of Common Stock "held", including Warrant Shares for which Warrants held are exercisable. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 9.04 Notices. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows: (a) If to the Company: Code Alarm Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Rand Mueller and Craig Camalo Facsimile: (248) 585-4799 36 45 with a copy to: Pepper, Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes Facsimile: (313) 259-7926 (b) If to either Purchaser: 99 River Road Cos Cob, Connecticut 06807 Attention: Richard M. Cion Facsimile: (203) 869-6940 with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Nancy E. Fuchs, Esq. Facsimile: (212) 836-8689 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given five business days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two (2) day courier). 9.05 Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to pay promptly (a) the fees, expenses and disbursements of counsel to the Purchasers in connection with the negotiation, preparation, execution and administration of the Basic Documents or the Warrants, which fees and expenses shall not exceed $300,000, and any consents, amendments, waivers or other modifications hereto or thereto and any other documents or matters requested by the Company; (b) all other actual costs and expenses incurred by the Purchasers in connection with the investigation and completion of the transactions contemplated hereby and by the other Basic Documents and the Warrants; and (c) all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by the Purchasers in enforcing any obligations of or in collecting any payments due from the Company hereunder or under the other Basic Documents or the Warrants by reason of any breach or default by the Company or in connection with any refinancing or restructuring of the 37 46 arrangements provided under the Basic Documents or the Warrants in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 9.06 Specific Performance. The Company acknowledges that the subject matter of this Agreement is unique and that no adequate remedy of law would be available for breach of this Agreement. Accordingly, the Company agrees that the Purchasers will be entitled to an appropriate decree of specific performance, injunctive relief or other equitable remedies to enforce this Agreement (without any bond or other security being required), and the Company waives the defense in any action or proceeding brought to enforce this Agreement that there exists an adequate remedy at law. 9.07 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and the Purchasers and their respective successors and assigns, except that the Company shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Purchasers. 9.08 Survival of Representations and Warranties. All representations and warranties made in this Agreement or any other Basic Document or Warrant shall survive the execution and delivery hereof and thereof and the issuance of the Units, the Shortfall Warrants and the Litigation Warrants. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 2.05, 4.16, 9.01 and 9.05 and of the Purchasers set forth in Section 6.01(c) shall survive the payment or redemption of any Securities. 9.09 Severability. In case any provision in or obligation under this Agreement or the Securities shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 9.10 Prior Agreements. This Agreement, together with the exhibits and schedules hereto, constitutes the entire agreement between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. 9.11 Governing Law; Consent to Jurisdiction and Venue. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Michigan applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. EACH OF THE COMPANY AND EACH PURCHASER CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or any Purchaser in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 9.04. Nothing herein shall preclude any 38 47 Purchaser or the Company from bringing suit or taking other legal action in any other jurisdiction. 9.12 Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT. 9.13 Headings. Article, Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.14 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and each of the parties hereto may execute this Agreement by signing any such counterpart. 9.15 Further Assurances. From and after the date of this Agreement, upon the request of any Purchaser, the Company and each Subsidiary shall execute and deliver such instruments, documents and other writings as may be necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement, the Preferred Shares, the Warrants, the Registration Rights Agreement and the other agreements and instruments contemplated hereby. 9.16 Allocation of Purchase Price. Under both generally accepted accounting principles and the regulations promulgated under the Code, the purchase of Preferred Shares and Attached Warrants as part of Units for an aggregate Purchase Price may require an allocation of the Purchase Price between the Preferred Shares and the Attached Warrants. Accordingly, the Company and the Purchasers agree that the aggregate value of the Preferred Shares and the Attached Warrants shall be allocated in a manner reasonably requested by Purchasers (which values shall be used by the Company and the Purchasers for all purposes, including the preparation of tax returns and the preparation of financial statements of the Company and its Subsidiaries). 39 48 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date first above written. CODE ALARM INC. By: /s/ Rand Mueller ------------------------------------ Name: Rand Mueller Title: President PEGASUS PARTNERS, L.P. By: Pegasus Investors, L.P., its general partner By: Pegasus Investors GP, Inc., its general partner By: /s/ Richard Cion ------------------------------- Name: Richard Cion Title: Vice President PEGASUS RELATED PARTNERS, L.P. By: Pegasus Investors, L.P., its general partner By: Pegasus Investors GP, Inc., its general partner By: /s/ Richard Cion ------------------------------- Name: Richard Cion Title: Vice President EX-10.58 23 EXHIBIT 10.58 1 EXHIBIT 10.58 GENERAL ELECTRIC CAPITAL CORPORATION 10 South LaSalle Street Suite 2800 Chicago, Illinois 60603 October 27, 1997 Pegasus Partners, L.P. and Pegasus Related Partners, L.P. 99 River Road Cos Cob, Connecticut 06807 Gentlemen: Reference is made to the Credit Agreement dated as of October 24, 1997 (as amended, restated, supplemented or otherwise modified, the "Credit Agreement") among Code-Alarm, Inc., certain specified affiliates of Code-Alarm, Inc. signatory thereto, the lenders from time to time signatory thereto and General Electric Capital Corporation as agent for the lenders thereunder. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Credit Agreement. We hereby agree to furnish to each of you prompt written notice (an "Acceleration Notice") in the event that all or any portion of the Obligations are accelerated. Further, we hereby agree that upon and at any time following an acceleration of any Obligations (irrespective of whether an Acceleration Notice is furnished in connection therewith) we shall upon your request sell, assign, transfer and convey to you (or your designee(s)), or to the extent applicable shall cause to be sold, assigned, transferred and conveyed to you (or your designee(s)), all rights, title, interests, remedies, powers and duties of the Agent and the Lenders in, under and to the Loan Documents (other than the GECC Warrant Documents), Collateral, Loans, Obligations (other than Obligations relating exclusively to the GECC Warrant Documents) and Commitments, provided, that (i) our obligations under this letter agreement shall expire on the sixty-first day following the date we furnish 2 Pegasus Partners, L.P. 2 October 27, 1997 and Pegasus Related Partners, L.P. to you an Acceleration Notice, (ii) the purchase price payable in connection with such conveyance shall be 100% of the then outstanding Obligations (other than Obligations relating exclusively to the GECC Warrant Documents) and your assumption of 100% of the then outstanding Commitments, if any, and (iii) such conveyance shall be made pursuant to an Assignment Agreement substantially in the form of Exhibit 9.1(a) to the Credit Agreement as in effect on the date hereof and such other documentation as you or we shall reasonably deem appropriate to effect such conveyance. Nothing herein shall be deemed to modify any term, provision or condition set forth in the Limited Supplemental Guaranty or the Limited Litigation Guaranty, each dated as of October 24, 1997 among GECC, Pegasus Partners, L.P. and Pegasus Related Partners, L.P., or operate as a defense to any obligation of any guarantor under either such guarantee. This letter agreement shall be governed by and construed and enforced in accordance with the Laws of the State of New York applicable to contracts made and performed in such state. Very truly yours, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Timothy S. Van Kirk --------------------------- Name: Timothy S. Van Kirk Title: Duly Authorized Signatory Acknowledged and Agreed: CODE-ALARM, INC. By: /s/ Craig S. Camalo --------------------- Name: Craig S. Camalo Title: VP Finance & CFO EX-10.59 24 EXHIBIT 10.59 1 EXHIBIT 10.59 This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of October 27, 1997, by and among CODE ALARM INC, a Michigan corporation (the "Company"), Pegasus Partners, L.P., Pegasus Related Partners, L.P. (together with Pegasus Partners, L.P., "Pegasus") and General Electric Capital Corporation ("GECC"). RECITALS WHEREAS, the Company and Pegasus have entered into that certain Unit Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), pursuant to which, among other things, Pegasus is purchasing units ("Units"), each Unit consisting of one share of the Company's Series A Preferred Stock (collectively, with other such shares, the "Preferred Shares") and one Warrant (as hereinafter defined) to purchase 72.2525247 shares of the Company's common stock, no par value (the "Common Stock"); and WHEREAS, the Company has issued, and may in the future issue, additional Warrants (as hereinafter defined) to Pegasus in consideration for certain financial accommodations provided and to be provided by Pegasus to GECC as contemplated by the Purchase Agreement and the Company or as part of Units issued in payment of dividends on Preferred Shares; WHEREAS, the Company has issued Warrants to GECC in consideration for GECC making loans to the Company pursuant to the Credit Agreement dated as of October 24, 1997 among the Company, GECC and the other lenders and credit parties signatory thereto (the "Credit Agreement"); WHEREAS, in connection with the purchase and sale of the Units, the making of loans pursuant to the Credit Agreement and the issuance of the Warrants, the Company has agreed, on the terms and conditions set forth herein, to register shares of Common Stock as set forth below. NOW THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 2 "Business Day" means any day that is not a Saturday, a Sunday or a legal holiday on which banking institutions in the State of New York are not required to be open. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock issued by such person, including each class of common stock and preferred stock of such person. "Common Stock" shall have the meaning set forth in the Recitals. "Company" shall have the meaning set forth in the Recitals. "Credit Agreement" shall have the meaning set forth in the Recitals. "Delay Period" shall have the meaning set forth in Section 2(d) hereof. "Demand Notice" shall have the meaning set forth in Section 2(a) hereof. "Demand Registration" shall have the meaning set forth in Section 2(b) hereof. "Demanding Holders" means the Holders delivering the Demand Notice pursuant to Section 2(a) hereof. "Effectiveness Period" shall have the meaning set forth in Section 2(d) hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "GECC Holders" means GECC and its Affiliates (to the extent that they hold Registrable Shares or securities exercisable for Registrable Shares) and any other holder of Registrable Shares, or securities exercisable for Registrable Shares initially held by or issuable to GECC or an Affiliate of GECC. "Hold Back Period" shall have the meaning set forth in Section 4 hereof. "Holder" means Pegasus Partners, L.P., Pegasus Related Partners, L.P., GECC or such other person or persons who owns Registrable Shares or securities exercisable for Registrable Shares. "Interruption Period" shall have the meaning set forth in Section 5 hereof. "Majority-in-Interest" of any group of Holders means holders of more than 50% of the Registrable Shares held by such Holders or obtainable by such Holders upon exercise of Warrants. 2 3 "Pegasus Holders" means Pegasus and their Affiliates (to the extent that they hold Registrable Shares or securities exercisable for Registrable Shares) and any other holder of Registrable Shares, or securities exercisable for Registrable Shares, initially held by or issuable to Pegasus or an Affiliate of Pegasus. "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Piggyback Registration" shall have the meaning set forth in Section 3 hereof. "Preferred Shares" shall have the meaning set forth in the Recitals. "Prospectus" means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Purchase Agreement" shall have the meaning set forth in the Recitals. "Registrable Shares" means (i) shares of Common Stock issuable or issued upon exercise of the Warrants and (ii) any shares of Common Stock issued or issuable with respect to the shares of Common Stock referred to in clause (i) above upon any stock split, stock dividend, recapitalization or similar event; provided, however, that shares of Common Stock shall only be registrable pursuant to this Agreement if and so long as they have not been (i) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (ii) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect to such shares of Common Stock are removed upon the consummation of such sale and the Company and the seller and purchaser of such shares of Common Stock shall have received an opinion of counsel for the seller, which shall be in form and content reasonably satisfactory to the Company and the seller and purchaser and their respective counsel, to the effect that such shares of Common Stock in the hands of the purchaser are freely transferable without restriction or registration under the Securities Act in any public or private transaction; provided, further, however, that shares of Common stock issuable upon exercise of Warrants issued as part of Units shall not be deemed "Registrable Shares" until the first anniversary of the date hereof. "Registration" means registration under the Securities Act of an offering of Registrable Shares pursuant to a Demand Registration or a Piggyback Registration. 3 4 "Registration Statement" means any registration statement under the Securities Act of the Company that covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "underwritten registration or underwritten offering" means a registration under the Securities Act in which securities of the Company are sold to an underwriter for reoffering to the public. "Units" shall have the meaning set forth in the Recitals. "Warrants" mean (i) warrants to purchase Common Stock issued as part of Units purchased by Pegasus pursuant to the Purchase Agreement or issued to holders of Preferred Shares as part of Units issued in payment of dividends on such Preferred Shares, (ii) warrants to purchase Common Stock issued to Pegasus pursuant to Section 3.01(s) or 5.04 of the Purchase Agreement and (iii) warrants to purchase Common Stock issued to GECC pursuant to the Warrant Purchase Agreement dated as of October 24, 1997 between the Company and GECC. SECTION 2. Demand Registration. (a) At any time and from time to time, a Majority-in-Interest of the Pegasus Holders or a Majority-in-Interest of the GECC Holders shall have the right, by written notice (the "Demand Notice") given to the Company, to request the Company to register under and in accordance with the provisions of the Securities Act all or any portion of the Registrable Shares held by such Holders and/or the Registrable Shares for which Warrants held by such Holders are exercisable, as designated by such Holders; provided, however, that the aggregate number of Registrable Shares requested to be registered pursuant to any Demand Notice shall be at least 50,000. Upon receipt of any such Demand Notice, the Company shall promptly, but in no event more than five days after receipt thereof, notify all other Holders of the receipt of such Demand Notice and, subject to the limitations set forth below, shall include in the proposed registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within 20 days after delivery of the Company's notice. In connection with any Demand Registration in which more than one holder of securities participates, in the event that such Demand Registration involves an underwritten offering and the managing underwriter or underwriters participating in such offering advise in writing the Holders of Registrable Shares and the holders of other securities to be included in such offering that the total number of Registrable Shares and other securities to be included in such offering exceeds the amount that can be sold in (or during the time of) such offering without delaying or jeopardizing the success of such offering (including the price per share of the 4 5 Registrable Shares and other securities to be sold), then the amount of Registrable Shares and other securities to be offered for the account of such Holders shall be reduced as follows: first, pro rata on the basis of the number of securities other than Registrable Shares requested to be registered by the holders of such securities; second, pro rata on the basis of the number of Registrable Shares requested to be registered by Holders other than the Demanding Holders; and third, pro rata on the basis of the number of Registrable Shares requested to be registered by the Demanding Holders. The Pegasus Holders as a group shall be entitled to five Demand Registrations and the GECC Holders as a group shall be entitled to one Demand Registration pursuant to this Section 2; provided, that any Demand Registration that does not become effective or is not maintained for the time period required in accordance with Section 2(c) shall not count as one of such Demand Registrations, except as set forth in Section 2(f). Anything herein to the contrary notwithstanding, the Company shall not be required to effect a Demand Registration pursuant to this Section 2 within a period of six (6) months after the effective date of any other Demand Registration. (b) The Company, within 45 days of the date on which the Company receives a Demand Notice given by Holders in accordance with Section 2(a) hereof, shall file with the SEC, and the Company shall thereafter use its best efforts to cause to be declared effective within 90 days following the date the Company receives such Demand Notice, a Registration Statement on the appropriate form for the registration and sale, in accordance with the intended method or methods of distribution, of the total number of Registrable Shares specified by the Holders in such Demand Notice (a "Demand Registration"). (c) The Company shall use commercially reasonable efforts to keep each Registration Statement filed pursuant to this Section 2 continuously effective and usable for the resale of the Registrable Shares covered thereby for a period of 270 days from the date on which the SEC declares such Registration Statement effective, as such period may be extended pursuant to this Section 2, or if shorter, until all the Registrable Shares covered by such Registration Statement have been sold pursuant to such Registration Statement. (d) The Company shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by the Company pursuant to this Section 2, or suspend the use of any effective Registration Statement under this Section 2, for a reasonable period of time which shall be as short as practicable, but in any event not in excess of 60 days (a "Delay Period"), if the Company determines in good faith that the registration and distribution of the Registrable Shares covered or to be covered by such Registration Statement would materially interfere with any pending material financing, acquisition or corporate reorganization or other material corporate development involving the Company or any of its subsidiaries or would require premature disclosure thereof and promptly gives the Holders written notice of such determination, containing a statement of the reasons for such postponement and an approximation of the period of the anticipated delay; provided, however, that (i) the aggregate number of days included in all Delay Periods during any consecutive 12 months shall not exceed the aggregate of (x) 180 days minus (y) the number of days occurring during all Hold Back Periods and Interruption Periods during such consecutive 12 months and (ii) a period of at least 5 6 60 days shall elapse between the termination of any Delay Period, Hold Back Period or Interruption Period and the commencement of the immediately succeeding Delay Period. If the Company shall so postpone the filing of a Registration Statement, the Holders of Registrable Shares to be registered shall have the right to withdraw the request for registration by giving written notice from the Holders of a majority of the Registrable Shares that were to be registered to the Company within 45 days after receipt of the notice of postponement or, if earlier, the termination of such Delay Period. The time period for which the Company is required to maintain the effectiveness of any Registration Statement shall be extended by the aggregate number of days of all Delay Periods, all Hold Back Periods and all Interruption Periods occurring during such Registration and such period and any extension thereof is hereinafter referred to as the "Effectiveness Period". The Company shall not be entitled to initiate a Delay Period unless it shall (A) to the extent permitted by agreements with other security holders of the Company, concurrently prohibit sales by such other security holders under registration statements covering securities held by such other security holders and (B) in accordance with the Company's policies from time to time in effect, forbid purchases and sales in the open market by senior executives of the Company. (e) The Company shall not include any securities that are not Registrable Shares in any Registration Statement filed pursuant to this Section 2 without the prior written consent of the Holders of a majority in number of the Registrable Shares covered by such Registration Statement. (f) The Demanding Holders may, at any time prior to the effective date of the Registration Statement relating to a Demand Registration, revoke such request by providing a written notice to the Company revoking such request. In the event of such revocation, the Demanding Holders shall reimburse the Company for all of its out-of-pocket expenses incurred in connection with the preparation, filing and processing of the Registration Statement, unless (i) there has been a material adverse change in the business, assets, properties, condition (financial or other), results of operations or prospects of the Company and its subsidiaries, since the time of the Demand Notice, (ii) such revocation was based on the Company's failure to comply in any material respect with its obligations hereunder or (iii) the Demanding Holders choose to count the Demand Registration as one of the Demand Registrations to which the Demanding Holders are entitled pursuant to the second-to-last sentence of Section 2(a). SECTION 3. Piggyback Registration. () Right to Piggyback. If at any time the Company proposes to file a registration statement under the Securities Act with respect to a public offering of securities of the same type as the Registrable Shares for its own account (other than a registration statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Company or its Affiliates or (iii) on Form S-4 or any successor form thereto, in connection with a merger, acquisition or similar corporate transaction) or for the account of any holder of securities of the same type as the Registrable Shares, then the Company shall give written notice of such proposed filing to the Holders at least 30 days before the anticipated filing date. Such notice shall offer the Holders the opportunity to register such amount of Registrable Shares as they may request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received written requests for inclusion therein within 20 days after notice has been given to the Holders. Each Holder shall be permitted to withdraw all or any portion of the Registrable 6 7 Shares of such Holder from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration. (b) Priority on Piggyback Registrations. The Company shall permit the Holders to include all such Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein. Notwithstanding the foregoing, if the Company or the managing underwriter or underwriters participating in such offering advise the Holders in writing that the total amount of securities requested to be included in such Piggyback Registration exceeds the amount which can be sold in (or during the time of) such offering without delaying or jeopardizing the success of the offering (including the price per share of the securities to be sold), then the amount of securities to be offered for the account of the Holders and other holders of securities who have piggyback registration rights with respect thereto shall be reduced (to zero if necessary) pro rata on the basis of the number or amount of Common Stock (or the equivalent) requested to be registered by each such Holder or holder participating in such offering. (c) Right To Abandon. Nothing in this Section 3 shall create any liability on the part of the Company to the Holders if the Company in its sole discretion should decide not to file a registration statement proposed to be filed pursuant to Section 3(a) hereof or to withdraw such registration statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise. SECTION 4. Holdback Agreement. If (i) the Company shall file a registration statement (other than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) with respect to the Common Stock or similar securities or securities convertible into, or exchangeable or exercisable for, such securities and (ii) with reasonable prior notice, the Company (in the case of a nonunderwritten public offering by the Company pursuant to such registration statement) advises the Holders in writing that a public sale or distribution of such Registrable Shares would materially adversely affect such offering or the managing underwriter or underwriters (in the case of an underwritten public offering by the Company pursuant to such registration statement) advises the Company in writing (in which case the Company shall notify the Holders with a copy of such underwriter's notice) that a public sale or distribution of Registrable Shares would materially adversely impact such offering, then each Holder shall, to the extent not inconsistent with applicable law, refrain from effecting any public sale or distribution of Registrable Shares during the ten (10) days prior to the effective date of such registration statement and until the earliest of (A) the abandonment of such offering, (B) 180 days after the effective date of such registration statement and (C) if such offering is an underwritten offering, the termination in 7 8 whole or in part of any "hold back" period obtained by the underwriter or underwriters in such offering from the Company in connection therewith (each such period, a "Hold Back Period"), provided, that the Holder shall be under no such obligation unless each other beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least 5% of the Company's Common Stock and each director and executive officer of the Company also agrees to refrain from effecting any such public sale or distribution. SECTION 5. Registration Procedures. In connection with the registration obligations of the Company pursuant to and in accordance with Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Company shall use commercially reasonable efforts to effect such registration to permit the sale of such Registrable Shares in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible (but subject to Sections 2 and 3 hereof): (a) prepare and file with the SEC a Registration Statement for the sale of the Registrable Shares on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate in accordance with such Holders' intended method or methods of distribution thereof, subject to Section 2(b) hereof, and use commercially reasonable efforts to cause such Registration Statement to become effective and remain effective as provided herein; (b) prepare and file with the SEC such amendments (including post-effective amendments) to such Registration Statement, and such supplements to the related Prospectus, as may be required by the applicable rules, regulations or instructions under the Securities Act during the applicable period in accordance with the intended methods of disposition specified by the Holders of the Registrable Shares covered by such Registration Statement, make generally available earnings statements satisfying the provisions of Section 11(a) of the Securities Act (provided that the Company shall be deemed to have complied with this clause if it has complied with Rule 158 under the Securities Act), and cause the related Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act; provided, however, that before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), the Company shall furnish to the Holders of Registrable Shares covered by such Registration Statement and their counsel for review and comment, copies of all documents required to be filed; (c) notify the Holders of any Registrable Shares covered by such Registration Statement promptly and (if requested) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to such Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to such Registration Statement or the related Prospectus or for additional information regarding such Holders, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any 8 9 proceeding for such purpose, and (v) of the happening of any event that requires the making of any changes in such Registration Statement, Prospectus or documents incorporated or deemed to be incorporated therein by reference so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (d) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States; (e) furnish to the Holder of any Registrable Shares covered by such Registration Statement, each counsel for such Holders and each managing underwriter, if any, without charge, one conformed copy of such Registration Statement, as declared effective by the SEC, and of each post-effective amendment thereto, in each case including financial statements and schedules and all exhibits and reports incorporated or deemed to be incorporated therein by reference; and deliver, without charge, such number of copies of the preliminary prospectus, any amended preliminary prospectus, each final Prospectus and any post- effective amendment or supplement thereto, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Shares of such Holder covered by such Registration Statement in conformity with the requirements of the Securities Act; (f) prior to any public offering of Registrable Shares covered by such Registration Statement, use commercially reasonable efforts to register or qualify such Registrable Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Holders of such Registrable Shares shall reasonably request in writing; provided, however, that the Company shall in no event be required to qualify generally to do business as a foreign corporation or as a dealer in any jurisdiction where it is not at the time so qualified or to execute or file a general consent to service of process in any such jurisdiction where it has not theretofore done so or to take any action that would subject it to general service of process or taxation in any such jurisdiction where it is not then subject; (g) upon the occurrence of any event contemplated by paragraph 5(c)(v) above, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated or deemed to be incorporated therein by reference and file any other required document so that, as thereafter delivered to the purchaser of the Registrable Shares being sold thereunder (including upon the termination of any Delay Period), such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (h) use its best efforts to cause all Registrable Shares covered by such Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Company are then listed or quoted and, if no such securities are so listed, 9 10 to be listed on the Nasdaq Stock Market and, if listed on the Nasdaq Stock Market, use its best efforts to secure designation of all such Registrable Shares covered by such registration statement as "NASDAQ Securities" within the meaning of Rule 11Aa2-1 promulgated under the Exchange Act or, failing that, to secure Nasdaq Stock Market authorization for such Registrable Shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Shares with the National Association of Securities Dealers, Inc. (the "NASD"); (i) on or before the effective date of such Registration Statement, provide the transfer agent of the Company for the Registrable Shares with printed certificates for the Registrable Shares covered by such Registration Statement, which are in a form eligible for deposit with The Depository Trust Company; (j) make available for inspection by any Holder of Registrable Shares included in such Registration Statement, any underwriter participating in any offering pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records and other information, pertinent corporate documents and properties of any of the Company and its subsidiaries and affiliates (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibilities; provided, however, that the Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed to any Inspector unless such Inspector signs a confidentiality agreement reasonably satisfactory to the Company (which shall permit the disclosure of such Records in such Registration Statement or the related Prospectus if necessary to avoid or correct a material misstatement in or material omission from such Registration Statement or Prospectus) or either (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided further, however, that (A) any decision regarding the disclosure of information pursuant to subclause (i) shall be made only after consultation with counsel for the applicable Inspectors and the Company and (B) with respect to any release of Records pursuant to subclause (ii), each Holder of Registrable Shares agrees that it shall, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to the Company so that the Company, at the Company's expense, may undertake appropriate action to prevent disclosure of such Records; and (k) if such offering is an underwritten offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other appropriate and reasonable actions requested by the Holders of a majority of the Registrable Shares being sold in connection therewith (including those reasonably requested by the managing 10 11 underwriters) in order to expedite or facilitate the disposition of such Registrable Shares, and in such connection, (i) use commercially reasonable efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and counsel to the Holders of the Registrable Shares being sold), addressed to each selling Holder of Registrable Shares covered by such Registration Statement and each of the underwriters as to the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and underwriters, (ii) use commercially reasonable efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling holder of Registrable Shares covered by the Registration Statement (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, (iii) if requested and if an underwriting agreement is entered into, provide indemnification provisions and procedures reasonably requested by such underwriters. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder. The Company may require each Holder of Registrable Shares covered by a Registration Statement to furnish such information regarding such Holder and such Holder's intended method of disposition of such Registrable Shares as it may from time to time reasonably request in writing. If any such information is not furnished within a reasonable period of time after receipt of such request, the Company may exclude such Holder's Registrable Shares from such Registration Statement. Each Holder of Registrable Shares covered by a Registration Statement agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, that such Holder shall forthwith discontinue disposition of any Registrable Shares covered by such Registration Statement or the related Prospectus until receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(g) hereof, or until such Holder is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amended or supplemented Prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such Prospectus (such period during which disposition is discontinued being an "Interruption Period") and, if requested by the Company, the Holder shall deliver to the Company (at the expense of the Company) all copies then in its possession, other than permanent file copies then in such holder's possession, of the Prospectus covering such Registrable Shares at the time of receipt of such request. Each Holder of Registrable Shares covered by a Registration Statement further agrees not to utilize any material other than the applicable current preliminary prospectus or Prospectus in connection with the offering of such Registrable Shares. SECTION 6. Registration Expenses. Whether or not any Registration Statement is filed or becomes effective but subject to Section 2(f), the Company shall pay all costs, fees and expenses incident to the Company's performance of or compliance with this Agreement, including (i) all registration and filing fees, including NASD filing fees, (ii) all fees and expenses of compliance with securities or Blue Sky laws, including reasonable fees and disbursements of counsel in connection therewith, (iii) printing expenses (including expenses of printing 11 12 certificates for Registrable Shares and of printing prospectuses if the printing of prospectuses is requested by the Holders or the managing underwriter, if any), (iv) messenger, telephone and delivery expenses, (v) fees and disbursements of counsel for the Company, (vi) fees and disbursements of all independent certified public accountants of the Company (including expenses of any "cold comfort" letters required in connection with this Agreement) and all other persons retained by the Company in connection with such Registration Statement, (vii) fees and disbursements of one counsel, other than the Company's counsel, representing all of the Holders of Registrable Shares being registered, selected by a Majority-in-Interest of Holders of the Registrable Shares being registered, or in the event of a Demand Registration, selected by the Demanding Holders and reasonably satisfactory to a Majority-in-Interest of Holders of the Registrable Shares being registered other than the Demanding Holders, (viii) fees and disbursements of underwriters customarily paid by the issuers or sellers of securities and (ix) all other costs, fees and expenses incident to the Company's performance or compliance with this Agreement. Notwithstanding the foregoing, any discounts, commissions or brokers' fees or fees of similar securities industry professionals and any transfer taxes relating to the disposition of the Registrable Shares by a Holder, will be payable by such Holder and the Company will have no obligation to pay any such amounts. SECTION 7. Underwriting Requirements. (a) Subject to Section 7(b) hereof, the Demanding Holders shall have the right, by written notice, to require that any Demand Registration provide for an underwritten offering. (b) In the case of any underwritten offering pursuant to a Demand Registration, the Demanding Holders shall select the institution or institutions that shall manage or lead such offering, which institution or institutions shall be reasonably satisfactory to the Company and to a Majority-in-Interest of the Holders participating in such offering, other than the Demanding Holders. In the case of any underwritten offering pursuant to a Piggyback Registration, the Company shall select the institution or institutions that shall manage or lead such offering. No Holder shall be entitled to participate in an underwritten offering unless and until such Holder has entered into an underwriting or other agreement with such institution or institutions for such offering in such form as the Company and such institution or institutions shall determine. (c) Each Holder participating in a Registration shall promptly supply in writing such information as the Demanding Holders, the Company or the underwriters reasonably request. SECTION 8. Indemnification. () Indemnification by the Company. The Company shall, without limitation as to time, indemnify and hold harmless, to the full extent permitted by law, each Holder of Registrable Shares whose Registrable Shares are covered by a Registration Statement or Prospectus, the officers, directors and agents and employees of each of them, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent lawful, from and against any and 12 13 all losses, claims, damages, liabilities, judgment, costs (including, without limitation, costs of investigation, preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon information furnished in writing to the Company by or on behalf of such Holder expressly for use therein. (b) Indemnification by Holder of Registrable Shares. In connection with any Registration Statement in which a Holder is participating, such Holder shall indemnify and hold harmless, to the full extent permitted by law, the Company, its directors, officers, agents or employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) and the directors, officers, agents or employees of such controlling Persons, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in such Registration Statement or the related Prospectus or any amendment or supplement thereto, or any preliminary prospectus, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is based upon any information furnished in writing by or on behalf of such Holder to the Company expressly for use in such Registration Statement or Prospectus. Each Holder's indemnity obligations under this Section 8 shall be limited to the total sales proceeds (net of all underwriting discounts and commissions) actually received by such Holder in connection with the applicable offering. (c) Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall give prompt notice to the party from which such indemnity is sought (the "indemnifying party") of any claim or of the commencement of any proceeding with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or proceeding, to assume, at the indemnifying party's expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) an indemnified party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (1) the indemnifying party agrees to pay such fees and expenses; (2) the indemnifying party fails promptly to assume the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any proceeding (including impleaded parties) include both such indemnified party and the indemnifying party, 13 14 and such indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it that are inconsistent with those available to the indemnifying party or that a conflict of interest is likely to exist among such indemnified party and any other indemnified parties (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party); and (ii) subject to clause (3) above, the indemnifying party shall not, in connection with any one such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party shall not be subject to any liability for any settlement made without its consent. The indemnifying party shall not consent to entry of any judgment or enter into any settlement unless (i) there is no finding or admission of any violation of any rights of any person and no effect on any other claims that may be made against the indemnified party, (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying party and (iii) such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation for which such indemnified party would be entitled to indemnification hereunder. (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a Holder shall not be required to contribute any amount which is in excess of the amount by which the total proceeds (net of all underwriting discounts and commissions) received by such Holder from the sale of the Registrable Shares sold by such Holder in the applicable offering exceeds the amount of any damages that such indemnifying 14 15 party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. SECTION 9. Granting of Registration Rights. The Company shall not grant any registration rights inconsistent with those granted hereunder or that give any securityholder a position with respect to cut-backs that are superior to the Holders' position as granted herein, without the consent of a Majority-in-Interest of the Holders of the Registrable Shares (voting together as a single class). SECTION 10. Miscellaneous. (a) Rules 144 and 144A. The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act so as to enable Holders holding Registrable Shares to sell such Registrable Shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rules 144 and 144A under the Securities Act, as each such Rule may be amended from time to time, or (b) any similar rule or rules hereafter adopted by the SEC. Upon the request of any such Holder, the Company will forthwith deliver to such Holder a written statement as to whether it has complied with such requirements. (b) Termination. This Agreement and the obligations of the Company and the Holders hereunder (other than Section 8 hereof) shall terminate on the first date on which no Registrable Shares remain outstanding. (c) Notices. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows: (i) If to the Company: Code Alarm Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Rand Mueller and Craig Camalo Facsimile: (248) 585-4799 15 16 with a copy to: Pepper Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes, Esq. Facsimile: (313) 259-7926 (ii) If to any Holder, at its last known address appearing on the books of the Company maintained for such purpose. Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given five business days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two (2) day courier). (d) Separability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. (e) Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, devisees, legatees, legal representatives, successors and assigns. (f) Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties hereto with respect to the subject matter hereof. (g) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority-in-Interest of the Holders. Notwithstanding the foregoing, this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions thereof may not be given, (i) in a manner which adversely affects the rights of the GECC Holders, unless the Company has obtained the written consent of a Majority-in-Interest of the GECC Holders or (ii) in a manner which adversely affects the rights of the Pegasus Holders, unless the Company has obtained the written consent of a Majority-in-Interest of the Pegasus Holders. (h) Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16 17 (i) Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be one and the same agreement, and shall become effective when counterparts have been signed by each of the parties and delivered to each other party. (j) Governing Law; Consent to Jurisdiction and Venue. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Michigan applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. EACH OF THE COMPANY, PEGASUS AND GECC CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or any Holder in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 10(c). Nothing herein shall preclude any Holder or the Company from bringing suit or taking other legal action in any other jurisdiction. (k) Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT. (l) Calculation of Time Periods. Except as otherwise indicated, all periods of time referred to herein shall include all Saturdays, Sundays and holidays; provided, however, that if the date to perform the act or give any notice with respect to this Agreement shall fall on a day other than a Business Day, such act or notice may be timely performed or given if performed or given on the next succeeding Business Day. 17 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. CODE ALARM INC. By: /s/ Rand Mueller -------------------------- Name: Rand Mueller Title: President PEGASUS PARTNERS, L.P. By: Pegasus Investors, L.P., its general partner By: Pegasus Investors GP, Inc., its general partner By: /s/ Richard Cion -------------------------- Name: Richard Cion Title: Vice President PEGASUS RELATED PARTNERS, L.P. By: Pegasus Investors, L.P., its general partner By: Pegasus Investors GP, Inc., its general partner By: /s/ Richard Cion -------------------------- Name: Richard Cion Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Timothy S. Van Kirk -------------------------- Name: Timothy S. Van Kirk Title: Duly Authorized Signatory 18 EX-10.60 25 EXHIBIT 10.60 1 EXHIBIT 10.60 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT AS PART OF UNITS WITH SHARES OF SERIES A PREFERRED STOCK OF CODE ALARM, INC. AND ARE SUBJECT TO REPURCHASE BY CODE ALARM, INC. IN ACCORDANCE WITH THE TERMS OF A UNIT PURCHASE AGREEMENT DATED AS OF OCTOBER 27, 1997 AMONG CODE ALARM, INC., PEGASUS PARTNERS, L.P. AND PEGASUS RELATED PARTNERS, L.P. WARRANT To Purchase Common Stock of CODE ALARM INC. Issuance Date: October 27, 1997 Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] No. of Shares of Common Stock: _________ 2 TABLE OF CONTENTS Page ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.4. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.4. Issuance of Warrants or Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.7. Other Provisions Applicable to Adjustments Under This Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets . . . . . . 16 4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.10. Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANTHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . 18 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
i 3
Page ---- 9.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.2. Notice of Proposed Transfers; Requests for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.3. No Transfer to Directed Electronics, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 9.4. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 11. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 13.1. Obligation to Repurchase Warrant and Warrant Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 13.2. Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 13.3. Obligation to Repurchase When Preferred Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 14. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 16. DIVIDENDS ON UNDERLYING COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.8. Governing Law; Consent to Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.9. Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ii 4 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT AS PART OF UNITS WITH SHARES OF SERIES A PREFERRED STOCK OF CODE ALARM, INC. AND ARE SUBJECT TO REPURCHASE BY CODE ALARM, INC. IN ACCORDANCE WITH THE TERMS OF A UNIT PURCHASE AGREEMENT DATED AS OF OCTOBER 27, 1997 AMONG CODE ALARM, INC., PEGASUS PARTNERS, L.P. AND PEGASUS RELATED PARTNERS, L.P. Warrant Number: ___________ Date of Issuance: ________ No. of Shares of Common Stock: ________ WARRANT To Purchase Common Stock of CODE ALARM INC. THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] or its registered assigns, is entitled, at any time during the Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a Michigan corporation (the "Company"), _______________________ (______) shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price of $1.8759559 per share (subject to adjustment as set forth herein), all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: 5 "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than Warrant Stock, whether now authorized or not. "Affiliate" of any Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with, such Person. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Closing Date" shall mean October 27, 1997. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, no par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.8) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the 20 consecutive Trading Days immediately preceding such date. The daily market price for each such Trading Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the last reported sale price as officially quoted on any such exchange, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, the last reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the Nasdaq Stock Market, the last reported sale price on the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or if such sale price is not available on such date, the average of the closing bid and 2 6 asked prices on such date as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or (v) if there is no such organization or agency, as furnished by any member of the NASD selected mutually by the Majority Holders and the Company or, if they cannot agree upon such selection, by a member selected by two such members of the NASD, one of which shall be selected by the Majority Holders and one of which shall be selected by the Company. "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. On the Closing Date, the Current Warrant Price is $1.8759559 per share of Common Stock, and is subject to adjustment pursuant to Section 4. "DEI" shall mean Directed Electronics, Inc., a California corporation. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Period" shall mean an infinite period beginning on the Closing Date; provided, however, that if the Company shall have exercised its rights to redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, the Exercise Period shall end at 5:00 P.M., Michigan time, on the seventh anniversary of the Closing Date. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant outstanding on such date and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date, whether or not such options, warrants or other securities are presently convertible or exercisable. "Holder" shall mean, as the context requires, the Person in whose name this Warrant or one of the other Warrants is registered on the books of the Company maintained for such purpose and/or the Person holding any Warrant Stock. "Independent Counsel" shall mean counsel to the Holder reasonably acceptable to the Company. "Majority Holders" shall mean, at any given time, holders of Warrants and Other Warrants then outstanding who would hold a majority of the Common Stock purchasable upon exercise of all Warrants and Other Warrants in the event all Warrants and Other Warrants were so exercised at such time. 3 7 "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "New Securities" shall mean any Additional Shares of Common Stock, and any rights or options to purchase any Additional Shares of Common Stock, and any Convertible Securities. "Other Property" shall have the meaning set forth in Section 4.8. "Other Warrants" shall mean warrants issued to Pegasus Partners, L.P. or Pegasus Related Partners, L.P. pursuant to Section 3.01(s) or 5.04 of the Unit Purchase Agreement, and all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Payment Shares" shall have the meaning set forth in Section 2.1. "Permitted Issuances" shall mean (i) the issuance of shares of Common Stock pursuant to an underwritten public offering, (ii) the issuance of Other Warrants, (iii) the issuance of shares of Common Stock upon exercise of the Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of Common Stock upon the exercise of options issued to management employees of the Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan, (v) provided that the Charter Amendment (as defined in the Unit Purchase Agreement) has (1) been approved and adopted by the Company's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of Common Stock or options to acquire such shares to management employees of the Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan, (vi) the issuance of Preferred Shares and (vii) the issuance to General Electric Capital Corporation on October 24, 1997 of warrants to purchase up to 131,718 shares of Common Stock (subject to adjustment as provided therein) and the issuance of Common Stock upon the exercise thereof. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Preferred Shares" shall mean shares of Series A Preferred Stock of the Company. 4 8 "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of the Closing Date among the Company, Pegasus Partners, L.P., Pegasus Related Partners, L.P. and General Electric Capital Corporation. "Reorganization" shall have the meaning set forth in Section 4.8. "Repurchase Price" shall have the meaning set forth in Section 13.2. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "Restrictions" shall have the meaning set forth in Section 13.1(c). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Subsidiary" shall mean any corporation of which an aggregate of more than 50% of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by the Company and/or one or more Subsidiaries of the Company. "Trading Day" shall mean (i) any day on which stock is traded on the principal stock exchange on which the Common Stock is listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not then traded on the Nasdaq Stock Market, any day on which stock is traded in the over-the counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices). "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as of the Closing Date, by and among the Company, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. "Units" shall mean units consisting of one Preferred Share and one warrant to purchase 72.2525247 shares of Common Stock, as adjusted from time to time. 5 9 "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by Holders of the Warrants upon the exercise thereof. "Warrants" shall mean the warrants, dated October 27, 1997 issued by the Company to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. as part of Units and all warrants issued as part of Units issued as dividends on the Preferred Shares, and all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. 2. EXERCISE OF WARRANT 2.1. Manner of Exercise. At any time during the Exercise Period, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder provided, however, that the Company shall only be required to issue shares to the extent such shares are required to be available for issuance pursuant to Section 7; and provided, further, however, that for all purposes hereunder other than its direct exercise for shares of Common Stock (including but not limited to for purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable for the full amount of shares of Common Stock represented by this Warrant, without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise.. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its office at 950 East Whitcomb, Madison Heights, Michigan 48071, or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the manner provided below, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its duly appointed agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with payment of the Warrant Price by the certificates representing 6 10 Preferred Shares (together with instruments of transfer reasonably acceptable to the Company) or the cash or check or checks, as applicable, and this Warrant, are received by the Company as described above and all taxes required to be paid by the Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, subject to the following paragraph, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares in the name of any Person who acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with this Warrant. So long as the Company has not exercised its rights to redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, payment of the Warrant Price shall be made by delivery of Preferred Shares with an aggregate stated value, plus accrued and unpaid dividends thereon, equal to the Warrant Price. So long as the Company has not exercised its rights to redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, if, following exercise of any portion of this Warrant, the Holder no longer holds any Preferred Shares, then the remainder of this Warrant shall be cancelled and no new Warrant shall be issued in place thereof. At any time after the Company has exercised its rights to redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, payment of the Warrant Price shall be made at the option of the Holder by (i) cash, (ii) wire transfer to an account in a bank located in the United States designated for such purpose by the Company, (iii) certified or official bank check, or (iv) any combination of the foregoing; provided, however, that the Holder shall have the right, at its election, in lieu of delivering the Warrant Price in cash, to instruct the Company in the form of Subscription Notice to retain, in payment of the Warrant Price, a number of shares of Common Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant Price of the shares as to which this Warrant is then being exercised divided by the Current Market Price. 2.2. Payment of Taxes. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable and without any preemptive rights. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of the Holder, and in such case the Company shall not be 7 11 required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. 2.3. Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. Continued Validity. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 6, 10, 13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. Transfer. So long as the Company has not exercised its rights to redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, this Warrant may only be transferred together with Preferred Shares issued as part of Units containing all or a portion of this Warrant. Subject to compliance with the foregoing sentence and with Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney and if such transfer is not to be made pursuant to Section 13, funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall, subject to the first sentence of this Section 3.1 and to Section 9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee or assignees and in the denomination(s) specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with the first sentence of this Section 3.1 and with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. If requested by the Company, a new 8 12 Holder shall acknowledge in writing, in form reasonably satisfactory to the Company, such Holder's continuing obligation under Section 9. 3.2. Division and Combination. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. Expenses. The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 3. 3.4. Maintenance of Books. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. Stock Dividends, Subdivisions and Combinations.If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, by a reverse stock split or otherwise, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would 9 13 own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. Certain Other Distributions. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash; (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); or (c) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); and the Holder of this Warrant has not received a payment on behalf of such dividend or distribution pursuant to Section 16 hereof, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment by a fraction (A) the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and (B) the denominator of which shall be such Current Market Price per share of Common Stock, minus the amount allocable to one share of Common Stock of (x) any such cash so distributable and (y) the fair value (as determined in good faith by the Board of Directors of the Company and, if requested by the Holder, supported by an opinion from an investment banking firm of recognized national standing reasonably acceptable to the Majority Holders) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or 10 14 combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. Issuance of Additional Shares of Common Stock. (a) In the event the Company shall issue or sell any Additional Shares of Common Stock, other than Permitted Issuances, for a consideration per Additional Share of Common Stock less than the greater of the Current Warrant Price and the Current Market Price, then the Current Warrant Price shall be reduced to the lower of the prices calculated as follows: (1) by dividing (A) an amount equal to the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the aggregate consideration, if any, received by the Company upon such issue or sale, by (B) the total number of Fully Diluted Outstanding shares of Common Stock outstanding immediately after such issue or sale; and (2) by multiplying the then existing Current Warrant Price by a fraction the numerator of which shall be the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale plus (y) the consideration received by the Company upon such issue or sale, and the denominator of which shall be the total number of Fully Diluted Outstanding shares of Common Stock immediately after such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale. For purposes of this subsection (a), the date as of which the Current Market Price per share of Common Stock shall be computed shall be the earlier of the date upon which the Company shall (i) enter into a firm contract for the issuance of such shares or (ii) issue such shares. Upon any adjustment of the Current Warrant Price as provided in this Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the Current Warrant Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Current Warrant Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment and dividing the product thereof by the Current Warrant Price resulting from such adjustment. (b) The provisions of this Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the 11 15 issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. Issuance of Warrants or Other Rights. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants (other than the Warrants) or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such distribution, issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share for such Additional Shares of Common Stock shall be deemed to be the lowest price per share at which such Additional Shares of Common Stock are issuable to such holders, and (iii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Convertible Securities. 4.5. Issuance of Convertible Securities. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share of such Additional Shares of Common Stock shall be deemed to be the lowest possible price in any range of prices at which such Additional Shares of Common Stock 12 16 are available to such holders, and (iii) the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No further adjustment of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 4.4. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase or any warrant or other right to purchase any such Convertible Securities for which adjustments thereof have been or are to be made pursuant to other provisions of this Section 4, no further adjustments shall be made by reason of such issue or sale. 4.6. Superseding Adjustment. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or Convertible Securities, and either (a) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (b) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or such other Convertible Securities, shall be increased or decreased by virtue of provisions therein contained, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the then outstanding Warrants, but not on any then outstanding Warrant Stock, on the basis of (c) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and 13 17 (d) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other Convertible Securities. 4.7. Other Provisions Applicable to Adjustments Under This Section. The following provisions shall be applicable to the making of adjustments provided for in this Section 4: (a) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Company for issuing warrants or 14 18 other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made upon the earlier of (i) the date upon which such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment, and (ii) the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share (d) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the 15 19 holders of Common Stock, but prior to the occurrence of the event for which such record is taken, the Holder exercises this Warrant, any Additional Shares of Common Stock issuable and other property distributable upon exercise by reason of such adjustment shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. (f) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Majority Holders, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to the Majority Holders. 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, liquidate its assets, dissolve, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation or other entity (hereinafter, a "Reorganization") and, pursuant to the terms of such Reorganization, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right following the effectiveness of such Reorganization to receive, upon exercise of such Warrant, or, in the case of a liquidation of assets or a dissolution to receive, upon such liquidation or dissolution, without taking any further action, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such Reorganization by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise). In case of any such Reorganization, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such appropriate modifications as are satisfactory to the Holder in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor 16 20 or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive Reorganizations. 4.9. Other Action Affecting Common Stock. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than any action described in this Section 4 for which a specific adjustment is provided, then, unless such action will not have a materially adverse effect upon the rights of the Holder, the number of shares of Common Stock or other stock for which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances. 4.10. Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 5. NOTICES TO WARRANTHOLDERS 5.1. Notice of Adjustments. Whenever the number of shares of Common Stock or the class or type of stock or other property for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 17.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder. 5.2. Notice of Certain Corporate Action. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 17 21 6. NO IMPAIRMENT The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Current Warrant Price immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY From and after the Closing Date, subject to the limitation set forth in the last sentence of this paragraph, the Company shall at all times reserve and keep available for issue upon the exercise of warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to permit the exercise in full of all outstanding Warrants and Other Warrants, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, taking appropriate board action, recommending such an increase to the holders of Common Stock, holding shareholders meetings, soliciting votes and proxies in favor of such increase to obtain the requisite shareholder approval and upon such approval, the Company shall reserve and keep available such additional shares solely for the purpose of permitting the exercise of Warrants or Other Warrants. Prior to the earlier of (i) May 31, 1998 or (ii) the approval by the shareholders of the Company of an increase in the number of authorized shares of Common Stock as contemplated in the Unit Purchase Agreement, the Company shall be in compliance with this Section 7 to the extent that it reserves and keeps available out of its authorized but unissued shares of Common stock, solely for the purpose of 18 22 permitting the exercise of Warrants and Shortfall Warrants (as defined in the Unit Purchase Agreement), 2,267,421 shares of Common Stock. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued, fully paid and nonassessable and free and clear of any liens, claims and restrictions (other than as provided herein). Except as provided in this Warrant, no stockholder of the Company has or shall have any preemptive rights to subscribe for such shares of Common Stock. Before taking any action which would result in an adjustment in the number of shares of Common Stock or the type of consideration for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. Restrictive Legends. (a) Except as otherwise provided in this Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with legends in substantially the following form: 19 23 "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and are subject to the conditions specified in a certain Warrant dated October 27, 1997, originally issued by Code Alarm Inc. The shares represented by this certificate may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of the Warrant. A copy of the form of said Warrant is on file with the Secretary of Code Alarm Inc. The holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of such Warrant." "The shares represented by this certificate are subject to the terms and conditions of a Registration Rights Agreement, dated as of October 27, 1997." (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with legends in substantially the following form: "This Warrant and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of this Warrant." "This Warrant and the securities represented hereby are subject to the terms and conditions of a Registration Rights Agreement, dated as of October 27, 1997." (c) (i) Unless and until the Company shall have exercised its right to repurchase Units pursuant to Section 8.01(a) of the Unit Purchase Agreement, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "This Warrant and the securities represented hereby may not be transferred except as part of Units with shares of Series A Preferred Stock of Code Alarm, Inc. and are subject to repurchase by Code Alarm, Inc. in accordance with the terms of a Unit Purchase Agreement dated as of October 27, 1997 among Code Alarm, Inc., Pegasus Partners, L.P. and Pegasus Related Partners, L.P." 20 24 (ii) In the event the Company shall have repurchased Units pursuant to Section 8.01(a) of the Unit Purchase Agreement, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the third restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTION 9.1(c) HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO FURTHER FORCE AND EFFECT." 9.2. Notice of Proposed Transfers; Requests for Registration. Prior to any Transfer or attempted Transfer of any Warrants or any shares of Restricted Common Stock, the Holder of such Warrants or Restricted Common Stock shall deliver to the Company either a written opinion reasonably acceptable to the Company of Independent Counsel addressed to the Company or a no-action letter from the Commission to the effect that the proposed Transfer of such Warrants or such Restricted Common Stock may be effected without registration under the Securities Act and applicable state securities or blue sky laws. After delivery of the written opinion or the no-action letter to the Company, such Holder shall thereupon be entitled to Transfer such Warrants or such Restricted Common Stock. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(b), unless in the written opinion of Independent Counsel addressed to the Company such legend is not required in order to ensure compliance with the Securities Act. 9.3. No Transfer to Directed Electronics, Inc. The Holder shall not sell or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr. Darrell Issa, the president of DEI, any entity which, to the knowledge of the Holder, is controlled by Mr. Issa, or any person who, to the knowledge of the Holder, is a member of the immediate family (as such term is defined in Rule 16a-1 promulgated under the Exchange Act) of Mr. Issa. 9.4. Termination of Restrictions. Notwithstanding the foregoing provisions of Section 9, the restrictions imposed by this Section upon the transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1(a) and (b) shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively registered under the Securities Act and disposed of pursuant thereto, or (ii) when the Company shall have delivered to the Holder or Holders of Warrants, Warrant Stock or Restricted Common Stock the written opinion of Independent Counsel stating that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Section 9.1(b), 9.2 and 9.3 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the 21 25 Company, a new Warrant bearing the following legend in place of the first restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTIONS 9.1(b), 9.2 AND 9.3 HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.1(a). 10. SUPPLYING INFORMATION The Company shall cooperate with each Holder of a Warrant and each Holder of Restricted Common Stock in supplying such information as may be reasonably requested by such Holder or reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from the Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written indemnity agreement of Pegasus Partners, L.P. or Pegasus Related Partners, L.P. 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 to the Holder; provided, in the case of mutilation, no indemnity shall be required if this warrant in identifiable form is surrendered to the Company for cancellation. 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK 22 26 13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) In the event the Company has exercised its rights to redeem all of the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, at any time and from time to time, at the election of the Holder, after the date which is three years and six months after the Closing Date, the Holder may, by notice to the Company (the "Put Notice"), demand repurchase of this Warrant, in whole or in part, and/or all or part of the Holder's shares of Warrant Stock which are Restricted Common Stock. Subject to the provisions of Section 13.2, the Company shall, on the date (not less than 30 days after the date of the Put Notice) designated in such Put Notice, repurchase from the Holder all or the portion of this Warrant and/or the number of shares of such Holder's Warrant Stock designated in the Put Notice for an amount determined by multiplying (x) the number of shares of Warrant Stock and/or the Common Stock subject to this Warrant or portion thereof being repurchased by (y) the Current Market Price per share of Common Stock determined as of the date of the repurchase demand and, in the event of repurchase of all or a portion of this Warrant, deducting from the product thereby obtained the Current Warrant Price times the number of shares of Common Stock subject to this Warrant (or portion thereof) being repurchased. (b) Notwithstanding the provisions of Section 13.1(a), if, at any time during the period between the date on which the Holder shall have delivered a Put Notice and the date of repurchase by the Company pursuant thereto, a Reorganization shall occur and the consideration received or receivable by stockholders in connection with such Reorganization shall consist solely of cash, then the Holder shall (whether or not the Holder shall have previously surrendered its Warrant and/or Warrant Stock for repurchase by the Company pursuant to this Section 13) be entitled to receive, on the date of such repurchase, the higher of (i) the amount payable to the Holder as determined pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the Holder would have received upon the occurrence of such Reorganization had the Holder's Warrant (or the portion thereof being repurchased) been fully exercised immediately prior thereto less, in the event of a repurchase of all or a portion of this Warrant, the purchase price payable at such time for the purchase of the shares of Common Stock then subject to the Holder's Warrant (or the portion thereof being repurchased). (c) The Company shall not be obligated under this Section 13.1 to repurchase any Warrant or portion thereof and/or issued Warrant Stock if the Company is in default under any agreement or instrument evidencing the Company's or any of its Subsidiaries' indebtedness for borrowed money, and such default has not been waived, or if and to the extent such a repurchase (i) would cause an event of default to exist by reason of such repurchase, which event of default has not been waived, with respect to any such agreement or would violate any provision of any such agreement or instrument, or (ii) would be in violation of applicable law ("Restrictions"), in any such case as determined by an opinion of counsel to the Company reasonably acceptable to the Holder; provided, however, that the Company shall use its reasonable best efforts to have any such Restriction either waived or terminated (including, without limitation, by obtaining refinancing for any such indebtedness). In the event that, following receipt of a Put Notice, the Company will not repurchase all or any portion of such Warrant and/or Warrant Stock because of the existence of any Restriction, the Company shall, 23 27 within twenty (20) days of receipt of the Put Notice, so notify the Holder in writing, setting forth the portion of the Warrant and/or Warrant Stock which will not be repurchased and the Restrictions which apply, and deliver to the Holder a copy of the opinion referred to in the prior sentence. In addition, in such event, the Company shall thereafter, upon the request of the Holder, use its best efforts to register the Warrant Stock and/or the Common Stock subject to this Warrant, in accordance with the terms of the Registration Rights Agreement. 13.2. Payment of Repurchase Price. The purchase price for any repurchase pursuant to Section 13.1 (the "Repurchase Price") shall be determined pursuant to Section 13.1 and shall be payable in cash. On the date of any repurchase of Warrants and/or Warrant Stock pursuant to this Section 13, the Holder shall assign to the Company its Warrant or portion thereof being repurchased and a certificate for the number of shares of Warrant Stock being repurchased, as the case may be, without any representation or warranty (other than that the Holder has good and marketable title thereto, free and clear of liens, encumbrances and restrictions of any kind), by the surrender of the Holder's Warrant and certificate for Warrant Stock together with, in the case of Warrant Stock, instruments of transfer reasonably acceptable to the Company, at the principal office of the Company referred to in Section 2.1 against payment therefor of the Repurchase Price by, at the option of the Holder, (i) wire transfer to an account in a bank located in the United States designated by the Holder for such purpose or (ii) a certified or official bank check payable to the order of the Holder. If less than all of the Holder's Warrant is being repurchased, the Company shall, pursuant to Section 3, cancel such Warrant and issue in the name of, and deliver to, the Holder a new Warrant for the portion not being repurchased. If less than all of the shares represented by a certificate for Warrant Stock are being repurchased, the Company shall cancel such certificate and issue in the name of, and deliver to, the Holder a new certificate for the number of shares of Warrant Stock not being repurchased. 13.3. Obligation to Repurchase When Preferred Shares Outstanding. So long as the Company has not exercised its rights to redeem all of the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, the rights of the Holder to demand repurchase of this Warrant shall be governed by Section 8.02 of the Unit Purchase Agreement. 14. REGISTRATION RIGHTS This Warrant is entitled to the benefits of the registration rights provisions contained in the Registration Rights Agreement. The Company shall keep a copy of the Registration Rights Agreement, and any amendments thereto, at the office or agency designated by the Company pursuant to Section 12 and shall furnish copies thereof to the Holder upon request. 24 28 15. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 16. DIVIDENDS ON UNDERLYING COMMON STOCK In the event that, at any time before the Charter Amendment (as defined in the Unit Purchase Agreement) shall have (a) been approved and adopted by the Company's stockholders, (b) been filed with the Department of Consumer and Industry Services of the State of Michigan and (c) become effective, or at any time after the Company shall have failed for any reason to issue Common Stock to the Holder upon exercise of this Warrant or shall have failed to comply with Section 7 hereof, the Company shall pay a dividend or make any other distribution with respect to its Common Stock whether in the form of cash, evidences of indebtedness, securities or other property (other than a Common Stock dividend subject to the provisions of Section 4.1 or a dividend of warrants or rights to purchase Common Stock subject to the provisions of Section 4.2), then the Company shall pay to the Holder of this Warrant on the date of payment of such dividend or other distribution, an amount in cash equal to the number of shares of Common Stock issuable upon exercise of this Warrant in full on the record date for such dividend or other distribution (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise) multiplied by the sum of (i) the amount of cash and (ii) the fair value of any evidences of indebtedness, securities or other property distributed with respect to each share of Common Stock. The "fair value" of any such evidences of indebtedness, securities or other property shall mean the fair market value thereof, as determined by the Board of Directors in good faith, which good faith determination may be challenged by the Holder in accordance with Section 4.7(f). 17. MISCELLANEOUS 17.1. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 17.2. Notice Generally. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any 25 29 other party pursuant to this Warrant shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows: (a) If to the Company: Code Alarm Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Rand Mueller and Craig Camalo Facsimile: (248) 585-4799 with a copy to: Pepper Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes, Esq. Facsimile: (313) 259-7926 (b) If to the Holder, at its last known address appearing on the books of the Company maintained for such purpose. Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given five business days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two (2) day courier). 17.3. Indemnification. The Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees, agents, and attorneys from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder relating to or arising out of any litigation to which the Holder is made a party in its capacity as a stockholder or warrantholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a judgment by a court to have resulted from (i) the Holder's gross negligence or willful misconduct, (ii) actions or omissions taken or not taken by the Holder in any capacity other than as a stockholder or warrantholder of the Company or (iii) actions or omissions taken or not taken by the Holder solely as a stockholder or warrantholder of the Company and for which stockholders or warrantholders may be held liable under Michigan law. 26 30 17.4. Successors and Assigns. Subject to the provisions of Sections 3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder, and (ii) the provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. 17.5. Amendment. The Warrants may be modified or amended or the provisions thereof waived with the written consent of the Company and the Holder. 17.6. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 17.7. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 17.8. Governing Law; Consent to Jurisdiction and Venue. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Michigan applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 17.2. Nothing herein shall preclude the Holder or the Company from bringing suit or taking other legal action in any other jurisdiction. 17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS WARRANT. 27 31 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer and its corporate seal to be impressed hereon and attested by its Secretary or Assistant Secretary. Dated: October __, 1997 CODE ALARM INC. By:_______________________ Name: Title: Attest: By:_______________________ Name: Title: 32 EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______ shares of Common Stock of CODE ALARM INC. and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to __________________ whose address is ___________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. _____________________________ (Name of Registered Owner) _____________________________ (Signature of Registered Owner) _____________________________ (Street Address) _____________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 33 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Name and Address of Assignee No. of Shares of Common Stock and does hereby irrevocably constitute and appoint ______________ attorney-in-fact to register such transfer on the books of Code Alarm Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ____________________________ Name: ____________________________ Signature: ________________________ Witness: __________________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.61 26 EXHIBIT 10.61 1 EXHIBIT 10.61 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997. WARRANT To Purchase Common Stock of CODE ALARM INC. Issuance Date: October 27, 1997 Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] No. of Shares of Common Stock: _________ 2 TABLE OF CONTENTS Page ---- 1. DEFINITIONS............................................................. 1 2. EXERCISE OF WARRANT..................................................... 6 2.1. Manner of Exercise................................................ 6 2.2. Payment of Taxes.................................................. 7 2.3. Fractional Shares................................................. 7 2.4. Continued Validity................................................ 8 3. TRANSFER, DIVISION AND COMBINATION...................................... 8 3.1. Transfer.......................................................... 8 3.2. Division and Combination.......................................... 8 3.3. Expenses.......................................................... 9 3.4. Maintenance of Books.............................................. 9 4. ADJUSTMENTS............................................................. 9 4.1. Stock Dividends, Subdivisions and Combinations.................... 9 4.2. Certain Other Distributions....................................... 9 4.3. Issuance of Additional Shares of Common Stock..................... 10 4.4. Issuance of Warrants or Other Rights.............................. 11 4.5. Issuance of Convertible Securities................................ 12 4.6. Superseding Adjustment............................................ 13 4.7. Other Provisions Applicable to Adjustments Under This Section..... 13 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets.................... 16 4.9. Other Action Affecting Common Stock............................... 16 4.10. Certain Limitations............................................... 17 5. NOTICES TO WARRANTHOLDERS............................................... 17 5.1. Notice of Adjustments............................................. 17 5.2. Notice of Certain Corporate Action................................ 17 6. NO IMPAIRMENT........................................................... 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.................................................. 18 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS.......................................................... 19 9. RESTRICTIONS ON TRANSFERABILITY......................................... 19
3 Page ---- 9.1. Restrictive Legends............................................... 19 9.2. Notice of Proposed Transfers; Requests for Registration........... 20 9.3. No Transfer to Directed Electronics, Inc.......................... 20 9.4. Termination of Restrictions....................................... 21 10. SUPPLYING INFORMATION................................................... 21 11. LOSS OR MUTILATION...................................................... 21 12. OFFICE OF THE COMPANY................................................... 22 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK........................................................... 22 13.1. Obligation to Repurchase Warrant and Warrant Stock................ 22 13.2. Payment of Repurchase Price....................................... 23 13.3. Right to Repurchase Portion of Warrant and Warrant Stock.......... 23 14. REGISTRATION RIGHTS.................................................... 25 15. LIMITATION OF LIABILITY................................................ 25 16. DIVIDENDS ON UNDERLYING COMMON STOCK................................... 25 17. MISCELLANEOUS.......................................................... 26 17.1. Nonwaiver and Expenses........................................... 26 17.2. Notice Generally................................................. 26 17.3. Indemnification.................................................. 27 17.4. Successors and Assigns........................................... 27 17.5. Amendment........................................................ 27 17.6. Severability..................................................... 27 17.7. Headings......................................................... 27 17.8. Governing Law; Consent to Jury Trial............................. 27 17.9. Mutual Waiver of Jury Trial............................................ 28
4 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997. Warrant Number: ___________ Date of Issuance: ________ No. of Shares of Common Stock: ________ WARRANT To Purchase Common Stock of CODE ALARM INC. THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] or its registered assigns, is entitled, at any time during the Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a Michigan corporation (the "Company"), _______________________ (______) shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price of $1.8759559 per share (subject to adjustment as set forth herein), all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than Warrant Stock, whether now authorized or not. "Affiliate" of any Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with, such Person. 5 "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Closing Date" shall mean October 27, 1997. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, no par value, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.8) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the 20 consecutive Trading Days immediately preceding such date. The daily market price for each such Trading Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the last reported sale price as officially quoted on any such exchange, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, the last reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the Nasdaq Stock Market, the last reported sale price on the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or if such sale price is not available on such date, the average of the closing bid and asked prices on such date as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or (v) if there is no such organization or agency, as furnished by any member of the NASD selected mutually by the Majority Holders and the Company or, if they cannot agree upon such selection, by a member selected by two such members of the NASD, one of which shall be selected by the Majority Holders and one of which shall be selected by the Company. 2 6 "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. On the Closing Date, the Current Warrant Price is $1.8759559 per share of Common Stock, and is subject to adjustment pursuant to Section 4. "DEI shall mean Directed Electronics, Inc., a California corporation. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Period" shall mean the period beginning on the Closing Date and ending at 5:00 P.M., Michigan time, on the seventh anniversary of the Closing Date. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant outstanding on such date and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date, whether or not such options, warrants or other securities are presently convertible or exercisable. "GECC" shall mean General Electric Capital Corporation, a New York corporation. "Holder" shall mean, as the context requires, the Person in whose name this Warrant or one of the other Warrants is registered on the books of the Company maintained for such purpose and/or the Person holding any Warrant Stock. "Independent Counsel" shall mean counsel to the Holder reasonably acceptable to the Company. "Litigation Guarantee" shall mean the guarantee dated as of October 24, 1997 Date given by Pegasus to GECC, pursuant to which Pegasus has agreed to provide the Company with financing for a judgment, appeal bond or settlement in connection with the litigation pending with the United States District Court for the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive Technology Corporation, case number 87-CV-74022-DT. "Litigation Warrants" shall mean warrants to purchase Common Stock issued to Pegasus pursuant to Section 5.04 of the Unit Purchase Agreement, and all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. "Majority Holders" shall mean, at any given time, holders of Warrants and Other Warrants then outstanding who would hold a majority of the Common Stock purchasable upon 3 7 exercise of all Warrants and Other Warrants in the event all Warrants and Other Warrants were so exercised at such time. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "New Securities" shall mean any Additional Shares of Common Stock, and any rights or options to purchase any Additional Shares of Common Stock, and any Convertible Securities. "Other Property" shall have the meaning set forth in Section 4.8. "Other Warrants" shall mean (i) warrants to purchase Common Stock issued as part of Units purchased by Pegasus pursuant to the Unit Purchase Agreement or issued to Pegasus or their successors or assigns as part of Units issued in payment of dividends on Preferred Shares, (ii) Litigation Warrants and (iii) all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Payment Shares" shall have the meaning set forth in Section 2.1. "Pegasus" shall mean collectively, Pegasus Partners, L.P., a Delaware limited partnership and Pegasus Related Partners, L.P., a Delaware limited partnership. "Permitted Issuances" shall mean (i) the issuance of shares of Common Stock pursuant to an underwritten public offering, (ii) the issuance of Other Warrants, (iii) the issuance of shares of Common Stock upon exercise of the Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of Common Stock upon the exercise of options issued to management employees of the Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan, (v) provided that the Charter Amendment (as defined in the Unit Purchase Agreement) has (1) been approved and adopted by the Company's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of Common Stock or options to acquire such shares to management employees of the Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan, (vi) the issuance of Preferred Shares and (vii) the issuance to GECC on October 24, 1997 of warrants to purchase up to 131,718 shares of Common Stock (subject to adjustment as provided therein) and the issuance of Common Stock upon the exercise thereof. 4 8 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Preferred Shares" shall mean shares of Series A Preferred Stock of the Company. "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of the Closing Date among the Company, Pegasus and GECC. "Reorganization" shall have the meaning set forth in Section 4.8. "Repurchase Price" shall have the meaning set forth in Section 13.2. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "Restrictions" shall have the meaning set forth in Section 13.1(c). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shortfall Guarantee" shall mean the guarantee dated as of October 24, 1997 given by Pegasus to GECC, pursuant to which Pegasus has guaranteed up to $4,000,000 of the Company's obligations to GECC. "Subsidiary" shall mean any corporation of which an aggregate of more than 50% of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by the Company and/or one or more Subsidiaries of the Company. "Trading Day" shall mean (i) any day on which stock is traded on the principal stock exchange on which the Common Stock is listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not then traded on the Nasdaq Stock Market, any day on which stock is traded in the over-the counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices). 5 9 "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. "Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as of the Closing Date, by and among the Company and Pegasus. "Units" shall mean units consisting of one Preferred Share and one warrant to purchase 72.2525247 shares of Common Stock, as adjusted from time to time. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by Holders of the Warrants upon the exercise thereof. "Warrants" shall mean this warrant and the other warrants issued to Pegasus pursuant to Section 3.01(s) of the Unit Purchase Agreement, and all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. 2. EXERCISE OF WARRANT 2.1.. Manner of Exercise. At any time during the Exercise Period, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder provided, however, that the Company shall only be required to issue shares to the extent such shares are required to be available for issuance pursuant to Section 7; and provided, further, however, that for all purposes hereunder other than its direct exercise for shares of Common Stock (including but not limited to for purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable for the full amount of shares of Common Stock represented by this Warrant, without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its office at 950 East Whitcomb, Madison Heights, Michigan 48071, or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the manner provided below, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its duly appointed agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates 6 10 representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check or checks, if any, and this Warrant, are received by the Company as described above and all taxes required to be paid by the Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares in the name of any Person who acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with this Warrant. Payment of the Warrant Price shall be made at the option of the Holder by (i) cash, (ii) wire transfer to an account in a bank located in the United States designated for such purpose by the Company, (iii) certified or official bank check, or (iv) any combination of the foregoing; provided, however, that the Holder shall have the right, at its election, in lieu of delivering the Warrant Price in cash, to instruct the Company in the form of Subscription Notice to retain, in payment of the Warrant Price, a number of shares of Common Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant Price of the shares as to which this Warrant is then being exercised divided by the Current Market Price. 2.2. Payment of Taxes. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable and without any preemptive rights. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of the Holder, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. 2.3. Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the 7 11 Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. Continued Validity. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 6, 10, 13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. Transfer. Subject to compliance with Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney and if such transfer is not to be made pursuant to Section 13, funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee or assignees and in the denomination(s) specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. If requested by the Company, a new Holder shall acknowledge in writing, in form reasonably satisfactory to the Company, such Holder's continuing obligation under Section 9. 3.2. Division and Combination. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants 8 12 in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 3.3. Expenses. The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 3. 3.4. Maintenance of Books. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. Stock Dividends, Subdivisions and Combinations. If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, by a reverse stock split or otherwise, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. Certain Other Distributions. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: 9 13 (a) cash; (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); or (c) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); and the Holder of this Warrant has not received a payment on behalf of such dividend or distribution pursuant to Section 16 hereof, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment by a fraction (A) the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and (B) the denominator of which shall be such Current Market Price per share of Common Stock, minus the amount allocable to one share of Common Stock of (x) any such cash so distributable and (y) the fair value (as determined in good faith by the Board of Directors of the Company and, if requested by the Holder, supported by an opinion from an investment banking firm of recognized national standing reasonably acceptable to the Majority Holders) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. Issuance of Additional Shares of Common Stock. (a) In the event the Company shall issue or sell any Additional Shares of Common Stock, other than Permitted Issuances, for a consideration per Additional Share of Common Stock less than the greater of the Current Warrant Price and the Current Market Price, then the Current Warrant Price shall be reduced to the lower of the prices calculated as follows: 10 14 (1) by dividing (A) an amount equal to the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the aggregate consideration, if any, received by the Company upon such issue or sale, by (B) the total number of Fully Diluted Outstanding shares of Common Stock outstanding immediately after such issue or sale; and (2) by multiplying the then existing Current Warrant Price by a fraction the numerator of which shall be the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale plus (y) the consideration received by the Company upon such issue or sale, and the denominator of which shall be the total number of Fully Diluted Outstanding shares of Common Stock immediately after such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale. For purposes of this subsection (a), the date as of which the Current Market Price per share of Common Stock shall be computed shall be the earlier of the date upon which the Company shall (i) enter into a firm contract for the issuance of such shares or (ii) issue such shares. Upon any adjustment of the Current Warrant Price as provided in this Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the Current Warrant Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Current Warrant Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment and dividing the product thereof by the Current Warrant Price resulting from such adjustment. (b) The provisions of this Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. Issuance of Warrants or Other Rights. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants (other than the Warrants) or other rights to subscribe for 11 15 or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such distribution, issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share for such Additional Shares of Common Stock shall be deemed to be the lowest price per share at which such Additional Shares of Common Stock are issuable to such holders, and (iii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Convertible Securities. 4.5. Issuance of Convertible Securities. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share of such Additional Shares of Common Stock shall be deemed to be the lowest possible price in any range of prices at which such Additional Shares of Common Stock are available to such holders, and (iii) the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No further adjustment of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 4.4. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock upon 12 16 conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase or any warrant or other right to purchase any such Convertible Securities for which adjustments thereof have been or are to be made pursuant to other provisions of this Section 4, no further adjustments shall be made by reason of such issue or sale. 4.6. Superseding Adjustment. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or Convertible Securities, and either (a) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (b) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or such other Convertible Securities, shall be increased or decreased by virtue of provisions therein contained, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the then outstanding Warrants, but not on any then outstanding Warrant Stock, on the basis of (c) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (d) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other Convertible Securities. 4.7. Other Provisions Applicable to Adjustments Under This Section. The following provisions shall be applicable to the making of adjustments provided for in this Section 4: 13 17 (a) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Company for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. 14 18 (b) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made upon the earlier of (i) the date upon which such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment, and (ii) the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, the Holder exercises this Warrant, any Additional Shares of Common Stock issuable and other property distributable upon exercise by reason of such adjustment shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. 15 19 (f) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Majority Holders, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to the Majority Holders. 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, liquidate its assets, dissolve, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation or other entity (hereinafter, a "Reorganization") and, pursuant to the terms of such Reorganization, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right following the effectiveness of such Reorganization to receive, upon exercise of such Warrant, or, in the case of a liquidation of assets or a dissolution to receive, upon such liquidation or dissolution, without taking any further action, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such Reorganization by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise). In case of any such Reorganization, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such appropriate modifications as are satisfactory to the Holder in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive Reorganizations. 4.9. Other Action Affecting Common Stock. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than any action 16 20 described in this Section 4 for which a specific adjustment is provided, then, unless such action will not have a materially adverse effect upon the rights of the Holder, the number of shares of Common Stock or other stock for which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances. 4.10. Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 5. NOTICES TO WARRANTHOLDERS 5.1. Notice of Adjustments. Whenever the number of shares of Common Stock or the class or type of stock or other property for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 17.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder. 5.2. Notice of Certain Corporate Action. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Current Warrant 17 21 Price immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY From and after the Closing Date, subject to the limitation set forth in the last sentence of this paragraph, the Company shall at all times reserve and keep available for issue upon the exercise of warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to permit the exercise in full of all outstanding Warrants and Other Warrants, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, taking appropriate board action, recommending such an increase to the holders of Common Stock, holding shareholders meetings, soliciting votes and proxies in favor of such increase to obtain the requisite shareholder approval and upon such approval, the Company shall reserve and keep available such additional shares solely for the purpose of permitting the exercise of Warrants or Other Warrants. Prior to the earlier of (i) May 31, 1998 or (ii) the approval by the shareholders of the Company of an increase in the number of authorized shares of Common Stock as contemplated in the Unit Purchase Agreement, the Company shall be in compliance with this Section 7 to the extent that it reserves and keeps available out of its authorized but unissued shares of Common stock, solely for the purpose of permitting the exercise of Warrants and Attached Warrants (as defined in the Unit Purchase Agreement), 2,267,421 shares of Common Stock. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued, fully paid and nonassessable and free and clear of any liens, claims and restrictions (other than as provided herein). Except as provided in this Warrant, no stockholder of the Company has or shall have any preemptive rights to subscribe for such shares of Common Stock. 18 22 Before taking any action which would result in an adjustment in the number of shares of Common Stock or the type of consideration for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. Restrictive Legends. (a) Except as otherwise provided in this Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with legends in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and are subject to the conditions specified in a certain Warrant dated October 27, 1997, originally issued by Code Alarm Inc. The shares represented by this certificate may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of the Warrant. A copy of the form of said Warrant is on file with the Secretary of Code Alarm Inc. The holder of 19 23 this certificate, by acceptance of this certificate, agrees to be bound by the provisions of such Warrant." "The shares represented by this certificate are subject to the terms and conditions of a Registration Rights Agreement, dated as of October 27, 1997." (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with legends in substantially the following form: "This Warrant and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of this Warrant." "This Warrant and the securities represented hereby are subject to the terms and conditions of a Registration Rights Agreement, dated as of October 27, 1997." 9.2. Notice of Proposed Transfers; Requests for Registration. Prior to any Transfer or attempted Transfer of any Warrants or any shares of Restricted Common Stock, the Holder of such Warrants or Restricted Common Stock shall deliver to the Company either a written opinion reasonably acceptable to the Company of Independent Counsel addressed to the Company or a no-action letter from the Commission to the effect that the proposed Transfer of such Warrants or such Restricted Common Stock may be effected without registration under the Securities Act and applicable state securities or blue sky laws. After delivery of the written opinion or the no-action letter to the Company, such Holder shall thereupon be entitled to Transfer such Warrants or such Restricted Common Stock. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(b), unless in the written opinion of Independent Counsel addressed to the Company such legend is not required in order to ensure compliance with the Securities Act. 9.3. No Transfer to Directed Electronics, Inc. The Holder shall not sell or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr. Darrell Issa, the president of DEI, any entity which, to the knowledge of the Holder, is controlled by Mr. Issa, or any person who, to the knowledge of the Holder, is a member of the immediate family (as such term is defined in Rule 16a-1 promulgated under the Exchange Act) of Mr. Issa. 20 24 9.4. Termination of Restrictions. Notwithstanding the foregoing provisions of Section 9, the restrictions imposed by this Section upon the transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively registered under the Securities Act and disposed of pursuant thereto, or (ii) when the Company shall have delivered to the Holder or Holders of Warrants, Warrant Stock or Restricted Common Stock the written opinion of Independent Counsel stating that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Section 9 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the first restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.1(a). 10. SUPPLYING INFORMATION The Company shall cooperate with each Holder of a Warrant and each Holder of Restricted Common Stock in supplying such information as may be reasonably requested by such Holder or reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from the Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written indemnity agreement of Pegasus Partners, L.P. or Pegasus Related Partners, L.P. 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 to the Holder; provided, in the case 21 25 of mutilation, no indemnity shall be required if this warrant in identifiable form is surrendered to the Company for cancellation. 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK 13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) At any time and from time to time, at the election of the Holder, after the date which is three years and six months after the Closing Date, the Holder may, by notice to the Company (the "Put Notice"), demand repurchase of this Warrant, in whole or in part, and/or all or part of the Holder's shares of Warrant Stock which are Restricted Common Stock. Subject to the provisions of Section 13.2, the Company shall, on the date (not less than 30 days after the date of the Put Notice) designated in such Put Notice, repurchase from the Holder all or the portion of this Warrant and/or the number of shares of such Holder's Warrant Stock designated in the Put Notice for an amount determined by multiplying (x) the number of shares of Warrant Stock and/or the Common Stock subject to this Warrant or portion thereof being repurchased by (y) the Current Market Price per share of Common Stock determined as of the date of the repurchase demand and, in the event of repurchase of all or a portion of this Warrant, deducting from the product thereby obtained the Current Warrant Price times the number of shares of Common Stock subject to this Warrant (or portion thereof) being repurchased. (b) Notwithstanding the provisions of Section 13.1(a), if, at any time during the period between the date on which the Holder shall have delivered a Put Notice and the date of repurchase by the Company pursuant thereto, a Reorganization shall occur and the consideration received or receivable by stockholders in connection with such Reorganization shall consist solely of cash, then the Holder shall (whether or not the Holder shall have previously surrendered its Warrant and/or Warrant Stock for repurchase by the Company pursuant to this Section 13) be entitled to receive, on the date of such repurchase, the higher of (i) the amount payable to the Holder as determined pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the Holder would have received upon the occurrence of such Reorganization had the Holder's Warrant (or the portion thereof being repurchased) been fully exercised immediately prior thereto less, in the event of a repurchase of all or a portion of this Warrant, the purchase price payable at such time for the purchase of the shares of Common Stock then subject to the Holder's Warrant (or the portion thereof being repurchased). (c) The Company shall not be obligated under this Section 13.1 to repurchase any Warrant or portion thereof and/or issued Warrant Stock if the Company is in default under 22 26 any agreement or instrument evidencing the Company's or any of its Subsidiaries' indebtedness for borrowed money, and such default has not been waived, or if and to the extent such a repurchase (i) would cause an event of default to exist by reason of such repurchase, which event of default has not been waived, with respect to any such agreement or would violate any provision of any such agreement or instrument, or (ii) would be in violation of applicable law ("Restrictions"), in any such case as determined by an opinion of counsel to the Company reasonably acceptable to the Holder; provided, however, that the Company shall use its reasonable best efforts to have any such Restriction either waived or terminated (including, without limitation, by obtaining refinancing for any such indebtedness). In the event that, following receipt of a Put Notice, the Company will not repurchase all or any portion of such Warrant and/or Warrant Stock because of the existence of any Restriction, the Company shall, within twenty (20) days of receipt of the Put Notice, so notify the Holder in writing, setting forth the portion of the Warrant and/or Warrant Stock which will not be repurchased and the Restrictions which apply, and deliver to the Holder a copy of the opinion referred to in the prior sentence. In addition, in such event, the Company shall thereafter, upon the request of the Holder, use its best efforts to register the Warrant Stock and/or the Common Stock subject to this Warrant, in accordance with the terms of the Registration Rights Agreement. 13.2. Payment of Repurchase Price. The purchase price for any repurchase pursuant to Section 13.1 (the "Repurchase Price") shall be determined pursuant to Section 13.1 and shall be payable in cash. On the date of any repurchase of Warrants and/or Warrant Stock pursuant to this Section 13, the Holder shall assign to the Company its Warrant or portion thereof being repurchased and a certificate for the number of shares of Warrant Stock being repurchased, as the case may be, without any representation or warranty (other than that the Holder has good and marketable title thereto, free and clear of liens, encumbrances and restrictions of any kind), by the surrender of the Holder's Warrant and certificate for Warrant Stock together with, in the case of Warrant Stock, instruments of transfer reasonably acceptable to the Company, at the principal office of the Company referred to in Section 2.1 against payment therefor of the Repurchase Price by, at the option of the Holder, (i) wire transfer to an account in a bank located in the United States designated by the Holder for such purpose or (ii) a certified or official bank check payable to the order of the Holder. If less than all of the Holder's Warrant is being repurchased, the Company shall, pursuant to Section 3, cancel such Warrant and issue in the name of, and deliver to, the Holder a new Warrant for the portion not being repurchased. If less than all of the shares represented by a certificate for Warrant Stock are being repurchased, the Company shall cancel such certificate and issue in the name of, and deliver to, the Holder a new certificate for the number of shares of Warrant Stock not being repurchased. 13.3. Right to Repurchase Portion of Warrant and Warrant Stock. (a) In the event the Company shall cause Pegasus to be fully and unconditionally released from the Shortfall Guarantee (without any payment by Pegasus pursuant 23 27 thereto) within the time periods specified below, the Company shall have the right, exercisable at any time during such period, but subject to and as may be extended by Section 13.3(c), to repurchase from the Holders the percentage of the Warrants initially issued set forth below:
Date of Release Percentage --------------- ---------- Closing Date through April 26, 1998 75% April 27, 1998 through July 26, 1998 50% July 27, 1998 through October 26, 1998 25%
In the event that, at the time the Company exercises its repurchase right, the Warrants shall have been exercised for a greater percentage than the difference between (i) 100% and (ii) the applicable percentage set forth above, the Company shall also have the right to purchase from any Person who shall have exercised Warrants (and such Person shall be obligated to sell to the Company) a number of shares of Common Stock equal to the number of shares of Warrant Stock for which Warrants shall have been exercised by such Person. (b) The purchase price to be paid by the Company for any Warrants repurchased pursuant to this Section 13.3 shall be $.0001 per share of Common Stock underlying the portion of the Warrants repurchased. The purchase price per share to be paid by the Company for any shares of Common Stock purchased pursuant to this Section 13.3 shall be the sum of (i) the exercise price paid for any corresponding share of Warrant Stock and (ii) $.0001. In either case, the purchase price shall be paid in cash and the aggregate purchase price shall be rounded to the nearest penny. (c) Notwithstanding anything to the contrary contained herein, the Company shall not purchase any portion of the Warrants or any Common Stock pursuant to this Section 13.3 until the earlier of (i) the date which is six months and one day following the issuance to Pegasus of the Litigation Warrants or (ii) such time as Pegasus is fully and unconditionally released from the Litigation Guarantee, provided that no Litigation Warrants shall have been issued to Pegasus prior to such release. In the event the Company is precluded from purchasing Warrants and Common Stock at any time pursuant to the preceding sentence, the period of time during which the Company may exercise its right to purchase Warrants and Common Stock shall be extended to a date which is thirty days following the date on which the restriction set forth in the preceding sentence terminates. (d) Notice of repurchase pursuant to this Section 13.3 shall be given by first class mail, postage prepaid, mailed not less than 10 nor more than 20 days prior to the repurchase date to each Holder's address as the same appears on the books of the Company. Each such notice shall state: (i) the purchase date; (ii) the portion of Warrants and the number of shares of Common Stock to be purchased; (iii) the amount of the purchase price; and (iv) the place or 24 28 places where such Warrants and certificates for such shares of Common Stock are to be surrendered for payment of the purchase price. (e) In the event only a portion of this Warrant is being repurchased pursuant to this Section 13.3, the Holder shall surrender this Warrant to the Company for cancellation on the repurchase date at the place specified in the repurchase notice, and the Company shall thereupon issue to the Holder a new Warrant evidencing the portion of this Warrant not so repurchased. 14. REGISTRATION RIGHTS This Warrant is entitled to the benefits of the registration rights provisions contained in the Registration Rights Agreement. The Company shall keep a copy of the Registration Rights Agreement, and any amendments thereto, at the office or agency designated by the Company pursuant to Section 12 and shall furnish copies thereof to the Holder upon request. 15. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 16. DIVIDENDS ON UNDERLYING COMMON STOCK In the event that, at any time before the Charter Amendment (as defined in the Unit Purchase Agreement) shall have (a) been approved and adopted by the Company's stockholders, (b) been filed with the Department of Consumer and Industry Services of the State of Michigan and (c) become effective, or at any time after the Company shall have failed for any reason to issue Common Stock to the Holder upon exercise of this Warrant or shall have failed to comply with Section 7 hereof, the Company shall pay a dividend or make any other distribution with respect to its Common Stock whether in the form of cash, evidences of indebtedness, securities or other property (other than a Common Stock dividend subject to the provisions of Section 4.1 or a dividend of warrants or rights to purchase Common Stock subject to the provisions of Section 4.2), then the Company shall pay to the Holder of this Warrant on the date of payment of such dividend or other distribution, an amount in cash equal to the number of shares of Common Stock issuable upon exercise of this Warrant in full on the record date for such dividend or other distribution (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise) multiplied by the sum of (i) the amount of cash and (ii) the fair value of any evidences of indebtedness, securities or other property distributed with respect to each share of Common Stock. The "fair value" of any such evidences 25 29 of indebtedness, securities or other property shall mean the fair market value thereof, as determined by the Board of Directors in good faith, which good faith determination may be challenged by the Holder in accordance with Section 4.7(f). 17. MISCELLANEOUS 17.1. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 17.2. Notice Generally. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Warrant shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows: (a) If to the Company: Code Alarm Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Rand Mueller and Craig Camalo Facsimile: (248) 585-4799 with a copy to: Pepper Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes, Esq. Facsimile: (313) 259-7926 (b) If to the Holder, at its last known address appearing on the books of the Company maintained for such purpose. Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given five business days after being 26 30 deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two (2) day courier). 17.3. Indemnification. The Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees, agents, and attorneys from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder relating to or arising out of any litigation to which the Holder is made a party in its capacity as a stockholder or warrantholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a judgment by a court to have resulted from (i) the Holder's gross negligence or willful misconduct, (ii) actions or omissions taken or not taken by the Holder in any capacity other than as a stockholder or warrantholder of the Company or (iii) actions or omissions taken or not taken by the Holder solely as a stockholder or warrantholder of the Company and for which stockholders or warrantholders may be held liable under Michigan law. 17.4. Successors and Assigns. Subject to the provisions of Sections 3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder, and (ii) the provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. 17.5. Amendment. The Warrants may be modified or amended or the provisions thereof waived with the written consent of the Company and the Holder. 17.6. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 17.7. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 17.8. Governing Law; Consent to Jurisdiction and Venue. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Michigan applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR 27 31 VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 17.2. Nothing herein shall preclude the Holder or the Company from bringing suit or taking other legal action in any other jurisdiction. 17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS WARRANT. 28 32 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer and its corporate seal to be impressed hereon and attested by its Secretary or Assistant Secretary. Dated: October __, 1997 CODE ALARM INC. By:_______________________ Name: Title: Attest: By:_______________________ Name: Title: 33 EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______ shares of Common Stock of CODE ALARM INC. and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to __________________ whose address is ___________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. _____________________ (Name of Registered Owner) _____________________ (Signature of Registered Owner) _____________________ (Street Address) _____________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 34 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Name and Address of Assignee No. of Shares of Common Stock and does hereby irrevocably constitute and appoint ______________ attorney-in-fact to register such transfer on the books of Code Alarm Inc. maintained for the purpose, with full power of substitution in the premises. Dated:_________________ Name:__________________ Signature:_____________ Witness:_______________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.62 27 EXHIBIT 10.62 1 EXHIBIT 10.62 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER __, 1997. WARRANT To Purchase Common Stock of CODE ALARM INC. Issuance Date: ________ __, 199_ Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] No. of Shares of Common Stock: _________ 2 TABLE OF CONTENTS Page 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . 8 3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . 8 3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . 8 3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . 9 4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . 9 4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . . . 9 4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . . 10 4.4. Issuance of Warrants or Other Rights . . . . . . . . . . . . . . . 11 4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . . 12 4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . 13 4.7. Other Provisions Applicable to Adjustments Under This Section . . . 13 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets . . . . . . . . . . . . . . 16 4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . . . 16 4.10. Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . 17 5. NOTICES TO WARRANTHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 17 5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . 17 5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . 17 6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . 18 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . 19 9. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . 19 i 3 Page 9.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . 19 9.2. Notice of Proposed Transfers; Requests for Registration . . . . . . 20 9.3. No Transfer to Directed Electronics, Inc . . . . . . . . . . . . . . 20 9.4. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . 20 10. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 21 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK . . . . . . . . . 22 13.1. Obligation to Repurchase Warrant and Warrant Stock . . . . . . . . 22 13.2. Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . 23 13.3. Right to Repurchase Warrant and Warrant Stock . . . . . . . . . . 23 14. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 24 16. DIVIDENDS ON UNDERLYING COMMON STOCK . . . . . . . . . . . . . . . . . . 24 17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . 25 17.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . 25 17.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 26 17.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 17.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 17.8. Governing Law; Consent to Jurisdiction and Venue. . . . . . . . . 27 17.9. Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 27 ii 4 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT. THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER __, 1997. Warrant Number: ___________ Date of Issuance: _______ No. of Shares of Common Stock: ________ WARRANT To Purchase Common Stock of CODE ALARM INC. THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.] or its registered assigns, is entitled, at any time during the Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a Michigan corporation (the "Company"), _______________________ (______) shares of Common Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, including fractional parts, at a purchase price of $___1 per share (subject to adjustment as set forth herein), all on the terms and conditions and pursuant to the provisions hereinafter set forth. 1. DEFINITIONS As used in this Warrant, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Closing Date, other than Warrant Stock, whether now authorized or not. - -------------- (1) $164,731 divided by the number of shares constituting 1% of the outstanding Common Stock of the Company, on a fully-diluted basis, on the date of issuance of this Warrant. 5 "Affiliate" of any Person shall mean a Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with, such Person. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Closing Date" shall mean October __, 1997. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, no par value, of the Company as constituted on the Issuance Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation (as defined in Section 4.8) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.8. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the average of the daily market prices for the 20 consecutive Trading Days immediately preceding such date. The daily market price for each such Trading Day shall be (i) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the last reported sale price as officially quoted on any such exchange, (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, the last reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the Nasdaq Stock Market, the last reported sale price on the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or if such sale price is not available on such date, the average of the closing bid and asked prices on such date as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices), or (v) if there is no such organization or agency, as furnished by any member of the NASD selected mutually by the Majority Holders and the Company or, if they cannot agree upon such selection, by a member 2 6 selected by two such members of the NASD, one of which shall be selected by the Majority Holders and one of which shall be selected by the Company. "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. On the Issuance Date, the Current Warrant Price is $___1 per share of Common Stock, and is subject to adjustment pursuant to Section 4. "DEI shall mean Directed Electronics, Inc., a California corporation. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Exercise Period" shall mean the period beginning on the Issuance Date and ending at 5:00 P.M., Michigan time, on the seventh anniversary of the Closing Date. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of this Warrant outstanding on such date and other options or warrants to purchase, or securities convertible into, shares of Common Stock outstanding on such date, whether or not such options, warrants or other securities are presently convertible or exercisable. "Holder" shall mean, as the context requires, the Person in whose name this Warrant or one of the other Warrants is registered on the books of the Company maintained for such purpose and/or the Person holding any Warrant Stock. "Independent Counsel" shall mean counsel to the Holder reasonably acceptable to the Company. "Issuance Date" shall mean ______ __, 199_ [the date of issuance of this Warrant]. "Majority Holders" shall mean, at any given time, holders of Warrants and Other Warrants then outstanding who would hold a majority of the Common Stock purchasable upon exercise of all Warrants and Other Warrants in the event all Warrants and Other Warrants were so exercised at such time. - -------------- (1) $164,731 divided by the number of shares constituting 1% of the outstanding Common Stock of the Company, on a fully-diluted basis, on the date of issuance of this Warrant. 3 7 "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "New Securities" shall mean any Additional Shares of Common Stock, and any rights or options to purchase any Additional Shares of Common Stock, and any Convertible Securities. "Non-Repurchasable Stock" shall have the meaning set forth in Section 13.3. "Other Property" shall have the meaning set forth in Section 4.8. "Other Warrants" shall mean (i) warrants to purchase Common Stock issued as part of Units purchased by Pegasus Partners, L.P. or Pegasus Related Partners, L.P. pursuant to the Unit Purchase Agreement or issued to Pegasus Partners, L.P., Pegasus Related Partners, L.P. or their successors or assigns as part of Units issued in payment of dividends on Preferred Shares, (ii) warrants issued to Pegasus Partners, L.P. or Pegasus Related Partners, L.P. pursuant to Section 3.01(s) of the Unit Purchase Agreement, and (iii) all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Payment Shares" shall have the meaning set forth in Section 2.1. "Permitted Issuances" shall mean (i) the issuance of shares of Common Stock pursuant to an underwritten public offering, (ii) the issuance of Other Warrants, (iii) the issuance of shares of Common Stock upon exercise of the Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of Common Stock upon the exercise of options issued to management employees of the Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan, (v) provided that the Charter Amendment (as defined in the Unit Purchase Agreement) has (1) been approved and adopted by the Company's stockholders, (2) been filed with the Department of Consumer and Industry Services of the State of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of Common Stock or options to acquire such shares to management employees of the Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan, (vi) the issuance of Preferred Shares and (vii) the issuance to General Electric Capital Corporation on the Closing Date of warrants to purchase up to 131,718 shares of Common Stock (subject to adjustment as provided therein) and the issuance of Common Stock upon the exercise thereof. 4 8 "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Preferred Shares" shall mean shares of Series A Preferred Stock of the Company. "Registration Rights Agreement" shall mean the Registration Rights Agreement dated as of the Closing Date among the Company, Pegasus Partners, L.P., Pegasus Related Partners, L.P. and General Electric Capital Corporation. "Reorganization" shall have the meaning set forth in Section 4.8. "Repurchase Price" shall have the meaning set forth in Section 13.2. "Restricted Common Stock" shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 9.1(a). "Restrictions" shall have the meaning set forth in Section 13.1(c). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Subsidiary" shall mean any corporation of which an aggregate of more than 50% of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by the Company and/or one or more Subsidiaries of the Company. "Trading Day" shall mean (i) any day on which stock is traded on the principal stock exchange on which the Common Stock is listed or admitted to trading, (ii) if the Common Stock is not then listed or admitted to trading on any stock exchange but is traded on the Nasdaq Stock Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not then traded on the Nasdaq Stock Market, any day on which stock is traded in the over-the counter market, as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices). "Transfer" shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act. 5 9 "Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as of the Closing Date, by and among the Company, Pegasus Partners, L.P. and Pegasus Related Partners, L.P. "Units" shall mean units consisting of one Preferred Share and one warrant to purchase 72.2525247 shares of Common Stock, as adjusted from time to time. "Warrant Price" shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by Holders of the Warrants upon the exercise thereof. "Warrants" shall mean this warrant and the other warrants issued by the Company to Pegasus Partners, L.P. or Pegasus Related Partners, L.P. pursuant to Section 5.04 of the Unit Purchase Agreement, and all warrants issued upon transfer, division or combination of, or in substitution or exchange for, any thereof. 2. EXERCISE OF WARRANT 2.1. Manner of Exercise. At any time during the Exercise Period, the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Common Stock purchasable hereunder provided, however, that the Company shall only be required to issue shares to the extent such shares are required to be available for issuance pursuant to Section 7; and provided, further, however, that for all purposes hereunder other than its direct exercise for shares of Common Stock (including but not limited to for purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable for the full amount of shares of Common Stock represented by this Warrant, without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise.. In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its office at 950 East Whitcomb, Madison Heights, Michigan 48071, or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the manner provided below, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as Exhibit A, duly executed by the Holder or its duly appointed agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate 6 10 or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or, subject to Section 9, such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check or checks, if any, and this Warrant, are received by the Company as described above and all taxes required to be paid by the Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares in the name of any Person who acquired this Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with this Warrant. Payment of the Warrant Price shall be made at the option of the Holder by (i) cash, (ii) wire transfer to an account in a bank located in the United States designated for such purpose by the Company, (iii) certified or official bank check, or (iv) any combination of the foregoing; provided, however, that the Holder shall have the right, at its election, in lieu of delivering the Warrant Price in cash, to instruct the Company in the form of Subscription Notice to retain, in payment of the Warrant Price, a number of shares of Common Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant Price of the shares as to which this Warrant is then being exercised divided by the Current Market Price. 2.2. Payment of Taxes. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable and without any preemptive rights. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issue or delivery thereof, unless such tax or charge is imposed by law upon the Holder, in which case such taxes or charges shall be paid by the Holder. The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock issuable upon exercise of this Warrant in any name other than that of the Holder, and in such case the Company shall not be required to issue or deliver any stock certificate until such tax or other charge has been paid or it has been established to the satisfaction of the Company that no such tax or other charge is due. 2.3. Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash 7 11 adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. 2.4. Continued Validity. A holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 6, 10, 13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The Company will, at the time of each exercise of this Warrant, in whole or in part, upon the request of the holder of the shares of Common Stock issued upon such exercise hereof, acknowledge in writing, in form reasonably satisfactory to such holder, its continuing obligation to afford to such holder all such rights; provided, however, that if such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 3. TRANSFER, DIVISION AND COMBINATION 3.1. Transfer. Subject to compliance with Section 9, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by the Holder or its agent or attorney and if such transfer is not to be made pursuant to Section 13, funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee or assignees and in the denomination(s) specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 9, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. If requested by the Company, a new Holder shall acknowledge in writing, in form reasonably satisfactory to the Company, such Holder's continuing obligation under Section 9. 3.2. Division and Combination. Subject to Section 9, this Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 8 12 3.3. Expenses. The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 3. 3.4. Maintenance of Books. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants. 4. ADJUSTMENTS The number of shares of Common Stock for which this Warrant is exercisable, or the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 at the time of such event. 4.1. Stock Dividends, Subdivisions and Combinations.If at any time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, by a reverse stock split or otherwise, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. 4.2. Certain Other Distributions. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (a) cash; 9 13 (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); or (c) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than cash, Convertible Securities or Additional Shares of Common Stock); and the Holder of this Warrant has not received a payment on behalf of such dividend or distribution pursuant to Section 16 hereof, then (i) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment by a fraction (A) the numerator of which shall be the Current Market Price per share of Common Stock at the date of taking such record and (B) the denominator of which shall be such Current Market Price per share of Common Stock, minus the amount allocable to one share of Common Stock of (x) any such cash so distributable and (y) the fair value (as determined in good faith by the Board of Directors of the Company and, if requested by the Holder, supported by an opinion from an investment banking firm of recognized national standing reasonably acceptable to the Majority Holders) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1. 4.3. Issuance of Additional Shares of Common Stock. (a) In the event the Company shall issue or sell any Additional Shares of Common Stock, other than Permitted Issuances, for a consideration per Additional Share of Common Stock less than the greater of the Current Warrant Price and the Current Market Price, then the Current Warrant Price shall be reduced to the lower of the prices calculated as follows: (1) by dividing (A) an amount equal to the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the then existing Current Warrant Price plus (y) the aggregate consideration, if any, received 10 14 by the Company upon such issue or sale, by (B) the total number of Fully Diluted Outstanding shares of Common Stock outstanding immediately after such issue or sale; and (2) by multiplying the then existing Current Warrant Price by a fraction the numerator of which shall be the sum of (x) the number of Fully Diluted Outstanding shares of Common Stock immediately prior to such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale plus (y) the consideration received by the Company upon such issue or sale, and the denominator of which shall be the total number of Fully Diluted Outstanding shares of Common Stock immediately after such issue or sale multiplied by the Current Market Price per share of Common Stock immediately prior to such issue or sale. For purposes of this subsection (a), the date as of which the Current Market Price per share of Common Stock shall be computed shall be the earlier of the date upon which the Company shall (i) enter into a firm contract for the issuance of such shares or (ii) issue such shares. Upon any adjustment of the Current Warrant Price as provided in this Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the Current Warrant Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest 1/100th of a share) obtained by multiplying the Current Warrant Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment and dividing the product thereof by the Current Warrant Price resulting from such adjustment. (b) The provisions of this Section 4.3 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4 or Section 4.5. 4.4. Issuance of Warrants or Other Rights. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants (other than the Warrants) or other rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or 11 15 upon conversion or exchange of such Convertible Securities shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such distribution, issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share for such Additional Shares of Common Stock shall be deemed to be the lowest price per share at which such Additional Shares of Common Stock are issuable to such holders, and (iii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Convertible Securities. 4.5. Issuance of Convertible Securities. Except with respect to Permitted Issuances and distributions on behalf of which a payment is made to the Holder of this Warrant pursuant to Section 16 hereof, if at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the greater of the Current Warrant Price and the Current Market Price in effect immediately prior to the time of such issue or sale, then the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding, (ii) the price per share of such Additional Shares of Common Stock shall be deemed to be the lowest possible price in any range of prices at which such Additional Shares of Common Stock are available to such holders, and (iii) the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such Convertible Securities. No further adjustment of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made under this Section 4.5 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 4.4. No further adjustments of the number of shares of Common Stock for which this Warrant is exercisable or of the Current Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase or any warrant or other right to purchase any such Convertible Securities for which 12 16 adjustments thereof have been or are to be made pursuant to other provisions of this Section 4, no further adjustments shall be made by reason of such issue or sale. 4.6. Superseding Adjustment. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any issuance of warrants, rights or Convertible Securities, and either (a) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (b) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or such other Convertible Securities, shall be increased or decreased by virtue of provisions therein contained, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the then outstanding Warrants, but not on any then outstanding Warrant Stock, on the basis of (c) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (d) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other Convertible Securities. 4.7. Other Provisions Applicable to Adjustments Under This Section. The following provisions shall be applicable to the making of adjustments provided for in this Section 4: (a) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Convertible Securities or any warrants or other 13 17 rights to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Common Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Shares of Common Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Common Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Company for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. 14 18 (b) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made upon the earlier of (i) the date upon which such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment, and (ii) the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, the Holder exercises this Warrant, any Additional Shares of Common Stock issuable and other property distributable upon exercise by reason of such adjustment shall be held in escrow for the Holder by the Company to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the then Current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned. 15 19 (f) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 4, such determination may be challenged in good faith by the Majority Holders, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to the Majority Holders. 4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, liquidate its assets, dissolve, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation or other entity (hereinafter, a "Reorganization") and, pursuant to the terms of such Reorganization, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right following the effectiveness of such Reorganization to receive, upon exercise of such Warrant, or, in the case of a liquidation of assets or a dissolution to receive, upon such liquidation or dissolution, without taking any further action, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such Reorganization by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise). In case of any such Reorganization, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such appropriate modifications as are satisfactory to the Holder in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For purposes of this Section 4.8 "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.8 shall similarly apply to successive Reorganizations. 4.9. Other Action Affecting Common Stock. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than any action 16 20 described in this Section 4 for which a specific adjustment is provided, then, unless such action will not have a materially adverse effect upon the rights of the Holder, the number of shares of Common Stock or other stock for which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances. 4.10. Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 5. NOTICES TO WARRANTHOLDERS 5.1. Notice of Adjustments. Whenever the number of shares of Common Stock or the class or type of stock or other property for which this Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of this Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for which this Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9) describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to the Holder in accordance with Section 17.2. The Company shall keep at its office or agency designated pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder. 5.2. Notice of Certain Corporate Action. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Stock. 6. NO IMPAIRMENT The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Current Warrant 17 21 Price immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. 7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY From and after the earlier of (i) May 31, 1998 or (ii) the approval by the shareholders of the Company of an increase in the number of authorized shares of Common Stock as contemplated in the Unit Purchase Agreement, the Company shall at all times reserve and keep available for issue upon the exercise of warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. If at any time from and after the date referred to above the number of authorized but unissued shares of Common Stock shall not be sufficient to permit the exercise in full of all outstanding Warrants and Other Warrants, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, taking appropriate board action, recommending such an increase to the holders of Common Stock, holding shareholders meetings, soliciting votes and proxies in favor of such increase to obtain the requisite shareholder approval and upon such approval, the Company shall reserve and keep available such additional shares solely for the purpose of permitting the exercise of Warrants or Other Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued, fully paid and nonassessable and free and clear of any liens, claims and restrictions (other than as provided herein). Except as provided in this Warrant, no stockholder of the Company has or shall have any preemptive rights to subscribe for such shares of Common Stock. Before taking any action which would result in an adjustment in the number of shares of Common Stock or the type of consideration for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 18 22 If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (otherwise than as provided in Section 9) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered. 8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 9. RESTRICTIONS ON TRANSFERABILITY The Warrants and the Warrant Stock shall not be transferred, hypothecated or assigned before satisfaction of the conditions specified in this Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 9. 9.1. Restrictive Legends. (a) Except as otherwise provided in this Section 9, each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with legends in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and are subject to the conditions specified in a certain Warrant dated _______ __, 199_, originally issued by Code Alarm Inc. The shares represented by this certificate may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of the Warrant. A copy of the form of said Warrant is on file with the Secretary of Code Alarm Inc. The holder of this certificate, by acceptance of this certificate, agrees to be bound by the provisions of such Warrant." "The shares represented by this certificate are subject to the terms and conditions of a Registration Rights Agreement, dated as of October __, 1997." 19 23 (b) Except as otherwise provided in this Section 9, each Warrant shall be stamped or otherwise imprinted with legends in substantially the following form: "This Warrant and the securities represented hereby have not been registered under the Securities Act of 1933, as amended, or under the securities or blue sky laws of any state and may not be sold, or otherwise transferred, in the absence of such registration or an exemption therefrom under such Act and under any such applicable state laws, or in violation of the provisions of this Warrant." "This Warrant and the securities represented hereby are subject to the terms and conditions of a Registration Rights Agreement, dated as of October __, 1997." 9.2. Notice of Proposed Transfers; Requests for Registration. Prior to any Transfer or attempted Transfer of any Warrants or any shares of Restricted Common Stock, the Holder of such Warrants or Restricted Common Stock shall deliver to the Company either a written opinion reasonably acceptable to the Company of Independent Counsel addressed to the Company or a no-action letter from the Commission to the effect that the proposed Transfer of such Warrants or such Restricted Common Stock may be effected without registration under the Securities Act and applicable state securities or blue sky laws. After delivery of the written opinion or the no-action letter to the Company, such Holder shall thereupon be entitled to Transfer such Warrants or such Restricted Common Stock. Each certificate, if any, evidencing such shares of Restricted Common Stock issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive legend set forth in Section 9.1(b), unless in the written opinion of Independent Counsel addressed to the Company such legend is not required in order to ensure compliance with the Securities Act. 9.3. No Transfer to Directed Electronics, Inc. The Holder shall not sell or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr. Darrell Issa, the president of DEI, any entity which, to the knowledge of the Holder, is controlled by Mr. Issa, or any person who, to the knowledge of the Holder, is a member of the immediate family (as such term is defined in Rule 16a-1 promulgated under the Exchange Act) of Mr. Issa. 9.4. Termination of Restrictions. Notwithstanding the foregoing provisions of Section 9, the restrictions imposed by this Section upon the transferability of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) and the legend requirements of Section 9.1 shall terminate as to any particular Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i) when and so long as such security shall have been effectively registered under the Securities Act and disposed of pursuant thereto, or (ii) when the Company shall have delivered to the Holder or Holders of Warrants, Warrant Stock or Restricted 20 24 Common Stock the written opinion of Independent Counsel stating that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Section 9 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant bearing the following legend in place of the first restrictive legend set forth hereon: "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO FURTHER FORCE AND EFFECT." All Warrants issued upon registration of transfer, division or combination of, or in substitution for, any Warrant or Warrants entitled to bear such legend shall have a similar legend endorsed thereon. Whenever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, at the Company's expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 9.1(a). 10. SUPPLYING INFORMATION The Company shall cooperate with each Holder of a Warrant and each Holder of Restricted Common Stock in supplying such information as may be reasonably requested by such Holder or reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock. 11. LOSS OR MUTILATION Upon receipt by the Company from the Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity reasonably satisfactory to it (it being understood that the written indemnity agreement of Pegasus Partners, L.P. or Pegasus Related Partners, L.P. 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 to the Holder; provided, in the case of mutilation, no indemnity shall be required if this warrant in identifiable form is surrendered to the Company for cancellation. 12. OFFICE OF THE COMPANY As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the 21 25 warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. 13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK 13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) At any time and from time to time, at the election of the Holder, after the date which is three years and six months after the Closing Date, the Holder may, by notice to the Company (the "Put Notice"), demand repurchase of this Warrant, in whole or in part, and/or all or part of the Holder's shares of Warrant Stock which are Restricted Common Stock. Subject to the provisions of Section 13.2, the Company shall, on the date (not less than 30 days after the date of the Put Notice) designated in such Put Notice, repurchase from the Holder all or the portion of this Warrant and/or the number of shares of such Holder's Warrant Stock designated in the Put Notice for an amount determined by multiplying (x) the number of shares of Warrant Stock and/or the Common Stock subject to this Warrant or portion thereof being repurchased by (y) the Current Market Price per share of Common Stock determined as of the date of the repurchase demand and, in the event of repurchase of all or a portion of this Warrant, deducting from the product thereby obtained the Current Warrant Price times the number of shares of Common Stock subject to this Warrant (or portion thereof) being repurchased. (b) Notwithstanding the provisions of Section 13.1(a), if, at any time during the period between the date on which the Holder shall have delivered a Put Notice and the date of repurchase by the Company pursuant thereto, a Reorganization shall occur and the consideration received or receivable by stockholders in connection with such Reorganization shall consist solely of cash, then the Holder shall (whether or not the Holder shall have previously surrendered its Warrant and/or Warrant Stock for repurchase by the Company pursuant to this Section 13) be entitled to receive, on the date of such repurchase, the higher of (i) the amount payable to the Holder as determined pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the Holder would have received upon the occurrence of such Reorganization had the Holder's Warrant (or the portion thereof being repurchased) been fully exercised immediately prior thereto less, in the event of a repurchase of all or a portion of this Warrant, the purchase price payable at such time for the purchase of the shares of Common Stock then subject to the Holder's Warrant (or the portion thereof being repurchased). (c) The Company shall not be obligated under this Section 13.1 to repurchase any Warrant or portion thereof and/or issued Warrant Stock if the Company is in default under any agreement or instrument evidencing the Company's or any of its Subsidiaries' indebtedness for borrowed money, and such default has not been waived, or if and to the extent such a repurchase (i) would cause an event of default to exist by reason of such repurchase, which event of default has not been waived, with respect to any such agreement or would violate any provision of any such agreement or instrument, or (ii) would be in violation of applicable law ("Restrictions"), in any such case as determined by an opinion of counsel to the Company reasonably acceptable to the Holder; provided, however, that the Company shall use its 22 26 reasonable best efforts to have any such Restriction either waived or terminated (including, without limitation, by obtaining refinancing for any such indebtedness). In the event that, following receipt of a Put Notice, the Company will not repurchase all or any portion of such Warrant and/or Warrant Stock because of the existence of any Restriction, the Company shall, within twenty (20) days of receipt of the Put Notice, so notify the Holder in writing, setting forth the portion of the Warrant and/or Warrant Stock which will not be repurchased and the Restrictions which apply, and deliver to the Holder a copy of the opinion referred to in the prior sentence. In addition, in such event, the Company shall thereafter, upon the request of the Holder, use its best efforts to register the Warrant Stock and/or the Common Stock subject to this Warrant, in accordance with the terms of the Registration Rights Agreement. 13.2. Payment of Repurchase Price. The purchase price for any repurchase pursuant to Section 13.1 (the "Repurchase Price") shall be determined pursuant to Section 13.1 and shall be payable in cash. On the date of any repurchase of Warrants and/or Warrant Stock pursuant to this Section 13, the Holder shall assign to the Company its Warrant or portion thereof being repurchased and a certificate for the number of shares of Warrant Stock being repurchased, as the case may be, without any representation or warranty (other than that the Holder has good and marketable title thereto, free and clear of liens, encumbrances and restrictions of any kind), by the surrender of the Holder's Warrant and certificate for Warrant Stock together with, in the case of Warrant Stock, instruments of transfer reasonably acceptable to the Company, at the principal office of the Company referred to in Section 2.1 against payment therefor of the Repurchase Price by, at the option of the Holder, (i) wire transfer to an account in a bank located in the United States designated by the Holder for such purpose or (ii) a certified or official bank check payable to the order of the Holder. If less than all of the Holder's Warrant is being repurchased, the Company shall, pursuant to Section 3, cancel such Warrant and issue in the name of, and deliver to, the Holder a new Warrant for the portion not being repurchased. If less than all of the shares represented by a certificate for Warrant Stock are being repurchased, the Company shall cancel such certificate and issue in the name of, and deliver to, the Holder a new certificate for the number of shares of Warrant Stock not being repurchased. 13.3. Right to Repurchase Warrant and Warrant Stock. (a) In the event the Company exercises its rights to repurchase all of the outstanding Units and the Common Stock for which Attached Warrants (as defined in the Unit Purchase Agreement) have theretofore been exercised, pursuant to Section 8.01(b) of the Unit Purchase Agreement, then, simultaneously therewith, the Company, at its sole option, may repurchase not less than and not more than 95% of the outstanding Warrants and 95% of the shares of Common Stock for which Warrants have been exercised (other than shares of Common Stock which have been sold to a Person that is not an affiliate or associate (as defined in Rule 405 promulgated under the Securities Act) of the initial Holder ("Non-Repurchasable Stock")), for an aggregate repurchase price equal to the amount determined by multiplying (x) the sum of (1) 100% of the number of shares of Common Stock for which the Warrants are then exercisable and (2) 100% of the number of shares for 23 27 which the Warrants have theretofore been exercised (other than shares of Non-Repurchasable Stock) by (y) the price per share of Common Stock which the holders of Units would receive pursuant to Section 8.01(b) of the Unit Purchase Agreement (assuming exercise of the Attached Warrants which are part of such Units) and then deducting the aggregate exercise price of the Warrants to be repurchased. (b) Notice of repurchase pursuant to this Section 13.3 shall be given by first class mail, postage prepaid, mailed not less than 10 nor more than 20 days prior to the repurchase date to each Holder's address as the same appears on the books of the Company. Each such notice shall state: (i) the purchase date; (ii) the portion of Warrants and the number of shares of Common Stock to be purchased; (iii) the amount of the purchase price; and (iv) the place or places where such Warrants and certificates for such shares of Common Stock are to be surrendered for payment of the purchase price. Upon receipt of any such notice, the Warrants being repurchased may not be exercised or transferred and the Common Stock being repurchased may not be transferred, unless the Company fails to make the repurchases on the terms set forth in its notice. (c) In the event only a portion of this Warrant is being repurchased pursuant to this Section 13.3, the Holder shall surrender this Warrant to the Company for cancellation on the repurchase date at the place specified in the repurchase notice, and the Company shall thereupon issue to the Holder a new Warrant evidencing the portion of this Warrant not so repurchased. 14. REGISTRATION RIGHTS This Warrant is entitled to the benefits of the registration rights provisions contained in the Registration Rights Agreement. The Company shall keep a copy of the Registration Rights Agreement, and any amendments thereto, at the office or agency designated by the Company pursuant to Section 12 and shall furnish copies thereof to the Holder upon request. 15. LIMITATION OF LIABILITY No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 16. DIVIDENDS ON UNDERLYING COMMON STOCK In the event that, at any time before the Charter Amendment (as defined in the Unit Purchase Agreement) shall have (a) been approved and adopted by the Company's 24 28 stockholders, (b) been filed with the Department of Consumer and Industry Services of the State of Michigan and (c) become effective, or at any time after the Company shall have failed for any reason to issue Common Stock to the Holder upon exercise of this Warrant or shall have failed to comply with Section 7 hereof, the Company shall pay a dividend or make any other distribution with respect to its Common Stock whether in the form of cash, evidences of indebtedness, securities or other property (other than a Common Stock dividend subject to the provisions of Section 4.1 or a dividend of warrants or rights to purchase Common Stock subject to the provisions of Section 4.2), then the Company shall pay to the Holder of this Warrant on the date of payment of such dividend or other distribution, an amount in cash equal to the number of shares of Common Stock issuable upon exercise of this Warrant in full on the record date for such dividend or other distribution (without regard to the number of shares of Common Stock available or set aside for issuance upon such exercise) multiplied by the sum of (i) the amount of cash and (ii) the fair value of any evidences of indebtedness, securities or other property distributed with respect to each share of Common Stock. The "fair value" of any such evidences of indebtedness, securities or other property shall mean the fair market value thereof, as determined by the Board of Directors in good faith, which good faith determination may be challenged by the Holder in accordance with Section 4.7(f). 17. MISCELLANEOUS 17.1. Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 17.2. Notice Generally. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Warrant shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery (including delivery by courier), or facsimile transmission, addressed as follows: (a) If to the Company: Code Alarm Inc. 950 East Whitcomb Madison Heights, Michigan 48071 Attention: Rand Mueller and Craig Camalo Facsimile: (248) 585-4799 25 29 with a copy to: Pepper Hamilton & Scheetz LLP 100 Renaissance Center Detroit, Michigan 48243 Attention: Dennis S. Kayes, Esq. Facsimile: (313) 259-7926 (b) If to the Holder, at its last known address appearing on the books of the Company maintained for such purpose. Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication shall be deemed to have been duly given five business days after being deposited in the mail, postage prepaid, if mailed; when delivered by hand, if personally delivered; or upon receipt, if sent by facsimile (followed by a confirmation copy sent by either overnight or two (2) day courier). 17.3. Indemnification. The Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees, agents, and attorneys from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder relating to or arising out of any litigation to which the Holder is made a party in its capacity as a stockholder or warrantholder of the Company; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a judgment by a court to have resulted from (i) the Holder's gross negligence or willful misconduct, (ii) actions or omissions taken or not taken by the Holder in any capacity other than as a stockholder or warrantholder of the Company or (iii) actions or omissions taken or not taken by the Holder solely as a stockholder or warrantholder of the Company and for which stockholders or warrantholders may be held liable under Michigan law. 17.4. Successors and Assigns. Subject to the provisions of Sections 3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder, and (ii) the provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. 17.5. Amendment. The Warrants may be modified or amended or the provisions thereof waived with the written consent of the Company and the Holder. 17.6. Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision 26 30 of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant. 17.7. Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 17.8. Governing Law; Consent to Jurisdiction and Venue. In all respects, including all matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Michigan applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any action arising out of or relating to this Agreement shall be effective if mailed to such party in accordance with the procedures and requirements set forth in Section 17.2. Nothing herein shall preclude the Holder or the Company from bringing suit or taking other legal action in any other jurisdiction. 17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS WARRANT. 27 31 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer and its corporate seal to be impressed hereon and attested by its Secretary or Assistant Secretary. Dated: October __, 1997 CODE ALARM INC. By:_______________________ Name: Title: Attest: By:_______________________ Name: Title: 32 EXHIBIT A SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of _______ shares of Common Stock of CODE ALARM INC. and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to __________________ whose address is ___________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. _____________________________ (Name of Registered Owner) _____________________________ (Signature of Registered Owner) _____________________________ (Street Address) _____________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 33 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: Name and Address of Assignee No. of Shares of Common Stock and does hereby irrevocably constitute and appoint ______________ attorney-in-fact to register such transfer on the books of Code Alarm Inc. maintained for the purpose, with full power of substitution in the premises. Dated: ____________________________ Name: ____________________________ Signature: ________________________ Witness: __________________________ NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.64 28 EXHIBIT 10.64 1 EXHIBIT 10.64 EXECUTION COPY LIMITED SUPPLEMENTAL GUARANTY This LIMITED SUPPLEMENTAL GUARANTY (this "Guaranty"), dated as of October 24, 1997, by and among PEGASUS PARTNERS, L.P., a Delaware limited partnership, and PEGASUS RELATED PARTNERS, L.P., a Delaware limited partnership (each individually, a "Guarantor" and together, collectively, the "Guarantors"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, individually and as agent (in such capacity, "Agent") for itself and the lenders from time to time signatory to the Credit Agreement hereinafter defined ("Lenders"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation ("Borrower"), the other Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for the benefit of, Borrowers. WHEREAS, each Guarantor is a shareholder of Borrower and will, accordingly, derive direct and indirect economic benefits from the making of the Loans and other financial accommodations provided to Borrower pursuant to the Credit Agreement; and WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement and other Loan Documents and to induce Lenders to make the Loans and to incur Letter of Credit Obligations as provided for in the Credit Agreement, each Guarantor has agreed to severally and not jointly guarantee payment of the Obligations, subject to the limitations set forth herein; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lenders to provide the Loans and other financial accommodations under the Credit Agreement, it is agreed as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement, unless otherwise defined herein. References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any annexes, exhibits and schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. 2 In addition, the following terms, as used herein, shall have the meanings set forth below: "Administrative GP" shall have the meaning ascribed to such term in Section 3(a). "Capital Demand Date" shall have the meaning ascribed to such term in the Partnership Agreements as in effect from time to time. "Capital Demand Notice(s)" shall have the meaning ascribed to such term in the Partnership Agreements as in effect from time to time. "Corporate GP" shall have the meaning ascribed to such term in Section 3. "Defaulting Limited Partner" shall have the meaning ascribed to such term in the Partnership Agreements as in effect on the date hereof. "Event of Dissolution" shall have the meaning ascribed to such term in the Partnership Agreements as in effect on the date hereof and any other "Event of Dissolution" as may be hereafter defined in the Partnership Agreements. "Guarantor Default" shall mean (i) any failure of either Guarantor to pay or perform any of its obligations under this Guaranty, (ii) any breach by either Guarantor of any representation or warranty hereunder in any material respect, (iii) the occurrence of any insolvency event with respect to either Guarantor under Sections 8.1(h) or 8.1(i) of the Credit Agreement, (iv) any revocation or attempted revocation by either Guarantor of its obligations under this Guaranty, or (v) any "Guarantor Default" shall have occurred under and as defined in that certain Limited Litigation Guaranty of even date herewith among the Guarantors and Agent. "Guaranteed Obligations" shall have the meaning ascribed to such term in Section 2.1. "Instruction Certificate" shall mean one or more written certificates executed by Agent and delivered to the Administrative GP and to Guarantors stating that (i) Agent is entitled to demand payment under this Guaranty, (ii) Agent has demanded payment under this Guaranty, (iii) the Guarantors have failed to timely satisfy all of such payments properly demanded, (iv) the Administrative GP is instructed to deliver a Capital Demand Notice to each limited partner of each Guarantor specifying the earliest possible Capital Demand Date as is permitted under Section 3.1 of the Partnership Agreements and demanding capital contributions under such section in amounts sufficient to permit the Guarantors to satisfy such unsatisfied payment obligations to Agent under this Guaranty and (v) all of the proceeds of such capital contributions received by the Administrative GP are to be promptly sent, by wire transfer, to an account specified in such certificate for application by Agent to such unsatisfied payment obligations. 2 3 "Irrevocable Instruction" shall mean a document, in form and substance acceptable to Agent, pursuant to which the Managing GP instructs the Administrative GP, and the Administrative GP agrees, that upon the Administrative GP's receipt of an Instruction Certificate from Agent, the Administrative Agent shall (i) deliver a Capital Demand Notice to each limited partner of each Guarantor, specifying the earliest Capital Demand Date as is permitted under Section 3.1 of the Partnership Agreements and demanding capital contributions under such section in amounts sufficient to permit the Guarantors to satisfy the unpaid Guaranteed Obligations set forth in such Instruction Certificate and (ii) pay all of the proceeds of such capital contributions received by the Administrative GP to Agent on behalf of the Guarantors for application by Agent to such Guaranteed Obligations pursuant to the instructions specified by Agent in such Instruction Certificate. Such Irrevocable Instruction may only be amended, terminated or modified with the written consent of Agent, the Administrative GP and the Managing GP. "Managing GP" shall have the meaning ascribed to such term in Section 3. "Partnership Agreements" shall mean the Agreement of Limited Partnership of each Guarantor as in effect as of the date hereof and attached hereto as Exhibit A and B, respectively, as amended or otherwise modified from time to time hereafter. "Ratable Share" shall mean 27.7727273% in the case of Pegasus Partners, L.P., and 72.2272727% in the case of Pegasus Related Partners, L.P. "Termination Date" shall have the meaning ascribed to such term in Section 2.1. "Trigger Event" shall mean (i) any Event of Dissolution, (ii) the existence of any Defaulting Limited Partner and the failure of the non-defaulting limited partners of the affected Guarantor to assume the Unpaid Capital Obligations of such Defaulting Limited Partner within thirty days of the default giving rise such occurrence, (iii) any Guarantor Default or (iv) any amendment or other modification with respect to either Partnership Agreement shall become effective and shall have a material adverse effect upon the rights or claims of Agent and the Lenders under this Guaranty. "Unpaid Capital Obligations" shall have the meaning ascribed to such term in the Partnership Agreements as of the date hereof. 2. THE GUARANTY. 2.1. Guaranty of Guaranteed Obligations of Borrower. Subject to the provisions of this Guaranty, each Guarantor hereby severally (based upon their respective Ratable Shares and not jointly), irrevocably and unconditionally guarantees to Agent and Lenders, and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) of the Obligations of Borrower other than its 3 4 Litigation Obligations (hereinafter the "Guaranteed Obligations"). Subject to the provisions of this Guaranty, in the event that either Guarantor shall fail to timely satisfy any such obligations or any other payment obligations under this Guaranty, Agent shall be thereafter entitled, in its discretion, to deliver one or more Instruction Certificates to the Administrative GP requesting payment thereof pursuant to the Irrevocable Instruction. Each Guarantor agrees that this Guaranty is a guaranty of payment and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Guaranty, any other Loan Document or any other agreement, document or instrument to which any Credit Party, either Guarantor or other Persons are or may become a party; (b) the absence of any action to enforce this Guaranty or any other Loan Document or the waiver or consent by Agent and/or Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any Collateral for the Guaranteed Obligations or any action, or the absence of any action, by Agent in respect thereof; (d) the discharge, avoidance, subordination or other ineffectiveness of any of the Guaranteed Obligations, whether pursuant to any insolvency proceeding or otherwise; (e) the insolvency of any Credit Party, either Guarantor or other Person; or (f) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by each Guarantor that its obligations under this Guaranty shall not be discharged until the earliest date on which the Loans have been repaid in full and all other Guaranteed Obligations under the Credit Agreement and other Loan Documents (hereinafter, the Loan Documents") have been paid in full and the Letter of Credit Obligations have been cash collateralized, canceled or backed by standby letters of credit in accordance with Annex B of the Credit Agreement, and Borrower shall have no further right to borrow any monies or obtain additional financial accommodations under the Credit Agreement (the "Termination Date"); provided, however, that the Termination Date may be thereafter be deemed to have not occurred upon Guarantors' obligations under this Guaranty being reinstated pursuant to Section 2.8 and shall be extended until such time as the payments giving rise to such reinstatement are thereafter again repaid to Agent and Lenders. Subject to limitations described in Section 2.2, each Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to 4 5 the Guaranteed Obligations. Each Guarantor agrees that any notice or directive given at any time to Agent which is inconsistent with this section, or Section 2.5 or 2.7, shall be null and void and may be ignored by Agent and Lenders, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Agent and Lenders have specifically agreed otherwise in writing. It is agreed among Guarantor, Agent and Lenders that the foregoing provisions, and those of Sections 2.5 and 2.7, are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, Agent and Lenders would decline to enter into the Credit Agreement. 2.2. Limitations. Notwithstanding anything in Section 2.1 or elsewhere in this Guaranty to the contrary, (a) the aggregate liability of Guarantors under this Guaranty shall, in no event, exceed, $4,000,000, plus interest on each amount payable hereunder from the date such payment by Guarantors hereunder is due and payable pursuant to clause (b) of this section at a per annum rate equal to the Default Rate for Revolving Loans bearing interest based upon the Index Rate (computed on the basis of 360 days and actual days elapsed), until such payment is received by Agent, and plus all costs and expenses (including, without limitation, attorneys' and paralegals' fees and expenses) incurred by Agent following either Guarantor's failure to timely satisfy its obligations hereunder, in connection with the enforcement and collection of the Guarantors' obligations under this Guaranty against the Guarantors and their respective partners and properties, (b) each payment by Guarantors hereunder shall be due and payable on the tenth (10th) calendar day following the date on which demand for such payment is given by Agent to Guarantors, and (c) Agent shall not be permitted to demand payment hereunder from Guarantors, and Guarantors shall not be liable hereunder for any such demanded payment, unless, as of the date of such demand, (x) the Obligations shall have been accelerated pursuant to Section 8.2 of the Credit Agreement (or any successor provision thereto) or (y) any Event of Default shall have occurred under Section 8.1(h) or 8.1(i) of the Credit Agreement (or any successor provisions thereto). 2.3. Payment by Guarantor. Payment by either Guarantor shall be made to Agent in immediately available Federal funds to an account designated by Agent or at the address set forth herein for the giving of notice to Agent or at any other address that may be specified in writing from time to time by Agent, and shall be credited and applied to the Guaranteed Obligations. 2.4. Enforcement of Guaranty. In no event shall Agent have any obligation (although it is entitled, at its option) to proceed against Borrower, any other Credit Party, one but not the other Guarantor, or other Person, or any Collateral before seeking satisfaction from either Guarantor. 2.5. Waiver. In addition to the provisions of Section 2.1 hereof, each Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, 5 6 marshaling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by such Guarantor of its Guaranteed Obligations under, or the enforcement by Agent or Lenders of, this Guaranty. Each Guarantor hereby waives diligence, presentment and demand upon Borrower or, other than as provided in this Guaranty, such Guarantor (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Guaranteed Obligations, notice of adverse change in Borrower's financial condition or any other fact which might increase the risk to such Guarantor) with respect to any of the Guaranteed Obligations or all other demands whatsoever and waive the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Each Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Agent or Lenders or any other Credit Party of any kind. Each Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims (other than compulsory counterclaims), offsets or defenses against Agent or any Lender or against any other Credit Party of any kind which may arise in the future. 2.6. Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any Credit Party, either Guarantor or other Person and Agent or Lenders, the obligations of any Credit Party, either Guarantor or other Person under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, indorsed or assigned by Agent or any Lender to any Person or Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.7. Modification of Guaranteed Obligations, Etc. Each Guarantor hereby acknowledges and agrees that Agent and Lenders may at any time or from time to time, with or without the consent of, or notice to, such Guarantor: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; 6 7 (d) extend or waive the time for any Credit Party's or other Person's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold Collateral for the payment of the Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Agent or Lenders have been granted a Lien, to secure any Guaranteed Obligations; (f) release anyone who may be liable in any manner for the payment of any amounts owed by either Guarantor or any other Credit Party or other Person to Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of either Guarantor or any other Credit Party or other Person are subordinated to the claims of Agent and Lenders; and/or (h) apply any sums by whomever paid or however realized to any amounts owing by either Guarantor or any other Credit Party or other Person to Agent or any Lender in such manner as Agent or any Lender shall determine in its discretion; and Agent and Lenders shall not incur any liability to Guarantors as a result thereof, and no such action shall impair or release the Guaranteed Obligations of Guarantors under this Guaranty. 2.8. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Credit Party, either Guarantor or any other Person for liquidation or reorganization, should any Credit Party, either Guarantor or any other Person become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of such Credit Party's, Guarantor's or other Person's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations or the obligations of either Guarantor under this Guaranty, or any part of any such obligations, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Agent or any Lender pursuant to applicable law, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. In the event that any such payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations and obligations of the Guarantors under this Guaranty shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. In the event any such payment is rescinded, reduced, restored or returned after what otherwise would be the Termination Date pursuant to the provisions of Section 2.1, the Termination Date shall thereupon be deemed to have not occurred and shall be extended until such time as such payment is thereafter again repaid to Agent and Lenders. 7 8 2.9. Deferral of Subrogation, Etc. Notwithstanding anything to the contrary in this Guaranty, or in any other Loan Document, each Guarantor hereby: (a) expressly and irrevocably waives, on behalf of itself and its successors and assigns (including any surety), until the later of the Termination Date or the "Termination Date" under and as defined in that certain Limited Litigation Guaranty of even date herewith executed and delivered by the Guarantors in favor of Agent and Lenders, any and all rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to a guarantor against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which such Guarantor may have or hereafter acquire against any Credit Party, the other Guarantor or any other Person in connection with or as a result of such Guarantor's execution, delivery and/or performance of this Guaranty; and (b) acknowledges and agrees (i) that this waiver is intended to benefit Agent and Lenders and shall not limit or otherwise effect such Guarantor's liability hereunder or the enforceability of this Guaranty, and (ii) that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.9 and their rights under this Section 2.9 shall survive payment in full of the Guaranteed Obligations. 2.10. Election of Remedies. If Agent may, under applicable law, proceed to realize benefits under any of the Loan Documents giving Agent and Lenders a Lien upon any Collateral owned by any Credit Party or other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party or other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Guarantor hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation which either Guarantor might otherwise have had but for such action by Agent. Any election of remedies which results in the denial or impairment of the right of Agent to seek a deficiency judgment against any Credit Party or other Person shall not impair either Guarantor's obligation to pay the Guaranteed Obligations hereunder. In the event Agent shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent may bid all or less than the amount of the Guaranteed Obligations and the amount of such bid need not be paid by Agent but shall be credited against the Guaranteed Obligations. The amount of the successful bid at any such sale shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Guaranteed Obligations shall be conclusively deemed to be the amount of the Guaranteed Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have 8 9 the effect of reducing the amount of any deficiency claim to which Agent and Lenders might otherwise be entitled but for such bidding at any such sale. 3. DELIVERIES. In a form, scope and substance satisfactory to Agent, the Guarantors shall deliver or cause to be delivered to Agent, concurrently with the execution of this Guaranty and the Credit Agreement, each of the following in connection with this Guaranty: (a) a certificate of the corporate secretary of Pegasus Investors GP, Inc., a Delaware corporation ("Corporate GP"), as general partner of Pegasus Investors, L.P., a Delaware limited partnership and the managing general partner of each Guarantor (the "Managing GP"), certifying (i) that attached thereto are true, correct and current copies of the Partnership Agreements, the agreement of limited partnership of the Managing GP and the certificate of incorporation and bylaws of the Corporate GP (in each case, including any and all signatures, exhibits, schedules, annexes and amendments thereto), as applicable; (ii) that the execution, delivery and performance of this Guaranty and all other agreements, documents and instruments executed and delivered in connection herewith by the Guarantors, the Managing GP or the Corporate GP, respectively, by or on behalf of the Guarantors (or either one of them) (A) are within the partnership or corporate power (as applicable) of such Person, (B) have been duly authorized by all necessary and proper partnership, corporate, company, partner, shareholder or member action (as applicable) of such Persons, (C) do not contravene any provision of such Person's partnership agreement, certificate of incorporation or bylaws, (D) do not violate any law or regulation, or any order or decree of any court or Governmental Authority applicable to such Person, (E) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound, (F) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to this Guaranty, (G) do not require the consent or approval of any Governmental Authority or any other Person, except as has been previously obtained and (H) do not result in an Event of Dissolution or any Trigger Event; (iii) that attached thereto are true, correct and current copies of all partnership, corporate and company resolutions and other authorizations of the limited partnership panel, board of directors, management committee or other managing bodies of the Guarantors, the Managing GP and the Corporate GP which were adopted and approved in connection with, and necessary to permit, the execution, delivery and performance of this Guaranty by of on behalf of either of the Guarantors and all other agreements, documents and instruments executed and delivered by or on behalf of either of the Guarantors in connection herewith; (iv) the incumbency and true or facsimile signatures of all officers of the Corporate GP on behalf of the Managing GP and the Guarantors which will or have executed and delivered this Guaranty or any other agreements, documents or instruments executed and delivered by or in behalf of either of 9 10 the Guarantors in connection herewith and (v) that no Event of Dissolution or other Trigger Event has occurred and is continuing; (b) certificates of limited partnership of each Guarantor and the Managing GP, and a certificate of incorporation of the Corporate GP, in each case certified as of a date no earlier than thirty (30) days prior to the date hereof by the Secretary of State of Delaware together with good standing certificates of such Person from the Secretary of State of Delaware; and (c) an opinion of counsel to the Guarantors, the Managing GP and the Corporate GP, favorably addressing, as a matter of Delaware partnership and corporate law and New York law, as applicable, (i) the organization, existence and good standing in the jurisdiction of organization and principal place of business, of each of such Persons, (ii) each of the matters described in clauses (A), (B), (C), (D) and (G) of Section 3(a)(ii) hereof and (iii) the enforceability of the provisions of this Guaranty against the Guarantors. In a form, scope and substance satisfactory to Agent, the Guarantors shall deliver or cause to be delivered, to Agent (or to the extent the items described below are to be executed or delivered by the Administrative GP, its officers, directors or attorneys, the Guarantors shall exert their reasonable commercial efforts to deliver or cause to be delivered to Agent), as soon as practicable following the execution of this Guaranty, the Credit Agreement and the L/C Agreement, each of the following: (i) the Irrevocable Instruction; (ii) a certificate of the corporate secretary of the Corporate GP, as general partner of the Managing GP, addressing each of the matters set forth in clause (a), to the extent they pertain to the Irrevocable Instruction; (iii) a certificate of the company secretary (or other equivalent) of Pegasus Administration Limited, a Cayman Islands limited duration company and the administrative general partner of each Guarantor (the "Administrative GP"), certifying (A) that attached thereto are true, correct and current copies of the charter and bylaws of the Administrative GP (including any and all signatures, exhibits, schedules, annexes and amendments thereto); (B) that the execution, delivery and performance of the Irrevocable Instruction and all other agreements, documents and instruments executed and delivered in connection therewith by the Administrative GP, (1) are within the company power of the Administrative GP, (2) have been duly authorized by all necessary and proper company action of the Administrative GP, (3) do not contravene any provisions of the Administrative GP's charter or bylaws, (4) do not violate any law or regulation, or any order or decree of any court or Governmental Authority applicable to the Administrative Agent, and (5) do not require the consent or approval of any Governmental Authority or 10 11 any other person, except as has been previously obtained, (C) that attached thereto are true, correct and current copies of all company resolutions and other authorizations of the board of directors or other managing body of the Administrative GP which were adopted and approved in connection with, and necessary to permit, the execution, delivery and performance of the Irrevocable Instruction on behalf of the Administrative GP and all other agreements, documents and instruments executed and delivered by the Administrative GP and (D) the incumbency and true or facsimile signatures of all officers of the Administrative GP which will or have executed and delivered the Irrevocable Instruction or any other agreements, documents or instruments executed and delivered by the Administrative GP in connection therewith; (iv) certificates of existence and good standing with respect to the Administrative GP certified by the Cayman Islands (or appropriate agency thereof) as of a date no earlier than thirty (30) days prior to the date on which the Irrevocable Instruction is executed and delivered; and (v) an opinion of counsel to the Administrative GP, favorably addressing, as a matter of the laws of the Cayman Islands, (A) the organization, existence and good standing in the jurisdiction of organization and principal place of business of the Administrative GP, (B) each of the matters described in clause (iii)(B) above, (C) the enforceability of the provisions of the Irrecovable Instruction against the Administrative GP and (D) the irrevocability of the Irrecovable Instruction. 4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the Loans and incur Letter of Credit Obligations under the Credit Agreement, each Guarantor makes the following representations and warranties to Agent and each Lender, all of which shall survive the execution and delivery of this Guaranty: 4.1. Corporate Existence; Corporate Power; Compliance with Law. Each of the statements contained in the certificates described in Section 3(a)(ii) and 3(a)(v) hereof are true, accurate and complete. Each Guarantor is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a material adverse effect upon such Guarantor, its properties or its ability to perform its obligations hereunder. 4.2. Enforceable Guaranteed Obligations. This Guaranty constitutes the legal, valid and binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its terms. 4.3. Trigger Event. As of the date hereof, no Trigger Event has occurred and is continuing. 11 12 5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of Agent, to execute and deliver to Agent or such Lender, from time to time, any additional instruments or documents reasonably considered necessary by Agent to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 6. CASH COLLATERAL. Upon the occurrence of one or more Trigger Events, the Guarantors shall promptly deliver to Agent, $4,000,000 in cash or other immediately available funds, as cash collateral for the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty. Such funds shall be held by Agent in a cash collateral account (the "Cash Collateral Account") maintained at a bank or financial institution acceptable to Agent and shall be invested (for the account of the Guarantors) in short term, highly rated securities or interest bearing accounts, in a manner acceptable to Agent. The Cash Collateral Account shall be in the name of Guarantors and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent. Each Guarantor hereby pledges and grants to Agent, on behalf of Lenders, a security interest in all such funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty, whether or not then due. From time to time after the occurrence and during the continuation of any Guarantor Default, Agent may apply any and all funds held in the Cash Collateral Account to the payment of the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty. Neither Guarantor nor any Person claiming on behalf of or through either Guarantor shall have any right to withdraw any of the funds held in the Cash Collateral Account until the ninety-first (91st) day following the Termination Date. 7. REPORTING. Each Guarantor shall deliver or cause to be delivered to Agent, the following: (a) at the same times as are delivered or required to be delivered to each partner of the Guarantors pursuant to Section 8.2 (or any successor provision thereto) of the Partnership Agreements, each of the reports, statements, financial statements, schedules, summaries and other information described in such section (and without giving effect to any amendments or modifications thereto), excluding, however, any items delivered pursuant to Section 8.2(d) thereof and the Schedule K-1's referred to in Section 8.2(b) thereof; and (b) promptly, following its occurrence, the existence and nature of any Trigger Event. 12 13 8. OTHER TERMS. 8.1. Entire Agreement. This Guaranty constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the loans and advances under the Loan Documents and/or the Guaranteed Obligations. 8.2. Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 8.3. Severability. Whenever possible, each provision of this Guaranty shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 8.4. Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Guaranty, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified as follows: (a) If to Agent, at: General Electric Capital Corporation 10 South LaSalle Street Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopier No.: (312) 419-5957 Telephone No.: (312) 419-0985 with copies to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: H. Bruce Bernstein Telecopy Number: (312) 853-7036 Telephone Number: (312) 853-7000 13 14 and: General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: General Counsel Telecopy Number: (203) 316-7889 Telephone Number: (203) 316-7552 (b) If to any Lender, at the address of such Lender specified in the Credit Agreement. (c) If to either Guarantor, at the address of Guarantors specified on Schedule I hereto. or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and three (3) Business Days after the same shall have been deposited with the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 9.4), (iii) one (1) Business Day after deposit with a reputable overnight carrier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any of the above-listed persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 8.5. Successors and Assigns. This Guaranty and all obligations of each Guarantor hereunder shall be binding upon the successors and assigns of such Guarantor (including a debtor-in-possession on behalf of such Guarantor) and shall, together with the rights and remedies of Agent, for itself and for the benefit of Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Guaranteed Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Guaranteed Obligations or any portion thereof or interest therein shall in any manner affect the rights of Agent and Lenders hereunder. Neither Guarantor may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty. 14 15 8.6. No Waiver; Cumulative Remedies; Amendments. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Guaranty may be waived, altered, modified, supplemented or amended except by an instrument in writing, duly executed by Agent and Guarantors. 8.7. Termination. This Guaranty is a continuing guaranty and shall remain in full force and effect until the Termination Date. On or after the Termination Date, Agent shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 8.8. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall collectively and separately constitute one and the same agreement. 8.9. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG GUARANTORS, AGENT OR ANY LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT AND GUARANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON PAYMENT CLAIMS OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN 15 16 FAVOR OF AGENT, FOR THE BENEFIT OF AGENT AND LENDERS. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GUARANTOR AT THE ADDRESS SET FORTH ON SCHEDULE I HERETO AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 8.10. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), GUARANTORS AND AGENT DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OR ARBITRATION, GUARANTORS AND AGENT WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS GUARANTY AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 8.11 Confidentiality. Agent agrees to use commercially reasonable efforts (equivalent to the efforts Agent applies to maintaining the confidentiality of its own confidential information) to maintain as confidential the existence, terms and conditions of this Guaranty, and all information received by Agent with respect to the Guarantors pursuant to this Guaranty, except that, subject to the terms and provisions of that certain letter agreement dated as of October 27, 1997 among GE Capital and the Guarantors regarding certain information about the limited partners of the Guarantors, Agent may disclose such information (a) to Persons employed or engaged by Agent in evaluating, approving, structuring or administering the Loan Documents and related Obligations and Commitments; (b) to any Lender or bona fide assignee or participant or potential assignee or participant of a Lender (or successor Agent or prospective successor Agent) that has agreed in writing to comply with the covenant contained in this Section 8.11 (and 16 17 any such Lender, bona fide assignee or participant or potential assignee or participant or Agent or prospective successor Agent may disclose such information to Persons employed or engaged by them as described in clause (a) above), which writing has been delivered to the Guarantors; (c) as required or requested by any Governmental Authority or reasonably believed by Agent to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, in the opinion of Agent's counsel, required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which Agent is a party; or (f) which ceases to be confidential through no fault of Agent; provided, however, that Agent shall use its best efforts to give Guarantors as much advance notice of the proposed disclosure as is reasonably possible under the circumstances and; provided, further, however, that, the failure by Agent, any Lender, any assignee, participant or prospective participant to comply with the terms of this Section 8.11 shall not operate as a defense, or give rise to any setoff claims, with respect to any obligation of either Guarantor under this Guaranty. 8.12 Notification to Limited Partners. The Guarantors shall notify each of their respective limited partners of the existence and general terms and conditions of this Guaranty along with the next quarterly financial report which is delivered to such limited partners after the date hereof pursuant to Section 8.2 of its Partnership Agreements. * * * * 17 18 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date first above written. PEGASUS PARTNERS, L.P. By: PEGASUS INVESTORS, L.P., as Managing General Partner By: PEGASUS INVESTORS GP, INC., as General Partner By: /s/ Richard M. Cion ---------------------------- Name: Richard M. Cion --------------------- Title: Vice President -------------------- and PEGASUS RELATED PARTNERS, L.P. By: PEGASUS INVESTORS, L.P., as Managing General Partner By: PEGASUS INVESTORS GP, INC., as General Partner By: /s/ Richard M. Cion ----------------------------- Name: Richard M. Cion --------------------- Title: Vice President -------------------- Agreed and Accepted as of this 24th day of October, 1997: GENERAL ELECTRIC CAPITAL CORPORATION, as Agent By: /s/ Timothy S. Van Kirk ---------------------------- Name: Timothy S. Van Kirk -------------------- Title: Duly Authorized Signatory --------------------------- 18 19 SCHEDULE I Addresses for Notices: Pegasus Partners, L.P. Pegasus Related Partners, L.P. 99 River Road 99 River Road Cos Cob, Connecticut 06807 Cos Cob, Connecticut 06807 EX-10.65 29 EXHIBIT 10.65 1 EXHIBIT 10.65 EXECUTION COPY LIMITED LITIGATION GUARANTY This LIMITED LITIGATION GUARANTY (this "Guaranty"), dated as of October 24, 1997, by and among PEGASUS PARTNERS, L.P., a Delaware limited partnership, and PEGASUS RELATED PARTNERS, L.P., a Delaware limited partnership (each individually, a "Guarantor" and together, collectively, the "Guarantors"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, individually and as agent (in such capacity, "Agent") for itself and the lenders from time to time signatory to the Credit Agreement hereinafter defined ("Lenders"). W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof by and among Code-Alarm, Inc., a Michigan corporation ("Borrower"), the other Persons signatory thereto as Credit Parties, Agent and the Persons signatory thereto from time to time as Lenders (including all annexes, exhibits and schedules thereto, and, subject to Section 8, as from time to time amended, restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for the benefit of, Borrowers. WHEREAS, pursuant to that certain Litigation L/C and Term Loan C Agreement of even date herewith among Borrower, Agent and certain of the Lenders (including all exhibits thereto, as may be from time to time amended, restated, supplemented or otherwise modified, the "L/C Agreement"), such Lenders have agreed to incur Litigation L/C Obligations for the benefit of, or under the Term Loan C to, Borrower. WHEREAS, each Guarantor is a shareholder of Borrower and will, accordingly, derive direct and indirect economic benefits from the making of the Loans and other financial accommodations provided to Borrower pursuant to the Credit Agreement and L/C Agreement; and WHEREAS, in order to induce Agent and Lenders to enter into the Credit Agreement, L/C Agreement and other Loan Documents and to induce Lenders to make the Loans and to incur Letter of Credit Obligations and Litigation Obligations as provided for in the Credit Agreement and L/C Agreement, each Guarantor has agreed to severally and not jointly guarantee payment of the Litigation Obligations, subject to the limitations set forth herein; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lenders to provide the Loans and other financial accommodations under the Credit Agreement and L/C Agreement, it is agreed as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement, unless otherwise defined herein. 2 References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any annexes, exhibits and schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. In addition, the following terms, as used herein, shall have the meanings set forth below: "Administrative GP" shall have the meaning ascribed to such term in Section 3(a). "Aggregate Net Capital" shall mean, as of any date of determination, the sum of (i) the Net Assets of both Guarantors plus (ii) the Unpaid Capital Obligations of the limited partners of each of the Guarantors. "Aggregate Portfolio Cash Flow" shall mean, as of the last day of any fiscal quarter of the Guarantors or as of the last day of any fiscal year of the Guarantors, the aggregate sum of the EBTDA, as reported to the Guarantors, of all Portfolio Companies of the Guarantors for the most recently ended period of four fiscal quarters (taken as a single accounting period) of each such Portfolio Company which at the time of determination has been reported to the Guarantors (it being acknowledged that a fiscal quarter of a Portfolio Company will not necessarily coincide with a fiscal quarter of the Guarantors); provided that (i) if such period of four fiscal quarters of a Portfolio Company shall include periods prior to the Guarantors making a Portfolio Investment in such Portfolio Company, then "Aggregate Portfolio Cash Flow" shall include the EBTDA of such Portfolio Company only for full fiscal quarters of the Portfolio Company commenced after such Portfolio Investment is made and (ii) the calculation of Aggregate Portfolio Cash Flow for any period shall exclude the EBTDA of each Portfolio Company in which the Guarantors' Portfolio Investments consist exclusively of non-convertible debt instruments and non-convertible preferred stock. "Capital Demand Date" shall have the meaning ascribed to such term in the Partnership Agreements as in effect to from time to time. "Capital Demand Notice(s)" shall have the meaning ascribed to such term in the Partnership Agreements as in effect from time to time. "Cash Collateral Account" shall have the meaning ascribed to such term in Section 6. "Corporate GP" shall have the meaning ascribed to such terms in Section 3(a). "Current Market Price" shall mean, as of any date of determination, and for any asset which is a security, the average of the daily market prices of such security for the twenty consecutive trading days immediately preceding such date. The "daily market price" for each 2 3 trading day shall be (i) if such security is then listed on a national securities exchange or is listed on NASDAQ and is designated as a National Market System security, the last sale price on such day on the principal stock exchange or market system on which such security is then listed or admitted for trading, or (ii) if such security is not then listed or admitted to trading on any national securities exchange or designated as a National Market System security on NASDAQ but is traded over-the-counter, the average of the closing bid and asked prices for such security as reported on NASDAQ or the Electronic Bulletin Board or in the National Daily Quotation Sheets, as applicable. "Defaulting Limited Partner" shall have the meaning ascribed to such term in the Partnership Agreements as in effect on the date hereof. "EBTDA" shall mean, for any Portfolio Company and for any period, such Portfolio Company's consolidated earnings before taxes, depreciation and amortization (excluding, in the case of Borrower, any losses with respect to the DEI Litigation). "Effectiveness Conditions" shall mean, subject to Section 3(b) hereof, (i) the receipt by Agent of each of the items described in Section 3 hereof, in each case in form, scope and substance satisfactory to Agent and written confirmation thereof by Agent pursuant to Section 3(b) hereof, (ii) the execution and delivery by Borrower in favor of the Guarantors of the "Litigation Warrants" referred to and as defined in the Series A Preferred Stock Documents and written confirmation thereof and of receipt of the Litigation Warrant Opinion by Guarantors pursuant to Section 3(b) hereof and (iii) the issuance of the Litigation L/C. "Effective Date" shall mean the date on which all of the Effectiveness Conditions shall have been satisfied. "Event of Dissolution" shall have the meaning ascribed to such term in the Partnership Agreements as in effect on the date hereof and any other "Event of Dissolution" as may be hereafter defined in the Partnership Agreements. "Fair Market Value" shall mean, as of any date of determination and for any asset owned by any Guarantor (A) if such asset is a security which is publicly traded on such date, the Current Market Price of such security or (B) if such asset is not a publicly traded security as of such date, the fair market value of such asset as reasonably determined in good faith by the Managing GP of the applicable Guarantor. "Guarantor Default" shall mean (i) any failure of either Guarantor to pay or perform any of its obligations under this Guaranty, (ii) any breach by either Guarantor of any representation or warranty hereunder in any material respect, (iii) the occurrence of any insolvency event with respect to either Guarantor under Sections 8.1(h) or 8.1(i) of the Credit Agreement, (iv) any revocation or attempted revocation by either Guarantor of its obligations 3 4 under this Guaranty, or (v) any "Guarantor Default" shall have occurred under and as defined in that certain Limited Supplemental Guaranty of even date herewith among the Guarantors and Agent. "Guaranteed Obligations" shall have the meaning ascribed to such term in Section 2.1. "Instruction Certificate(s)" shall mean one or more written certificates executed by Agent and delivered to the Administrative GP stating that (i) Agent is entitled to demand payment under this Guaranty, (ii) Agent has demanded payment under this Guaranty, (iii) the Guarantors have failed to timely satisfy all of such payments properly demanded, (iv) the Administrative GP is instructed to deliver a Capital Demand Notice to each limited partner of each Guarantor specifying the earliest possible Capital Demand Date as is permitted under Section 3.1 of the Partnership Agreements and demanding capital contributions under such section in amounts sufficient to permit the Guarantors to satisfy such unsatisfied payment obligations to Agent under this Guaranty and (v) all of the proceeds of such capital contributions received by the Administrative GP are to be promptly sent, by wire transfer, to an account specified in such certificate for application by Agent to such unsatisfied payment obligations. "Irrevocable Instruction" shall mean a document, in form and substance acceptable to Agent, pursuant to which the Managing GP instructs the Administrative GP, and the Administrative GP agrees, that upon the Administrative GP's receipt of an Instruction Certificate from Agent, the Administrative Agent shall (i) deliver a Capital Demand Notice to each limited partner of each Guarantor, specifying the earliest Capital Demand Date as is permitted under section 3.1 of the Partnership Agreements and demanding capital contributions under such section in amounts sufficient to permit the Guarantors to satisfy the unpaid Guaranteed Obligations set forth in such Instruction Certificate and (ii) pay all of the proceeds of such capital contributions received by the Administrative GP to Agent on behalf of the Guarantors for application by Agent to such Guaranteed Obligations pursuant to the instructions specified by Agent in such Instruction Certificate. Such Irrevocable Instruction may only be amended, terminated or modified with the written consent of Agent, the Administrative GP and the Managing GP. "Limitation Amount" shall mean the lesser of $12,000,000 and the originally stated face amount of the Litigation L/C. "Litigation Warrant Opinion" shall mean an opinion of counsel to Borrower addressed to the Guarantors confirming, as of the date of the delivery thereof, with respect to the "Litigation Warrants" referred to and as defined in the Series A Preferred Stock Documents, substantially the same opinions as were given by such counsel to Guarantors as of October 27, 1997 with respect to the "Attached Warrants" pursuant to and as defined in the Series A Stock Purchase Agreement as provided in the first and third sentences of paragraph 3, paragraph 8 and paragraph 11 (and for purposes of such paragraph 11, counsel may assume that Guarantors' representation remains true), and opining that the Litigation Warrants have been duly executed 4 5 and delivered by the Borrower and constitute valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms, provided, that such opinion shall not contain assumptions as to issuance in accordance with Series A Purchase Agreement of the Litigation Warrants. "Managing GP" shall have the meaning ascribed to such term in Section 3(a). "Net Assets" shall mean, with respect to either Guarantor as of any date of determination, such Guarantor's consolidated total assets, valued at the lower of cost or Fair Market Value, minus its consolidated total liabilities as determined in accordance with GAAP consistently applied and minus the aggregate amount of such Guarantor's consolidated known contingent liabilities (to the extent not included in its total liabilities). "Partnership Agreements" shall mean the Agreement of Limited Partnership of each Guarantor as in effect as of the date hereof and attached hereto as Exhibit A and B, respectively, as amended or otherwise modified from time to time hereafter. "Portfolio Company" shall have the meaning ascribed to such term in the Partnership Agreements as of the date hereof. "Portfolio Investment" shall have the meaning ascribed to such term in the Partnership Agreements as of the date hereof. "Ratable Share" shall mean 27.7727273% in the case of Pegasus Partners, L.P., and 72.2272727% in the case of Pegasus Related Partners, L.P. "Termination Date" shall have the meaning ascribed to such term in Section 2.1. "Trigger Event" shall mean (i) any Event of Dissolution, (ii) the existence of any Defaulting Limited Partner and the failure of the non-defaulting limited partners of the affected Guarantor to assume the Unpaid Capital Obligations of such Defaulting Limited Partner within thirty days of the default giving rise such occurrence, (iii) any Guarantor Default, (iv) the Aggregate Portfolio Cash Flow is less than $1.00, (v) the Aggregate Net Capital at any time shall be less than $125,000,000, (vi) the Unpaid Capital Obligations at any time during the period commencing on the date hereof and ending on October 24, 1998 shall be less than $50,000,000, (vii) the Unpaid Capital Obligations at any time after October 24, 1998 shall be less than $25,000,000, or (viii) any amendment or other modification with respect to either Partnership Agreement shall become effective and shall have a material adverse effect upon the rights or claims of Agent and the Lenders under this Guaranty. 5 6 "Unpaid Capital Obligations" shall mean, with respect to either Guarantor's limited partners, as of any date of determination, the "Unpaid Capital Obligations" under and as defined in such Guarantor's Partnership Agreement as in effect on the date hereof, excluding, however, such obligations of each Default Limited Partner of such Guarantor unless and until such limited partner's obligations are assumed by the non-defaulting limited partners of such Guarantor. 2. THE GUARANTY. 2.1 Guaranty of Guaranteed Obligations of Borrower. Subject to the provisions of this Guaranty, each Guarantor hereby severally (based upon their respective Ratable Shares) and not jointly, irrevocably and unconditionally guarantees to Agent and Lenders, and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) of the Litigation Obligations of Borrower (hereinafter the "Guaranteed Obligations"). Subject to the provisions of this Guaranty, in the event that either Guarantor shall fail to timely satisfy any such obligations or any other payment obligations under this Guaranty, Agent shall be thereafter entitled, in its discretion, to deliver one or more Instruction Certificates to the Administrative GP requesting payment thereof pursuant to the Irrevocable Instruction. Each Guarantor agrees that this Guaranty is a guaranty of payment and not of collection, and that its obligations under this Guaranty shall be primary, absolute and, subject to the provisions of this Guaranty, unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Guaranty, any other Loan Document or any other agreement, document or instrument to which any Credit Party, either Guarantor or other Persons are or may become a party; (b) the absence of any action to enforce this Guaranty or any other Loan Document or the waiver or consent by Agent and/or Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any Collateral for the Guaranteed Obligations or any action, or the absence of any action, by Agent in respect thereof; (d) the discharge, avoidance, subordination or other ineffectiveness of any of the Guaranteed Obligations, whether pursuant to any insolvency proceeding or otherwise; (e) the insolvency of any Credit Party, either Guarantor or other Person; or 6 7 (f) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by each Guarantor that its obligations under this Guaranty shall not be discharged until the later of the following dates (hereinafter, the "Termination Date"): (i) in the event that the Litigation L/C shall have been issued, the earliest date on which Term Loan C has been repaid in full, the Litigation L/C has expired, been canceled, or been terminated, all other Guaranteed Obligations have been paid in full, and the Lenders shall have no further obligations to incur Litigation L/C Obligations under the Credit Agreement or L/C Agreement or (ii) in the event that the Litigation L/C shall not have been issued, the earliest date on which the Litigation L/C have not been issued and the Lenders have no further obligation to incur Litigation L/C Obligations under the Credit Agreement or L/C Agreement; provided, however, that the Termination Date may thereafter be deemed to have not occurred upon Guarantors' obligations under this Guaranty being reinstated pursuant to Section 2.8 and shall be extended until such time as the payments giving rise to such reinstatement are thereafter again repaid to Agent and Lenders. Subject to limitations described in Section 2.2, each Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Guaranteed Obligations. Each Guarantor agrees that any notice or directive given at any time to Agent which is inconsistent with this section, or Sections 2.5 or 2.7, shall be null and void and may be ignored by Agent and Lenders, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Agent and Lenders have specifically agreed otherwise in writing. It is agreed among Guarantor, Agent and Lenders that the foregoing provisions, and those of Sections 2.5 and 2.7, are of the essence of the transaction contemplated by the Loan Documents and that, but for this Guaranty and such waivers, Agent and Lenders would decline to enter into the Credit Agreement and L/C Agreement. 2.2 Limitations. Notwithstanding anything in Section 2.1 or elsewhere in this Guaranty to the contrary, (a) the aggregate liability of Guarantors under this Guaranty shall, in no event, exceed, the Limitation Amount, plus interest on each amount payable hereunder from the date such payment by Guarantors hereunder is due and payable pursuant to clause (b) of this section (at a per annum rate equal to the Default Rate for Term Loan C if it were bearing interest based upon the Index Rate computed on the basis of 360 days and actual days elapsed), until such payment is received by Agent, and plus all costs and expenses (including, without limitation, attorneys' and paralegals' fees and expenses) incurred by Agent following either Guarantor's failure to timely satisfy its obligations hereunder, in connection with the enforcement and collection of the Guarantors' obligations under this Guaranty against the Guarantors and their respective partners and properties, (b) each payment by Guarantors hereunder shall be due and payable on the tenth (10th) calendar day following the date on which demand for such payment is given by Agent to Guarantors, and (c) Agent shall not be permitted to demand payment hereunder from Guarantors, and Guarantors shall not be liable hereunder for any such demanded payment, unless the Effectiveness Conditions shall have been satisfied, there shall have occurred a draw under the Litigation L/C or the Litigation L/C Obligations shall have been converted to the Term 7 8 Loan C pursuant to the terms of the Loan Documents, and Borrower shall have failed to pay, when due, all or any portion of the Litigation Obligations. 2.3 Payment by Guarantor. Payment by either Guarantor shall be made to Agent in immediately available Federal funds to an account designated by Agent or at the address set forth herein for the giving of notice to Agent or at any other address that may be specified in writing from time to time by Agent, and shall be credited and applied to the Guaranteed Obligations. 2.4 Enforcement of Guaranty. In no event shall Agent have any obligation (although it is entitled, at its option) to proceed against Borrower, any other Credit Party, one but not the other Guarantor, or other Person, or any Collateral, before seeking satisfaction from either Guarantor. 2.5 Waiver. In addition to the provisions of Section 2.1 hereof, each Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshaling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by such Guarantor of its Guaranteed Obligations under, or the enforcement by Agent or Lenders of, this Guaranty. Each Guarantor hereby waives diligence, presentment and demand upon Borrower or, other than as provided in this Guaranty, such Guarantor (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Guaranteed Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Guaranteed Obligations, notice of adverse change in Borrower's financial condition or any other fact which might increase the risk to such Guarantor) with respect to any of the Guaranteed Obligations or all other demands whatsoever and waive the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Each Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Agent or Lenders or any other Credit Party of any kind. Each Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims (other than compulsory counterclaims), offsets or defenses against Agent or any Lender or against any other Credit Party of any kind which may arise in the future. 2.6 Benefit of Guaranty. The provisions of this Guaranty are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any Credit Party, either Guarantor or other Person and Agent or Lenders, the obligations of any Credit Party, either Guarantor or other Person under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, indorsed or assigned by Agent or any Lender to any Person or Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer equally to such Person or Persons. 8 9 2.7 Modification of Guaranteed Obligations, Etc. Subject to Section 8, each Guarator hereby acknowledges and agrees that Agent and Lenders may at any time or from time to time, with or without the consent of, or notice to, such Guarantor: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for any Credit Party's or other Person's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Loan Documents, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold Collateral for the payment of the Guaranteed Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Agent or Lenders have been granted a Lien, to secure any Guaranteed Obligations; (f) release anyone who may be liable in any manner for the payment of any amounts owed by either Guarantor or any other Credit Party or other Person to Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of either Guarantor or any other Credit Party or other Person are subordinated to the claims of Agent and Lenders; and/or (h) apply any sums by whomever paid or however realized to any amounts owing by either Guarantor or any other Credit Party or other Person to Agent or any Lender in such manner as Agent or any Lender shall determine in its discretion; and Agent and Lenders shall not incur any liability to Guarantors as a result thereof, and no such action shall impair or release the Guaranteed Obligations of Guarantors under this Guaranty. 2.8 Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Credit Party, either Guarantor or any other Person for liquidation or reorganization, should any Credit Party, either Guarantor or any other Person become insolvent or make an assignment for the benefit of 9 10 creditors or should a receiver or trustee be appointed for all or any significant part of such Credit Party's, Guarantor's or other Person's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Guaranteed Obligations or the obligations of either Guarantor under this Guaranty, or any part of any such obligations, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Agent or any Lender pursuant to applicable law, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. In the event that any such payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranteed Obligations and obligations of the Guarantors under this Guaranty shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. In the event any such payment is rescinded, reduced, restored or returned after what otherwise would be the Termination Date pursuant to the provisions of Section 2.1, the Termination Date shall thereupon be deemed to have not occurred and shall be extended until such time as such payment is thereafter again repaid to Agent and Lenders. In the event legal action is commenced against Agent seeking any such rescission, reduction, restoration or return with respect to any portion of the Guaranteed Obligations or Agent's liens securing such Guaranteed Obligations, Agent will permit Guarantors to jointly defend such action to the extent pertaining to such Guaranteed Obligations or liens, provided, that Agent shall retain exclusive control over all material decisions (including, without limitation, those pertaining to choice of counsel, settlement, jurisdiction, venue and strategy) unless and until Guarantors shall have provided cash collateral pursuant to Section 6 hereof as if a Trigger Event shall have occurred in which case all such decisions (other than those the principal economic effect of which is borne solely or primarily by Agent or the Lenders) shall thereafter be made jointly by Agent and Guarantors. In furtherance of such provisions, Agent shall provide Guarantors with notice of Agent's knowledge of actual claims against Agent or Lenders of the type described in this section and shall consult with the Guarantors in connection with its proposed defense or other disposition of such claims. 2.9 Deferral of Subrogation, Etc. Notwithstanding anything to the contrary in this Guaranty, or in any other Loan Document, each Guarantor hereby: (a) expressly and irrevocably waives, on behalf of itself and its successors and assigns (including any surety), until the later of the Termination Date or the "Termination Date" under and as defined in that certain Limited Supplemental Guaranty of even date herewith executed and delivered by the Guarantors in favor of Agent and Lenders, any and all rights at law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to indemnification, to set off or to any other rights that could accrue to a surety against a principal, to a guarantor against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of any claim against any Person, and which such Guarantor may have or hereafter acquire against any Credit Party, the other Guarantor or any other Person in connection with or as a result of such Guarantor's execution, delivery and/or performance of this Guaranty; and 10 11 (b) acknowledges and agrees (i) that this waiver is intended to benefit Agent and Lenders and shall not limit or otherwise effect such Guarantor's liability hereunder or the enforceability of this Guaranty, and (ii) that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 2.9 and their rights under this Section 2.9 shall survive payment in full of the Guaranteed Obligations. 2.10 Election of Remedies. If Agent may, under applicable law, proceed to realize benefits under any of the Loan Documents giving Agent and Lenders a Lien upon any Collateral owned by any Credit Party or other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent may, at its sole option, determine which of such remedies or rights it may pursue without affecting any of such rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Agent shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Credit Party or other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Guarantor hereby consents to such action by Agent and waives any claim based upon such action, even if such action by Agent shall result in a full or partial loss of any rights of subrogation which either Guarantor might otherwise have had but for such action by Agent. Any election of remedies which results in the denial or impairment of the right of Agent to seek a deficiency judgment against any Credit Party or other Person shall not impair either Guarantor's obligation to pay the Guaranteed Obligations hereunder. In the event Agent shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent may bid all or less than the amount of the Guaranteed Obligations and the amount of such bid need not be paid by Agent but shall be credited against the Guaranteed Obligations. The amount of the successful bid at any such sale shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Guaranteed Obligations shall be conclusively deemed to be the amount of the Guaranteed Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent and Lenders might otherwise be entitled but for such bidding at any such sale. 3. DELIVERIES. (a) In a form, scope and substance satisfactory to Agent, the Guarantors shall deliver or cause to be delivered, to Agent (or to the extent the items described below are to be executed or delivered by the Administrative GP, its officers, directors or attorneys, or otherwise relate to the Irrevocable Instruction, the Guarantors shall exert their reasonable commercial efforts to deliver or cause to be delivered to Agent), as soon as practicable following the execution of this Guaranty, the Credit Agreement and the L/C Agreement, each of the following: (i) the Irrevocable Instruction; 11 12 (ii) a certificate of the corporate secretary of Pegasus Investors GP, Inc., a Delaware corporation ("Corporate GP"), as general partner of Pegasus Investors, L.P., a Delaware limited partnership and the managing general partner of each Guarantor (the "Managing GP"), certifying (A) that attached thereto are true, correct and current copies of the Partnership Agreements, the agreement of limited partnership of the Managing GP and the certificate of incorporation and bylaws of the Corporate GP (in each case, including any and all signatures, exhibits, schedules, annexes and amendments thereto, as applicable); (B) that the execution, delivery and performance of this Guaranty and all other agreements, documents and instruments executed and delivered in connection herewith by the Guarantors, the Managing GP and the Corporate GP, individually or on behalf of the Guarantors (or either one of them) (1) are within the partnership, corporate power (as applicable) of such Person, (2) have been duly authorized by all necessary and proper partnership, corporate, partner or shareholder action (as applicable) of such Persons, (3) do not contravene any provision of such Person's partnership agreement, certificate of incorporation or bylaws, (4) do not violate any law or regulation, or any order or decree of any court or Governmental Authority applicable to such Person, (5) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound, (6) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to this Guaranty, (7) do not require the consent or approval of any Governmental Authority or any other Person except as has been previously obtained and (8) do not result in an Event of Dissolution or any Trigger Event; (C) that attached thereto are true, correct and current copies of all partnership and corporate resolutions and other authorizations of the limited partnership panel, board of directors, management committee or other managing bodies of the Guarantors, the Managing GP and the Corporate GP which were adopted and approved in connection with, and necessary to permit, the execution, delivery and performance of this Guaranty by of on behalf of either of the Guarantors and all other agreements, documents and instruments executed and delivered by or on behalf of either of the Guarantors in connection herewith; (D) the incumbency and true or facsimile signatures of all officers of the Corporate GP on behalf of the Managing GP and the Guarantors, which will or have executed and delivered this Guaranty or any other agreements, documents or instruments executed and delivered by or in behalf of either of the Guarantors in connection herewith and (E) that no Event of Dissolution or other Trigger Event has occurred and is continuing; (iii) a certificate of the company secretary (or other equivalent) of Pegasus Administration Limited, a Cayman Islands limited duration company and the administrative general partner of each Guarantor (the "Administrative GP"), certifying (A) that attached thereto are true, correct and current copies of the charter and bylaws of the Administrative GP (including any and all signatures, exhibits, schedules, annexes and 12 13 amendments thereto); (B) that the execution, delivery and performance of the Irrevocable Instruction and all other agreements, documents and instruments executed and delivered in connection therewith by the Administrative GP, (1) are within the company power of the Administrative GP, (2) have been duly authorized by all necessary and proper company action of the Administrative GP, (3) do not contravene any provisions of the Administrative GP's charter or bylaws, (4) do not violate any law or regulation, or any order or decree of any court or Governmental Authority applicable to the Administrative Agent, and (5) do not require the consent or approval of any Governmental Authority or any other person, except as has been previously obtained, (C) that attached thereto are true, correct and current copies of all company resolutions and other authorizations of the board of directors or other managing body of the Administrative GP which were adopted and approved in connection with, and necessary to permit, the execution, delivery and performance of the Irrevocable Instruction on behalf of the Administrative GP and all other agreements, documents and instruments executed and delivered by the Administrative GP and (D) the incumbency and true or facsimile signatures of all officers of the Administrative GP which will or have executed and delivered the Irrevocable Instruction or any other agreements, documents or instruments executed and delivered by the Administrative GP in connection therewith; (iv) certificates of limited partnership of each Guarantor and the Managing GP, and a certificate of incorporation of the Corporate GP, in each case certified, as of a date no earlier than thirty (30) days prior to the date on which the Irrevocable Instruction is executed and delivered, by the Secretary of State of Delaware together with good standing certificates of such Person from the Secretary of State of Delaware, and certificates of existence and good standing with respect to the Administrative GP certified by the Cayman Islands (or appropriate agency thereof) as of a date no earlier than thirty (30) days prior to the date on which the Irrevocable Instruction is executed and delivered; and (v) an opinion of counsel to the Guarantors, the Managing GP and the Corporate GP, favorably addressing, as a matter of Delaware partnership and corporate law and New York law, as applicable, as to this Guaranty, substantially in the form delivered by such counsel as of October 27, 1997 with respect to that certain Limited Supplemental Guaranty of even date herewith; and (vi) an opinion of counsel to the Administrative GP, favorably addressing, as a matter of the laws of the Cayman Islands, (A) the organization, existence and good standing in the jurisdiction of organization and principal place of business of the Administrative GP, (B) each of the matters described in Section 3(a)(iii)(B) hereof, (C) the enforceability of the provisions of the Irrevocable Instruction against the Administrative GP and (D) the irrevocability of the Irrevocable Instruction. 13 14 (b) Promptly following the execution and delivery by Borrower to the Guarantors of the "Litigation Warrants" referred to defined in and in accordance with the Series A Preferred Stock Documents and delivery by Borrowers of the Litigation Warrant Opinion (or waiver thereof by the Guarantors), the Guarantors shall confirm such occurrence in a writing delivered to the Agent and shall deliver to Agent a certificate (i) setting forth a calculation of (and showing in reasonable detail) the Net Assets and Unpaid Capital Obligations of each Guarantor, and the Aggregate Net Capital and Aggregate Portfolio Cash Flow as of the date of such certification and (ii) stating that each of the representatives and warranties set forth in Section 4 hereof are true and correct as of the date thereof. Promptly following Agent's receipt of each of the items described in Section 3(a) hereof and the Guarantors written confirmation and certification referred to in the immediately preceding sentence (or waiver thereof by Agent), Agent shall confirm such occurrence in a writing delivered to Guarantors. Upon Agent's delivery of such confirmation and the issuance of the Litigation L/C, and notwithstanding anything herein or any fact to the contrary, the Effectiveness Conditions shall, for all purposes of this Guaranty, be deemed to have been satisfied and the Effective Date shall be deemed to have occurred. 4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the Loans and incur Letter of Credit Obligations and Litigation L/C Obligations under the Credit Agreement and L/C Agreement, each Guarantor makes the following representations and warranties to Agent and each Lender, as of the date hereof (except as provided below), all of which shall survive the execution and delivery of this Guaranty: 4.1 Corporate Existence; Corporate Power; Compliance with Law. Each of the statements contained in clauses (B) and (E) of Section 3(a)(ii) are true, accurate and complete. Guarantor is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a material adverse effect upon such Guarantor, its properties or its ability to perform its obligations hereunder. 4.2 Enforceable Guaranteed Obligations. This Guaranty constitutes the legal, valid and binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its terms. 4.3 Trigger Event. As of the date hereof, no Trigger Event has occurred and is continuing. 5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of Agent on or following the Effective Date, to execute and deliver to Agent, from time to time, any additional instruments or documents reasonably considered necessary by Agent to cause their Guaranty or the Irrevocable Instruction to be, become or remain valid and effective in accordance with its terms. 14 15 6. CASH COLLATERAL. If both the Effective Date and one or more Trigger Events shall have occurred, the Guarantors shall promptly deliver to Agent, cash or other immediately available funds in an amount equal to the Limitation Amount as cash collateral for the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty. Such funds shall be held by Agent in a cash collateral account (the "Cash Collateral Account") maintained at a bank or financial institution acceptable to Agent and shall be invested (for the account of the Guarantors) in short term, highly rated securities or interest bearing accounts, in a manner acceptable to Agent. The Cash Collateral Account shall be in the name of Guarantors and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent. Each Guarantor hereby pledges and grants to Agent, on behalf of Lenders, a security interest in all such funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty, whether or not then due. From time to time after the occurrence and during the continuation of any Guarantor Default, Agent may apply any and all funds held in the Cash Collateral Account to the payment or cash collateralization of the Guaranteed Obligations and Guarantors' payment and performance obligations under this Guaranty. Neither Guarantor nor any Person claiming on behalf of or through either Guarantor shall have any right to withdraw any of the funds held in the Cash Collateral Account until the ninety-first (91st) day following the Termination Date. 7. REPORTING. From and after the Effective Date, each Guarantor shall deliver or cause to be delivered to Agent, the following: (a) at the same times as are delivered or required to be delivered to each partner of the Guarantors pursuant to Section 8.2 (or any successor provision thereto) of the Partnership Agreements, each of the reports, statements, financial statements, schedules, summaries and other information described in such section (and without giving effect to any amendments or modifications thereto), excluding, however, any items delivered pursuant to Section 8.2(d) thereof and the Schedule K-1's referred to in Section 8.2(b) thereof; (b) within 45 calendar days after the end of each of the first three fiscal quarters of the Guarantors, and within 90 days after the end of each fiscal year of the Guarantors, a written certification of the amounts of the Net Assets and Unpaid Capital Obligations of each Guarantor, and the Aggregate Net Capital and Aggregate Portfolio Cash Flow, in each case as of the last day of such fiscal quarter or fiscal year, as the case may be, and, upon request by Agent, together with written copies of any and all financial statements and other written information (redacted to delete proper names to the extent deemed appropriate by the Guarantors) used by the Guarantors in determining, for such period, the Net Assets of each Guarantor and the Aggregate Portfolio Cash Flow for each Portfolio Companies; (c) notice, within 30 days thereof, of (i) each transfer by any partner of its interest in either Guarantor, each additional commitment of an existing partner of either Guarantor, and each "Subsequent Closing" of either Guarantor (as defined in the Partnership 15 16 Agreements), the amounts transferred or committed, the Unpaid Capital Obligations of each of the partners party to such assignment, commitment or "Subsequent Closing", and a recalculation of the Net Assets and Unpaid Capital Obligations of each Guarantor and the Aggregate Net Capital, in each case after giving effect to such transactions (provided, however, that no notice shall be required under this clause (i) with respect to any such transfer, additional commitment or "Subsequent Closing", if the changes in the amount of the Unpaid Capital Obligations of each partner party to, such transactions are less than $2,000,000), and (ii) each closing of any Portfolio Investment a recalculation of the Net Assets and Unpaid Capital Obligations of each Guarantor, and the Aggregate Net Capital, in each case after giving effect to such closing;d (d) promptly following its occurrence, notice of the existence and nature of any Trigger Event; and (e) promptly following either Guarantors' knowledge thereof, notice of the commencement by or against either Guarantor of any material litigation relating to the affairs of such Guarantor. 8. CERTAIN AMENDMENTS TO LOAN DOCUMENTS. Notwithstanding anything herein to the contrary, Agent and Lenders shall not agree to any of the following waivers or modifications with respect to the Loan Documents, without the Guarantors' prior written consent: (a) a waiver of or modification to any of the conditions set forth in Section 2.3 of the Credit Agreement (other than the condition set forth in clause (I)(b) or (II)(b) thereof); (b) a waiver of any Event of Default which has actually caused an acceleration, or was the basis for an actual acceleration, of Obligations under the Credit Agreement; (c) a waiver of any Default or Event of Default which was the basis for an actual exercise by Agent of any of its post-default remedies as a secured lender with respect to the Collateral of the type provided under the applicable Uniform Commercial Code; (d) any modification the effect of which is to extend the maturity of any commitment relating to Term Loan C or the Litigation Obligations or the due date for receipt of any payment of any principal, interest or Fees payable under the Credit Agreement with respect to the Term Loan C or the Litigation L/C Obligations (provided that Agent and Lenders may waive any such Fees in their discretion with the only consequence being that such waived Fees shall thereafter no longer constitute Guaranteed Obligations herewith); 16 17 (e) any modification the effect of which is to increase the interest or Fees payable with respect to the Term Loan C or the Litigation Obligations; (f) any release of Agent's Liens created pursuant to the Litigation Collateral Documents if the aggregate forced liquidation value of the property subject to all such releases exceeds $2,000,000, excluding, however, all such releases in connection with the sale or other disposition by Borrower or any of its Subsidiaries of the property subject thereto, whether or not such sale is in the ordinary course of Borrower's or such Subsidiary's business; (g) any amendment to any Collateral Document other than a Litigation Collateral Document if such amendment enhances the rights and benefits thereunder to Agent and Lenders, unless a substantially similar amendment to the corresponding Litigation Collateral Document, if any, is also made (other than omissions that are subsequently corrected); or (h) any waiver of an Event of Default under Section 8.1(h) of the Credit Agreement. 9 OTHER TERMS. 9.1. Entire Agreement. This Guaranty constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of the loans and advances under the Loan Documents and/or the Guaranteed Obligations. 9.2. Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 9.3. Severability. Whenever possible, each provision of this Guaranty shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 9.4. Notices. Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Guaranty, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified as follows: 17 18 (a) If to Agent, at: General Electric Capital Corporation 10 South LaSalle Street Suite 2800 Chicago, Illinois 60603 Attention: Account Manager Telecopier No.: (312) 419-5957 Telephone No.: (312) 419-0985 with copies to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: H. Bruce Bernstein Telecopy Number: (312) 853-7036 Telephone Number: (312) 853-7000 and: General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: General Counsel Telecopy Number: (203) 316-7889 Telephone Number: (203) 316-7552 (b) If to any Lender, at the address of suchlender specified in the Credit Agreement. (c) If to either Guarantor, at the address of specified on Schedule I hereto. or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been validly served, given or delivered (i) upon the earlier of actual receipt and three (3) Business Days after the same shall have been deposited with the United States mail, registered or certified mail, return receipt requested, with proper postage prepaid, (ii) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 9.4), (iii) one (1) Business Day after 18 19 deposit with a reputable overnight carrier with all charges prepaid, or (iv) when delivered, if hand-delivered by messenger. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any of the above-listed persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 9.5. Successors and Assigns. This Guaranty and all obligations of each Guarantor hereunder shall be binding upon the successors and assigns of such Guarantor (including a debtor-in-possession on behalf of such Guarantor) and shall, together with the rights and remedies of Agent, for itself and for the benefit of Lenders, hereunder, inure to the benefit of Agent and Lenders, all future holders of any instrument evidencing any of the Guaranteed Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreement governing or instrument evidencing the Guaranteed Obligations or any portion thereof or interest therein shall in any manner affect the rights of Agent and Lenders hereunder. Neither Guarantor may assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Guaranty. 9.6. No Waiver; Cumulative Remedies; Amendments. Neither Agent nor any Lender shall by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent and then only to the extent therein set forth. A waiver by Agent, for itself and the ratable benefit of Lenders, of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent or any Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Guaranty may be waived, altered, modified, supplemented or amended except by an instrument in writing, duly executed by Agent and Guarantors. 9.7. Termination. This Guaranty is a continuing guaranty and shall remain in full force and effect until the Termination Date. On or after the Termination Date, Agent shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 9.8. Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall collectively and separately constitute one and the same agreement. 19 20 9.9. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG GUARANTORS, AGENT OR ANY LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT AND GUARANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON PAYMENT CLAIMS OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT, FOR THE BENEFIT OF AGENT AND LENDERS. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GUARANTOR AT THE ADDRESS SET FORTH ON SCHEDULE I HERETO AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 9.10. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), GUARANTORS AND AGENT DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL 20 21 SYSTEM AND OR ARBITRATION, GUARANTORS AND AGENT WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS GUARANTY AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO. 9.11 Confidentiality. Agent agrees to use commercially reasonable efforts (equivalent to the efforts Agent applies to maintaining the confidentiality of its own confidential information) to maintain as confidential the existence, terms and conditions of this Guaranty, and all information received by Agent with respect to the Guarantors pursuant to this Guaranty, except that, subject to the terms and provisions of that certain letter agreement dated as of October 27, 1997 among GE Capital and the Guarantors regarding certain information about the limited partners of the Guarantors, Agent may disclose such information (a) to Persons employed or engaged by Agent in evaluating, approving, structuring or administering the Loan Documents and related Obligations and Commitments; (b) to any Lender or bona fide assignee or participant or potential assignee or participant of a Lender (or successor Agent or prospective successor Agent) that has agreed in writing to comply with the covenant contained in this Section 9.11 (and any such Lender, bona fide assignee or participant or potential assignee or participant or Agent or prospective successor Agent may disclose such information to Persons employed or engaged by them as described in clause (a) above), which writing has been delivered to the Guarantors; (c) as required or requested by any Governmental Authority or reasonably believed by Agent to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, in the opinion of Agent's counsel, required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which Agent is a party; or (f) which ceases to be confidential through no fault of Agent; provided, however, that Agent shall use its best efforts to give Guarantors as much advance notice of the proposed disclosure as is reasonably possible under the circumstances and; provided, further, however, that, the failure by Agent, any Lender, any assignee, participant or prospective participant to comply with the terms of this Section 9.11 shall not operate as a defense, or give rise to any setoff claims, with respect to any obligation of either Guarantor under this Guaranty. 9.12 Notification to Limited Partners. The Guarantors shall notify each of their respective limited partners of the existence and general terms and conditions of this Guaranty along with the next quarterly financial report which is delivered to such limited partners after the date hereof pursuant to Section 8.2 of its Partnership Agreements. * * * * 21 22 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date first above written. PEGASUS PARTNERS, L.P. By: PEGASUS INVESTORS, L.P., as Managing General Partner By: PEGASUS INVESTORS GP, INC., as General Partner By: /s/ Richard M. Cion ----------------------------- Name: Richard M. Cion -------------------- Title: Vice President ------------------- PEGASUS RELATED PARTNERS, L.P. By: PEGASUS INVESTORS, L.P., as Managing General Partner By: PEGASUS INVESTORS GP, INC., as General Partner By: /s/ Richard M. Cion ----------------------------- Name: Richard M. Cion -------------------- Title: Vice President ------------------ Agreed and Accepted as of this 24th day of October, 1997: GENERAL ELECTRIC CAPITAL CORPORATION, as Agent Lender By: /s/ Timothy S. Van Kirk --------------------------- Name: Timothy S. Van Kirk ------------------- Title: Duly Authorized Signatory -------------------------- 22 23 SCHEDULE I Address for Notices: Pegasus Partners, L.P. Pegasus Related Partners, L.P. 99 River Road 99 River Road Cos Cob, Connecticut 06807 Cos Cob, Connecticut 06807 EX-10.66 30 EXHIBIT 10.66 1 EXHIBIT 10.66 CODE-ALARM, INC. 1997 STOCK OPTION PLAN SECTION 1. PURPOSE; DEFINITIONS. The purpose of the Code-Alarm, Inc. 1997 Stock Option Plan (the "Plan") is to offer to certain employees of Code-Alarm, Inc., a Michigan corporation (the "Corporation") and its subsidiaries, options to acquire equity interests in the Corporation, thereby attracting, retaining and motivating such persons, and strengthening the mutuality of interests between such persons and the Corporation's shareholders. For purposes of the Plan, the following initially capitalized words and phrases shall be defined as set forth below, unless the context clearly requires a different meaning: a. "Affiliate" means, with respect to a person or entity, a person that directly or indirectly controls, or is controlled by, or is under common control with such person or entity. b. "Board" means the Board of Directors of the Corporation, as constituted from time to time. c. "Cause" occurs when the Participant, as determined by the Board: (i) has engaged in any type of disloyalty to the Corporation, including without limitation, fraud, embezzlement, theft, or dishonesty in the course of his employment or engagement, or has otherwise breached any fiduciary duty owed to the Corporation; (ii) has been convicted of a felony; (iii) has disclosed trade secrets or confidential information of the Corporation; (iv) has breached any agreement with or duty to the Corporation in respect of confidentiality, non-disclosure, non- competition or otherwise; or (v) has been terminated for cause pursuant to the terms of his employment agreement with the Corporation. d. "Change of Control" means a merger, reorganization or consolidation involving the Corporation or sale of all or substantially all of the assets of the Corporation, if the shareholders of the Corporation immediately before such merger, reorganization or consolidation or sale of assets do not or will not own directly or indirectly immediately following such merger, reorganization or consolidation or sale of assets, more than fifty percent (50%) of the combined 2 voting power of the outstanding voting securities of the corporation resulting from or surviving such merger, reorganization or consolidation or sale of assets. e. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. f. "Committee" shall mean the Committee appointed by the Board in accordance with Section 2 of the Plan, if one is appointed, in which event in connection with this Plan, the Committee shall possess all of the power and authority of, and shall be authorized to take any and all actions required to be taken hereunder by, and make any and all determinations required hereunder by, the Board. g. "Disability" shall mean a disability of an employee or officer which renders such employee or officer unable to perform the full extent of his duties and responsibilities by reason of his illness or incapacity for 6 months out of any 12-month period; provided that, (i) if an optionee is bound by the terms of an employment agreement between the optionee and the Corporation, whether the optionee is "Disabled" for purposes of the Plan shall be determined in accordance with the procedures set forth in said employment agreement, if such procedures are therein provided; and (ii) an optionee bound by such an employment agreement shall not be determined to be Disabled under the Plan any earlier than he would be determined to be disabled under his employment agreement. "Disabled" shall mean having a Disability. h. "Exchange Act" means the Securities Exchange Act of 1934, as amended. i. "Fair Market Value" means, as of any date: (i) the average of the closing prices of the Stock as reported on the principal nationally recognized stock exchange on which the Stock is traded on the 20 trading days ending with such date; or (ii) if the Stock is not listed or admitted to unlisted trading privileges on a nationally recognized stock exchange, the average of the closing prices of the Stock as reported by The NASDAQ Stock Market on the 20 trading days ending with such date; or (iii) if the Stock is not listed or admitted to unlisted trading privileges on a nationally recognized stock exchange or traded on The NASDAQ Stock Market, then the Fair Market Value shall be determined by the Board acting in its discretion. j. "Non-Employee Director" shall have the meaning set forth in Rule 16b-3(b)(3)promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission so long as such director is also an "outside director" as defined in the rules and regulations under Section 162(m) of the Code. -2- 3 k. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. l. "Participant" means an employee of the Corporation or a Subsidiary to whom an Option is granted pursuant to the Plan. m. "Rules" means Section 16 of the Exchange Act and the regulations promulgated thereunder. n. "Securities Broker" means a registered securities broker acceptable to the Corporation who agrees to effect the cashless exercise of an Option pursuant to Section 5(j) hereof. o. "Stock" means the common stock, without par value, of the Corporation, subject to substitution or adjustment as provided in Section 3(c) hereof. p. "Stock Option" or "Option" means any option to purchase shares of Stock granted pursuant to Section 5 hereof. q. "Subsidiary" means, in respect of the Corporation, a subsidiary corporation, whether now or hereafter existing, as defined in Sections 424(f) and (g) of the Code. SECTION 2. ADMINISTRATION. The Plan shall be administered by the Board. The Board may at any time by a unanimous vote, with each member voting, appoint a Committee consisting of not less than two persons to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe, provided that each Committee member shall be a Non-Employee Director. Members of the Committee shall serve for such period of time as the Board may determine. Members of the Board or the Committee who are eligible for Options or have been granted Options may vote on any matters affecting the administration of the Plan or any Options pursuant to the Plan, except that no such member shall act upon an Option to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or Committee during which action is taken with respect to an Option to himself or herself. From time to time the Board may increase the size of the Committee and appoint additional members thereto (provided such new members are Non-Employee Directors), remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. The Committee shall have full authority to grant to eligible persons under Section 4 Stock Options. In particular, the Committee shall have the authority: a. to select the persons to whom Stock Options may be granted hereunder; -3- 4 b. to determine the number of shares of Stock, if any, to be covered by each such award granted hereunder; c. to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder, including, but not limited to, the share price and any restriction or limitation, any vesting provisions, or any vesting acceleration or forfeiture waiver regarding any Stock Option and/or the shares of Stock relating thereto, or the length of the period following termination of employment of any Participant during which any Stock Option may be exercised, based on such factors as the Committee shall determine, in its sole discretion; d. to determine whether and under what circumstances a Stock Option may be settled in cash or stock; and e. to determine whether and under what circumstances a Stock Option may be exercised without a payment of cash under Section 5(j). The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Option issued under the Plan (and any agreements relating thereto); to amend the terms of any agreement relating to any Option issued under the Plan; and to otherwise supervise the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Option granted in the manner and to the extent it shall deem necessary to carry out the intent of the Plan. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Corporation and Participants. No member of the Committee shall be liable for any good faith determination, act or failure to act in connection with the Plan or any award made under the Plan. SECTION 3. STOCK SUBJECT TO THE PLAN. a. Stock Subject to the Plan. The stock to be subject to Options under the Plan shall be shares of Stock and may be either authorized and unissued shares of Stock or shares of Stock held in the treasury of the Corporation. The maximum number of shares of Stock that may be the subject of Options under the Plan is 1,317,178 and the Corporation shall reserve for the purposes of the Plan, out of its authorized and unissued shares of Stock or out of shares of Stock held in its treasury, or partly out of each, such number of shares. Notwithstanding the foregoing, no individual shall receive Options for more than an aggregate of 925,000 shares of Stock authorized for grant under the Plan. b. Effect of the Expiration or Termination of Options. If and to the extent that an Option granted under the Plan expires, terminates or is canceled or forfeited for any reason without having been exercised in full, the shares of Stock associated with the expired, -4- 5 terminated, canceled or forfeited portion of the Option shall not become available for grant under the Plan. c. Other Adjustment. In the event of any merger, reorganization, consolidation, recapitalization, Stock distribution or dividend, Stock split or combination, or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the number and option price of securities subject to outstanding Options granted under the Plan, as may be determined to be appropriate by the Committee in its sole discretion, provided that the number of securities subject to any Option shall always be a whole number. SECTION 4. ELIGIBILITY. Officers and other employees of the Corporation or its Subsidiaries are eligible to be granted Options under the Plan. SECTION 5. STOCK OPTIONS. Stock Options granted under the Plan shall be Non-Qualified Stock Options. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: a. Option Price. The exercise price per share of Stock purchasable under a Non-Qualified Stock Option shall be $1.88. b. Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years after the date the Option is granted. No Option may be exercised by any person after expiration of the term of the Option. c. Exercisability. Subject to the termination provisions set forth in Sections 5(f) through (h), Stock Options shall vest and be exercisable only upon satisfaction of the following two conditions: (i) Time. Subject to Section 5(i), with respect to the grant of Options under the Plan, 1/3 of the number of shares subject to such Option shall vest and be exercisable three (3) years from the date of grant, a second 1/3 of such shares shall vest and be exercisable four (4) years from the date of grant, and the final 1/3 of such shares shall vest and be exercisable five (5) years from the date of grant. (ii) Stock Price. The Fair Market Value of the Stock (or the price per share to be paid in the event of a Change of Control, as determined by the Committee for purposes of this Section 5(c)(ii)) shall have reached or exceeded the level specified in column (B) below during the time period set forth in column (A) below, measured from the date of adoption of this Plan: -5- 6 A B Up to 1 year $ 2 3/8 1 to 2 years $ 3 2 to 3 years $ 3 7/8 3 to 4 years $ 5 4 to 5 years $ 6 5/8 5 to 6 years $ 8 5/8 After 6 years $11 1/2 d. Method of Exercise. Subject to the exercise provisions under Section 5(c) and the termination provisions set forth in Sections 5(f) through (h), Stock Options may be exercised in whole or in part at any time and from time to time during the term of the Option, by giving written notice of exercise to the Corporation specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by certified or bank check, or such other instrument as the Committee may accept. As determined by the Committee, in its sole discretion, at or after grant, payment in full or in part (but only for whole shares) of the exercise price of a Stock Option may be made in the form of Stock based on the Fair Market Value of the Stock on the date the Option is exercised. No shares of Stock shall be issued upon exercise of an Option until full payment therefor has been made. A Participant shall not have the right to dividends and other rights of a shareholder with respect to shares of Stock subject to the Option until the Participant has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in Section 8(a) hereof. e. Non-transferability of Options. No Stock Option shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, and all Stock Options shall be exercisable, during the Participant's lifetime, only by the Participant or, in the event of his Disability, by his personal representative. f. Termination by Reason of Death. Subject to Section 5(i), if a Participant's service with the Corporation or any Subsidiary terminates by reason of death, any Stock Option held by such Participant may thereafter be exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the Participant under the will of the Participant, for a period expiring (i) at such time as may be specified by the Committee at the time of grant, or (ii) if not specified by the Committee, then one year from the date of death, or (iii) if sooner than the applicable period specified under (i) or (ii) above, then upon the expiration of the stated term of such Stock Option. g. Termination by Reason of Disability. Subject to Section 5(i), if a Participant's service with the Corporation or any Subsidiary terminates by reason of Disability, any Stock Option held by such Participant may thereafter be exercised by the Participant or his personal representative, to the extent it was exercisable at the time of termination, for a period expiring (i) at such time as may be specified by the Committee at the time of grant, or (ii) if not -6- 7 specified by the Committee, then six months from the date of termination of service, or (iii) if sooner than the applicable period specified under (i) or (ii) above, then upon the expiration of the stated term of such Stock Option; provided, however, that if the Participant dies within such period, any unexercised Stock Option held by such Participant shall, at the sole discretion of the Committee, thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of six months from the date of such death (or such other period as may be specified by the Committee) or until the expiration of the stated term of such Stock Option, whichever period is shorter. h. Other Termination. If a Participant's service with the Corporation or any Subsidiary terminates for any reason other than death, Disability, termination for Cause or voluntary termination, any Stock Option held by such Participant may thereafter be exercised by the Participant, to the extent it was exercisable at the time of such termination, for a period expiring (i) thirty (30) days from the date of termination of service, or (ii) if sooner than the applicable period specified under (i) above, then upon the expiration of the stated term of such Stock Option. If a Participant's service terminates for Cause or pursuant to his voluntary termination, any Stock Option held by such Participant shall be deemed to have expired and become non-exercisable on the day prior to the Participant's termination from service. i. Change of Control. All Stock Options outstanding as of the date of a Change of Control shall be deemed to have satisfied the "Time" condition for exercisability of Options set forth in Section 5(c)(i). j. Cashless Exercise. To the extent permitted under the Rules, in the sole discretion of the Committee, the Corporation may cooperate in a "cashless exercise" of an Option. The cashless exercise shall be effected by the Participant delivering to the Securities Broker instructions to sell a sufficient number of shares of Stock to cover the costs and expenses associated therewith. SECTION 6. AMENDMENTS AND TERMINATION. The Board may amend, alter or discontinue the Plan at any time and from time to time, but no amendment, alteration or discontinuation shall be made which would impair the rights of a Participant with respect to a Stock Option which has been granted under the Plan, without the Participant's consent, or which, without the approval of the Corporation's shareholders, would: a. except as expressly provided in the Plan, increase the total number of shares of Stock reserved for the purposes of the Plan; b. change the persons or class of persons eligible to participate in the Plan; or c. extend the maximum option term under Section 5(b) of the Plan. Subject to the above provisions, the Board shall have broad authority to amend the Plan to take into account changes in applicable tax laws and accounting rules, as well as other developments. Notwithstanding the foregoing, no amendment to the Plan may be made by the -7- 8 Board without the approval of the Corporation's shareholders if such approval would be required under the Rules in order to ensure that transactions effected under the Plan are eligible for the benefit of Rule 16b-3. SECTION 7. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or optionee by the Corporation, nothing contained herein shall give any such Participant or optionee any rights that are greater than those of a general creditor of the Corporation. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of Stock hereunder. SECTION 8. GENERAL PROVISIONS. a. The Committee may require each person acquiring Stock under the Plan to represent to and agree with the Corporation in writing that the Participant is acquiring the Stock for investment purposes and without a view to distribution thereof and as to such other matters as the Committee believes are appropriate to ensure compliance with applicable Federal and state securities laws. The certificate evidencing such award and any securities issued pursuant thereto may include any legend which the Committee deems appropriate to reflect any restrictions on transfer and compliance with securities laws. All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities Act of 1933, as amended, the Exchange Act, any stock exchange upon which the Stock is then listed, and any other applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. b. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. c. The adoption of the Plan shall not confer upon any employee of the Corporation or a Subsidiary any right to continued employment with the Corporation or such Subsidiary, nor shall it interfere in any way with the right of the Corporation or such Subsidiary to terminate the employment of any of its employees at any time. d. No later than the date as of which an amount first becomes includable in the gross income of the Participant for Federal income tax purposes with respect to any Option under the Plan, the Participant shall pay to the Corporation, or make arrangements satisfactory to the Committee regarding the payment, of any Federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, the minimum required withholding obligations may be settled with Stock, including Stock that is -8- 9 part of the award that gives rise to the withholding requirement. The obligations of the Corporation under the Plan shall be conditional on such payment or arrangements and the Corporation shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. e. The Plan and all Options granted and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Michigan. SECTION 9. EFFECTIVE DATE OF PLAN. This Plan shall become effective on the date that it is adopted by the Board. The Board may grant Options hereunder prior to approval of the Plan or any material amendments thereto by the holders of a majority of the Corporation's outstanding voting stock. Notwithstanding the foregoing, no Option granted under this Plan may be exercised prior to the satisfaction of the following condition: the Corporation's adoption of a Charter Amendment increasing the Corporation's authorized shares of common stock to 20 million. SECTION 10. TERM OF PLAN. No Stock Option shall be granted pursuant to the Plan on or after the tenth (10th) anniversary of the date of shareholder approval of the Plan, but awards granted prior to such tenth (10th) anniversary may extend beyond that date. Executed this ____ day of ______________________, 1997. [CORPORATE SEAL] CODE-ALARM, INC. Attest: _______________________ By:________________________________ -9- EX-10.67 31 EXHIBIT 10.67 1 EXHIBIT 10.67 October 27, 1997 Pegasus Partners, L.P. Pegasus Related Partners, L.P. 99 River Road Cos Cob, Connecticut 06807 Code Alarm, Inc. 950 East Whitcomb Madison Heights, MI 48071 Gentlemen: We refer to the Unit Purchase Agreement dated as of the date hereof among Code Alarm, Inc. (the "Company"), Pegasus Partners, L.P. and Pegasus Related Partners, L.P. (the "Purchase Agreement"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Purchase Agreement. This letter agreement is being delivered to each of you pursuant to Section 3.01(o) of the Purchase Agreement. In order to induce the Purchasers to enter into the Purchase Agreement and related documents, each of the undersigned, other than the Kenneth M. Mueller Charitable Remainder Unitrust, hereby agrees that he or it will not at any time or from time to time, directly or indirectly, offer, sell, offer to sell, contract to sell, or otherwise sell or dispose of, in the aggregate, a number of shares of Common Stock in excess of twenty percent (20%) of the shares of Common Stock beneficially owned by such party as of the date hereof; provided, that during any 12-month period, the Robyn L. Mueller Trust shall be entitled to sell up to 20% of the shares of Common Stock beneficially owned by it at the beginning of such 12-month period. The obligations of each of the undersigned pursuant to this paragraph shall be null and void and of no further force and effect upon the earlier of (i) the fifth anniversary of the date hereof and (ii) the date on which the Purchasers no longer hold, together with their successors and assigns, at least 25% of the Units initially issued to them pursuant to the Purchase Agreement (for purposes of this calculation, Units, the Attached Warrants of which have been exercised for shares of Common Stock which are still held by the party who exercised such Attached Warrants shall be counted as Units held by such exercising party). Each of the undersigned hereby agrees that he or it will vote all of the shares of Common Stock beneficially owned by him or it in favor of approval of the Charter Amendment, at any and all meetings at which the Charter Amendment is presented to shareholders for approval, until the Charter Amendment is approved by the Company's shareholders. Each of the undersigned, individually and not jointly, represents and warrants with respect to himself or itself that he or it is the beneficial owner of the number of shares of Common Stock set forth opposite his or its name on Annex A hereto, free and clear of any 2 security interests, liens, charges, encumbrances, equities, claims, options (other than pledges pursuant to commercially customary brokers margin accounts) or limitations of whatever nature and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such shares), other than those arising under the Securities Act of 1933, as amended, and applicable state securities laws. Very truly yours, ROBYN L. MUELLER TRUST By: /s/ Robyn L. Mueller ------------------------------------- Robyn L. Mueller, Trustee KENNETH M. MUELLER CHARITABLE REMAINDER UNITRUST By: /s/ Kenneth M. Mueller ------------------------------------- Kenneth M. Mueller, Trustee /s/ Rand Mueller ----------------------------------------- Rand W. Mueller Accepted and Agreed: PEGASUS PARTNERS, L.P. By: /s/ Richard M. Cion ---------------------------------- Name: Richard M. Cion Title: Vice President - Pegasus Investors GP, Inc. PEGASUS RELATED PARTNERS, L.P. By: /s/ Richard M. Cion ---------------------------------- Name: Richard M. Cion Title: Vice President - Pegasus Investors GP, Inc. CODE ALARM INC. By: /s/ Rand Mueller ---------------------------------- Name: Rand Mueller Title: President 3 ANNEX A NO. OF SHARES OF PERCENTAGES OF SHAREHOLDER COMMON STOCK OWNED SHARES OWNED ----------- ------------------ -------------- Rand W. Mueller 11,250(1) less than 1% Kenneth M. Mueller 120,793(2) 5.204% Charitable Remainder Unitrust Robyn L. Mueller Trust 538,810 23.216% - -------------- (1) Includes 11,250 shares of Common Stock to which Rand M. Mueller has the right to acquire beneficial ownership, within 60 days, by the exercise of options granted under the Company's 1987 Stock Option plan. (2) Includes 750 shares of Common Stock to which Kenneth M. Mueller has the right to acquire beneficial ownership, within 60 days, by the exercise of options granted under the Company's 1987 Stock Option plan. EX-10.68 32 EXHIBIT 10.68 1 EXHIBIT 10.68 AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT This agreement, made as of the 20th day of May, 1997 (the effective date), by and between Code Alarm, Inc. a Michigan corporation, (hereinafter referred to as the "Company") and Rand W. Mueller residing at Bloomfield Hills, Michigan (hereinafter referred to as the Executive); WITNESSETH WHEREAS, the Executive and the company desire to EXTEND the agreement concerning the terms and conditions of the Executive's employment by the company for a specified term. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the company and the Executive agree as follows: 1. PARAGRAPH 1 of the agreement is amended and restated as follows: The company hereby employs the Executive to perform executive services for the company as hereinafter provided and the Executive hereby accepts such employment and agrees to render such services to the company on terms and conditions set forth in this agreement for an employment term commencing the effective date of this agreement and terminating on May 31, 2001, or in accordance with the provisions of paragraph 7 hereof, unless earlier terminated pursuant to paragraph 6 of this agreement. If the Company does not give written notice to the Executive prior to May 31, 1999 that his employment will not be continued after May 31, 2001, then the term of his employment hereunder shall be extended for an additional 12 months to May 31, 2002, and shall annually be extended for additional consecutive 12 month periods unless the Company shall gave given written notice to the Executive at least 24 months prior to the expiration of the then current term of his employment. 2. All other terms of the original and amended Employment Agreement shall remain unchanged. IN WITNESS WHEREOF, the parties thereto have caused this amendment to be duly accepted and ratified. CODE ALARM, INC. By: /Craig Camalo -------------------------- Craig Camalo Vice President of Finance, Secretary and Treasurer /Rand W. Mueller -------------------------- Rand W. Mueller 2 AMENDMENT NO. 5 TO EMPLOYMENT AGREEMENT This Amendment No. 5 (the "Amendment") to the Employment Agreement dated as of May 29, 1987, as amended, between Code-Alarm, Inc. a Michigan corporation ("Company") and Rand W. Mueller (the "Executive") (the "Employment Agreement") is dated as of October 15, 1997. Recitals: A. The Company and Executive are parties to the Employment Agreement, pursuant to which the Executive is employed by the Company for the consideration stated therein. B. The Company and the Executive desire to amend the Compensation and Benefits section of the Agreement as set forth in this Amendment. NOW, THEREFORE, the parties agrees that the Employment Agreement is hereby amended as follows: 1. Paragraph 3 of the Agreement is amended to read in its entirety as follows: Commencing on October 1, 1997, and continuing during the Employment Term, Executive shall be paid a salary by Company of $500,000 per annum, payable in monthly installments. During the Employment Term, the Company will provide Executive with the perquisites comparable to those which have been provided to him heretofore as an employee of the Company. Executive shall be entitled to participate in those of the Company's benefit plans for which he is eligible. During the Employment Term, the Company will pay Executive an annual incentive bonus, in addition to his salary, equal to five (5) percent of Operating Income (pre-bonus and pre-interest and pre-taxes) after the first five million dollars ($5,000,000) of Operating Income, as shown by the audited financial statement sent to the shareholders of the Company, payable within sixty (60) days after the end of the calendar year; provided, however, that the Board of Directors of the Company may allow Executive, not more often than quarterly, to draw of up seventy (70) percent of the Executive's projected bonus based upon the year-to-date results of the operations of the Company. 2. This Amendment shall be governed by and construed in accordance with the laws of the State of Michigan. 3. In all respects not inconsistent with the terms and provisions of this Amendment, the Employment Agreement is hereby ratified, adopted, approved and confirmed. 4. All other terms of the original and amended Employment Agreement shall remain unchanged. 3 IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date set forth above. CODE-ALARM, INC. By: /s/ Craig S. Camalo ----------------------------- Craig S. Camalo Vice President of Finance, Secretary and Treasurer /s/ Rand W. Mueller ----------------------------------- Rand W. Mueller EX-10.69 33 EXHIBIT 10.69 1 EXHIBIT 10.69 EMPLOYMENT AGREEMENT This agreement made as of the 20th day of May, 1997 (the effective date), by and between Code Alarm, Inc. a Michigan corporation, (hereinafter referred to as the "Company") and Craig S. Camalo residing Ann Arbor, Michigan. (hereinafter referred to the Executive); WITNESSETH WHEREAS, the Executive and the company desire to enter into an agreement concerning the terms and conditions of the Executive's employment by the company for a specified term. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the company and the Executive agree as follows: 1. EMPLOYMENT TERM The company hereby employs the Executive to perform executive services for the company as hereinafter provided and the Executive hereby accepts such employment and agrees to render such services to the Company on terms and conditions set forth in this agreement for an employment term commencing the effective date of this agreement and terminating on May 31, 2001, or in accordance with the provisions of paragraph 7 hereof, unless earlier terminated pursuant to paragraph 6 of this agreement. If the Company does not give written notice to the Executive prior to May 31, 1999 that his employment will not be continued after May 31, 2001, then the term of his employment hereunder shall be extended for an additional 12 months to May 31, 2002, and shall annually be extended for additional consecutive 12 month period unless the Company shall have given written notice to the Executive at least 24 months prior to the expiration of the then current term of his employment. 2. DUTIES DURING THE EMPLOYMENT TERM Executive's position with the Company during the Employment Term shall be as Vice President Finance and Chief Financial Officer. Executive shall have general and active management of all of the Finance, Information Technology, and Administrative affairs for the Company and shall see that all orders of the CEO and the Board of Directors of the Company are carried into effect. Executive will also fulfill such other reasonable and proper management duties as may be assigned to him by the CEO of the Company. During the Employment Term the Executive shall devote his best efforts, including his full business time, to affairs of the Company. Executive shall not, without prior written consent, engage in any other business activity except for personal investments in a passive capacity. 2 3. COMPENSATION AND BENEFITS. During the Employment Term the Executive will be paid a salary of not less than $100,000 per year, payable in 26 installments per year. The Company will also pay the executive an annual incentive bonus in addition to his salary equal to 1% of the first $1M of operating income, and 2% of all additional operating income as reported in the Company's annual report. The Company may allow the Executive to draw up to 75% of the accrued bonus not more often than quarterly within 45 days after the end of each quarter upon the release of the Company's form 10Q indicating the operating income achieved cumulative through that quarter. The Executive will also receive, or be entitled to, at least the same benefits, perquisites and vacation he now receives, including company car and expenses. The Executive will also be entitled to receive a bonus based on the increase in Company's Shareholder value. The first time only, after the effective date of this agreement, that the common stock price of Code Alarm, Inc. exceeds $10 and remains at or above $10 for 30 consecutive days, and for each additional $10 incremental increase in the stock price which remains at or above that level for 30 consecutive days, the Company will pay the Executive a bonus equal to the annual base salary of the Executive prevailing at that time. The bonus will be payable in 3 equal installments, the first immediately when it is earned, the 2nd after 12 months, and the 3rd after an additional 12 months. If the Executive shall not be employed by the Company, for any reason at the time that any bonus installment is due, the remaining installments will be forfeited by the Executive. 4. EXPENSES During the Employment Term, the Executive shall be entitled to reimbursement of all reasonable expenses incurred in connection with the business of the Company. 5. DISABILITY In the event of disability of the Executive, the Company may elect, by giving written notice, to terminate the Employment Term. "Disability" shall be as defined by the Social Security Administration. 6. TERMINATION FOR CAUSE At any time during the Employment Term, the Company shall have the right to terminate the Executive for cause with 10 days prior written notice. Cause shall mean any conduct by the Executive which (1) constitutes a felony, fraud or gross malfeasance on the part of the Executive (ii) results in a material breach of the Executive's obligations under this agreement (iii) results in willful neglect of the Executive's duties hereunder. 7. TERMINATION WITHOUT CAUSE -2- 3 The Employment Term of this agreement may be terminated without cause by (a) the death of the Executive or (b) disability of the Executive as provided in paragraph 5 hereof. 8. SEVERANCE If the Company terminates Executive, Executive shall be entitled to continuation of all salary and benefits, including company car and expenses for 18 months, and recovery of all legal fees and expenses if Executive succeeds in litigation with the Company for any issue related to the termination. 9. COMPETITION During, the Employment Term and for a period of six (6) months following the termination of this agreement, the Executive will not, without prior written consent from the company, engage in any business which is in direct or indirect competition with the Company as a consultant, employee, director, partner, or any other capacity. A breach of this commitment by the Executive shall result in immediate termination of any and all future obligations under this agreement by the Company. During, the Employment Term and for a period of six (6) months following the termination of this agreement, the Executive will not, without prior written consent from the Company, divulge to others customer lists, business methods, samples, patterns, engineering designs, artwork, plans, inventions, distribution or dealer information, or any other confidential information of the Company, solicit or accept any accounts of the Company, or induce employees of the Company to accept employment elsewhere. Executive acknowledges and agrees that by virtue of his position with the Company he will have intimate knowledge of the activities and affairs of the Company, including trade secrets and other confidential information. As a result, and also because of the unique and extraordinary services the Executive is capable of performing for the Company, or it's competitors, the Executive recognizes that the services to be rendered are of a special character and have a peculiar value which cannot be adequately compensated by damages alone. Executive therefore agrees that if he renders services to a competitor of the Company, the Company shall be entitled to immediate injunctive relief to restrain the Executive from rendering his services to any competitor of the Company in addition to any other remedies which the Company may be entitled by law. Executive will not remove or retain, or make copies of any figures, calculations letters, papers or information relating to business of the Company or its affiliates. The Company shall be the sole and exclusive owner of all of the ideas and suggestions made by the Executive to the Company during the course of his employment, whether or not they are subject to patent or trademark protection, and all materials which relate to the business which are confidential. 10. BINDING AGREEMENT; ASSIGNMENT -3- 4 This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, heirs, legatees, devises, legal representatives, successors and assigns. Neither this agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other except that the Company may assign this agreement to any business entity succeeding to substantially all of the business or the assets of the Company. Options granted Executive March 27, 1997 (20,000 Options) will immediately vest 100% if there is a substantial change in ownership or control in the Company, merger, combination, after completion of Pegasus/GECC refinancing, or Executive is terminated for any reason. 11. VALIDITY In the event that any provision of this agreement is held invalid or unenforceable, the same shall not affect in any respect whatsoever the validity of the remainder of this agreement. 12. ENTIRE AGREEMENT; AMENDMENT This agreement constitutes the entire agreement, between the parties and supersedes all prior negotiations and agreements. There are no representations, promises, terms, conditions, warranties, understandings, commitments between the parties other than those expressly set forth herein. This agreement cannot be modified except in writing executed by both parties. 13. WAIVER Neither a waiver by either party hereto of a breach or a default under any provision of this agreement, nor the failure of either party to enforce any provision or exercise any right remedy or privilege hereunder shall be construed as a waiver of any such provision hereunder. 14. LIMITATIONS ON BENEFITS OF THIS AGREEMENT It is the explicit intention of the parties hereto that no person or entity other than the parties hereto shall be entitled to bring any action to enforce any provision of this agreement except either party hereto and that this agreement shall be solely for the benefit of the parties hereto. 15. NOTICES Any notice must be in writing and delivered by first-class or certified mail to the party's address listed below or any such new address as may be specified by written notice. -4- 5 The Company: The Executive: Code Alarm, Inc. 3584 Creekside Drive 950 East Whitcomb Ann Arbor, MI 48105 Madison Heights, MI 48071 16. GOVERNING LAW This agreement, the rights and obligations hereunder, and any claims or disputes relating thereto, shall be governed by and construed under the laws of the State of Michigan. 17. COUNTERPARTS This agreement may be executed in two or more counterparts each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Company has caused this agreement to be duly executed on its behalf and the Executive has duly executed this agreement as of the date first written above. CODE ALARM, INC. /s/ Craig S. Camalo ---------------------------- By: /s/ Rand Mueller --------------------- Its: President --------------------- ----------------------------- -5- EX-10.70 34 EXHIBIT 10.70 1 EXHIBIT 10.70 EMPLOYMENT AGREEMENT This agreement, made as of the 20th day of May, 1997 (the effective date), by and between Code Alarm, Inc. a Michigan corporation, (hereinafter referred to as the "Company") and Peter Stouffer residing in Clarkston, Michigan. (hereinafter referred to as the Executive); WITNESSETH WHEREAS, the Executive and the company desire to enter into an agreement concerning the terms and conditions of the Executive's employment by the company for a specified term. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the company and the Executive agree as follows: 1. EMPLOYMENT TERM The company hereby employs the Executive to perform executive services for the company as hereinafter provided and the Executive hereby accepts such employment and agrees to render such services to the Company on terms and conditions set forth in this agreement for an employment term commencing the effective date of this agreement and terminating on May 31, 2001, or in accordance with the provisions of paragraph 7 hereof, unless earlier terminated pursuant to paragraph 6 of this agreement. If the Company does not give written notice to the Executive prior to May 31, 1999 that his employment will not be continued after May 31, 2001, then the term of his employment hereunder shall be extended for an additional 12 months to May 31, 2002, and shall annually be extended for additional consecutive 12 month period unless the Company shall have given written notice to the Executive at least 24 months prior to the expiration of the then current term of his employment. 2. DUTIES DURING THE EMPLOYMENT TERM Executive's position with the Company during the Employment Term shall be as Vice President of Manufacturing and Engineering. Executive shall have general and active management of all of the manufacturing, engineering and purchasing affairs for the Company and shall see that all orders of the CEO and the Board of Directors of the Company are 2 carried into effect. Executive will also fulfill such other reasonable and proper management duties as may be assigned to him by the CEO of the Company. During the Employment Term the Executive shall devote his best efforts, including his full business time, to affairs of the Company. Executive shall not, without prior written consent, engage in any other business activity except for personal investments in a passive capacity. 3. COMPENSATION AND BENEFITS. During the Employment Term the Executive will be paid a salary of not less than $105,000 per year, payable in 26 installments per year. The Company will also pay the Executive an annual incentive bonus in addition to his salary equal to 1% of the first $1M of operating income, and 2% of all additional operating income as reported in the Company's annual report. The Company may allow the Executive to draw up to 75% of the accrued bonus not more often than quarterly within 45 days after the end of each quarter upon the release of the Company's form 10Q indicating the operating income achieved cumulative through that quarter. The Executive will also be entitled to participate in benefits and perquisites for which he is eligible. The Executive will also be entitled to receive a bonus based on the increase in Company's Shareholder value. The First time only , after the effective date of this agreement ,that the common stock price of Code Alarm, Inc. exceeds $10 and remains at or above $10 for 30 consecutive days, and for each additional $10 incremental increase in the stock price which remains at or above that level for 30 consecutive days, the Company will pay the Executive a bonus equal to the annual base salary of the Executive prevailing at that time. The bonus will be payable in 3 equal installments, the first immediately when it is earned, the 2nd after 12 months, and the 3rd after an additional 12 months. If the Executive shall not be employed by the Company, for any reason ,at the time that any bonus installment is due, the remaining installments will be forfeited by the Executive. 4. EXPENSES. During the Employment Term, the Executive shall be entitled to reimbursement of all reasonable expenses incurred in connection with the business of the Company. 5. DISABILITY 3 In the event of disability of the Executive, the Company may elect, by giving written notice, to terminate the Employment Term. "Disability" shall be as defined by the Social Security Administration. 6. TERMINATION FOR CAUSE At any time during the Employment Term, the Company shall have the right to terminate the Executive for cause with 10 days prior written notice. Cause shall mean any conduct by the Executive which (I) constitutes a felony, fraud or gross malfeasance on the part of the Executive (ii) results in a material breach of the Executive's obligations under this agreement (iii) results in willful neglect of the Executive's duties hereunder. 7. TERMINATION WITHOUT CAUSE. The Employment Term of this agreement may be terminated without cause by (a) the death of the Executive or (b) disability of the Executive as provided in paragraph 5 hereof. 8. COMPETITION During the Employment Term and for a period of two (2) years following the termination of this agreement, the Executive will not , without prior written consent from the company, engage in any business which is in direct or indirect competition with the Company as a consultant, employee, director, partner, or any other capacity. A breach of this commitment by the Executive shall result in immediate termination of any and all future obligations under this agreement by the Company. During the Employment Term and for a period of two (2) years following the termination of this agreement, the Executive will not, without prior written consent from the Company, divulge to others customer lists, business methods, samples, patterns, engineering designs, artwork, plans, inventions, distribution or dealer information, or any other confidential information of the Company, solicit or accept any accounts of the Company, or induce employees of the Company to accept employment elsewhere. Executive acknowledges and agrees that by virtue of his position with the Company he will have intimate knowledge of the activities and affairs of the Company, including trade secrets and other confidential information. As a result , and also because of the unique and extraordinary services the Executive is capable of performing for the Company, or its competitors, the Executive recognizes that the services 4 to be rendered are of a special character and have a peculiar value which cannot be adequately compensated by damages alone. Executive therefore agrees that if he renders services to a competitor of the Company, the Company shall be entitled to immediate injunctive relief to restrain the Executive from rendering his services to any competitor of the Company in addition to any other remedies which the Company may be entitled by law. Executive will not remove or retain, or make copies of any figures, calculations letters, papers or information relating to business of the Company or its affiliates. The Company shall be the sole and exclusive owner of all of the ideas and suggestions made by the Executive to the Company during the course of his employment, whether or not they are subject to patent or trademark protection, and all materials which relate to the business which are confidential. 9. BINDING AGREEMENT ; ASSIGNMENT This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, heirs, legatees, devisees, legal representatives, successors and assigns. Neither this agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other except that the Company may assign this agreement to any business entity succeeding to substantially all of the business or the assets of the Company. 10. VALIDITY In the event that any provision of this agreement is held invalid or unenforceable, the same shall not affect in any respect whatsoever the validity of the remainder of this agreement. 11. ENTIRE AGREEMENT ; AMENDMENT This agreement constitutes the entire agreement between the parties and supersedes all prior negotiations and agreements. There are no representations, promises, terms, conditions, warranties, understandings, commitments between the parties other than those expressly set forth herein. This agreement cannot be modified except in writing executed by both parties. 12. WAIVER 5 Neither a waiver by either party hereto of a breach or a default under any provision of this agreement, nor the failure of either party to enforce any provision or exercise any right remedy or privilege hereunder shall be construed as a waiver of any such provision hereunder. 13. LIMITATIONS ON BENEFITS OF THIS AGREEMENT It is the explicit intention of the parties hereto that no person or entity other than the parties hereto shall be entitled to bring any action to enforce any provision of this agreement except either party hereto and that this agreement shall be solely for the benefit of the parties hereto. 14. NOTICES Any notice must be in writing and delivered by first-class or certified mail to the party's address listed below or any such new address as may be specified by written notice. The Company: The Executive: Code Alarm, Inc. Peter Stouffer 950 East Whitcomb 9892 Creekwood Trail Madison Heights, MI 48071 Davisburg, MI 48350 15. GOVERNING LAW This agreement , the rights and obligations hereunder, and any claims or disputes relating thereto, shall be governed by and construed under the laws of the State of Michigan. 16. COUNTERPARTS This agreement may be executed in two or more counterparts each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement. 6 IN WITNESS WHEREOF, the Company has caused this agreement to be duly executed on its behalf and the Executive has duly executed this agreement as of the date first written above. CODE ALARM, INC. /Peter Stouffer August 11, 1997 By:/Rand Mueller ------------- Its: President and CEO EX-10.71 35 EXHIBIT 10.71 1 EXHIBIT 10.71 EMPLOYMENT AGREEMENT This agreement, made as of the 20th day of May, 1997 (the effective date), by and between Code Alarm, Inc. a Michigan corporation, (hereinafter referred to as the "Company") and Michael Schroeder residing in Mt. Clemens, Michigan. (hereinafter referred to as the Executive); WITNESSETH WHEREAS, the Executive and the company desire to enter into an agreement concerning the terms and conditions of the Executive's employment by the company for a specified term. NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the company and the Executive agree as follows: 1. EMPLOYMENT TERM The company hereby employs the Executive to perform executive services for the company as hereinafter provided and the Executive hereby accepts such employment and agrees to render such services to the Company on terms and conditions set forth in this agreement for an employment term commencing the effective date of this agreement and terminating on May 31, 2001, or in accordance with the provisions of paragraph 7 hereof, unless earlier terminated pursuant to paragraph 6 of this agreement. If the Company does not give written notice to the Executive prior to May 31, 1999 that his employment will not be continued after May 31, 2001, then the term of his employment hereunder shall be extended for an additional 12 months to May 31, 2002, and shall annually be extended for additional consecutive 12 month period unless the Company shall have given written notice to the Executive at least 24 months prior to the expiration of the then current term of his employment. 2. DUTIES DURING THE EMPLOYMENT TERM Executive's position with the Company during the Employment Term shall be as Vice President of Sales and Marketing. Executive shall have general and active management of all of the sales and marketing affairs 2 for the Company and shall see that all orders of the CEO and the Board of Directors of the Company are carried into effect. Executive will also fulfill such other reasonable and proper management duties as may be assigned to him by the CEO of the Company. During the Employment Term the Executive shall devote his best efforts, including his full business time, to affairs of the Company. Executive shall not, without prior written consent, engage in any other business activity except for personal investments in a passive capacity. 3. COMPENSATION AND BENEFITS. During the Employment Term the Executive will be paid a salary of not less than $90,000 per year, payable in 26 installments per year. The Company will also pay the Executive an annual incentive bonus in addition to his salary equal to 1% of the first $1M of operating income, and 2% of all additional operating income as reported in the Company's annual report. The Company may allow the Executive to draw up to 75% of the accrued bonus not more often than quarterly within 45 days after the end of each quarter upon the release of the Company's form 10Q indicating the operating income achieved cumulative through that quarter. The Executive will also be entitled to participate in benefits and perquisites for which he is eligible. The Executive will also be entitled to receive a bonus based on the increase in Company's Shareholder value. The First time only , after the effective date of this agreement ,that the common stock price of Code Alarm, Inc. exceeds $10 and remains at or above $10 for 30 consecutive days, and for each additional $10 incremental increase in the stock price which remains at or above that level for 30 consecutive days, the Company will pay the Executive a bonus equal to the annual base salary of the Executive prevailing at that time. The bonus will be payable in 3 equal installments, the first immediately when it is earned, the 2nd after 12 months, and the 3rd after an additional 12 months. If the Executive shall not be employed by the Company, for any reason ,at the time that any bonus installment is due, the remaining installments will be forfeited by the Executive. 4. EXPENSES. During the Employment Term, the Executive shall be entitled to reimbursement of all reasonable expenses incurred in connection with the business of the Company. 5. DISABILITY 3 In the event of disability of the Executive, the Company may elect, by giving written notice, to terminate the Employment Term. "Disability" shall be as defined by the Social Security Administration. 6. TERMINATION FOR CAUSE At any time during the Employment Term, the Company shall have the right to terminate the Executive for cause with 10 days prior written notice. Cause shall mean any conduct by the Executive which (I) constitutes a felony, fraud or gross malfeasance on the part of the Executive (ii) results in a material breach of the Executive's obligations under this agreement (iii) results in willful neglect of the Executive's duties hereunder. 7. TERMINATION WITHOUT CAUSE. The Employment Term of this agreement may be terminated without cause by (a) the death of the Executive or (b) disability of the Executive as provided in paragraph 5 hereof. 8. COMPETITION During the Employment Term and for a period of two (2) years following the termination of this agreement, the Executive will not , without prior written consent from the company, engage in any business which is in direct or indirect competition with the Company as a consultant, employee, director, partner, or any other capacity. A breach of this commitment by the Executive shall result in immediate termination of any and all future obligations under this agreement by the Company. During the Employment Term and for a period of two (2) years following the termination of this agreement, the Executive will not, without prior written consent from the Company, divulge to others customer lists, business methods, samples, patterns, engineering designs, artwork, plans, inventions, distribution or dealer information, or any other confidential information of the Company, solicit or accept any accounts of the Company, or induce employees of the Company to accept employment elsewhere. Executive acknowledges and agrees that by virtue of his position with the Company he will have intimate knowledge of the activities and affairs of the Company, including trade secrets and other confidential information. As a result , and also because of the unique and extraordinary services the Executive is capable of performing for the Company, or it's competitors, the Executive recognizes that the services 4 to be rendered are of a special character and have a peculiar value which cannot be adequately compensated by damages alone. Executive therefore agrees that if he renders services to a competitor of the Company, the Company shall be entitled to immediate injunctive relief to restrain the Executive from rendering his services to any competitor of the Company in addition to any other remedies which the Company may be entitled by law. Executive will not remove or retain, or make copies of any figures, calculations letters, papers or information relating to business of the Company or its affiliates. The Company shall be the sole and exclusive owner of all of the ideas and suggestions made by the Executive to the Company during the course of his employment, whether or not they are subject to patent or trademark protection, and all materials which relate to the business which are confidential. 9. BINDING AGREEMENT ; ASSIGNMENT This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, heirs, legatees, devisees, legal representatives, successors and assigns. Neither this agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other except that the Company may assign this agreement to any business entity succeeding to substantially all of the business or the assets of the Company. 10. VALIDITY In the event that any provision of this agreement is held invalid or unenforceable, the same shall not affect in any respect whatsoever the validity of the remainder of this agreement. 11. ENTIRE AGREEMENT ; AMENDMENT This agreement constitutes the entire agreement between the parties and supersedes all prior negotiations and agreements. There are no representations, promises, terms, conditions, warranties, understandings, commitments between the parties other than those expressly set forth herein. This agreement cannot be modified except in writing executed by both parties. 12. WAIVER 5 Neither a waiver by either party hereto of a breach or a default under any provision of this agreement, nor the failure of either party to enforce any provision or exercise any right remedy or privilege hereunder shall be construed as a waiver of any such provision hereunder. 13. LIMITATIONS ON BENEFITS OF THIS AGREEMENT It is the explicit intention of the parties hereto that no person or entity other than the parties hereto shall be entitled to bring any action to enforce any provision of this agreement except either party hereto and that this agreement shall be solely for the benefit of the parties hereto. 14. NOTICES Any notice must be in writing and delivered by first-class or certified mail to the party's address listed below or any such new address as may be specified by written notice. The Company: The Executive: Code Alarm, Inc. Michael Schroeder 950 East Whitecomb 27850 Lauren Street East Madison Heights, MI 48071 Mt. Clemens, MI 48045 15. GOVERNING LAW This agreement , the rights and obligations hereunder, and any claims or disputes relating thereto, shall be governed by and construed under the laws of the State of Michigan. 16. COUNTERPARTS This agreement may be executed in two or more counterparts each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement. 6 IN WITNESS WHEREOF, the Company has caused this agreement to be duly executed on its behalf and the Executive has duly executed this agreement as of the date first written above. CODE ALARM, INC. /Michael Schroeder ------------------ By: /Rand Mueller ------------- Its:President and CEO EX-10.72 36 EXHIBIT 10.72 1 EXHIBIT 10.72 CODE-ALARM, INC. 950 E. WHITCOMB DRIVE MADISON HEIGHTS, MICHIGAN 48071 October 1, 1997 Mr. Kenneth M. Mueller 10594 Springmill Lane Perrysburg, OH 43551 Dear Mr. Mueller: This letter will confirm our current understanding relative to the special services which you have agreed to continue to perform for Code-Alarm, Inc. (" Code-Alarm"). You have been performing consultant services, as further defined below, for Code-Alarm under a letter agreement by and between yourself and Code-Alarm dated August 24, 1987 (the "Letter Agreement"). The Letter Agreement was extended beyond its original expiration date to the present time by oral agreement between you and Code-Alarm. Through your execution and return of this letter, you acknowledge the termination of the Letter Agreement and payment in full by Code-Alarm of all amounts owing thereunder to you by Code-Alarm. The terms and conditions of this letter supersede all prior written and oral agreements between yourself and Code-Alarm regarding the continuation of your consulting services with Code-Alarm. Code-Alarm hereby agrees to continue to engage you, effective as of October 1, 1997, as an independent contractor to serve Code-Alarm as a consultant in connection with all aspects of its business, including without limitation the development of public relations and special projects. You have agreed to continue to serve as a member of the Board of Directors of Code-Alarm. Your services as a director will not be separately compensated, your only compensation being that hereinafter provided for your consulting services. Your consulting services hereunder shall be subject to the overall direction and control of the Board of Directors of Code-Alarm. Your consulting services hereunder, plus attendance at directors meetings, shall obligate you to devote no more than three (3) days per week. For such services during the Stated Term of this Agreement (as defined below) you shall be paid at the rate of $14,000.00 per year by Code-Alarm. Any change in the rate of payment upon any extension of the Stated Term of this agreement must be agreed upon in writing by the parties prior to the beginning of such extension. All payments shall be made quarterly, in arrears. No finder's fees or commissions or any other 2 compensation are payable to you in connection with any services rendered hereunder unless such fee is payable by virtue of a specific prior written agreement relating thereto. This agreement will be effective as of October 1, 1997 and shall continue until September 30, 2000 (the "Stated Term"). The Stated Term shall automatically be extended for successive 12-month periods commencing on October 1 of each year following each September 30 on which the Stated Term otherwise would expire. Notwithstanding the foregoing, either party may terminate this agreement during or at the end of the Stated Term, including any extension thereof, if that party has given written notice of termination in writing to the other party of its decision to terminate this agreement at least ninety days prior to the date of termination. In the event of termination by either party or your death during the Stated Term, or during any extension of the Stated Term, you, or your estate, as the case may be, shall be entitled to compensation at the annual rate hereinabove specified (including any agreed upon changes) for the period up to such termination or death on a pro rata basis. You understand that it will be your responsibility to report and pay federal and state self-employment taxes which, by law, may be required in connection with your services hereunder and any taxes of a similar nature imposed by any governmental authority. Your reasonable travel and other business expenses incurred in connection with the performance of services hereunder will be reimbursed to you upon presentation of properly authenticated statements of such expenses. You agree to maintain in confidence all confidential information, data, records, reports, and business plans made available to you in connection with performance of the services hereunder and upon termination of this agreement to return all such items to Code-Alarm. We would appreciate your acknowledgment that the foregoing correctly sets forth the agreement and understanding between you and Code-Alarm by signing but the original and duplicate copy of this letter and returning the original to us. The duplicate copy is for your files. Sincerely yours, CODE-ALARM, INC. By: /s/ Rand Mueller ------------------------------- Rand W. Mueller, President I acknowledge receipt of and agreement to the foregoing letter agreement. Kenneth M. Mueller Date: /s/ Kenneth M. 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